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SECURITIES AND EXCHANGE COMMISSION
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Delaware | 13-3317783 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(ALL OF WHICH ARE LISTED ON THE NEW YORK STOCK EXCHANGE INC.):
Common Stock, par value $0.01 per share
Depositary shares, representing interests in 7.25% Mandatory Convertible Preferred Stock, Series F, par value $0.01 per share
Warrants (expiring June 26, 2019)
6.10% Notes due October 1, 2041
None
Indicate by check mark: | Yes | No | ||||
• | if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | þ | ||||
• | if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. | þ | ||||
• | whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | þ | ||||
• | whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). | þ | ||||
• | if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | þ | ||||
• | whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. | |||||
Large accelerated filerþ Accelerated filero Non-accelerated filero Smaller reporting companyo | ||||||
• | whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) | þ |
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
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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 recent and further potential downgrades to the credit ratings of debt issued by the United States government, European sovereigns and other adverse developments on financial, commodity and credit markets and consumer spending and investment, including in respect of Europe, and the effect of these events on our returns in our life and property and casualty investment portfolios and our hedging costs associated with our variable annuities business; |
• | the potential impact or consequences of our ongoing evaluation of the Company’s strategy and business portfolio, which may lead us to pursue one or more transactions or take other actions, including the discontinuance or placing in run-off of certain lines of business and/or the pursuit of strategic acquisitions, divestitures or restructurings, and the potential that any of the foregoing transactions or actions may not be achievable or that the benefits anticipated to be gained thereby may not be obtained; |
• | the success of our initiatives relating to the realignment of our business, including the continuing realignment of our hedge program for our variable annuity business, and plans to improve the profitability and long-term growth prospects of our key divisions, including through opportunistic acquisitions or divestitures or other actions or initiatives, 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, market volatility and foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in key sectors such as the global real estate market; |
• | the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy; |
• | volatility in our earnings and potential material changes to our results 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 possibility of unfavorable loss development including with respect to long-tailed exposures; | |
• | the difficulty in predicting the Company’s potential exposure for asbestos and environmental claims; |
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• | 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; |
• | actions by our competitors, many of which are larger or have greater financial resources than we do; |
• | the Company’s ability to distribute its products through distribution channels, both current and future; |
• | 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, among other effects, has resulted in the establishment of a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, will require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, and created a new “Federal Insurance Office” within the U.S. Department of the Treasury (“Treasury”); |
• | unfavorable judicial or legislative developments; |
• | the uncertain effects of emerging claim and coverage issues; |
• | 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; |
• | 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, cyber or other information security incident or other unanticipated event; |
• | the risk that our framework for managing business risks may not be effective in mitigating material risk and loss to the Company; |
• | the potential for difficulties arising from outsourcing relationships; |
• | the impact of potential changes in federal or state tax laws, including changes affecting the availability of the separate account dividend received deduction; |
• | the impact of potential changes in accounting principles and related financial reporting requirements; |
• | the Company’s ability to protect its intellectual property and defend against claims of infringement; and |
• | other factors described in such forward-looking statements. |
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Item 1. | BUSINESS |
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• | a liability for unpaid losses, including those that have been incurred but not yet reported, as well as estimates of all expenses associated with processing and settling these claims; |
• | a liability equal to the balance that accrues to the benefit of the life insurance policyholder as of the consolidated financial statement date, otherwise known as the account value; |
• | a liability for future policy benefits, representing the present value of future benefits to be paid to or on behalf of policyholders less the present value of future net premiums; |
• | fair value reserves for living benefits embedded derivative guarantees; and |
• | death and living benefit reserves which are computed based on a percentage of revenues less actual claim costs. |
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• | Providing a comprehensive view of the risks facing the Company, including risk concentrations and correlations; |
• | Helping management define the Company’s overall capacity and appetite for risk by evaluating the risk return profile of the business relative to the Company’s strategic intent and financial underpinning; |
• | Assisting management in setting specific risk tolerances and limits that are measurable, actionable, and comply with the Company’s overall risk philosophy; |
• | Communicating and monitoring the firm’s risk exposures relative to set limits and recommending, or implementing as appropriate, mitigating strategies; and |
• | Providing valuable insight to assist leaders in growing the businesses and achieving optimal risk-adjusted returns within established guidelines. |
1. | Risk Culture and Governance: The Company has established policies for its major risks and a formal governance structure with leadership oversight and an assignment of accountability and authority. The governance structure starts at the Board and cascades to a central executive risk management committee and then to individual risk committees across the Company. In addition, the Company promotes a strong risk management culture and high expectations around ethical behavior. |
2. | Risk Identification and Assessment: Through its ERM organization, the Company has developed processes for the identification, assessment, and, when appropriate, response to internal and external risks to the Company’s operations and business objectives. Risk identification and prioritization has been established within each area, including processes around emerging risks. |
3. | Risk Appetite and Limits: The Company has a formal risk appetite statement that is approved by the Company’s ERCC and reviewed by the Board. Based on its risk appetite, the Company has implemented stated risk tolerances and an associated limit structure for each of its major insurance and financial risks. These formal limits are encapsulated in formal risk policies that are reviewed at least annually by the ERCC. |
4. | Risk Monitoring, Controls and Communication: The Company monitors its major risks at the enterprise level through a number of enterprise reports, including but not limited to, a monthly risk dashboard, tracking the return on risk-capital across products, and regular stress testing. ERM communicates the Company’s risk exposures to senior and executive management and the Board, and reviews key business performance metrics, risk indicators, audit reports, risk/control self assessments and risk event data. |
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• | Insurance Risk |
• | Operational Risk |
• | Financial Risk |
• | Business Risk |
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Item 1A. | RISK FACTORS |
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• | the length of time and the extent to which the fair value has been less than cost or amortized cost; | ||
• | changes in the financial condition, credit rating and near-term prospects of the issuer; | ||
• | whether the issuer is current on contractually obligated interest and principal payments; | ||
• | changes in the financial condition of the security’s underlying collateral; | ||
• | the payment structure of the security; | ||
• | the potential for impairments in an entire industry sector or sub-sector; | ||
• | the potential for impairments in certain economically depressed geographic locations; | ||
• | the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; | ||
• | unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; | ||
• | for mortgage-backed and asset-backed securities, commercial and residential property value declines that vary by property type and location and average cumulative collateral loss rates that vary by vintage year; | ||
• | other subjective factors, including concentrations and information obtained from regulators and rating agencies; | ||
• | our intent to sell a debt or an equity security with debt-like characteristics (collectively, “debt security”) or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery; and | ||
• | our intent and ability to retain an equity security without debt-like characteristics for a period of time sufficient to allow for the recovery of its value. |
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• | licensing companies and agents to transact business; | ||
• | calculating the value of assets to determine compliance with statutory requirements; | ||
• | mandating certain insurance benefits; | ||
• | regulating certain premium rates; | ||
• | reviewing and approving policy forms; | ||
• | regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; | ||
• | protecting privacy; | ||
• | establishing statutory capital and reserve requirements and solvency standards; | ||
• | fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts; | ||
• | approving changes in control of insurance companies; | ||
• | approving acquisitions, divestitures and similar transactions; | ||
• | restricting the payment of dividends to the parent company and other transactions between affiliates; | ||
• | establishing assessments and surcharges for guaranty funds, second-injury funds and other mandatory pooling arrangements; | ||
• | requiring insurers to dividend any excess profits to policy holders; and | ||
• | regulating the types, amounts and valuation of investments. |
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• | 10% of the insurer’s policyholder surplus as of December 31 of the preceding year, or |
• | net income, or net gain from operations if the subsidiary is a life insurance company, for the previous calendar year, in each case determined under statutory insurance accounting principles. |
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Item 1B. | UNRESOLVED STAFF COMMENTS |
Item 2. | PROPERTIES |
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Item 3. | LEGAL PROCEEDINGS |
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Item 4. | MINE SAFETY DISCLOSURES |
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Item 5. | MARKET FOR THE HARTFORD’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
1stQtr. | 2ndQtr. | 3rdQtr. | 4thQtr. | |||||||||||||
2011 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 30.80 | $ | 28.97 | $ | 27.05 | $ | 20.27 | ||||||||
Low | $ | 24.75 | $ | 23.81 | $ | 15.82 | $ | 14.92 | ||||||||
Dividends Declared | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | ||||||||
2010 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 28.58 | $ | 29.64 | $ | 24.12 | $ | 27.43 | ||||||||
Low | $ | 22.34 | $ | 22.13 | $ | 19.09 | $ | 22.26 | ||||||||
Dividends Declared | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 |
Approximate Dollar | ||||||||||||||||
Total Number of | Value of Shares that | |||||||||||||||
Shares Purchased | May Yet Be | |||||||||||||||
Average | as Part of Publicly | Purchased Under | ||||||||||||||
Total Number of | Price Paid | Announced Plans | the Plans or | |||||||||||||
Period | Shares Purchased | Per Share | or Programs | Programs | ||||||||||||
(in millions) | ||||||||||||||||
October 1, 2011 – October 31, 2011 | 8,014 | [1] | $ | 18.36 | — | $ | 500 | |||||||||
November 1, 2011 – November 30, 2011 | 12,649 | [1] | $ | 19.25 | — | $ | 500 | |||||||||
December 1, 2011 – December 31, 2011 | 3,226,945 | $ | 15.93 | 3,225,000 | $ | 449 | ||||||||||
Total | 3,247,608 | $ | 15.95 | 3,225,000 | 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. |
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Annual Return Percentage | ||||||||||||||||||||
For the Years Ended | ||||||||||||||||||||
Company/Index | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||
The Hartford Financial Services Group, Inc. | (4.55 | %) | (79.99 | %) | 43.91 | % | 14.89 | % | (37.55 | %) | ||||||||||
S&P 500 Index | 5.49 | % | (37.00 | %) | 26.46 | % | 15.06 | % | 2.11 | % | ||||||||||
S&P Insurance Composite Index | (6.31 | %) | (58.14 | %) | 13.90 | % | 15.80 | % | (8.28 | %) |
Cumulative Five-Year Total Return | ||||||||||||||||||||||||
Base | ||||||||||||||||||||||||
Period | For the Years Ended | |||||||||||||||||||||||
Company/Index | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||||
The Hartford Financial Services Group, Inc. | $ | 100 | 95.45 | 19.10 | 27.48 | 31.57 | 19.72 | |||||||||||||||||
S&P 500 Index | $ | 100 | 105.49 | 66.46 | 84.05 | 96.71 | 98.76 | |||||||||||||||||
S&P Insurance Composite Index | $ | 100 | 93.69 | 39.22 | 44.67 | 51.72 | 47.44 |
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Item 6. | SELECTED FINANCIAL DATA |
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Earned premiums | $ | 14,088 | $ | 14,055 | $ | 14,424 | $ | 15,503 | $ | 15,619 | ||||||||||
Fee income | 4,750 | 4,748 | 4,547 | 5,103 | 5,408 | |||||||||||||||
Net investment income (loss): | ||||||||||||||||||||
Securities available-for-sale and other | 4,272 | 4,364 | 4,017 | 4,327 | 5,203 | |||||||||||||||
Equity securities, trading | (1,359 | ) | (774 | ) | 3,188 | (10,340 | ) | 145 | ||||||||||||
Total net investment income (loss) | 2,913 | 3,590 | 7,205 | (6,013 | ) | 5,348 | ||||||||||||||
Net realized capital losses: | ||||||||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (263 | ) | (852 | ) | (2,191 | ) | (3,964 | ) | (483 | ) | ||||||||||
OTTI losses recognized in other comprehensive income | 89 | 418 | 683 | — | — | |||||||||||||||
Net OTTI losses recognized in earnings | (174 | ) | (434 | ) | (1,508 | ) | (3,964 | ) | (483 | ) | ||||||||||
Net realized capital losses, excluding net OTTI losses recognized in earnings | 29 | (177 | ) | (496 | ) | (1,941 | ) | (512 | ) | |||||||||||
Total net realized capital gains (losses) | (145 | ) | (611 | ) | (2,004 | ) | (5,905 | ) | (995 | ) | ||||||||||
Other revenues | 253 | 267 | 261 | 249 | 243 | |||||||||||||||
Total revenues | 21,859 | 22,049 | 24,433 | 8,937 | 25,623 | |||||||||||||||
Benefits, losses and loss adjustment expenses | 14,625 | 13,025 | 13,831 | 14,088 | 13,919 | |||||||||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities | (1,359 | ) | (774 | ) | 3,188 | (10,340 | ) | 145 | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,427 | 2,527 | 4,257 | 4,260 | 2,982 | |||||||||||||||
Insurance operating costs and other expenses | 4,398 | 4,407 | 4,370 | 4,448 | 4,357 | |||||||||||||||
Interest expense | 508 | 508 | 476 | 343 | 263 | |||||||||||||||
Goodwill impairment | 30 | — | 32 | 745 | — | |||||||||||||||
Total benefits, losses and expenses | 21,629 | 19,693 | 26,154 | 13,544 | 21,666 | |||||||||||||||
Income (loss) from continuing operations before income taxes | 230 | 2,356 | (1,721 | ) | (4,607 | ) | 3,957 | |||||||||||||
Income tax expense (benefit) | (346 | ) | 612 | (838 | ) | (1,848 | ) | 1,040 | ||||||||||||
Income (loss) from continuing operations, net of tax | 576 | 1,744 | (883 | ) | (2,759 | ) | 2,917 | |||||||||||||
Income (loss) from discontinued operations, net of tax | 86 | (64 | ) | (4 | ) | 10 | 32 | |||||||||||||
Net income (loss) | 662 | 1,680 | (887 | ) | (2,749 | ) | 2,949 | |||||||||||||
Preferred stock dividends and accretion of discount | 42 | 515 | 127 | 8 | — | |||||||||||||||
Net income (loss) available to common shareholders | $ | 620 | $ | 1,165 | $ | (1,014 | ) | $ | (2,757 | ) | $ | 2,949 | ||||||||
Balance Sheet Data | ||||||||||||||||||||
Separate account assets | $ | 143,870 | $ | 159,742 | $ | 150,394 | $ | 130,184 | $ | 199,946 | ||||||||||
Total assets | 304,064 | 318,346 | 307,717 | 287,583 | 360,361 | |||||||||||||||
Total debt (including capital lease obligations) | 6,216 | 6,607 | 5,839 | 6,221 | 4,507 | |||||||||||||||
Separate account liabilities | 143,870 | 159,742 | 150,394 | 130,184 | 199,946 | |||||||||||||||
Common equity, excluding AOCI | 21,197 | 20,756 | 18,217 | 16,788 | 20,062 | |||||||||||||||
Preferred Stock | 556 | 556 | 2,960 | — | — | |||||||||||||||
AOCI, net of tax | 1,157 | (1,001 | ) | (3,312 | ) | (7,520 | ) | (858 | ) | |||||||||||
Total stockholders’ equity | 22,910 | 20,311 | 17,865 | 9,268 | 19,204 | |||||||||||||||
Income (loss) from continuing operations, net of tax, available to common shareholders per common share | ||||||||||||||||||||
Basic | $ | 1.20 | $ | 2.85 | $ | (2.92 | ) | $ | (9.02 | ) | $ | 9.22 | ||||||||
Diluted | 1.12 | 2.62 | (2.92 | ) | (9.02 | ) | 9.14 | |||||||||||||
Net income (loss) available to common shareholders per common share | ||||||||||||||||||||
Basic | $ | 1.39 | $ | 2.70 | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.32 | ||||||||
Diluted | 1.30 | 2.49 | (2.93 | ) | (8.99 | ) | 9.24 | |||||||||||||
Cash dividends declared per common share | 0.40 | 0.20 | 0.20 | 1.91 | 2.03 | |||||||||||||||
Other Data | ||||||||||||||||||||
Total revenues, excluding net investment income on equity securities, trading | $ | 23,218 | $ | 22,823 | $ | 21,245 | $ | 19,277 | $ | 25,478 | ||||||||||
Unlock benefit (charge), after-tax | $ | (530 | ) | $ | 111 | $ | (1,034 | ) | $ | (932 | ) | $ | 213 | |||||||
Total investments, excluding equity securities, trading | $ | 104,449 | $ | 98,175 | $ | 93,235 | $ | 89,287 | $ | 94,904 | ||||||||||
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AND RESULTS OF OPERATIONS
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Increase | Increase | |||||||||||||||||||
(Decrease) From | (Decrease) From | |||||||||||||||||||
Net income (loss) by segment | 2011 | 2010 | 2009 | 2010 to 2011 | 2009 to 2010 | |||||||||||||||
Property & Casualty Commercial | $ | 528 | $ | 995 | $ | 899 | $ | (467 | ) | $ | 96 | |||||||||
Group Benefits | 90 | 185 | 193 | (95 | ) | (8 | ) | |||||||||||||
Commercial Markets | 618 | 1,180 | 1,092 | (562 | ) | 88 | ||||||||||||||
Consumer Markets | 5 | 143 | 140 | (138 | ) | 3 | ||||||||||||||
Individual Annuity | (14 | ) | 527 | (444 | ) | (541 | ) | 971 | ||||||||||||
Individual Life | 133 | 229 | 15 | (96 | ) | 214 | ||||||||||||||
Retirement Plans | 15 | 47 | (222 | ) | (32 | ) | 269 | |||||||||||||
Mutual Funds | 98 | 132 | 34 | (34 | ) | 98 | ||||||||||||||
Wealth Management | 232 | 935 | (617 | ) | (703 | ) | 1,552 | |||||||||||||
Life Other Operations | 358 | (90 | ) | (698 | ) | 448 | 608 | |||||||||||||
Property & Casualty Other Operations | (117 | ) | (53 | ) | (78 | ) | (64 | ) | 25 | |||||||||||
Corporate | (434 | ) | (435 | ) | (726 | ) | 1 | 291 | ||||||||||||
Total net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | $ | (1,018 | ) | $ | 2,567 | ||||||||
• | An Unlock charge of $530, after-tax, in 2011 compared to an Unlock benefit of $111, after-tax, in 2010. The charge in 2011 was primarily driven by assumption changes which reduced expected future gross profits including additional costs associated with implementing the Japan hedging strategy and the U.S. variable annuity macro hedge program, as well as actual separate account returns below our aggregated estimated return. The Unlock benefit for 2010 was attributable to actual separate account returns being above our aggregated estimated return and the impact of assumption updates primarily related to decreasing lapse and withdrawal rates and lower hedge costs. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A. |
• | Current accident year catastrophe losses of $484, after-tax, in 2011 compared to $294, after-tax, in 2010. The losses in 2011 primarily relate to more severe tornadoes and wind storms in the Midwest and Southeast, Hurricane Irene, and winter storms in the Northeast and Midwest. The losses in 2010 include severe windstorm events, including a hail storm in Arizona, tornadoes and hail in the Midwest, Plains States and the Southeast and winter storms in the Mid-Atlantic and Northeast. |
• | The Company recorded reserve strengthening of $31, after-tax, in 2011, compared to reserve releases of $294, after-tax, in 2010, in its property and casualty insurance prior accident years development, excluding asbestos and environmental reserves. For additional information regarding prior accident years development, see Critical Accounting Estimates within the MD&A. |
• | An asbestos reserve strengthening of $189, after-tax, in 2011, compared to $110, after-tax, in 2010 resulting from the Company’s annual review of its asbestos liabilities in Property & Casualty Other Operations. The reserve strengthening in 2011 was primarily driven by higher frequency and severity of mesothelioma claims, particularly against certain smaller, more peripheral insureds, while the reserve strengthening in 2010 was primarily driven by increases in claim severity and expenses. For further information, see Property & Casualty 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. |
• | 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 first quarter of 2010 includes an accrual for a litigation settlement of $73, before-tax, for a class action lawsuit related to structured settlements. |
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• | Income tax expense (benefit) in 2010 includes a valuation allowance expense of $87 compared to a benefit of $78 in 2011. See Note 13 of the Notes to Consolidated Financial Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes. |
• | In the second quarter of 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 (“DRD”) for years 1998, 2000 and 2001. For additional information see Note 13 of the Notes to Consolidated Financial Statements. |
• | See the segment sections of the MD&A for a discussion on their respective performances. |
• | An Unlock benefit of $111, after-tax, in 2010 compared to an Unlock charge of $1.0 billion, after-tax, in 2009. The Unlock benefit for 2010 was attributable to actual separate account returns being above our aggregated estimated return and the impact of assumption updates primarily related to decreasing lapse and withdrawal rates, partially offset by hedging, annuitization estimates on Japan products, and long-term expected rate of return updates. The Unlock charge for 2009 was primarily driven by actual separate account returns being significantly below our aggregated estimated return for the first quarter of 2009, partially offset by actual returns being greater than our aggregated estimated return for the remainder of 2009. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A. |
• | Net realized capital losses decreased primarily due to lower impairment losses, lower valuation allowances on mortgage loans, and net gains on sales in 2010 compared to net losses on sales in 2009. These changes were partially offset by losses on the variable annuity hedge program in 2010 compared to gains in 2009. For further discussion, see Net Realized Capital Gains (Losses) within Investment Results of Key Performance Measures and Ratios of this MD&A. |
• | An asbestos reserve strengthening of $110, after-tax, in 2010, compared to $90, after-tax, in 2009 resulting from the Company’s annual review of its asbestos liabilities within Property & Casualty Other Operations. The reserve strengthening in 2010 and 2009 was primarily driven by increases in claim severity and expenses, particularly attributed to litigation in certain jurisdictions, and, to a lesser extent, development on primarily peripheral accounts. For further information, see Property & Casualty Other Operations Claims within the Property and Casualty Insurance Product Reserves, Net of Reinsurance section in Critical Accounting Estimates. |
• | Current accident year catastrophe losses of $294, after-tax, in 2010 compared to $199, after-tax, in 2009. The losses in 2010, primarily relate to severe windstorm events, particularly from hail in the Midwest, Plains States and the Southeast and from winter storms in the Mid-Atlantic and Northeast. The losses in 2009, primarily relate to ice storms, windstorms, and tornadoes across many states. |
• | The first quarter of 2010 includes an accrual for a litigation settlement of $73, before-tax, for a class action lawsuit related to structured settlements. |
• | The loss from discontinued operations, net of tax, increased in 2010 primarily due to a goodwill impairment on Federal Trust Corporation of approximately $100, after-tax, partially offset by a net realized capital gain of $41, after-tax, on the sale of the Hartford Investments Canada Corporation (“HICC”). |
• | Income tax expense (benefit) in 2010 includes a valuation allowance expense of $87 compared to an expense of $30 in 2009. In addition, 2009 included nondeductible costs associated with warrants of $78. See Note 13 of the Notes to Consolidated Financial Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes. |
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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 mortgage loans; |
• | 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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Property & Casualty | Consumer | Property & Casualty | Total Property and | |||||||||||||
Commercial | Markets | Other Operations | Casualty Insurance | |||||||||||||
Reserve Line of Business | ||||||||||||||||
Commercial property | $ | 187 | $ | — | $ | — | $ | 187 | ||||||||
Homeowners’ | — | 467 | — | 467 | ||||||||||||
Auto physical damage | 16 | 29 | — | 45 | ||||||||||||
Auto liability | 564 | 1,523 | — | 2,087 | ||||||||||||
Package business | 1,282 | — | — | 1,282 | ||||||||||||
Workers’ compensation | 7,471 | — | — | 7,471 | ||||||||||||
General liability | 2,641 | 31 | — | 2,672 | ||||||||||||
Professional liability | 702 | — | — | 702 | ||||||||||||
Fidelity and surety | 210 | — | — | 210 | ||||||||||||
Assumed reinsurance | — | — | 349 | 349 | ||||||||||||
All other non-A&E | — | — | 810 | 810 | ||||||||||||
A&E | 21 | 2 | 2,212 | 2,235 | ||||||||||||
Total reserves-net | 13,094 | 2,052 | 3,371 | 18,517 | ||||||||||||
Reinsurance and other recoverables | 2,343 | 9 | 681 | 3,033 | ||||||||||||
Total reserves-gross | $ | 15,437 | $ | 2,061 | $ | 4,052 | $ | 21,550 | ||||||||
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For the year ended December 31, 2011 | ||||||||||||||||
Property & | Total | |||||||||||||||
Property & | Casualty | Property and | ||||||||||||||
Casualty | Consumer | Other | Casualty | |||||||||||||
Commercial | Markets | Operations | 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 | 4,139 | 2,536 | — | 6,675 | ||||||||||||
Current accident year catastrophes | 320 | 425 | — | 745 | ||||||||||||
Prior accident years | 125 | (75 | ) | 317 | 367 | |||||||||||
Total provision for unpaid losses and loss adjustment expenses | 4,584 | 2,886 | 317 | 7,787 | ||||||||||||
Payments | (3,856 | ) | (2,994 | ) | (368 | ) | (7,218 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 13,094 | 2,052 | 3,371 | 18,517 | ||||||||||||
Reinsurance and other recoverables | 2,343 | 9 | 681 | 3,033 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 15,437 | $ | 2,061 | $ | 4,052 | $ | 21,550 | ||||||||
Earned premiums | $ | 6,127 | $ | 3,747 | ||||||||||||
Loss and loss expense paid ratio [1] | 62.9 | 79.9 | ||||||||||||||
Loss and loss expense incurred ratio | 74.8 | 77.0 | ||||||||||||||
Prior accident years development (pts) [2] | 2.0 | (2.0 | ) |
[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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For the year ended December 31, 2011 | ||||||||||||||||
Property & | ||||||||||||||||
Casualty | ||||||||||||||||
Property & Casualty | Consumer | Other | Total Property and | |||||||||||||
Commercial | Markets | Operations | Casualty Insurance | |||||||||||||
Auto liability | $ | (4 | ) | $ | (93 | ) | $ | — | $ | (97 | ) | |||||
Homeowners | — | (1 | ) | — | (1 | ) | ||||||||||
Professional liability | 29 | — | — | 29 | ||||||||||||
Package business | (76 | ) | — | — | (76 | ) | ||||||||||
Workers’ compensation | 171 | — | — | 171 | ||||||||||||
General liability | (40 | ) | — | — | (40 | ) | ||||||||||
Fidelity and surety | (7 | ) | — | — | (7 | ) | ||||||||||
Commercial property | (4 | ) | — | — | (4 | ) | ||||||||||
Net asbestos reserves | — | — | 294 | 294 | ||||||||||||
Net environmental reserves | — | — | 26 | 26 | ||||||||||||
Change in workers’ compensation discount, including accretion | 38 | — | — | 38 | ||||||||||||
Catastrophes | 12 | 25 | — | 37 | ||||||||||||
Other reserve re-estimates, net | 6 | (6 | ) | (3 | ) | (3 | ) | |||||||||
Total prior accident years development | $ | 125 | $ | (75 | ) | $ | 317 | $ | 367 | |||||||
• | Released reserves for personal auto liability claims, primarily for accident years 2006 through 2010. Favorable trends in reported severity have persisted or improved 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. |
• | Strengthened reserves in professional liability for accident years 2007 through 2008, primarily in the directors and officers (“D&O”) line of business. Detailed reviews of claims involving the sub-prime mortgage market collapse, and shareholder class action lawsuits, resulted in a higher estimate of future claim costs for these exposures. |
• | Released reserves in package business liability coverages and general liability, in accident years 2005 through 2009. As these accident years developed, claim severity has emerged lower than expected. |
• | Strengthened reserves in workers’ compensation in accident years 2008 through 2010. Accident year 2010 loss costs trends were higher than expected as an increase in frequency outpaced a moderation of severity trends. Strengthening in accident years 2009 and 2008 was the result of higher than expected loss emergence for these years. Strengthening in more recent years is partially offset by releases in accident years 2007 and prior. Severity emergence in these older accident years continues to be favorable. |
• | Strengthened prior year catastrophe reserves, primarily related to a severe wind and hail storm in Arizona during the fourth quarter of 2010. Severity of property damage associated with this event increased more than expected. |
• | Refer to the Property & Casualty Other Operations Claims section for discussion concerning the Company’s annual evaluations of net environmental and net asbestos reserves, and related reinsurance. |
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For the year ended December 31, 2010 | ||||||||||||||||
Property & | Total | |||||||||||||||
Property & | Casualty | Property and | ||||||||||||||
Casualty | Consumer | Other | Casualty | |||||||||||||
Commercial | Markets | Operations | 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 | 3,579 | 2,737 | — | 6,316 | ||||||||||||
Current accident year catastrophes | 152 | 300 | — | 452 | ||||||||||||
Prior accident years | (361 | ) | (86 | ) | 251 | (196 | ) | |||||||||
Total provision for unpaid losses and loss adjustment expenses | 3,370 | 2,951 | 251 | 6,572 | ||||||||||||
Payments | (3,485 | ) | (2,889 | ) | (460 | ) | (6,834 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 12,366 | 2,160 | 3,422 | 17,948 | ||||||||||||
Reinsurance and other recoverables | 2,361 | 17 | 699 | 3,077 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 14,727 | $ | 2,177 | $ | 4,121 | $ | 21,025 | ||||||||
Earned premiums | $ | 5,744 | $ | 3,947 | ||||||||||||
Loss and loss expense paid ratio [1] | 60.7 | 73.2 | ||||||||||||||
Loss and loss expense incurred ratio | 58.7 | 74.8 | ||||||||||||||
Prior accident years development (pts) [2] | (6.3 | ) | (2.2 | ) |
[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. |
For the year ended December 31, 2010 | ||||||||||||||||
Property & | ||||||||||||||||
Casualty | ||||||||||||||||
Property & Casualty | Consumer | Other | Total Property and | |||||||||||||
Commercial | Markets | Operations | Casualty Insurance | |||||||||||||
Auto liability | $ | (54 | ) | $ | (115 | ) | $ | — | $ | (169 | ) | |||||
Professional liability | (88 | ) | — | — | (88 | ) | ||||||||||
Workers’ compensation | (70 | ) | — | — | (70 | ) | ||||||||||
General liability | (108 | ) | — | — | (108 | ) | ||||||||||
Package business | (19 | ) | — | — | (19 | ) | ||||||||||
Commercial property | (16 | ) | — | — | (16 | ) | ||||||||||
Fidelity and surety | (5 | ) | — | — | (5 | ) | ||||||||||
Homeowners | — | 23 | — | 23 | ||||||||||||
Net environmental reserves | — | — | 67 | 67 | ||||||||||||
Net asbestos reserves | — | — | 189 | 189 | ||||||||||||
All other non-A&E | — | — | 11 | 11 | ||||||||||||
Uncollectible reinsurance | (30 | ) | — | — | (30 | ) | ||||||||||
Change in workers’ compensation discount, including accretion | 26 | — | — | 26 | ||||||||||||
Catastrophes | 1 | 10 | — | 11 | ||||||||||||
Other reserve re-estimates, net | 2 | (4 | ) | (16 | ) | (18 | ) | |||||||||
Total prior accident years development | $ | (361 | ) | $ | (86 | ) | $ | 251 | $ | (196 | ) | |||||
• | Released reserves for commercial auto liability claims as the Company lowered its reserve estimate to recognize a lower severity trend during 2009 that continued into 2010 on larger claims in accident years 2002 to 2009. In addition, reserves were released for personal auto liability claims for accident years 2004 to 2009, as favorable trends in reported severity have persisted, most notably for accident years 2008 and 2009. As these accident years develop, the uncertainty around the ultimate losses is reduced and management places more weight on the emerged experience. |
• | Released reserves for professional liability claims, primarily related to D&O claims in accident years 2004 to 2008. For these accident years, reported losses for claims under D&O policies have emerged favorably to initial expectations due to lower than expected claim severity. |
• | Released reserves for workers’ compensation business, primarily related to accident years 2006 and 2007. Management updated reviews of state reforms affecting these accident years and determined impacts to be more favorable than previously estimated. |
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• | Released reserves for general liability claims, primarily related to accident years 2005 through 2008. The Company observed that claim emergence for these accident years continued to be lower than anticipated and believed this would continue, and therefore reduced its reserve estimate in response. Partially offsetting this release was strengthening on loss adjustment expense reserves during the second quarter of 2010 due to higher than expected allocated loss expenses for claims in accident years 2000 and prior. |
• | Released reserves for package business claims, primarily related to accident years 2005 through 2009. The Company observed that claim emergence within the liability portion of the package coverage for these accident years continued to be lower than anticipated and believed this lower level of claim activity would continue, and therefore reduced its reserve estimate in response. |
• | Strengthened reserves for homeowners’ claims, as the Company observed a lengthening of the claim reporting period for homeowners’ claims which resulted in increasing management’s estimate of the ultimate cost to settle these claims. The Company also began spending more on independent adjuster fees to better assess property damages. |
• | The Company reviewed its allowance for uncollectible reinsurance in the second quarter of 2010 and reduced its allowance, in part, by a reduction in gross ceded loss recoverables. |
• | Refer to the Property & Casualty Other Operations Claims section for discussion concerning the Company’s annual evaluations of net environmental and net asbestos reserves, and related reinsurance. |
For the year ended December 31, 2009 | ||||||||||||||||
Property & | Total | |||||||||||||||
Property & | Casualty | Property and | ||||||||||||||
Casualty | Consumer | Other | Casualty | |||||||||||||
Commercial | Markets | Operations | Insurance | |||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 15,273 | $ | 2,083 | $ | 4,577 | $ | 21,933 | ||||||||
Reinsurance and other recoverables | 2,742 | 46 | 798 | 3,586 | ||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 12,531 | 2,037 | 3,779 | 18,347 | ||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||
Current accident year before catastrophes | 3,582 | 2,707 | 1 | 6,290 | ||||||||||||
Current accident year catastrophes | 78 | 228 | — | 306 | ||||||||||||
Prior accident years | (394 | ) | (33 | ) | 241 | (186 | ) | |||||||||
Total provision for unpaid losses and loss adjustment expenses | 3,266 | 2,902 | 242 | 6,410 | ||||||||||||
Payments | (3,316 | ) | (2,841 | ) | (390 | ) | (6,547 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 12,481 | 2,098 | 3,631 | 18,210 | ||||||||||||
Reinsurance and other recoverables | 2,570 | 11 | 860 | 3,441 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 15,051 | $ | 2,109 | $ | 4,491 | $ | 21,651 | ||||||||
Earned premiums | $ | 5,903 | $ | 3,959 | ||||||||||||
Loss and loss expense paid ratio [1] | 56.2 | 71.8 | ||||||||||||||
Loss and loss expense incurred ratio | 55.3 | 73.3 | ||||||||||||||
Prior accident years development (pts) [2] | (6.7 | ) | (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. |
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For the year ended December 31, 2009 | ||||||||||||||||
Property & | ||||||||||||||||
Casualty | ||||||||||||||||
Property & Casualty | Consumer | Other | Total Property and | |||||||||||||
Commercial | Markets | Operations | Casualty Insurance | |||||||||||||
Auto liability | $ | (47 | ) | $ | (77 | ) | $ | — | $ | (124 | ) | |||||
Professional liability | (127 | ) | — | — | (127 | ) | ||||||||||
General liability, umbrella and high hazard liability | (112 | ) | — | — | (112 | ) | ||||||||||
Workers’ compensation | (92 | ) | — | — | (92 | ) | ||||||||||
Package business | 38 | — | — | 38 | ||||||||||||
Fidelity and surety | 28 | — | — | 28 | ||||||||||||
Homeowners | — | 18 | — | 18 | ||||||||||||
Net environmental reserves | — | — | 75 | 75 | ||||||||||||
Net asbestos reserves | — | — | 138 | 138 | ||||||||||||
All other non-A&E | — | — | 35 | 35 | ||||||||||||
Uncollectible reinsurance | (20 | ) | — | (20 | ) | (40 | ) | |||||||||
Change in workers’ compensation discount, including accretion | 24 | — | — | 24 | ||||||||||||
Catastrophes | (23 | ) | — | — | (23 | ) | ||||||||||
Other reserve re-estimates, net | (63 | ) | 26 | 13 | (24 | ) | ||||||||||
Total prior accident years development | $ | (394 | ) | $ | (33 | ) | $ | 241 | $ | (186 | ) | |||||
• | Released reserves for personal auto liability claims, for accident years 2005 to 2007, as the Company recognized that favorable development in reported severity, first observed in early 2008, which was attributed, in part, to changes made in claim handling procedures in 2007, was a sustained trend for those accident years. In the third and fourth quarters of 2009, management also recognized sustained favorable development trends in AARP for accident years 2006 to 2008 and released reserves for those accident years. |
• | Released reserves for commercial auto liability claims, primarily related to accident years 2003 to 2008. In the fourth quarter of 2009, the Company recognized that the full value of large auto liability claims was being recognized as case reserves at an earlier age. The increased adequacy of case reserves caused the Company to decrease its estimate of reserves for IBNR loss and loss adjustment expenses. |
• | The Company released reserves for D&O and errors and omissions (“E&O”) claims in 2009 related to the 2003 to 2008 accident years. For these accident years, reported losses for claims under D&O and E&O policies had been emerging favorably to initial expectations due to lower than expected claim severity. |
• | Released reserves for general liability claims, primarily related to accident years 2003 to 2007. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims, primarily related to the 2001 to 2006 accident years, were emerging favorably and this caused management to reduce its estimate of the cost of future reported claims for these accident years, resulting in reserve releases from the third quarter of 2007 through 2009. During 2009, management determined that the lower level of loss emergence was also evident in accident year 2007 and had continued for accident years 2003 to 2006 and, as a result, the Company reduced the reserves. Largely offsetting the releases, the Company recognized that the cost of late emerging exposures were likely to be higher than previously expected, and also recognized additional ceded losses on accident years 1999 and prior. |
• | Released workers’ compensation reserves, primarily related to additional ceded losses on accident years 1999 and prior and lower allocated loss adjustment expense reserves in accident years 2003 to 2007. During the first quarter of 2009, the Company observed lower than expected allocated loss adjustment expense payments on older accident years. As a result, the Company reduced its estimate for future expense payments on more recent accident years. |
• | Strengthened reserves for liability claims under package business, primarily related to allocated loss adjustment expenses for accident years 2000 to 2005 and 2007 and 2008. During the first quarter of 2009, the Company identified higher than expected expense payments on older accident years related to the liability coverage. Additional analysis in the second quarter of 2009 showed that this higher level of loss adjustment expense was likely to continue into more recent accident years. As a result, in the second quarter of 2009, the Company increased its estimates for future expense payments for the 2007 and 2008 accident years. Largely offsetting the strengthenings, the Company recognized the cost of late emerging exposures were likely to be higher than previously expected, and also recognized a lower than expected frequency of high severity claims. |
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• | Strengthened reserves for surety business, primarily related to accident years 2004 to 2007. The net strengthening consisted of $55 strengthening of reserves for customs bonds, partially offset by a $27 release of reserves for contract surety claims. During 2008, the Company became aware that there were a large number of late reported surety claims related to customs bonds. Continued high volume of late reported claims during 2009 caused the Company to strengthen the reserves. Because the pattern of claim reporting for customs bonds has not been similar to the reporting pattern of other surety bonds, future claim activity is difficult to predict. It is possible that as additional claim activity emerges, our estimate of both the number of future claims and the cost of those claims could change substantially. |
• | Strengthened reserves for homeowners’ claims. In 2008, the Company began to observe increasing claim settlement costs for the 2005 to 2008 accident years and, in the first quarter of 2009, determined that this higher cost level would continue, resulting in reserve strengthening for these accident years. In addition, beginning in 2008, the Company observed unfavorable emergence of homeowners’ casualty claims for accident years 2003 and prior, primarily related to underground storage tanks. Following a detailed review of these claims in the first quarter of 2009, management increased its estimate of the magnitude of this exposure and strengthened homeowners’ casualty claim reserves. |
• | The Company reviewed its allowance for uncollectible reinsurance in the second quarter of 2009 and reduced its allowance driven, in part, by a reduction in gross ceded loss recoverables. |
• | Refer to the Property & Casualty Other Operations Claims section for discussion concerning the Company’s annual evaluations of net environmental and net asbestos reserves, and related reinsurance. |
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Asbestos | Environmental | All Other [1] | Total | |||||||||||||
2011 | ||||||||||||||||
Beginning liability — net [2] [3] | $ | 1,787 | $ | 334 | $ | 1,302 | $ | 3,423 | ||||||||
Losses and loss adjustment expenses incurred | 294 | 26 | (3 | ) | 317 | |||||||||||
Losses and loss adjustment expenses paid | (189 | ) | (40 | ) | (140 | ) | (369 | ) | ||||||||
Ending liability — net [2] [3] | $ | 1,892 | [4] | $ | 320 | $ | 1,159 | $ | 3,371 | |||||||
2010 | ||||||||||||||||
Beginning liability — net [2] [3] | $ | 1,892 | $ | 307 | $ | 1,432 | $ | 3,631 | ||||||||
Losses and loss adjustment expenses incurred | 189 | 67 | (5 | ) | 251 | |||||||||||
Losses and loss adjustment expenses paid | (294 | ) | (40 | ) | (125 | ) | (459 | ) | ||||||||
Ending liability — net [2] [3] | $ | 1,787 | $ | 334 | $ | 1,302 | $ | 3,423 | ||||||||
2009 | ||||||||||||||||
Beginning liability — net [2] [3] | $ | 1,884 | $ | 269 | $ | 1,628 | $ | 3,781 | ||||||||
Losses and loss adjustment expenses incurred | 138 | 75 | 29 | 242 | ||||||||||||
Losses and loss adjustment expenses paid | (181 | ) | (40 | ) | (171 | ) | (392 | ) | ||||||||
Reclassification of asbestos and environmental liabilities | 51 | 3 | (54 | ) | — | |||||||||||
Ending liability — net [2] [3] | $ | 1,892 | $ | 307 | $ | 1,432 | $ | 3,631 | ||||||||
[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 $15 and $8, respectively, as of December 31, 2011, $11 and $5, respectively, as of December 31, 2010, and $10 and $5, respectively, as of December 31, 2009; total net losses and loss adjustment expenses incurred for the years ended December 31, 2011, 2010 and 2009 of $27, $15 and $16, respectively, related to asbestos and environmental claims; and total net losses and loss adjustment expenses paid for the years ended December 31, 2011, 2010 and 2008 of $20, $14 and $19, respectively, related to asbestos and environmental claims. | |
[3] | Gross of reinsurance, asbestos and environmental reserves, including liabilities in Property & Casualty Commercial and Commercial Markets, were $2,442 and $367, respectively, as of December 31, 2011; $2,308 and $378, respectively, as of December 31, 2010; and $2,484 and $367, respectively, as of December 31, 2009. | |
[4] | The one year and average three year net paid amounts for asbestos claims, including Ongoing Operations, were $198 and $230, respectively, resulting in a one year net survival ratio of 9.6 and a three year net survival ratio of 8.3. Net survival ratio is the quotient of the net carried reserves divided by the average annual payment amount and is an indication of the number of years that the net carried reserve would last (i.e. survive) if the future annual claim payments were consistent with the calculated historical average. |
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Asbestos [1] | Environmental [1] | |||||||||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | |||||||||||||
2011 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 170 | $ | 350 | $ | 32 | $ | 25 | ||||||||
Assumed Reinsurance | 55 | 12 | 8 | — | ||||||||||||
London Market | 23 | 16 | 6 | 4 | ||||||||||||
Total | 248 | 378 | 46 | 29 | ||||||||||||
Ceded | (59 | ) | (84 | ) | (6 | ) | (3 | ) | ||||||||
Net | $ | 189 | $ | 294 | $ | 40 | $ | 26 | ||||||||
2010 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 201 | $ | 209 | $ | 35 | $ | 50 | ||||||||
Assumed Reinsurance | 128 | — | 12 | 5 | ||||||||||||
London Market | 42 | (15 | ) | 7 | 10 | |||||||||||
Total | 371 | 194 | 54 | 65 | ||||||||||||
Ceded | (77 | ) | (5 | ) | (14 | ) | 2 | |||||||||
Net | $ | 294 | $ | 189 | $ | 40 | $ | 67 | ||||||||
2009 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 160 | $ | 117 | $ | 29 | $ | 92 | ||||||||
Assumed — Domestic | 56 | 52 | 7 | — | ||||||||||||
London Market | 18 | — | 10 | 12 | ||||||||||||
Total | 234 | 169 | 46 | 104 | ||||||||||||
Ceded | (53 | ) | (31 | ) | (6 | ) | (29 | ) | ||||||||
Net prior to reclassification | $ | 181 | $ | 138 | $ | 40 | $ | 75 | ||||||||
Reclassification of asbestos and environmental liabilities [2] | — | 51 | — | 3 | ||||||||||||
Net | $ | 181 | $ | 189 | $ | 40 | $ | 78 | ||||||||
[1] | Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross losses and LAE incurred in Ongoing Operations for the years ended December 31, 2011, 2010 and 2009 includes $30, $15 and $17, respectively, related to asbestos and environmental claims. Total gross losses and LAE paid in Ongoing Operations for the years ended December 31, 2011, 2010 and 2009 includes $22, $14 and $20, respectively, related to asbestos and environmental claims. | |
[2] | During the three months ended June 30, 2009, the Company reclassified liabilities of $54 that were previously classified as “All Other” to “Asbestos” and “Environmental”. |
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As of December 31, 2011
Total Reserves | ||||
Gross [1] [2] | ||||
Direct | $ | 271 | ||
Assumed Reinsurance | 39 | |||
London Market | 57 | |||
Total | 367 | |||
Ceded | (47 | ) | ||
Net | $ | 320 | ||
[1] | The one year gross paid amount for total environmental claims is $58, resulting in a one year gross survival ratio of 6.4. | |
[2] | The three year average gross paid amount for total environmental claims is $58, resulting in a three year gross survival ratio of 6.4. |
• | 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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As of December 31, 2011
Number of | All Time | Total | All Time | |||||||||||||
Accounts [2] | Paid [3] | Reserves | Ultimate [3] | |||||||||||||
Gross Asbestos Reserves as of June 30, 2011 [1] | ||||||||||||||||
Major asbestos defendants [5] | ||||||||||||||||
Structured settlements (includes 4 Wellington accounts) [6] | 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 [7] | 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 [1] | 6,880 | 2,558 | 9,438 | |||||||||||||
Gross paid loss activity for the third quarter and fourth quarter 2011 | 127 | (127 | ) | — | ||||||||||||
Gross incurred loss activity for the third quarter and fourth quarter 2011 | — | 11 | 11 | |||||||||||||
Total as of December 31, 2011 [4] | $ | 7,007 | $ | 2,442 | $ | 9,449 | ||||||||||
[1] | Gross Asbestos Reserves based on the second quarter 2011 asbestos reserve study. | |
[2] | An account may move between categories from one evaluation to the next. Reclassifications were made as a result of the reserve evaluation completed in the second quarter of 2011. | |
[3] | “All Time Paid” represents the total payments with respect to the indicated claim type that have already been made by the Company as of the indicated balance sheet date. “All Time Ultimate” represents the Company’s estimate, as of the indicated balance sheet date, of the total payments that are ultimately expected to be made to fully settle the indicated payment type. The amount is the sum of the amounts already paid (e.g. “All Time Paid”) and the estimated future payments (e.g. the amount shown in the column labeled “Total Reserves”). | |
[4] | Survival ratio is a commonly used industry ratio for comparing reserve levels between companies. While the method is commonly used, it is not a predictive technique. Survival ratios may vary over time for numerous reasons such as large payments due to the final resolution of certain asbestos liabilities, or reserve re-estimates. The survival ratio is computed by dividing the recorded reserves by the average of the past three years of payments. The ratio is the calculated number of years the recorded reserves would survive if future annual payments were equal to the average annual payments for the past three years. The 3-year gross survival ratio of 8.3 as of December 31, 2011 is computed based on total paid losses of $881 for the period from January 1, 2009 to December 31, 2011. As of December 31, 2011, the one year gross paid amount for total asbestos claims is $258 resulting in a one year gross survival ratio of 9.5. | |
[5] | Includes 24 open accounts at June 30, 2011. Included 25 open accounts at June 30, 2010. | |
[6] | Structured settlements include the Company’s reserves related to PPG Industries, Inc. (“PPG”). In January 2009, the Company, along with approximately three dozen other insurers, entered into a modified agreement in principle with PPG to resolve the Company’s coverage obligations for all of its PPG asbestos liabilities, including principally those arising out of its 50% stock ownership of Pittsburgh Corning Corporation (“PCC”), a joint venture with Corning, Inc. The agreement is contingent on the fulfillment of certain conditions, including the confirmation of a PCC plan of reorganization under Section 524(g) of the Bankruptcy Code, which have not yet been met. | |
[7] | Includes closed accounts (exclusive of Major Asbestos Defendants) and unallocated IBNR. |
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Property & | ||||||||||||||||
Property & Casualty | Consumer | Casualty Other | Total Property and | |||||||||||||
Commercial | Markets | Operations | Casualty Insurance | |||||||||||||
Range of prior accident year unfavorable (favorable) development for the ten years ended December 31, 2011 [1] [2] | (3.1) – 1.5 | (5.2) – 5.1 | 3.0 – 67.5 | (1.2) – 21.5 |
[1] | Excluding the reserve strengthening for asbestos and environmental reserves, over the past ten years reserve re-estimates for total property and casualty insurance ranged from (3.0)% to 1.6%. | |
[2] | Development for Corporate is included in Property & Casualty Commercial and Consumer Markets in 2007 and prior. |
Loss And Loss Adjustment Expense Liability Development — Net of Reinsurance
For the Years Ended December 31, [1]
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||||||||||||||||||||
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | $ | 12,860 | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | $ | 17,604 | $ | 18,231 | $ | 18,347 | $ | 18,210 | $ | 17,948 | $ | 18,517 | ||||||||||||||||||||||
Cumulative paid losses and loss expenses | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 3,339 | 3,480 | 4,415 | 3,594 | 3,702 | 3,727 | 3,703 | 3,771 | 3,882 | 4,037 | ||||||||||||||||||||||||||||||||||
Two years later | 5,621 | 6,781 | 6,779 | 6,035 | 6,122 | 5,980 | 5,980 | 6,273 | 6,401 | |||||||||||||||||||||||||||||||||||
Three years later | 8,324 | 8,591 | 8,686 | 7,825 | 7,755 | 7,544 | 7,752 | 8,074 | — | |||||||||||||||||||||||||||||||||||
Four years later | 9,710 | 10,061 | 10,075 | 9,045 | 8,889 | 8,833 | 9,048 | — | — | |||||||||||||||||||||||||||||||||||
Five years later | 10,871 | 11,181 | 11,063 | 9,928 | 9,903 | 9,778 | — | — | — | |||||||||||||||||||||||||||||||||||
Six years later | 11,832 | 12,015 | 11,821 | 10,798 | 10,674 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Seven years later | 12,563 | 12,672 | 12,601 | 11,448 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Eight years later | 13,166 | 13,385 | 13,193 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Nine years later | 13,829 | 13,935 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ten years later | 14,345 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Liabilities re-estimated | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 13,153 | 15,965 | 16,632 | 16,439 | 17,159 | 17,652 | 18,005 | 18,161 | 18,014 | 18,315 | ||||||||||||||||||||||||||||||||||
Two years later | 16,176 | 16,501 | 17,232 | 16,838 | 17,347 | 17,475 | 17,858 | 18,004 | 18,136 | |||||||||||||||||||||||||||||||||||
Three years later | 16,768 | 17,338 | 17,739 | 17,240 | 17,318 | 17,441 | 17,700 | 18,139 | — | |||||||||||||||||||||||||||||||||||
Four years later | 17,425 | 17,876 | 18,367 | 17,344 | 17,497 | 17,439 | 17,866 | — | — | |||||||||||||||||||||||||||||||||||
Five years later | 17,927 | 18,630 | 18,554 | 17,570 | 17,613 | 17,676 | — | — | — | |||||||||||||||||||||||||||||||||||
Six years later | 18,686 | 18,838 | 18,836 | 17,777 | 17,895 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Seven years later | 18,892 | 19,126 | 19,063 | 18,064 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Eight years later | 19,192 | 19,373 | 19,351 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Nine years later | 19,452 | 19,671 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ten years later | 19,751 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Deficiency (redundancy), net of reinsurance | $ | 6,891 | $ | 6,530 | $ | 3,133 | $ | 1,873 | $ | 1,032 | $ | 72 | $ | (365 | ) | $ | (208 | ) | $ | (74 | ) | $ | 367 | |||||||||||||||||||||
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For the Years Ended December 31,
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||||||||||||||
Net reserve, as initially estimated | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | $ | 17,604 | $ | 18,231 | $ | 18,347 | $ | 18,210 | $ | 17,948 | $ | 18,517 | ||||||||||||||||||||
Reinsurance and other recoverables, as initially estimated | 3,950 | 5,497 | 5,138 | 5,403 | 4,387 | 3,922 | 3,586 | 3,441 | 3,077 | 3,033 | ||||||||||||||||||||||||||||||
Gross reserve, as initially estimated | $ | 17,091 | $ | 21,715 | $ | 21,329 | $ | 22,266 | $ | 21,991 | $ | 22,153 | $ | 21,933 | $ | 21,651 | $ | 21,025 | $ | 21,550 | ||||||||||||||||||||
Net re-estimated reserve | $ | 19,671 | $ | 19,351 | $ | 18,064 | $ | 17,895 | $ | 17,676 | $ | 17,866 | $ | 18,139 | $ | 18,136 | $ | 18,315 | ||||||||||||||||||||||
Re-estimated and other reinsurance recoverables | 5,693 | 5,592 | 5,469 | 5,792 | 4,193 | 3,910 | 3,585 | 3,064 | 2,799 | |||||||||||||||||||||||||||||||
Gross re-estimated reserve | $ | 25,364 | $ | 24,943 | $ | 23,533 | $ | 23,687 | $ | 21,869 | $ | 21,776 | $ | 21,724 | $ | 21,200 | $ | 21,114 | ||||||||||||||||||||||
Gross deficiency (redundancy) | $ | 8,273 | $ | 3,228 | $ | 2,204 | $ | 1,421 | $ | (122 | ) | $ | (377 | ) | $ | (209 | ) | $ | (451 | ) | $ | 89 | ||||||||||||||||||
Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | Total | ||||||||||||||||||||||||||||||||||
By Accident year | ||||||||||||||||||||||||||||||||||||||||||||
2001 & Prior | $ | 293 | $ | 3,023 | $ | 592 | $ | 657 | $ | 502 | $ | 759 | $ | 206 | $ | 300 | $ | 260 | $ | 299 | $ | 6,891 | ||||||||||||||||||||||
2002 | — | (199 | ) | (56 | ) | 180 | 36 | (5 | ) | 2 | (12 | ) | (13 | ) | (1 | ) | (68 | ) | ||||||||||||||||||||||||||
2003 | — | — | (122 | ) | (237 | ) | (31 | ) | (126 | ) | (21 | ) | (6 | ) | (20 | ) | (10 | ) | (573 | ) | ||||||||||||||||||||||||
2004 | — | — | — | (352 | ) | (108 | ) | (226 | ) | (83 | ) | (56 | ) | (20 | ) | (1 | ) | (846 | ) | |||||||||||||||||||||||||
2005 | — | — | — | — | (103 | ) | (214 | ) | (133 | ) | (47 | ) | (91 | ) | (5 | ) | (593 | ) | ||||||||||||||||||||||||||
2006 | — | — | — | — | — | (140 | ) | (148 | ) | (213 | ) | (118 | ) | (45 | ) | (664 | ) | |||||||||||||||||||||||||||
2007 | — | — | — | — | — | — | (49 | ) | (113 | ) | (156 | ) | (71 | ) | (389 | ) | ||||||||||||||||||||||||||||
2008 | — | — | — | — | — | — | — | (39 | ) | 1 | (31 | ) | (69 | ) | ||||||||||||||||||||||||||||||
2009 | — | — | — | — | — | — | — | — | (39 | ) | (13 | ) | (52 | ) | ||||||||||||||||||||||||||||||
2010 | — | — | — | — | — | — | — | — | — | 245 | 245 | |||||||||||||||||||||||||||||||||
Total | $ | 293 | $ | 2,824 | $ | 414 | $ | 248 | $ | 296 | $ | 48 | $ | (226 | ) | $ | (186 | ) | $ | (196 | ) | $ | 367 | $ | 3,882 | |||||||||||||||||||
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Individual Annuity | Individual Life | Retirement Plans | Life Other Operations | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
DAC | $ | 2,815 | $ | 3,251 | $ | 2,755 | $ | 2,633 | $ | 813 | $ | 820 | $ | 1,256 | $ | 1,652 | ||||||||||||||||
SIA | $ | 291 | $ | 329 | $ | 47 | $ | 45 | $ | 22 | $ | 23 | $ | 54 | $ | 41 | ||||||||||||||||
URR | $ | 90 | $ | 99 | $ | 1,570 | $ | 1,367 | $ | — | $ | — | $ | 39 | $ | 59 | ||||||||||||||||
Death and Other Insurance Benefit Reserves | $ | 1,103 | $ | 1,052 | $ | 228 | $ | 113 | $ | 1 | $ | 1 | $ | 975 | $ | 696 |
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Death and Other | ||||||||||||||||||||
Segment | Insurance | |||||||||||||||||||
After-tax (Charge) Benefit | DAC | URR | Benefit Reserves | SIA | Total | |||||||||||||||
Individual Annuity | $ | (162 | ) | $ | 6 | $ | — | $ | (16 | ) | $ | (172 | ) | |||||||
Individual Life | (50 | ) | 21 | (40 | ) | — | (69 | ) | ||||||||||||
Retirement Plans | (44 | ) | — | — | (1 | ) | (45 | ) | ||||||||||||
Life Other Operations | (74 | ) | — | (173 | ) | 3 | (244 | ) | ||||||||||||
Total | $ | (330 | ) | $ | 27 | $ | (213 | ) | $ | (14 | ) | $ | (530 | ) | ||||||
Death and Other | ||||||||||||||||||||
Segment | Insurance Benefit | |||||||||||||||||||
After-tax (charge) benefit | DAC | URR | Reserves | SIA | Total | |||||||||||||||
Individual Annuity | $ | 104 | $ | 1 | $ | 39 | $ | (1 | ) | $ | 143 | |||||||||
Individual Life | 23 | 5 | 1 | (1 | ) | 28 | ||||||||||||||
Retirement Plans | 18 | — | — | — | 18 | |||||||||||||||
Life Other Operations | (62 | ) | 6 | (23 | ) | 1 | (78 | ) | ||||||||||||
Total | $ | 83 | $ | 12 | $ | 17 | $ | (1 | ) | $ | 111 | |||||||||
Death and | ||||||||||||||||||||
Segment | Other Insurance | |||||||||||||||||||
After-tax (charge) benefit | DAC | URR | Benefit Reserves | SIA | Total [1] | |||||||||||||||
Individual Annuity | $ | (429 | ) | $ | 17 | $ | (158 | ) | $ | (36 | ) | $ | (606 | ) | ||||||
Individual Life | (101 | ) | 54 | (4 | ) | — | (51 | ) | ||||||||||||
Retirement Plans | (55 | ) | — | — | (1 | ) | (56 | ) | ||||||||||||
Life Other Operations | (104 | ) | 6 | (210 | ) | (10 | ) | (318 | ) | |||||||||||
Corporate | (3 | ) | — | — | — | (3 | ) | |||||||||||||
Total | $ | (692 | ) | $ | 77 | $ | (372 | ) | $ | (47 | ) | $ | (1,034 | ) | ||||||
[1] | Includes $(49) related to DAC recoverability impairment associated with the decision to suspend sales in the U.K variable annuity business. |
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Segment | Goodwill in | |||||||||||
Goodwill | Corporate | Total | ||||||||||
Group Benefits | $ | — | $ | 138 | $ | 138 | ||||||
Consumer Markets | 119 | — | 119 | |||||||||
Individual Life | 224 | 118 | 342 | |||||||||
Retirement Plans | 87 | 69 | 156 | |||||||||
Mutual Funds | 159 | 92 | 251 | |||||||||
Total | $ | 589 | $ | 417 | $ | 1,006 | ||||||
Segment | Goodwill in | |||||||||||
Goodwill | Corporate | Total | ||||||||||
Hartford Financial Products within Property & Casualty Commercial | $ | 30 | $ | — | $ | 30 | ||||||
Group Benefits | — | 138 | 138 | |||||||||
Consumer Markets | 119 | — | 119 | |||||||||
Individual Life | 224 | 118 | 342 | |||||||||
Retirement Plans | 87 | 69 | 156 | |||||||||
Mutual Funds | 159 | 92 | 251 | |||||||||
Federal Trust Corporation within Corporate | — | 15 | 15 | |||||||||
Total | $ | 619 | $ | 432 | $ | 1,051 | ||||||
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For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Core earnings | $ | 970 | $ | 1,972 | $ | 797 | ||||||
Less: Realized gains (losses) excluded from core earnings | (394 | ) | (228 | ) | (1,680 | ) | ||||||
Less: Discontinued operations | 86 | (64 | ) | (4 | ) | |||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
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2011 | 2010 | 2009 | ||||||||||
Property & Casualty Commercial | ||||||||||||
Combined ratio | 104.5 | 89.7 | 85.9 | |||||||||
Catastrophe ratio | 5.4 | 2.7 | 0.9 | |||||||||
Non-catastrophe prior year development | 1.8 | (6.3 | ) | (6.3 | ) | |||||||
Combined ratio before catastrophes and prior year development | 97.2 | 93.4 | 91.2 | |||||||||
Consumer Markets | ||||||||||||
Combined ratio | 101.5 | 99.0 | 97.2 | |||||||||
Catastrophe ratio | 12.0 | 7.8 | 5.9 | |||||||||
Non-catastrophe prior year development | (2.7 | ) | (2.4 | ) | (1.0 | ) | ||||||
Combined ratio before catastrophes and prior year development | 92.2 | 93.6 | 92.3 | |||||||||
• | Property & Casualty Commercial’s combined ratio before catastrophes and prior year development deteriorated primarily due to an increase in current accident year losses and loss adjustment expenses ratio before catastrophes, largely due to loss costs outpacing earned pricing increases predominantly related to workers compensation business. |
• | Consumer Markets combined ratio before catastrophes and prior year development decreased primarily due to changes in the current accident year loss and loss adjustment expenses ratio before catastrophes, as a decrease for auto was partially offset by an increase for home. The decrease for auto was driven by the effect of earned pricing increases and lower estimated frequency on auto liability claims, which was partially offset by higher auto physical damage 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. |
• | Property & Casualty Commercial’s combined ratio before catastrophes and prior year development increased primarily due to higher severity on package business and workers’ compensation, as well as an increased ratio for specialty casualty, and to a lesser extent an increase in the expense ratio due to increased expenses for taxes, licenses and fees. |
• | Consumer Markets combined ratio before catastrophes and prior year development increased primarily due to an increase in the current accident year loss and loss adjustment expense ratio before catastrophes for auto of 1.3 points due to higher auto physical damage emerged frequency and higher expected auto liability loss costs relative to average premium. The current accident year loss and loss adjustment expense ratio before catastrophes for home increased 0.7 points primarily due to an increase in loss adjustment expenses, partially offset by the effect of earned pricing increases. |
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Ratios | 2011 | 2010 | 2009 | |||||||||
Individual Annuity [1] | ||||||||||||
ROA | (1.6 | ) bps | 54.7 | bps | (48.6 | ) bps | ||||||
Effect of net realized losses, net of tax and DAC on ROA | (41.3 | ) bps | 0.2 | bps | (38.5 | ) bps | ||||||
Effect of Unlock on ROA | (7.2 | ) bps | 15.8 | bps | (47.0 | ) bps | ||||||
ROA, core earnings excluding Unlock | 46.9 | bps | 38.7 | bps | 36.9 | bps | ||||||
Retirement Plans [1] | ||||||||||||
ROA | 2.9 | bps | 9.7 | bps | (54.8 | ) bps | ||||||
Effect of net realized losses, net of tax and DAC on ROA | (0.7 | ) bps | (4.8 | ) bps | (46.4 | ) bps | ||||||
Effect of Unlock on ROA | (7.5 | ) bps | 5.4 | bps | (11.4 | ) bps | ||||||
ROA, core earnings excluding Unlock | 11.1 | bps | 9.1 | bps | 3.0 | bps | ||||||
Mutual Funds [1] | ||||||||||||
ROA | 10.5 | bps | 13.7 | bps | 8.8 | bps | ||||||
Effect of net realized gains/(losses), net of tax and DAC on ROA | — | bps | 3.9 | bps | — | bps | ||||||
ROA, core earnings excluding Unlock | 10.5 | bps | 9.8 | bps | 8.8 | bps | ||||||
Life Other Operations [1] | ||||||||||||
ROA | 39.2 | bps | (9.6 | ) bps | (74.5 | ) bps | ||||||
Effect of net realized gains/(losses), net of tax and DAC on ROA | 1.7 | bps | (32.0 | ) bps | (51.7 | ) bps | ||||||
Effect of Unlock on ROA | 3.5 | bps | (7.7 | ) bps | (32.4 | ) bps | ||||||
ROA, core earnings excluding Unlock | 34.0 | bps | 30.1 | bps | 9.6 | bps | ||||||
[1] | Proprietary mutual funds, Investment-Only mutual funds, Canadian mutual funds, and 529 college savings plans are reported in Mutual Funds in 2011 and 2010. Prior to 2010, proprietary mutual fund assets were included in Individual Annuity, Retirement Plans, and Mutual Funds, as those same assets generate earnings for each of these segments. |
• | Individual Annuity’s ROA, core earnings excluding Unlock, increased in 2011 primarily due to the favorable impact of a flat DAC amortization rate on 2011 earnings and a DRD tax settlement benefit in 2011. |
• | Retirement Plans’ ROA, core earnings excluding Unlock, increased in 2011 primarily due to increased fee and investment income resulting from higher average general account invested assets and favorable partnership income as well as a DRD tax settlement benefit. |
• | Mutual Funds’ ROA, core earnings excluding Unlock, increased in 2011 primarily due to higher earnings from continuing operations resulting primarily from lower operating expenses in 2011. Assets under management and asset-based fee income were unfavorably impacted by declining equity market performance and increasing outflows over the course of 2011. |
• | Life Other Operations’ ROA, core earnings excluding Unlock, increased in 2011 primarily due to a lower DAC amortization rate, as earnings increased in 2011 compared to 2010, and a DRD tax settlement benefit, offset in part by decreased investment income due to lower average account values in 2011 as compared to 2010. |
• | Individual Annuity’s ROA, core earnings excluding Unlock, increased in 2010 primarily due to improved net investment income on limited partnerships and other alternative investments, a lower DAC amortization rate, lower operating expenses associated with the restructuring of operations. |
• | Retirement Plans’ ROA, core earnings excluding Unlock, increased in 2010 primarily due to improved performance on limited partnerships and other alternative investments in 2010, and was driven by improvement in the equity markets, which led to increased account values and increased deposit activity. |
• | Mutual Funds’ ROA, core earnings excluding Unlock, increased in 2010 primarily due to improvement in the equity markets, which enabled this line of business to partially return to scale, and the impact of lower operating expenses, partially offset by the addition of proprietary mutual fund assets to this line of business, which has a lower ROA level than the non-proprietary mutual fund business. |
• | Life Other Operations’ ROA, core earnings excluding Unlock, increased in 2010 primarily due to lower operating expenses in 2010 and the absence of 3 Win charges recognized in the first quarter of 2009. |
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2011 | 2010 | 2009 | ||||||||||
Individual Life | ||||||||||||
After-tax margin | 9.6 | % | 17.9 | % | 1.3 | % | ||||||
Effect of net realized gains (losses), net of tax and DAC on after-tax margin | 1.3 | % | 1.3 | % | (6.6 | %) | ||||||
Effect of Unlock on after-tax margin | (5.5 | %) | 1.7 | % | (4.7 | %) | ||||||
After-tax margin, core earnings excluding Unlock | 13.8 | % | 14.9 | % | 12.6 | % | ||||||
Group Benefits | ||||||||||||
After-tax margin (excluding buyouts) | 2.0 | % | 3.9 | % | 4.2 | % | ||||||
Effect of net realized gains (losses), net of tax on after-tax margin | 0.1 | % | 0.5 | % | (1.5 | %) | ||||||
After-tax margin (excluding buyouts), excluding realized gains (losses) | 1.9 | % | 3.4 | % | 5.7 | % | ||||||
• | Individual Life’s after-tax margin, core earnings excluding Unlock, decrease was primarily due to increased benefits, losses and expenses and increased mortality costs, partially offset by increased net investment income. |
• | The decrease in Group Benefits’ after-tax margin (excluding buyouts), excluding realized gains (losses), was primarily due to higher mortality and morbidity driven by elevated incidence and lower claim terminations, and to a lesser extent, a decrease in fully insured ongoing premiums, driven by lower sales over the past year, as well as from a challenging economic environment. |
• | Individual Life’s after-tax margin, core earnings excluding Unlock, increase was primarily due to lower DAC amortization and net realized capital gains in 2010 compared to net realized capital losses in 2009. |
• | Group Benefits’ after-tax margin (excluding buyouts), excluding realized gains (losses), decrease was primarily due to a higher loss ratio from unfavorable morbidity driven by lower claim terminations on disability business. |
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December 31, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, AFS, at fair value | $ | 81,809 | 78.3 | % | $ | 77,820 | 79.2 | % | ||||||||
Fixed maturities, at fair value using the fair value option | 1,328 | 1.3 | % | 649 | 0.7 | % | ||||||||||
Equity securities, AFS, at fair value | 921 | 0.9 | % | 973 | 1.0 | % | ||||||||||
Mortgage loans | 5,728 | 5.5 | % | 4,489 | 4.6 | % | ||||||||||
Policy loans, at outstanding balance | 2,001 | 1.9 | % | 2,181 | 2.2 | % | ||||||||||
Limited partnerships and other alternative investments | 2,532 | 2.4 | % | 1,918 | 2.0 | % | ||||||||||
Other investments [1] | 2,394 | 2.3 | % | 1,617 | 1.6 | % | ||||||||||
Short-term investments | 7,736 | 7.4 | % | 8,528 | 8.7 | % | ||||||||||
Total investments excluding equity securities, trading | 104,449 | 100.0 | % | 98,175 | 100.0 | % | ||||||||||
Equity securities, trading, at fair value [2] | 30,499 | 32,820 | ||||||||||||||
Total investments | $ | 134,948 | $ | 130,995 | ||||||||||||
[1] | Primarily relates to derivative instruments. | |
[2] | As of December 31, 2011 and 2010, approximately $28.5 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. |
For the years ended December 31, | ||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||
Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | |||||||||||||||||||
Fixed maturities [2] | $ | 3,396 | 4.2 | % | $ | 3,489 | 4.3 | % | $ | 3,617 | 4.5 | % | ||||||||||||
Equity securities, AFS | 36 | 3.8 | % | 53 | 4.8 | % | 93 | 6.5 | % | |||||||||||||||
Mortgage loans | 281 | 5.4 | % | 260 | 5.2 | % | 307 | 4.8 | % | |||||||||||||||
Policy loans | 131 | 6.1 | % | 132 | 6.1 | % | 139 | 6.3 | % | |||||||||||||||
Limited partnerships and other alternative investments | 243 | 12.0 | % | 216 | 12.6 | % | (341 | ) | (15.6 | %) | ||||||||||||||
Other [3] | 301 | 329 | 314 | |||||||||||||||||||||
Investment expense | (116 | ) | (115 | ) | (112 | ) | ||||||||||||||||||
Total securities AFS and other | $ | 4,272 | 4.4 | % | $ | 4,364 | 4.5 | % | $ | 4,017 | 4.1 | % | ||||||||||||
Equity securities, trading | (1,359 | ) | (774 | ) | 3,188 | |||||||||||||||||||
Total net investment income (loss), before-tax | $ | 2,913 | $ | 3,590 | $ | 7,205 | ||||||||||||||||||
Total securities, AFS and other excluding limited partnerships and other alternative investments | 4,029 | 4.2 | % | 4,148 | 4.3 | % | 4,358 | 4.5 | % | |||||||||||||||
[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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For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gross gains on sales | $ | 693 | $ | 836 | $ | 1,056 | ||||||
Gross losses on sales | (384 | ) | (522 | ) | (1,397 | ) | ||||||
Net OTTI losses recognized in earnings | (174 | ) | (434 | ) | (1,508 | ) | ||||||
Valuation allowances on mortgage loans | 24 | (154 | ) | (403 | ) | |||||||
Japanese fixed annuity contract hedges, net [1] | 3 | 27 | 47 | |||||||||
Periodic net coupon settlements on credit derivatives/Japan | (10 | ) | (17 | ) | (49 | ) | ||||||
Results of variable annuity hedge program | ||||||||||||
U.S. GMWB derivatives, net | (397 | ) | 89 | 1,464 | ||||||||
U.S. macro hedge program | (216 | ) | (445 | ) | (733 | ) | ||||||
Total U.S. program | (613 | ) | (356 | ) | 731 | |||||||
International program | 775 | 11 | (112 | ) | ||||||||
Total results of variable annuity hedge program | 162 | (345 | ) | 619 | ||||||||
Other, net [2] | (459 | ) | (2 | ) | (369 | ) | ||||||
Net realized capital gains (losses), before-tax | $ | (145 | ) | $ | (611 | ) | $ | (2,004 | ) | |||
[1] | Relates to the Japanese fixed annuity product (adjustmentof product liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding net period coupon settlements, and Japan FVO securities). | |
[2] | Primarily consists of gains and losses on non-qualifyingderivatives and fixed maturities, FVO, Japan 3Win related foreign currency swaps, and other investment gains and losses. |
Gross gains and losses on sales | • Gross gains and losses on sales for the year ended December 31, 2011 were predominately from investment grade corporate securities, U.S. Treasuries, municipal bonds and commercial real estate related securities. These sales were the result of reinvestment into spread product well-positioned for modest economic growth, as well as the purposeful reduction of certain exposures. • Gross gains and losses on sales for the year ended December 31, 2010 were predominantly from sales of investment grade corporate securities in order to take advantage of attractive market opportunities, as well as sales of U.S. Treasuries related to tactical repositioning of the portfolio. • Gross gains and losses on sales for the year ended December 31, 2009 were predominantly within corporate, government and structured securities. Also included were gains of $360 related to the sale of Verisk/ISO securities. Gross gains and losses on sales primarily resulted from efforts to reduce portfolio risk through sales of subordinated financials and real estate related securities and from sales of U.S. Treasuries to manage liquidity. | |
Net OTTI losses | • For further information, see Other-Than-Temporary Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A. | |
Valuation allowances on mortgage loans | • For further information, see Valuation Allowances on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A. |
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Variable annuity hedge program | • For the year ended December 31, 2011, the loss on U.S. GMWB related derivatives, net, was primarily due to a decrease in long-term interest rates that resulted in a charge of ($283) and a higher interest rate volatility that resulted in a charge of ($84). The loss on U.S. macro hedge program for the year ended December 31, 2011 was primarily driven by time decay and a decrease in equity market volatility since the purchase date of certain options during the fourth quarter. The gain associated with the international program for the year ended December 31, 2011 was primarily driven by the Japanese yen strengthening, lower global equity markets, and a decrease in interest rates. • For the year ended December 31, 2010, the gain on U.S. GMWB derivatives, net, was primarily due to liability model assumption updates of $159 and lower implied market volatility of $118, and outperformance of the underlying actively managed funds as compared to their respective indices of $104, partially offset by losses due to a general decrease in long-term rates of ($158) and rising equity markets of ($90). The net loss on the U.S. macro hedge program was primarily the result of a higher equity market valuation and the impact of trading activity. • For the year ended December 31, 2009, the gain on GMWB derivatives, net, was primarily due to liability model assumption updates related to favorable policyholder experience of $566, the relative outperformance of the underlying actively managed funds as compared to their respective indices of $550, and the impact of the Company’s own credit standing of $154. Additional net gains of $56 resulted from lower implied market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. The net loss on the U.S. macro hedge program was primarily the result of a higher equity market valuation. | |
Other, net | • Other, net loss for the year ended December 31, 2011, was primarily due to losses of ($148) on credit derivatives and fair value option securities driven by credit spread widening and losses of ($141) on transactional foreign currency re-valuation associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI, due to appreciation of the Japanese yen versus the U.S. dollar. Additionally, losses of ($94) for the year ended December 31, 2011 resulted from equity futures and options used to hedge equity market risk in the investment portfolio due to an increase in the equity market during the hedged period. Also included were losses of ($69) on Japan 3Win foreign currency swaps primarily driven by a decrease in long-term U.S. interest rates. • Other, net loss for the year ended December 31, 2010 was primarily due to a loss of ($326) 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. This loss was partially offset by gains of $217 on credit derivatives driven by credit spread tightening, and gains of $59 on interest rate derivatives used to manage portfolio duration driven by a decline in long-term interest rates. • Other, net loss for the year ended December 31, 2009 primarily resulted in net losses of ($463) on credit derivatives where the Company purchased credit protection due to credit spread tightening and approximately ($300) from contingent obligations associated with the Allianz transaction. These losses were partially offset by gains of $155 on credit derivatives that assume credit risk due to credit spread tightening, as well as $140 from a change in spot rates related to transactional foreign currency predominately on the internal reinsurance of the Japan variable annuity business, which is offset in AOCI. |
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Underwriting Summary | 2011 | 2010 | 2009 | |||||||||
Written premiums | $ | 6,176 | $ | 5,796 | $ | 5,715 | ||||||
Change in unearned premium reserve | 49 | 52 | (188 | ) | ||||||||
Earned premiums | 6,127 | 5,744 | 5,903 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 4,139 | 3,579 | 3,582 | |||||||||
Current accident year catastrophes | 320 | 152 | 78 | |||||||||
Prior accident years | 125 | (361 | ) | (394 | ) | |||||||
Total losses and loss adjustment expenses | 4,584 | 3,370 | 3,266 | |||||||||
Amortization of deferred policy acquisition costs | 1,356 | 1,353 | 1,393 | |||||||||
Underwriting expenses | 443 | 426 | 399 | |||||||||
Dividends to policyholders | 18 | 5 | 10 | |||||||||
Underwriting results | (274 | ) | 590 | 835 | ||||||||
Net servicing income | 13 | 9 | 6 | |||||||||
Net investment income | 910 | 935 | 755 | |||||||||
Net realized capital gains (losses) | (50 | ) | 3 | (209 | ) | |||||||
Goodwill impairment | (30 | ) | — | — | ||||||||
Other expenses | (151 | ) | (147 | ) | (139 | ) | ||||||
Income from continuing operations before income taxes | 418 | 1,390 | 1,248 | |||||||||
Income tax expense | 40 | 407 | 356 | |||||||||
Income from continuing operations, net of tax | 378 | 983 | 892 | |||||||||
Income from discontinued operations, net of tax [1] | 150 | 12 | 7 | |||||||||
�� | ||||||||||||
Net income | $ | 528 | $ | 995 | $ | 899 | ||||||
[1] | Represents the income from operations and sale of Specialty Risk Services (“SRS”). For additional information, see Note 20 of the Notes to Consolidated Financial Statements. |
Premium Measures [1] | 2011 | 2010 | 2009 | |||||||||
New business premium | $ | 1,097 | $ | 1,122 | $ | 1,101 | ||||||
Standard commercial lines policy count retention | 82 | % | 84 | % | 81 | % | ||||||
Standard commercial lines renewal written pricing increase (decrease) | 4 | % | 1 | % | (1 | %) | ||||||
Standard commercial lines renewal earned pricing increase (decrease) | 2 | % | — | (2 | %) | |||||||
Standard commercial lines policies in-force as of end of period | 1,252,820 | 1,211,047 | 1,159,759 |
[1] | Standard commercial lines represents the Company’s small commercial and middle market property and casualty lines. |
Ratios | 2011 | 2010 | 2009 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 67.6 | 62.3 | 60.7 | |||||||||
Current accident year catastrophes | 5.2 | 2.7 | 1.3 | |||||||||
Prior accident years | 2.0 | (6.3 | ) | (6.7 | ) | |||||||
Total loss and loss adjustment expense ratio | 74.8 | 58.7 | 55.3 | |||||||||
Expense ratio | 29.4 | 31.0 | 30.4 | |||||||||
Policyholder dividend ratio | 0.3 | 0.1 | 0.2 | |||||||||
Combined ratio | 104.5 | 89.7 | 85.9 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 5.2 | 2.7 | 1.3 | |||||||||
Prior accident years | 0.2 | — | (0.4 | ) | ||||||||
Total catastrophe ratio | 5.4 | 2.7 | 0.9 | |||||||||
Combined ratio before catastrophes | 99.1 | 87.1 | 84.9 | |||||||||
Combined ratio before catastrophes and prior accident year development | 97.2 | 93.4 | 91.2 | |||||||||
Other revenues [1] | $ | 97 | $ | 96 | $ | 103 | ||||||
[1] | Represents servicing revenues. |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Premiums and other considerations | $ | 4,147 | $ | 4,278 | $ | 4,350 | ||||||
Net investment income | 411 | 429 | 403 | |||||||||
Net realized capital gains (losses) | (3 | ) | 46 | (124 | ) | |||||||
Total revenues | 4,555 | 4,753 | 4,629 | |||||||||
Benefits, losses and loss adjustment expenses | 3,306 | 3,331 | 3,196 | |||||||||
Amortization of deferred policy acquisition costs | 55 | 61 | 61 | |||||||||
Insurance operating costs and other expenses | 1,104 | 1,111 | 1,120 | |||||||||
Total benefits, losses and expenses | 4,465 | 4,503 | 4,377 | |||||||||
Income before income taxes | 90 | 250 | 252 | |||||||||
Income tax expense | — | 65 | 59 | |||||||||
Net income | $ | 90 | $ | 185 | $ | 193 | ||||||
Premiums and other considerations | 2011 | 2010 | 2009 | |||||||||
Fully insured — ongoing premiums | $ | 4,036 | $ | 4,166 | $ | 4,309 | ||||||
Buyout premiums | 49 | 58 | — | |||||||||
Other | 62 | 54 | 41 | |||||||||
Total premiums and other considerations | $ | 4,147 | $ | 4,278 | $ | 4,350 | ||||||
Fully insured ongoing sales, excluding buyouts | $ | 505 | $ | 583 | $ | 741 | ||||||
Ratios, excluding buyouts | 2011 | 2010 | 2009 | |||||||||
Loss ratio | 79.5 | % | 77.6 | % | 73.5 | % | ||||||
Loss ratio, excluding financial institutions | 84.5 | % | 82.8 | % | 77.8 | % | ||||||
Expense ratio | 28.3 | % | 27.8 | % | 27.1 | % | ||||||
Expense ratio, excluding financial institutions | 23.7 | % | 23.3 | % | 22.6 | % |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Written premiums | $ | 3,675 | $ | 3,886 | $ | 3,995 | ||||||
Change in unearned premium reserve | (72 | ) | (61 | ) | 36 | |||||||
Earned premiums | 3,747 | 3,947 | 3,959 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 2,536 | 2,737 | 2,707 | |||||||||
Current accident year catastrophes | 425 | 300 | 228 | |||||||||
Prior accident years | (75 | ) | (86 | ) | (33 | ) | ||||||
Total losses and loss adjustment expenses | 2,886 | 2,951 | 2,902 | |||||||||
Amortization of deferred policy acquisition costs | 639 | 667 | 674 | |||||||||
Underwriting expenses | 279 | 290 | 273 | |||||||||
Underwriting results | (57 | ) | 39 | 110 | ||||||||
Net servicing income | 19 | 35 | 29 | |||||||||
Net investment income | 187 | 187 | 178 | |||||||||
Net realized capital gains (losses) | (11 | ) | — | (52 | ) | |||||||
Other expenses | (162 | ) | (66 | ) | (77 | ) | ||||||
Income (loss) before income taxes | (24 | ) | 195 | 188 | ||||||||
Income tax expense (benefit) | (29 | ) | 52 | 48 | ||||||||
Net income | $ | 5 | $ | 143 | $ | 140 | ||||||
Written Premiums | 2011 | 2010 | 2009 | |||||||||
Product Line | ||||||||||||
Automobile | $ | 2,562 | $ | 2,745 | $ | 2,877 | ||||||
Homeowners | 1,113 | 1,141 | 1,118 | |||||||||
Total | $ | 3,675 | $ | 3,886 | $ | 3,995 | ||||||
Earned Premiums | ||||||||||||
Product Line | ||||||||||||
Automobile | $ | 2,619 | $ | 2,806 | $ | 2,857 | ||||||
Homeowners | 1,128 | 1,141 | 1,102 | |||||||||
Total | $ | 3,747 | $ | 3,947 | $ | 3,959 | ||||||
Premium Measures | 2011 | 2010 | 2009 | |||||||||
Policies in force at year end | ||||||||||||
Automobile | 2,080,535 | 2,226,351 | 2,395,421 | |||||||||
Homeowners | 1,338,676 | 1,426,107 | 1,488,408 | |||||||||
Total policies in force at year end | 3,419,211 | 3,652,458 | 3,883,829 | |||||||||
New business premium | ||||||||||||
Automobile | $ | 298 | $ | 311 | $ | 455 | ||||||
Homeowners | $ | 91 | $ | 106 | $ | 149 | ||||||
Policy count retention | ||||||||||||
Automobile | 83 | % | 83 | % | 86 | % | ||||||
Homeowners | 84 | % | 85 | % | 86 | % | ||||||
Renewal written pricing increase | ||||||||||||
Automobile | 5 | % | 6 | % | 3 | % | ||||||
Homeowners | 8 | % | 10 | % | 5 | % | ||||||
Renewal earned pricing increase | ||||||||||||
Automobile | 6 | % | 5 | % | 4 | % | ||||||
Homeowners | 9 | % | 7 | % | 6 | % |
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Ratios and Supplemental Data | 2011 | 2010 | 2009 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 67.7 | 69.4 | 68.4 | |||||||||
Current accident year catastrophes | 11.3 | 7.6 | 5.8 | |||||||||
Prior accident years | (2.0 | ) | (2.2 | ) | (0.8 | ) | ||||||
Total loss and loss adjustment expense ratio | 77.0 | 74.8 | 73.3 | |||||||||
Expense ratio | 24.5 | 24.2 | 23.9 | |||||||||
Combined ratio | 101.5 | 99.0 | 97.2 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 11.3 | 7.6 | 5.8 | |||||||||
Prior accident years | 0.7 | 0.3 | 0.1 | |||||||||
Total catastrophe ratio | 12.0 | 7.8 | 5.9 | |||||||||
Combined ratio before catastrophes | 89.5 | 91.2 | 91.3 | |||||||||
Combined ratio before catastrophes and prior accident years development | 92.2 | 93.6 | 92.3 | |||||||||
Other revenues [1] | $ | 156 | $ | 172 | $ | 154 | ||||||
[1] | Represents servicing revenues. |
Product Combined Ratios | 2011 | 2010 | 2009 | |||||||||
Automobile | 96.4 | 97.1 | 96.9 | |||||||||
Homeowners | 113.7 | 104.0 | 98.2 | |||||||||
Total | 101.5 | 99.0 | 97.2 | |||||||||
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Fee income and other | $ | 1,411 | $ | 1,493 | $ | 1,472 | ||||||
Earned premiums | 249 | 223 | (7 | ) | ||||||||
Net investment income | 768 | 814 | 771 | |||||||||
Net realized capital losses | (591 | ) | (339 | ) | (7 | ) | ||||||
Total revenues | 1,837 | 2,191 | 2,229 | |||||||||
Benefits, losses and loss adjustment expenses | 1,106 | 1,054 | 1,310 | |||||||||
Amortization of DAC | 483 | (56 | ) | 1,339 | ||||||||
Insurance operating costs and other expenses | 536 | 542 | 505 | |||||||||
Total benefits, losses and expenses | 2,125 | 1,540 | 3,154 | |||||||||
Income (loss) before income taxes | (288 | ) | 651 | (925 | ) | |||||||
Income tax expense (benefit) | (274 | ) | 124 | (481 | ) | |||||||
Net income (loss) | $ | (14 | ) | $ | 527 | $ | (444 | ) | ||||
Assets Under Management [1] | 2011 | 2010 | 2009 | |||||||||
Fixed MVA annuity and other account values | $ | 11,631 | 12,223 | 12,110 | ||||||||
Variable annuity account values | 68,760 | 83,013 | 84,679 | |||||||||
Total assets under management | $ | 80,391 | $ | 95,236 | $ | 96,789 | ||||||
Account Value Roll Forward | 2011 | 2010 | 2009 | |||||||||
Variable Annuities | ||||||||||||
Account value, beginning of period | $ | 83,013 | $ | 119,387 | $ | 105,921 | ||||||
Transfers affecting beginning of period [1] | — | (34,708 | ) | (31,343 | ) | |||||||
Account value, beginning of period, as adjusted | $ | 83,013 | $ | 84,679 | $ | 74,578 | ||||||
Net flows | (11,552 | ) | (9,966 | ) | (7,122 | ) | ||||||
Change in market value and other | (2,701 | ) | 8,300 | 17,223 | ||||||||
Account value, end of period | $ | 68,760 | $ | 83,013 | $ | 84,679 | ||||||
Net Investment Spread | 17 | bps | 27 | bps | 1 | bps | ||||||
Expense Ratios | ||||||||||||
General insurance expense ratio | 23.5 | bps | 22.4 | bps | 24.1 | bps | ||||||
DAC amortization ratio | 247.7 | % | (9.4 | %) | 323.4 | % | ||||||
Effect of realized gains (losses) on DAC amortization | (183.3 | %) | 39.3 | % | (141.4 | %) | ||||||
Effect of Unlocks on DAC amortization | (12.0 | %) | 22.4 | % | (120.1 | %) | ||||||
DAC amortization ratio, core earnings, excluding Unlock | 52.4 | % | 52.3 | % | 62.0 | % | ||||||
[1] | International and institutional annuities were transferred retrospectively to Life Other Operations. |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Fee income and other | $ | 1,001 | $ | 952 | $ | 1,027 | ||||||
Earned premiums | (102 | ) | (96 | ) | (87 | ) | ||||||
Net investment income | 456 | 400 | 335 | |||||||||
Net realized capital gains (losses) | 30 | 24 | (145 | ) | ||||||||
Total revenues | 1,385 | 1,280 | 1,130 | |||||||||
Benefits, losses and loss adjustment expenses | 816 | 644 | 640 | |||||||||
Insurance operating costs and other expenses | 182 | 181 | 188 | |||||||||
Amortization of DAC | 221 | 119 | 314 | |||||||||
Total benefits, losses and expenses | 1,219 | 944 | 1,142 | |||||||||
Income (loss) before income taxes | 166 | 336 | (12 | ) | ||||||||
Income tax expense (benefit) | 33 | 107 | (27 | ) | ||||||||
Net income | $ | 133 | $ | 229 | $ | 15 | ||||||
Account Values | ||||||||||||
Individual variable universal life insurance | $ | 5,535 | $ | 6,115 | $ | 5,766 | ||||||
Universal life, interest sensitive whole life, modified guaranteed life insurance and other | 6,765 | 6,128 | 5,693 | |||||||||
Total account values | $ | 12,300 | $ | 12,243 | $ | 11,459 | ||||||
Individual Life Insurance In-force | ||||||||||||
Variable universal life insurance | $ | 69,716 | $ | 74,044 | $ | 78,671 | ||||||
Universal life, interest sensitive whole life, modified guaranteed life insurance | 64,006 | 58,789 | 56,030 | |||||||||
Term life | 81,494 | 75,797 | 69,968 | |||||||||
Total life insurance in-force | $ | 215,216 | $ | 208,630 | $ | 204,669 | ||||||
Net Investment Spread | 153 | bps | 145 | bps | 81 | bps | ||||||
Death Benefits | $ | 423 | $ | 362 | $ | 346 | ||||||
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Fee income and other | $ | 373 | $ | 352 | $ | 321 | ||||||
Earned premiums | 7 | 7 | 3 | |||||||||
Net investment income | 396 | 364 | 315 | |||||||||
Net realized capital losses | (10 | ) | (18 | ) | (333 | ) | ||||||
Total revenues | 766 | 705 | 306 | |||||||||
Benefits, losses and loss adjustment expenses | 308 | 278 | 269 | |||||||||
Insurance operating costs and other expenses | 354 | 340 | 346 | |||||||||
Amortization of DAC | 134 | 27 | 56 | |||||||||
Total benefits, losses and expenses | 796 | 645 | 671 | |||||||||
Income (loss) before income taxes | (30 | ) | 60 | (365 | ) | |||||||
Income tax expense (benefit) | (45 | ) | 13 | (143 | ) | |||||||
Net income (loss) | $ | 15 | $ | 47 | $ | (222 | ) | |||||
Assets Under Management | 2011 | 2010 | 2009 | |||||||||
401(k) account values | $ | 21,124 | $ | 20,291 | $ | 16,142 | ||||||
403(b)/457 account values | 12,775 | 12,649 | 11,116 | |||||||||
401(k)/403(b) mutual funds | 18,403 | 19,578 | 16,704 | |||||||||
Total assets under management | $ | 52,302 | $ | 52,518 | $ | 43,962 | ||||||
Assets Under Management Roll Forward | 2011 | 2010 | 2009 | |||||||||
Assets under management, beginning of period | $ | 52,518 | $ | 43,962 | $ | 37,036 | ||||||
Net flows | 761 | 1,545 | (1,142 | ) | ||||||||
Transfers in and reclassifications [1] | 267 | 1,488 | — | |||||||||
Change in market value and other | (1,244 | ) | 5,523 | 8,068 | ||||||||
Assets under management, end of period | $ | 52,302 | $ | 52,518 | $ | 43,962 | ||||||
Net Investment Spread | 98 | bps | 99 | bps | 66 | bps | ||||||
[1] | Lifetime Income and Maturity Funding business of $194 was transferred from Individual Annuity to Retirement Plans effective January 1, 2010. Also in 2010, the Company identified specific plans that required reclassification of $1.3 billion from AUA to AUM. |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Fee income and other | $ | 649 | $ | 664 | $ | 518 | ||||||
Net investment loss | (3 | ) | (8 | ) | (21 | ) | ||||||
Net realized capital gains (loss) | 1 | — | — | |||||||||
Total revenues | 647 | 656 | 497 | |||||||||
Insurance operating costs and other expenses | 448 | 458 | 395 | |||||||||
Amortization of DAC | 47 | 51 | 50 | |||||||||
Total benefits, losses and expenses | 495 | 509 | 445 | |||||||||
Income from continuing operations, before income taxes | 152 | 147 | 52 | |||||||||
Income tax expense | 54 | 52 | 18 | |||||||||
Income from continuing operations | 98 | 95 | 34 | |||||||||
Income from discontinued operations, net of tax [1] | — | 37 | — | |||||||||
Net income | $ | 98 | $ | 132 | $ | 34 | ||||||
Assets Under Management | 2011 | 2010 | 2009 | |||||||||
Retail mutual fund assets | $ | 40,228 | $ | 48,753 | $ | 42,829 | ||||||
Investment Only mutual fund assets | 6,983 | 6,659 | — | |||||||||
529 College Savings Plan and Canadian mutual fund assets | 1,557 | 1,472 | 1,202 | |||||||||
Total non-proprietary and Canadian mutual fund assets | 48,768 | 56,884 | 44,031 | |||||||||
Proprietary mutual fund assets | 36,770 | 43,602 | — | |||||||||
Total mutual fund assets under management | $ | 85,538 | $ | 100,486 | $ | 44,031 | ||||||
Non-Proprietary and Canadian Mutual Fund AUM Roll Forward | 2011 | 2010 | 2009 | |||||||||
Non-Proprietary and Canadian Mutual Fund AUM, beginning of period | $ | 56,884 | $ | 44,031 | $ | 32,710 | ||||||
Transfers in (out) [2] | — | 5,617 | (826 | ) | ||||||||
Net flows | (4,378 | ) | 2,750 | 2,115 | ||||||||
Change in market value and other | (3,738 | ) | 4,486 | 10,032 | ||||||||
Non-Proprietary and Canadian Mutual Fund AUM, end of period | $ | 48,768 | $ | 56,884 | $ | 44,031 | ||||||
Proprietary Mutual Fund AUM Roll Forward | 2011 | 2010 | 2009 | |||||||||
Proprietary Mutual Fund AUM, beginning of period | $ | 43,602 | $ | — | $ | — | ||||||
Transfers in [3] | — | 43,890 | — | |||||||||
Net flows | (5,797 | ) | (5,334 | ) | — | |||||||
Change in market value | (1,035 | ) | 5,046 | — | ||||||||
Proprietary Mutual Fund AUM, end of period | $ | 36,770 | $ | 43,602 | $ | — | ||||||
[1] | Represents income from discontinued operations, net of tax of Hartford Investments Canada Corporation (“HICC”). For additional information, see Note 20 of the Notes to Consolidated Financial Statements. | |
[2] | Canadian and Offshore businesses were transferred to International Annuity within Life Other Operations effective January 1, 2009. Investment-only and Canadian mutual fund assets were transferred from Life Other Operations effective January 1, 2010. | |
[3] | Proprietary mutual fund assets under management are included in the Mutual Fund reporting segment effective January 1, 2010. |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Fee income and other | $ | 1,045 | $ | 1,046 | $ | 948 | ||||||
Earned premiums | (25 | ) | 3 | 345 | ||||||||
Net investment income (loss) | ||||||||||||
Securities available-for-sale and other | 973 | 999 | 947 | |||||||||
Equity securities trading [1] | (1,359 | ) | (774 | ) | 3,188 | |||||||
Total net investment income (loss) | (386 | ) | 225 | 4,135 | ||||||||
Net realized capital gains (losses) | 586 | (417 | ) | (702 | ) | |||||||
Total revenues | 1,220 | 857 | 4,726 | |||||||||
Benefits, losses and loss adjustment expenses | 1,305 | 1,148 | 1,854 | |||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities [1] | (1,359 | ) | (774 | ) | 3,188 | |||||||
Amortization of DAC | 492 | 305 | 370 | |||||||||
Insurance operating costs and other expenses | 274 | 262 | 350 | |||||||||
Total benefits, losses and expenses | 712 | 941 | 5,762 | |||||||||
Income (loss) from continuing operations, before income taxes | 508 | (84 | ) | (1,036 | ) | |||||||
Income tax expense (benefit) | 150 | — | (343 | ) | ||||||||
Income (loss) from continuing operations | 358 | (84 | ) | (693 | ) | |||||||
Loss from discontinued operations, net of tax [2] | — | (6 | ) | (5 | ) | |||||||
Net income (loss) | $ | 358 | $ | (90 | ) | $ | (698 | ) | ||||
Assets Under Management [3] | ||||||||||||
Variable annuity account values [4] | $ | 31,162 | $ | 33,507 | $ | 32,948 | ||||||
Fixed MVA annuity and other account values [5] | 4,786 | 4,596 | 4,365 | |||||||||
Institutional annuity account values [6] | 19,330 | 19,674 | 22,373 | |||||||||
Private Placement Life Insurance (“PPLI”) | 36,335 | 36,042 | 35,146 | |||||||||
Account Value Roll Forward | ||||||||||||
Variable Annuities | ||||||||||||
Account value, beginning of period | $ | 33,507 | $ | 32,948 | $ | 31,335 | ||||||
Net flows | (1,848 | ) | (1,946 | ) | (606 | ) | ||||||
Change in market value and other | (2,130 | ) | (1,531 | ) | 2,545 | |||||||
Effect of currency translation | 1,633 | 4,036 | (326 | ) | ||||||||
Account value, end of period | $ | 31,162 | $ | 33,507 | $ | 32,948 | ||||||
[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] | Represents loss from discontinued operations, net of tax of Hartford Advantage investment, Ltd. (“HAIL”). For additional information, see Note 20 of the Notes to Consolidated Financial Statements. | |
[3] | International and institutional annuities were transferred retrospectively from Individual Annuity; PPLI was transferred retrospectively from Individual Life. | |
[4] | Canadian and Offshore businesses were transferred from Mutual Funds effective January 1, 2009. Investment-only and Canadian mutual fund assets were transferred to Mutual Funds effective January 1, 2010. | |
[5] | Includes approximately $1.9 billion, $1.9 billion and $1.8 billion related to the triggering of the guaranteed minimum income benefit for the 3 Win product as of December 31, 2011, 2010 and 2009, respectively. This account value is not expected to generate material future profit or loss to the Company. | |
[6] | Included in the balance is approximately $1.3 billion for the year ended December 31, 2011 and approximately $1.4 billion for the year ended December 31, 2010 related to an intrasegment funding agreement which is eliminated in consolidation. |
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Operating Summary | 2011 | 2010 | 2009 | |||||||||
Earned premiums | $ | — | $ | 1 | $ | — | ||||||
Net investment income | 151 | 163 | 161 | |||||||||
Net realized capital gains (losses) | (1 | ) | 24 | (26 | ) | |||||||
Total revenues | 150 | 188 | 135 | |||||||||
Benefits, losses and loss adjustment expenses | 317 | 251 | 241 | |||||||||
Insurance operating costs and other expenses | 24 | 30 | 23 | |||||||||
Total benefits, losses and expenses | 341 | 281 | 264 | |||||||||
Loss before income taxes | (191 | ) | (93 | ) | (129 | ) | ||||||
Income tax benefit | (74 | ) | (40 | ) | (51 | ) | ||||||
Net loss | $ | (117 | ) | $ | (53 | ) | $ | (78 | ) | |||
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Operating Summary [1] | 2011 | 2010 | 2009 | |||||||||
Earned premiums | $ | — | $ | 2 | $ | (1 | ) | |||||
Fee income [2] | 209 | 187 | 220 | |||||||||
Net investment income | 23 | 81 | 173 | |||||||||
Net realized capital gains (losses) | (96 | ) | 66 | (406 | ) | |||||||
Other revenue | — | (1 | ) | 4 | ||||||||
Total revenues | 136 | 335 | (10 | ) | ||||||||
Benefits, losses and loss adjustment expenses | (3 | ) | (2 | ) | 153 | |||||||
Insurance operating costs and other expenses | 202 | 325 | 323 | |||||||||
Interest expense | 508 | 508 | 476 | |||||||||
Goodwill impairment | — | — | 32 | |||||||||
Total benefits, losses and expenses | 707 | 831 | 984 | |||||||||
Loss from continuing operations before income taxes | (571 | ) | (496 | ) | (994 | ) | ||||||
Income tax benefit | (201 | ) | (168 | ) | (274 | ) | ||||||
Loss from continuing operations, net of tax | (370 | ) | (328 | ) | (720 | ) | ||||||
Loss from discontinued operations, net of tax [3] | (64 | ) | (107 | ) | (6 | ) | ||||||
Net loss | $ | (434 | ) | $ | (435 | ) | $ | (726 | ) | |||
[1] | Leveraged corporate owned life insurance was transferred from Corporate to Life Other Operations, effective January 1, 2010. | |
[2] | Fee income includes the income associated with the sales of non-proprietary insurance products in the Company’s broker-dealer subsidiaries that has an offsetting commission expense in insurance operating costs and other expenses. | |
[3] | Represents the loss from operations and sale of Federal Trust Corporation. For additional information, see Note 20 of the Notes to Consolidated Financial Statements. |
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• | Insurance Risk | ||
• | Operational Risk | ||
• | Financial Risk | ||
• | Business Risk |
• | Property:Risk of loss to personal or commercial property from automobile related accidents, weather, explosions, smoke, shaking, fire, theft, vandalism, inadequate installation, faulty equipment, collisions and falling objects, and/or machinery mechanical breakdown resulting in physical damage and other covered perils. |
• | Liability:Risk of loss from automobile related accidents, uninsured and underinsured drivers, lawsuits from accidents, defective products, breach of warranty, negligent acts by professional practitioners, environmental claims, latent exposures, fraud, coercion, forgery, failure to fulfill obligations per contract surety, liability from errors and omissions, derivative lawsuits, and other securities actions and covered perils. |
• | Mortality:Risk of loss from unexpected trends in insured deaths impacting timing of payouts from life insurance or annuity products, personal or commercial automobile related accidents, and death of employees or executives during the course of employment, while on disability, or while collecting worker’s compensation benefits. |
• | Morbidity: Risk of loss to an insured from illness incurred during the course of employment or illness from other covered perils. |
• | Disability:Risk of loss incurred from personal or commercial automobile related losses, accidents arising outside of the workplace, injuries or accidents incurred during the course of employment, or from equipment each loss resulting short term or long term disability payments. |
• | Longevity:Risk of loss from increase life expectancy trends among policyholders receiving long term benefit payments or annuity payouts. |
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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 | 1/1/2012 to 1/1/2013 | 90 | % | $ | 750 | $ | 350 | |||||||
Reinsurance with the FHCF covering Florida Personal Lines property catastrophe losses from a single event | 6/1/2011 to 6/1/2012 | 90 | % | 145 | [1] | 55 | ||||||||
Workers compensation losses arising from a single catastrophe event [2] | 7/1/2011 to 7/1/2012 | 95 | % | 350 | 100 |
[1] | The per occurrence limit on the FHCF treaty is $145 for the 6/1/2011 to 6/1/2012 treaty year based on the Company’s election to purchase the required coverage from FHCF. For 6/1/2010 to 6/1/2011, the Company elected not to purchase additional limits under the Temporary Increase in Coverage Limit (TICL) statutory provision. | |
[2] | In addition, to the limit shown above, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, 80% of $30 excess a $20 retention. |
Bond amount issued | ||||||||||
Covered perils | Treaty term | Covered losses | by Foundation Re III | |||||||
Hurricane loss events affecting the Gulf and Eastern Coast of the United States | 1/27/2010 to 1/27/2014 | 90% of $200 in losses in excess of an index loss trigger equating to approximately $1.2 billion in losses to The Hartford | $ | 180 | ||||||
Hurricane loss events affecting the Gulf and Eastern Coast of the United States | 2/18/2011 to 2/18/2015 | 67.5% of $200 in losses in excess of an index loss trigger equating to approximately $1.4 billion in losses to The Hartford | 135 |
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Reinsurance Recoverable | December 31, 2011 | December 31, 2010 | ||||||
Paid loss and loss adjustment expenses | $ | 153 | $ | 198 | ||||
Unpaid loss and loss adjustment expenses | 2,884 | 2,963 | ||||||
Gross reinsurance recoverable | 3,037 | 3,161 | ||||||
Less: allowance for uncollectible reinsurance | (290 | ) | (290 | ) | ||||
Net reinsurance recoverable | $ | 2,747 | $ | 2,871 | ||||
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Distribution of gross reinsurance recoverable | December 31, 2011 | December 31, 2010 | ||||||||||||||
Gross reinsurance recoverable | $ | 3,037 | $ | 3,161 | ||||||||||||
Less: mandatory (assigned risk) pools and structured settlements | (617 | ) | (614 | ) | ||||||||||||
Gross reinsurance recoverable excluding mandatory pools and structured settlements | $ | 2,420 | $ | 2,547 | ||||||||||||
% of Total | % of Total | |||||||||||||||
Rated A- (Excellent) or better by A.M. Best [1] | $ | 1,774 | 73.3 | % | $ | 1,869 | 73.3 | % | ||||||||
Other rated by A.M. Best | 52 | 2.2 | % | 43 | 1.7 | % | ||||||||||
Total rated companies | 1,826 | 75.5 | % | 1,912 | 75.0 | % | ||||||||||
Voluntary pools | 100 | 4.1 | % | 107 | 4.2 | % | ||||||||||
Captives | 242 | 10.0 | % | 226 | 8.9 | % | ||||||||||
Other not rated companies | 252 | 10.4 | % | 302 | 11.9 | % | ||||||||||
Total | $ | 2,420 | 100.0 | % | $ | 2,547 | 100.0 | % | ||||||||
[1] | Based on A.M. Best ratings as of December 31, 2011 and 2010, respectively. |
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• | Internal Fraud |
• | External Fraud |
• | Employment Practices & Workplace Safety |
• | Business Disruption & Systems Failures |
• | Clients, Products & Business Practice |
• | Damage to Physical Assets |
• | Execution, Delivery & Process Management |
• | Liquidity Risk |
• | Interest Rate Risk |
• | Equity Risk |
• | Foreign Currency Exchange Risk |
• | Credit Risk |
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Change in Net Economic Value as of December 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | (494 | ) | $ | 287 | $ | (190 | ) | $ | 96 |
Change in Fair Value as of December 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | 3,248 | $ | (2,985 | ) | $ | 2,988 | $ | (2,774 | ) |
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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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Total Variable Annuity Guarantees | ||||||||||||||||||||
As of December 31, 2011 | ||||||||||||||||||||
% of | ||||||||||||||||||||
Account | Gross Net | Retained Net | Contracts In | % In the | ||||||||||||||||
($ in billions) | Value | Amount at Risk | Amount at Risk | the Money | Money[4] | |||||||||||||||
U. S Variable Annuity [1] | ||||||||||||||||||||
GMDB [2] | $ | 68.7 | $ | 12.0 | $ | 5.1 | 77 | % | 15 | % | ||||||||||
GMWB | 36.6 | 1.9 | 1.6 | 45 | % | 12 | % | |||||||||||||
Japan Variable Annuity [1] | ||||||||||||||||||||
GMDB | 29.2 | 10.9 | 9.4 | 99 | % | 27 | % | |||||||||||||
GMIB [3] | 27.3 | 7.5 | 7.5 | 99 | % | 22 | % | |||||||||||||
UK Variable Annuity [1] | ||||||||||||||||||||
GMDB | 1.9 | 0.08 | 0.08 | 100 | % | 4 | % | |||||||||||||
GMWB | 1.8 | 0.07 | 0.07 | 57 | % | 3 | % |
Total Variable Annuity Guarantees | ||||||||||||||||||||
As of December 31, 2010 | ||||||||||||||||||||
% of | ||||||||||||||||||||
Account | Gross Net | Retained Net | Contracts In | % In the | ||||||||||||||||
($ in billions) | Value | Amount at Risk | Amount at Risk | the Money | Money[4] | |||||||||||||||
U. S Variable Annuity [1] | ||||||||||||||||||||
GMDB [2] | $ | 83.0 | $ | 10.7 | $ | 4.3 | 70 | % | 12 | % | ||||||||||
GMWB | 44.8 | 1.3 | 1.1 | 35 | % | 9 | % | |||||||||||||
Japan Variable Annuity [1] | ||||||||||||||||||||
GMDB | 31.2 | 8.8 | 7.6 | 98 | % | 22 | % | |||||||||||||
GMIB [3] | 29.7 | 6.1 | 6.1 | 99 | % | 17 | % | |||||||||||||
UK Variable Annuity [1] | ||||||||||||||||||||
GMDB | 2.2 | 0.04 | 0.04 | 100 | % | 1 | % | |||||||||||||
GMWB | 2.5 | 0.03 | 0.03 | 25 | % | 1 | % |
[1] | Policies with a guaranteed living benefits (a GMWB in the US or UK, or a GMIB in Japan) also have a guaranteed death benefit. The net amount at risk (“NAR”) for each benefit is shown; 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, by contract, the GMDB NAR is reduced to $0. When a policy goes into benefit status on a GMIB, its GMDB NAR is released | |
[2] | Excludes group annuity contracts with GMDB benefits. | |
[3] | Includes small amount of GMWB | |
[4 | For all contracts that are “in the money”, this represents the percentage by which the average contract was in the money. |
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GMIB [1] | ||||||||
($ in billions) | Account Value | Net Amount at Risk | ||||||
2013 | $ | 0.3 | $ | — | ||||
2014 | 4.5 | 0.9 | ||||||
2015 | 7.3 | 2.0 | ||||||
2016 | 2.5 | 0.8 | ||||||
2017 | 2.8 | 0.9 | ||||||
2018 & beyond [2] | 6.9 | 2.0 | ||||||
Total | $ | 24.3 | $ | 6.6 | ||||
[1] | Excludes certain non-GMIB living benefits of $2.9 billion of account value and $0.9 billion of NAR. | |
[2] | In 2018 & beyond, $2.6 billion of the $6.9 billion is primarily associated with account value that is eligible in 2021. |
Variable Annuity Guarantees [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 GMWB | Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid | Equity Market Levels | ||
International Variable Guarantees | ||||
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. |
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U.S. Programs | International Programs | |||||||||
GMWB | Macro | Japan/UK | ||||||||
Hedge Assets | Liabilities | Hedge Assets | Liabilities | Hedge Assets | Liabilities [1] | |||||
Fair Value | Fair Value | Fair Value | Not Fair Value | Fair Value | Not Fair Value |
[1] | The liabilities for international variable annuity are primarily not measured on a fair value basis. However there is an immaterial portion of the international variable annuity with a GMWB or GMAB which is measured on a fair value basis. |
U.S. GAAP Sensitivity Analysis | U.S. Programs | International Programs | ||||||||||||||||||||||||||||||||||
(pre Tax/DAC) [1] | GMWB | Macro | Japan/UK | |||||||||||||||||||||||||||||||||
Equity Market Return | -20 | % | -10 | % | +10 | % | -20 | % | -10 | % | +10 | % | -20 | % | -10 | % | +10 | % | ||||||||||||||||||
Potential Net Fair Value Impact | $ | (35 | ) | $ | (4 | ) | $ | (20 | ) | $ | 380 | $ | 141 | $ | (89 | ) | $ | 908 | $ | 456 | $ | (451 | ) | |||||||||||||
Interest Rates | -50 | bps | -25 | bps | +25 | bps | -50 | bps | -25 | bps | +25 | bps | -50 | bps | -25 | bps | +25 | bps | ||||||||||||||||||
Potential Net Fair Value Impact | $ | (221 | ) | $ | (106 | ) | $ | 99 | $ | 12 | $ | 6 | $ | (6 | ) | $ | 477 | $ | 235 | $ | (240 | ) | ||||||||||||||
Implied Volatilities | +10 | % | +2 | % | -10 | % | +10 | % | +2 | % | -10 | % | +10 | % | +2 | % | -10 | % | ||||||||||||||||||
Potential Net Fair Value Impact | $ | (565 | ) | $ | (110 | ) | $ | 509 | $ | 90 | $ | 19 | $ | (111 | ) | $ | 30 | $ | 6 | $ | (26 | ) | ||||||||||||||
Yen Strengthens +/ Weakens - | +20 | % | +10 | % | -10 | % | +20 | % | +10 | % | -10 | % | +20 | % | +10 | % | -10 | % | ||||||||||||||||||
Potential Net Fair Value Impact | N/A | N/A | N/A | N/A | N/A | N/A | $ | 2,875 | $ | 1,197 | $ | (749 | ) |
[1] | These sensitivities are based on the following key market levels as of December 30, 2011: 1) S&P of 1,257.60; 2) 10yr US swap rate of 2.03%; 3) S&P 10yr volatility of 30.15% and 4) FX rates of USDJPY @ 76.91 and EURJPY @99.66. |
• | The sensitivity analysis is only valid as of the measurement date and assumes instantaneous changes in the capital market factors and no ability to rebalance hedge positions prior to the market changes; |
• | Changes to the underlying hedging program, policyholder behavior, and variation in underlying fund performance relative to the hedged index, which could materially impact the liability; and |
• | The impact of elapsed time on liabilities or hedge assets, any non-parallel shifts in capital market factors, or correlated moves across the sensitivities. |
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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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Fixed Maturities by Credit Quality | ||||||||||||||||||||||||
December 31, 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 | $ | 8,901 | $ | 9,364 | 11.4 | % | $ | 9,961 | $ | 9,918 | 12.7 | % | ||||||||||||
AAA | 9,631 | 10,113 | 12.4 | % | 10,080 | 10,174 | 13.1 | % | ||||||||||||||||
AA | 15,471 | 15,844 | 19.4 | % | 15,933 | 15,554 | 20.0 | % | ||||||||||||||||
A | 19,501 | 21,053 | 25.7 | % | 19,265 | 19,460 | 25.0 | % | ||||||||||||||||
BBB | 20,972 | 21,760 | 26.6 | % | 18,849 | 19,153 | 24.6 | % | ||||||||||||||||
BB & below | 4,502 | 3,675 | 4.5 | % | 4,331 | 3,561 | 4.6 | % | ||||||||||||||||
Total fixed maturities | $ | 78,978 | 81,809 | 100.0 | % | $ | 78,419 | 77,820 | 100.0 | % | ||||||||||||||
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Securities by Type | ||||||||||||||||||||||||||||||||||||||||
December 31, 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 | $ | 2,688 | 34 | $ | (208 | ) | $ | 2,514 | 3.1 | % | $ | 2,496 | $ | 23 | $ | (221 | ) | $ | 2,298 | 2.9 | % | |||||||||||||||||||
Small business | 418 | 1 | (123 | ) | 296 | 0.4 | % | 453 | — | (141 | ) | 312 | 0.4 | % | ||||||||||||||||||||||||||
Other | 324 | 20 | (1 | ) | 343 | 0.4 | % | 298 | 15 | (34 | ) | 279 | 0.4 | % | ||||||||||||||||||||||||||
CDOs | ||||||||||||||||||||||||||||||||||||||||
Collateralized loan obligations (“CLOs”) | 2,334 | — | (181 | ) | 2,153 | 2.6 | % | 2,429 | 1 | (212 | ) | 2,218 | 2.9 | % | ||||||||||||||||||||||||||
CREs | 485 | 16 | (167 | ) | 334 | 0.4 | % | 653 | — | (266 | ) | 387 | 0.5 | % | ||||||||||||||||||||||||||
Other | — | — | — | — | — | 6 | — | — | 6 | — | ||||||||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||||||||||
Agency backed [1] | 637 | 40 | — | 677 | 0.8 | % | 519 | 9 | (4 | ) | 524 | 0.7 | % | |||||||||||||||||||||||||||
Bonds | 5,992 | 182 | (487 | ) | 5,687 | 7.0 | % | 6,985 | 147 | (583 | ) | 6,549 | 8.4 | % | ||||||||||||||||||||||||||
Interest only (“IOs”) | 563 | 49 | (25 | ) | 587 | 0.7 | % | 793 | 79 | (28 | ) | 844 | 1.1 | % | ||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||
Basic industry [2] | 3,690 | 309 | (19 | ) | 3,979 | 4.9 | % | 2,993 | 190 | (24 | ) | 3,159 | 4.1 | % | ||||||||||||||||||||||||||
Capital goods | 3,327 | 331 | (33 | ) | 3,625 | 4.4 | % | 3,179 | 223 | (23 | ) | 3,379 | 4.3 | % | ||||||||||||||||||||||||||
Consumer cyclical | 2,277 | 206 | (8 | ) | 2,475 | 3.0 | % | 1,883 | 115 | (12 | ) | 1,986 | 2.6 | % | ||||||||||||||||||||||||||
Consumer non-cyclical | 5,985 | 644 | (13 | ) | 6,616 | 8.1 | % | 6,126 | 444 | (29 | ) | 6,541 | 8.4 | % | ||||||||||||||||||||||||||
Energy | 3,338 | 381 | (15 | ) | 3,704 | 4.5 | % | 3,377 | 212 | (23 | ) | 3,566 | 4.6 | % | ||||||||||||||||||||||||||
Financial services | 7,763 | 334 | (526 | ) | 7,571 | 9.3 | % | 7,545 | 253 | (470 | ) | 7,328 | 9.4 | % | ||||||||||||||||||||||||||
Tech./comm. | 4,357 | 443 | (61 | ) | 4,739 | 5.8 | % | 4,268 | 269 | (68 | ) | 4,469 | 5.7 | % | ||||||||||||||||||||||||||
Transportation | 1,285 | 123 | (6 | ) | 1,402 | 1.7 | % | 1,141 | 69 | (13 | ) | 1,197 | 1.5 | % | ||||||||||||||||||||||||||
Utilities | 8,236 | 857 | (38 | ) | 9,055 | 11.2 | % | 7,099 | 386 | (58 | ) | 7,427 | 9.5 | % | ||||||||||||||||||||||||||
Other [2] | 903 | 33 | (20 | ) | 845 | 1.0 | % | 885 | 13 | (27 | ) | 832 | 1.1 | % | ||||||||||||||||||||||||||
Foreign govt./govt. agencies | 2,030 | 141 | (10 | ) | 2,161 | 2.6 | % | 1,627 | 73 | (17 | ) | 1,683 | 2.2 | % | ||||||||||||||||||||||||||
Municipal | ||||||||||||||||||||||||||||||||||||||||
Taxable | 1,688 | 120 | (51 | ) | 1,757 | 2.1 | % | 1,319 | 9 | (129 | ) | 1,199 | 1.5 | % | ||||||||||||||||||||||||||
Tax-exempt | 10,869 | 655 | (21 | ) | 11,503 | 14.1 | % | 11,150 | 141 | (366 | ) | 10,925 | 14.0 | % | ||||||||||||||||||||||||||
Residential mortgage-backed securities (“RMBS”) | ||||||||||||||||||||||||||||||||||||||||
Agency | 4,436 | 222 | — | 4,658 | 5.7 | % | 4,283 | 109 | (27 | ) | 4,365 | 5.6 | % | |||||||||||||||||||||||||||
Non-agency | 62 | — | (2 | ) | 60 | 0.1 | % | 78 | — | (3 | ) | 75 | 0.1 | % | ||||||||||||||||||||||||||
Alt-A | 115 | 5 | (21 | ) | 99 | 0.1 | % | 168 | — | (19 | ) | 149 | 0.2 | % | ||||||||||||||||||||||||||
Sub-prime | 1,348 | 25 | (433 | ) | 940 | 1.1 | % | 1,507 | — | (413 | ) | 1,094 | 1.4 | % | ||||||||||||||||||||||||||
U.S. Treasuries | 3,828 | 203 | (2 | ) | 4,029 | 4.9 | % | 5,159 | 24 | (154 | ) | 5,029 | 6.5 | % | ||||||||||||||||||||||||||
Fixed maturities, AFS | 78,978 | 5,374 | (2,471 | ) | 81,809 | 100 | % | 78,419 | 2,804 | (3,364 | ) | 77,820 | 100.0 | % | ||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
Financial services | 479 | 10 | (187 | ) | 302 | 569 | 4 | (127 | ) | 446 | ||||||||||||||||||||||||||||||
Other | 577 | 58 | (16 | ) | 619 | 444 | 88 | (5 | ) | 527 | ||||||||||||||||||||||||||||||
Equity securities, AFS | 1,056 | 68 | (203 | ) | 921 | 1,013 | 92 | (132 | ) | 973 | ||||||||||||||||||||||||||||||
Total AFS securities | $ | 80,034 | 5,442 | $ | (2,674 | ) | $ | 82,730 | $ | 79,432 | $ | 2,896 | $ | (3,496 | ) | $ | 78,793 | |||||||||||||||||||||||
Fixed maturities, FVO | $ | 1,328 | $ | 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 fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in value will be recorded in net realized capital gains (losses). |
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December 31, 2011 | ||||||||||||||||||||||||||||||||
Corporate & Equity, | Corporate & Equity, | Foreign Govt./ | ||||||||||||||||||||||||||||||
AFS Non-Finan. [1] | AFS Financials | Govt. Agencies | Total | |||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
Italy | $ | 314 | $ | 255 | $ | — | $ | — | $ | — | $ | — | $ | 314 | $ | 255 | ||||||||||||||||
Spain | 191 | 189 | 20 | 19 | — | — | 211 | 208 | ||||||||||||||||||||||||
Ireland | 163 | 162 | — | — | — | — | 163 | 162 | ||||||||||||||||||||||||
Portugal | 15 | 15 | — | — | — | — | 15 | 15 | ||||||||||||||||||||||||
Greece | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Higher risk | 683 | 621 | 20 | 19 | — | — | 703 | 640 | ||||||||||||||||||||||||
Europe excluding higher risk | 4,277 | 4,698 | 1,255 | 1,135 | 901 | 970 | 6,433 | 6,800 | ||||||||||||||||||||||||
Total Europe | $ | 4,960 | $ | 5,316 | $ | 1,275 | $ | 1,154 | $ | 901 | $ | 970 | $ | 7,136 | $ | 7,440 | ||||||||||||||||
Europe exposure net of credit default swap protection [2] | $ | 6,439 | $ | 7,467 |
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December 31, 2010 | ||||||||||||||||||||||||||||||||
Corporate & Equity, AFS | Corporate & Equity, AFS | Foreign Govt./ | ||||||||||||||||||||||||||||||
Non-Finan. [1] | Financials | Govt. Agencies | Total | |||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
Italy | $ | 374 | $ | 359 | $ | 17 | $ | 17 | $ | — | $ | — | $ | 391 | $ | 376 | ||||||||||||||||
Spain | 263 | 279 | 54 | 46 | — | — | 317 | 325 | ||||||||||||||||||||||||
Ireland | 178 | 173 | 4 | 3 | — | — | 182 | 176 | ||||||||||||||||||||||||
Portugal | 31 | 28 | — | — | — | — | 31 | 28 | ||||||||||||||||||||||||
Greece | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Higher risk | 846 | 839 | 75 | 66 | — | — | 921 | 905 | ||||||||||||||||||||||||
Europe excluding higher risk | 4,837 | 5,229 | 1,682 | 1,623 | 592 | 606 | 7,111 | 7,458 | ||||||||||||||||||||||||
Total Europe | $ | 5,683 | $ | 6,068 | $ | 1,757 | $ | 1,689 | $ | 592 | $ | 606 | $ | 8,032 | $ | 8,363 | ||||||||||||||||
Europe exposure net of credit default swap protection [2] | $ | 6,695 | $ | 8,358 |
[1] | Includes amortized cost and fair value of $67 and $67 as of December 31, 2011 and $27 and $27, respectively, as of December 31, 2010 related to limited partnerships and other alternative investments, the majority of which is domiciled in the United Kingdom. | |
[2] | Includes a notional amount and fair value of $697 and $27, respectively, as of December 31, 2011 and $1.3 billion and ($5), respectively, as of December 31, 2010 related to credit default swap protection. This includes a notional amount of $89 and $42 as of December 31, 2011 and 2010, respectively, related to single name corporate issuers in the financial services sector. |
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December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Net | Amortized | Net | |||||||||||||||||||||
Cost | Fair Value | Unrealized | Cost | Fair Value | Unrealized | |||||||||||||||||||
AAA | $ | 240 | $ | 245 | $ | 5 | $ | 302 | $ | 309 | $ | 7 | ||||||||||||
AA | 1,698 | 1,675 | (23 | ) | 2,085 | 2,095 | 10 | |||||||||||||||||
A | 3,664 | 3,685 | 21 | 3,760 | 3,599 | (161 | ) | |||||||||||||||||
BBB | 2,335 | 1,998 | (337 | ) | 1,677 | 1,518 | (159 | ) | ||||||||||||||||
BB & below | 305 | 270 | (35 | ) | 290 | 253 | (37 | ) | ||||||||||||||||
Total | $ | 8,242 | $ | 7,873 | $ | (369 | ) | $ | 8,114 | $ | 7,774 | $ | (340 | ) | ||||||||||
December 31, 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 | $ | 408 | $ | 415 | $ | 148 | $ | 144 | $ | 83 | $ | 81 | $ | 16 | $ | 13 | $ | 33 | $ | 30 | $ | 688 | $ | 683 | ||||||||||||||||||||||||
2004 | 333 | 349 | 68 | 75 | 45 | 41 | 30 | 28 | 26 | 21 | 502 | 514 | ||||||||||||||||||||||||||||||||||||
2005 | 520 | 556 | 101 | 96 | 178 | 151 | 177 | 138 | 71 | 57 | 1,047 | 998 | ||||||||||||||||||||||||||||||||||||
2006 | 713 | 762 | 516 | 493 | 180 | 159 | 362 | 298 | 430 | 302 | 2,201 | 2,014 | ||||||||||||||||||||||||||||||||||||
2007 | 245 | 267 | 296 | 275 | 123 | 97 | 166 | 130 | 195 | 149 | 1,025 | 918 | ||||||||||||||||||||||||||||||||||||
2008 | 55 | 60 | — | — | — | — | — | — | — | — | 55 | 60 | ||||||||||||||||||||||||||||||||||||
2009 | 28 | 29 | — | — | — | — | — | — | — | — | 28 | 29 | ||||||||||||||||||||||||||||||||||||
2010 | 29 | 31 | — | — | — | — | — | — | — | — | 29 | 31 | ||||||||||||||||||||||||||||||||||||
2011 | 417 | 440 | — | — | — | — | — | — | — | — | 417 | 440 | ||||||||||||||||||||||||||||||||||||
Total | $ | 2,748 | $ | 2,909 | $ | 1,129 | $ | 1,083 | $ | 609 | $ | 529 | $ | 751 | $ | 607 | $ | 755 | $ | 559 | $ | 5,992 | $ | 5,687 | ||||||||||||||||||||||||
Credit protection | 27.3 | % | 22.7 | % | 19.7 | % | 13.8 | % | 8.2 | % | 21.6 | % |
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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 | ||||||||||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Agricultural | $ | 268 | $ | (19 | ) | $ | 249 | $ | 339 | $ | (23 | ) | $ | 316 | ||||||||||
Whole loans | 4,892 | (17 | ) | 4,875 | 3,326 | (23 | ) | 3,303 | ||||||||||||||||
A-Note participations | 265 | — | 265 | 319 | — | 319 | ||||||||||||||||||
B-Note participations | 296 | (66 | ) | 230 | 327 | (70 | ) | 257 | ||||||||||||||||
Mezzanine loans | 109 | — | 109 | 181 | (36 | ) | 145 | |||||||||||||||||
Total | $ | 5,830 | $ | (102 | ) | $ | 5,728 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. |
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December 31, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Hedge funds | $ | 896 | 35.4 | % | $ | 439 | 22.8 | % | ||||||||
Mortgage and real estate funds | 479 | 18.9 | % | 406 | 21.2 | % | ||||||||||
Mezzanine debt funds | 118 | 4.7 | % | 132 | 6.9 | % | ||||||||||
Private equity and other funds | 1,039 | 41.0 | % | 941 | 49.1 | % | ||||||||||
Total | $ | 2,532 | 100.0 | % | $ | 1,918 | 100.0 | % | ||||||||
December 31, 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 | 855 | $ | 3,933 | $ | 3,672 | $ | (261 | ) | 1,503 | $ | 17,431 | $ | 16,783 | $ | (643 | ) | ||||||||||||||||
Greater than three to six months | 485 | 2,617 | 2,517 | (100 | ) | 115 | 732 | 690 | (42 | ) | ||||||||||||||||||||||
Greater than six to nine months | 224 | 1,181 | 1,097 | (84 | ) | 91 | 438 | 397 | (41 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | 42 | 106 | 95 | (11 | ) | 42 | 185 | 169 | (16 | ) | ||||||||||||||||||||||
Greater than twelve months | 943 | 11,613 | 9,324 | (2,218 | ) | 1,231 | 15,599 | 12,811 | (2,754 | ) | ||||||||||||||||||||||
Total | 2,549 | $ | 19,450 | $ | 16,705 | $ | (2,674 | ) | 2,982 | $ | 34,385 | $ | 30,850 | $ | (3,496 | ) | ||||||||||||||||
[1] | Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities as changes in value are recorded in net realized capital gains (losses). |
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Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss [1] | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less | 206 | $ | 1,823 | $ | 1,289 | $ | (500 | ) | 99 | $ | 771 | $ | 582 | $ | (189 | ) | ||||||||||||||||
Greater than three to six months | 134 | 1,749 | 1,205 | (544 | ) | 22 | 136 | 104 | (32 | ) | ||||||||||||||||||||||
Greater than six to nine months | 42 | 406 | 269 | (137 | ) | 28 | 234 | 169 | (65 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | 9 | 1 | — | (1 | ) | 13 | 43 | 32 | (11 | ) | ||||||||||||||||||||||
Greater than twelve months | 239 | 1,806 | 1,057 | (749 | ) | 390 | 4,361 | 2,766 | (1,595 | ) | ||||||||||||||||||||||
Total | 630 | $ | 5,785 | $ | 3,820 | $ | (1,931 | ) | 552 | $ | 5,545 | $ | 3,653 | $ | (1,892 | ) | ||||||||||||||||
[1] | Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities as changes in value are recorded in net realized capital gains (losses). |
December 31, 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 | 50 | $ | 152 | $ | 55 | $ | (97 | ) | 20 | $ | 27 | $ | 12 | $ | (15 | ) | ||||||||||||||||
Greater than three to six months | 26 | 110 | 46 | (64 | ) | 1 | 2 | 1 | (1 | ) | ||||||||||||||||||||||
Greater than six to nine months | 7 | 33 | 11 | (22 | ) | 12 | 65 | 29 | (36 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | 5 | 5 | 1 | (4 | ) | — | — | — | — | |||||||||||||||||||||||
Greater than twelve months | 54 | 227 | 71 | (156 | ) | 94 | 722 | 260 | (462 | ) | ||||||||||||||||||||||
Total | 142 | $ | 527 | $ | 184 | $ | (343 | ) | 127 | $ | 816 | $ | 302 | $ | (514 | ) | ||||||||||||||||
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
ABS | $ | 27 | $ | 13 | $ | 54 | ||||||
CDOs | 41 | 164 | 511 | |||||||||
CMBS | ||||||||||||
Bonds | 16 | 157 | 257 | |||||||||
IOs | 5 | 3 | 25 | |||||||||
Corporate | 50 | 33 | 198 | |||||||||
Equity | 17 | 14 | 145 | |||||||||
RMBS | ||||||||||||
Non-agency | — | 2 | 4 | |||||||||
Alt-A | 1 | 10 | 62 | |||||||||
Sub-prime | 15 | 37 | 232 | |||||||||
Other | 2 | 1 | 20 | |||||||||
Total | $ | 174 | $ | 434 | $ | 1,508 | ||||||
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For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Credit-related concerns | $ | 27 | $ | (70 | ) | $ | (310 | ) | ||||
Held for sale | ||||||||||||
Agricultural loans | (3 | ) | (10 | ) | (4 | ) | ||||||
B-note participations | — | (22 | ) | (51 | ) | |||||||
Mezzanine loans | — | (52 | ) | (43 | ) | |||||||
Total | $ | 24 | $ | (154 | ) | $ | (408 | ) | ||||
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Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | December 31, | 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 [1] | 8/9/07 | 8/9/12 | 1,900 | 1,900 | — | — | ||||||||||||||||||
Total Commercial Paper and Revolving Credit Facility | $ | 3,900 | $ | 3,900 | $ | — | $ | — | ||||||||||||||||
[1] | Terminated in January 2012, see discussion that follows. |
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Fixed maturities | $ | 26,034 | ||
Short-term investments | 658 | |||
Cash | 203 | |||
Less: Derivative collateral | (222 | ) | ||
Total | $ | 26,673 | ||
Fixed maturities | $ | 56,950 | ||
Short-term investments | 5,641 | |||
Cash | 2,377 | |||
Less: Derivative collateral | (2,836 | ) | ||
Cash associated with Japan variable annuities | (684 | ) | ||
Total | $ | 61,448 | ||
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As of | ||||
December 31, | ||||
Contractholder Obligations | 2011 | |||
Total Life contractholder obligations | $ | 239,723 | ||
Less: Separate account assets [1] | (143,870 | ) | ||
International statutory separate accounts [1] | (30,461 | ) | ||
General account contractholder obligations | $ | 65,392 | ||
Composition of General Account Contractholder Obligations | ||||
Contracts without a surrender provision and/or fixed payout dates [2] | $ | 30,339 | ||
Fixed MVA annuities [3] | 9,727 | |||
International fixed MVA annuities | 2,642 | |||
Guaranteed investment contracts (“GIC”) [4] | 567 | |||
Other [5] | 22,117 | |||
General account contractholder obligations | $ | 65,392 | ||
[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 Individual Annuity’s individual variable annuities and Individual Life variable life contracts, the general account option for Retirement Plans’ annuities and universal life contracts sold by Individual Life may be funded through operating cash flows of Life 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. |
• | The Company has unfunded commitments to purchase investments in limited partnerships, private placements and mortgage loans of approximately $1.4 billion as disclosed in Note 12 of Notes to Consolidated Financial Statements. |
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Payments due by period | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 year | years | years | 5 years | ||||||||||||||||
Property and casualty obligations [1] | $ | 22,093 | $ | 5,721 | $ | 4,384 | $ | 2,818 | $ | 9,170 | ||||||||||
Life, annuity and disability obligations [2] | 341,984 | 22,894 | 34,895 | 30,701 | 253,494 | |||||||||||||||
Operating lease obligations [3] | 242 | 58 | 81 | 47 | 56 | |||||||||||||||
Long-term debt obligations [4] | 19,202 | 480 | 1,460 | 1,678 | 15,584 | |||||||||||||||
Consumer notes [5] | 348 | 168 | 104 | 55 | 21 | |||||||||||||||
Purchase obligations [6] | 3,484 | 2,693 | 544 | 214 | 33 | |||||||||||||||
Other long-term liabilities reflected on the balance sheet [7] | 2,505 | 1,986 | 379 | 140 | — | |||||||||||||||
Total [8] | $ | 389,858 | $ | 34,000 | $ | 41,847 | $ | 35,653 | $ | 278,358 | ||||||||||
[1] | The following points are significant to understanding the cash flows estimated for obligations under property and casualty contracts: |
• | Reserves for Property & Casualty unpaid losses and loss adjustment expenses include IBNR and case reserves. While payments due on claim reserves are considered contractual obligations because they relate to insurance policies issued by the Company, the ultimate amount to be paid to settle both case reserves and IBNR is an estimate, subject to significant uncertainty. The actual amount to be paid is not finally determined until the Company reaches a settlement with the claimant. Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future. |
• | In estimating the timing of future payments by year, the Company has assumed that its historical payment patterns will continue. However, the actual timing of future payments could vary materially from these estimates due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. In particular, there is significant uncertainty over the claim payment patterns of asbestos and environmental claims. In addition, the table does not include future cash flows related to the receipt of premiums that may be used, in part, to fund loss payments. |
• | Under U.S. GAAP, the Company is only permitted to discount reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis. For the Company, these include claim settlements with permanently disabled claimants. As of December 31, 2011, the total property and casualty reserves in the above table are gross of a reserve discount of $542. |
[2] | Estimated life, annuity and disability obligations include death and disability claims, policy surrenders, policyholder dividends and trail commissions offset by expected future deposits and premiums on in-force contracts. Estimated life, annuity and disability obligations are based on mortality, morbidity and lapse assumptions comparable with the Company’s historical experience, modified for recent observed trends. The Company has also assumed market growth and interest crediting consistent with other assumptions. In contrast to this table, the majority of the Company’s obligations are recorded on the balance sheet at the current account values and do not incorporate an expectation of future market growth, interest crediting, or future deposits. Therefore, the estimated obligations presented in this table significantly exceed the liabilities recorded in reserve for future policy benefits and unpaid losses and loss adjustment expenses, other policyholder funds and benefits payable and separate account liabilities. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. | |
[3] | Includes future minimum lease payments on operating lease agreements. See Note 12 of Notes to Consolidated Financial Statements for additional discussion on lease commitments. | |
[4] | Includes contractual principal and interest payments. See Note 14 of Notes to Consolidated Financial Statements for additional discussion of long-term debt obligations. | |
[5] | Consumer notes include principal payments and contractual interest for fixed rate notes and interest based on current rates for floating rate notes. See Note 14 of Notes to Consolidated Financial Statements for additional discussion of consumer notes. | |
[6] | Includes $1.4 billion in commitments to purchase investments including approximately $700 of limited partnership, $108 of private placements and $553 of mortgage loans. Outstanding commitments under these limited partnerships and mortgage loans are included in payments due in less than 1 year since the timing of funding these commitments cannot be reliably estimated. The remaining commitments to purchase investments primarily represent payables for securities purchased which are reflected on the Company’s consolidated balance sheet. | |
Also included in purchase obligations is $1.1 billion relating to contractual commitments to purchase various goods and services such as maintenance, human resources, information technology, and transportation in the normal course of business. Purchase obligations exclude contracts that are cancelable without penalty or contracts that do not specify minimum levels of goods or services to be purchased. | ||
[7] | Includes cash collateral of $2 billion which the Company has accepted in connection with the Company’s derivative instruments. Since the timing of the return of the collateral is uncertain, the return of the collateral has been included in the payments due in less than 1 year. | |
Also included in other long term liabilities is $48 of net unrecognized tax benefits. | ||
[8] | Does not include estimated voluntary contribution of $200 to the Company’s pension plan in 2012. |
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December 31, | December 31, | |||||||||||
2011 | 2010 | Change | ||||||||||
Short-term debt (includes current maturities of long-term debt) | $ | — | $ | 400 | (100 | %) | ||||||
Long-term debt | 6,216 | 6,207 | — | |||||||||
Total debt [1] | 6,216 | 6,607 | (6 | %) | ||||||||
Stockholders’ equity excluding accumulated other comprehensive loss, net of tax (“AOCI”) | 21,753 | 21,312 | 2 | % | ||||||||
AOCI, net of tax | 1,157 | (1,001 | ) | NM | ||||||||
Total stockholders’ equity | $ | 22,910 | $ | 20,311 | 13 | % | ||||||
Total capitalization including AOCI | $ | 29,126 | $ | 26,918 | 8 | % | ||||||
Debt to stockholders’ equity | 27 | % | 33 | % | ||||||||
Debt to capitalization | 21 | % | 25 | % |
[1] | Total debt of the Company excludes $314 and $382 billion of consumer notes as of December 31, 2011 and December 31, 2010, respectively. |
2011 | 2010 | 2009 | ||||||||||
Net cash provided by operating activities | $ | 2,274 | $ | 3,309 | $ | 2,974 | ||||||
Net cash used for investing activities | $ | (1,182 | ) | $ | (434 | ) | $ | (3,123 | ) | |||
Net cash provided by (used for) financing activities | $ | (609 | ) | $ | (2,955 | ) | $ | 523 | ||||
Cash — end of year | $ | 2,581 | $ | 2,062 | $ | 2,142 |
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Insurance Financial Strength Ratings: | A.M. Best | Fitch | Standard & Poor’s | Moody’s | ||||||||||||
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 |
2011 | 2010 | |||||||
U.S. life insurance subsidiaries, includes domestic captive insurance subsidiaries | $ | 7,388 | $ | 7,731 | ||||
Property and casualty insurance subsidiaries | 7,412 | 7,721 | ||||||
Total | $ | 14,800 | $ | 15,452 | ||||
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• | Costs incurred by the Company to acquire insurance policies are deferred under U.S.GAAP while those costs are expensed immediately under U.S.STAT. |
• | Temporary differences between the book and tax basis of an asset or liability which are recorded as deferred tax assets are evaluated for recoverability under U.S.GAAP while those amounts deferred are subject to limitations under U.S.STAT. |
• | The assumptions used in the determination of Life benefit reserves is prescribed under U.S.STAT, while the assumptions used under U.S.GAAP are generally the Company’s best estimates. The methodologies for determining life insurance reserve amounts may also be different. For example, reserving for living benefit reserves under U.S.STAT is generally addressed by the Commissioners’ Annuity Reserving Valuation Methodology and the related Actuarial Guidelines, while under U.S.GAAP, those same living benefits may be considered embedded derivatives and recorded at fair value or they may be considered SOP 03-1 reserves. The sensitivity of these life insurance reserves to changes in equity markets, as applicable, will be different between U.S.GAAP and U.S.STAT. |
• | The difference between the amortized cost and fair value of fixed maturity and other investments, net of tax, is recorded as an increase or decrease to the carrying value of the related asset and to equity under U.S.GAAP, while U.S.STAT only records certain securities at fair value, such as equity securities and certain lower rated bonds required by the NAIC to be recorded at the lower of amortized cost or fair value. |
• | U.S.STAT for life insurance companies establishes a formula reserve for realized and unrealized losses due to default and equity risks associated with certain invested assets (the Asset Valuation Reserve), while U.S.GAAP does not. Also, for those realized gains and losses caused by changes in interest rates, U.S.STAT for life insurance companies defers and amortizes the gains and losses, caused by changes in interest rates, into income over the original life to maturity of the asset sold (the Interest Maintenance Reserve) while U.S.GAAP does not. |
• | Goodwill arising from the acquisition of a business is tested for recoverability on an annual basis (or more frequently, as necessary) for U.S.GAAP, while under U.S.STAT goodwill is amortized over a period not to exceed 10 years and the amount of goodwill is limited. |
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Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Item 9A. | CONTROLS AND PROCEDURES |
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The Hartford Financial Services Group, Inc.
February 24, 2012
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Item 9B. | OTHER INFORMATION |
Item 10. | DIRECTORS, AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE HARTFORD |
Position with The Hartford and Business Experience | ||||||
Name | Age | During the Past Five Years | ||||
Jonathan R. Bennett | 47 | Executive Vice President, Digital Commerce & Customer Analytics (July 2010-Present); Executive Vice President of Personal & Small Business Insurance (2005-July 2010) | ||||
Beth A. Bombara | 44 | Senior Vice President and Controller (June 2007-Present); Vice President (2004-June 2007) | ||||
James M. Eckerle | 52 | Executive Vice President of Strategic Initiatives and Enterprise Technology (October 2010-Present); Senior Vice President of Global Transition, Quality and Change, Bank of America (2004-October 2010) | ||||
Douglas Elliot | 51 | Executive Vice President and President of Commercial Markets (April 2011-Present); President and Chief Executive Officer, HSB Group (July 2007-March 2011); President and Chief Operating Officer, HSB Group (January 2007-June 2007); Senior Advisor, Aspen Insurance Holdings (2006); Chief Executive Officer of General Commercial and Personal Lines, St. Paul Travelers Companies (2004-2007) | ||||
Alan J. Kreczko | 60 | Executive Vice President and General Counsel (June 2007-Present); Senior Vice President and Deputy General Counsel (2002-June 2007) | ||||
David N. Levenson | 45 | Executive Vice President and President of Wealth Management (July 2010-Present); Executive Vice President of Legacy Holdings (June 2009-July 2010); Head of Product Distribution, President and CEO of Hartford Life K.K.1 (2006-2009) | ||||
André A. Napoli | 46 | Executive Vice President and President of Consumer Markets (August 2010-Present); Executive Vice President and Chief Administrative Officer, CUNA Mutual Group (July 2009-August 2010 ); Senior Vice President, Consumer Products, CUNA Mutual Group (August 2007-July 2009); Vice President, Standard Auto Product and Pricing, Nationwide (October 2006-August 2007); Vice President, Personal Lines Pricing and Research, Nationwide (July 2005-October 2006) | ||||
Robert Rupp | 59 | Executive Vice President and Chief Risk Officer (October 2011-Present); Executive Vice President, Head of Enterprise-Wide Market Risk, BONY Mellon (September 2008-October 2011); Managing Director, Risk Management, JP Morgan Chase (2004-2008) | ||||
Christopher J. Swift | 51 | Executive Vice President and Chief Financial Officer (March 2010-Present); Vice President and CFO, American Life Insurance Company (March 2009-April 2010); Vice President and CFO, AIG’s Global Life Insurance and Retirement Services Division (July 2005-March 2009) |
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Position with The Hartford and Business Experience | ||||||
Name | Age | During the Past Five Years | ||||
Karen C. Tripp | 56 | Executive Vice President of Marketing and Communications (September 2010-Present); Vice President of Corporate Communications, L3 Communications (2007-September 2010); General Manager of Global Communications, General Electric (2002-2007) | ||||
Hugh M. Whelan | 51 | Acting President of Hartford Investment Management Company1 (October 2011-Present), Executive Vice President, Hartford Investment Management Company (2005-2011) | ||||
Eileen G. Whelley | 57 | Executive Vice President of Human Resources (June 2007-Present); Executive Vice President of Global HR (December 2006-June 2007); GE Vice President and Executive Vice President of Human Resources, NBC Universal (2004-December 2006) |
1 | Denotes a subsidiary of The Hartford |
Item 11. | EXECUTIVE COMPENSATION |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
(a) | (b) | (c) | ||||||||||
Number of Securities | Weighted-average | Number of Securities Remaining | ||||||||||
to be Issued Upon | Exercise Price of | Available for Future Issuance | ||||||||||
Exercise of | Outstanding | Under Equity Compensation Plans | ||||||||||
Outstanding Options, | Options, Warrants | (Excluding SecuritiesReflected in | ||||||||||
Warrants and Rights | and Rights | Column (a)) | ||||||||||
Equity compensation plans approved by stockholders | 4,833,390 | $ | 47.89 | 21,124,460 | [1] | |||||||
Equity compensation plans not approved by stockholders | 5,956 | 47.12 | 264,388 | |||||||||
Total | 4,839,346 | $ | 47.89 | 21,388,848 | ||||||||
[1] | Of these shares, 6,472,280 shares remain available for purchase under the ESPP. |
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Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(1) | Consolidated Financial Statements.See Index to Consolidated Financial Statements and Schedules elsewhere herein. | |
(2) | Consolidated Financial Statement Schedules.See Index to Consolidated Financial Statement and Schedules elsewhere herein. | |
(3) | Exhibits.See Exhibit Index elsewhere herein. |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
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The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Hartford, Connecticut
February 24, 2012
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For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2009 | |||||||||
Revenues | ||||||||||||
Earned premiums | $ | 14,088 | $ | 14,055 | $ | 14,424 | ||||||
Fee income | 4,750 | 4,748 | 4,547 | |||||||||
Net investment income: | ||||||||||||
Securities available-for-sale and other | 4,272 | 4,364 | 4,017 | |||||||||
Equity securities, trading | (1,359 | ) | (774 | ) | 3,188 | |||||||
Total net investment income | 2,913 | 3,590 | 7,205 | |||||||||
Net realized capital gains (losses): | ||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (263 | ) | (852 | ) | (2,191 | ) | ||||||
OTTI losses recognized in other comprehensive income (“OCI”) | 89 | 418 | 683 | |||||||||
Net OTTI losses recognized in earnings | (174 | ) | (434 | ) | (1,508 | ) | ||||||
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings | 29 | (177 | ) | (496 | ) | |||||||
Total net realized capital losses | (145 | ) | (611 | ) | (2,004 | ) | ||||||
Other revenues | 253 | 267 | 261 | |||||||||
Total revenues | 21,859 | 22,049 | 24,433 | |||||||||
Benefits, losses and expenses | ||||||||||||
Benefits, losses and loss adjustment expenses | 14,625 | 13,025 | 13,831 | |||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities | (1,359 | ) | (774 | ) | 3,188 | |||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,427 | 2,527 | 4,257 | |||||||||
Insurance operating costs and other expenses | 4,398 | 4,407 | 4,370 | |||||||||
Interest expense | 508 | 508 | 476 | |||||||||
Goodwill impairment | 30 | — | 32 | |||||||||
Total benefits, losses and expenses | 21,629 | 19,693 | 26,154 | |||||||||
Income (loss) from continuing operations before income taxes | 230 | 2,356 | (1,721 | ) | ||||||||
Income tax expense (benefit) | (346 | ) | 612 | (838 | ) | |||||||
Income (loss) from continuing operations, net of tax | 576 | 1,744 | (883 | ) | ||||||||
Income (loss) from discontinued operations, net of tax | 86 | (64 | ) | (4 | ) | |||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
Preferred stock dividends and accretion of discount | 42 | 515 | 127 | |||||||||
Net income (loss) available to common shareholders | $ | 620 | $ | 1,165 | $ | (1,014 | ) | |||||
Income (loss) from continuing operations, net of tax, available to common shareholders per common share | ||||||||||||
Basic | $ | 1.20 | $ | 2.85 | $ | (2.92 | ) | |||||
Diluted | $ | 1.12 | $ | 2.62 | $ | (2.92 | ) | |||||
Net income (loss) available to common shareholders per common share | ||||||||||||
Basic | $ | 1.39 | $ | 2.70 | $ | (2.93 | ) | |||||
Diluted | $ | 1.30 | $ | 2.49 | $ | (2.93 | ) | |||||
Cash dividends declared per common share | $ | 0.40 | $ | 0.20 | $ | 0.20 | ||||||
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For the years ended December 31, | ||||||||||||
(In millions) | 2011 | 2010 | 2009 | |||||||||
Comprehensive Income | ||||||||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
Other comprehensive income | ||||||||||||
Change in net unrealized gain/loss on securities | 1,979 | 1,707 | 5,909 | |||||||||
Change in OTTI losses recognized in other comprehensive income | 9 | 116 | (224 | ) | ||||||||
Change in net gain/loss on cash-flow hedging instruments | 131 | 128 | (387 | ) | ||||||||
Change in foreign currency translation adjustments | 112 | 289 | (23 | ) | ||||||||
Change in pension and other postretirement plan adjustments | (73 | ) | (123 | ) | (155 | ) | ||||||
Total other comprehensive income | 2,158 | 2,117 | 5,120 | |||||||||
Total comprehensive income | $ | 2,820 | $ | 3,797 | $ | 4,233 | ||||||
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As of December 31, | ||||||||
(In millions, except for share and per share data) | 2011 | 2010 | ||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $78,978 and $78,419) (includes variable interest entity assets, at fair value, of $153 and $406) | $ | 81,809 | $ | 77,820 | ||||
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets, at fair value, of $338 and $323) | 1,328 | 649 | ||||||
Equity securities, trading, at fair value (cost of $32,928 and $33,899) | 30,499 | 32,820 | ||||||
Equity securities, available-for-sale, at fair value (cost of $1,056 and $1,013) | 921 | 973 | ||||||
Mortgage loans (net of allowances for loan losses of $102 and $155) | 5,728 | 4,489 | ||||||
Policy loans, at outstanding balance | 2,001 | 2,181 | ||||||
Limited partnerships and other alternative investments (includes variable interest entity assets of $7 and $14) | 2,532 | 1,918 | ||||||
Other investments | 2,394 | 1,617 | ||||||
Short-term investments | 7,736 | 8,528 | ||||||
Total investments | 134,948 | 130,995 | ||||||
Cash | 2,581 | 2,062 | ||||||
Premiums receivable and agents’ balances, net | 3,446 | 3,273 | ||||||
Reinsurance recoverables, net | 4,768 | 4,862 | ||||||
Deferred policy acquisition costs and present value of future profits | 8,744 | 9,857 | ||||||
Deferred income taxes, net | 1,398 | 3,725 | ||||||
Goodwill | 1,006 | 1,051 | ||||||
Property and equipment, net | 1,029 | 1,150 | ||||||
Other assets | 2,274 | 1,629 | ||||||
Separate account assets | 143,870 | 159,742 | ||||||
Total assets | $ | 304,064 | $ | 318,346 | ||||
Liabilities | ||||||||
Reserve for future policy benefits and unpaid losses and loss adjustment expenses | $ | 41,016 | $ | 39,598 | ||||
Other policyholder funds and benefits payable | 45,612 | 44,550 | ||||||
Other policyholder funds and benefits payable — international variable annuities | 30,461 | 32,793 | ||||||
Unearned premiums | 5,222 | 5,176 | ||||||
Short-term debt | — | 400 | ||||||
Long-term debt | 6,216 | 6,207 | ||||||
Consumer notes | 314 | 382 | ||||||
Other liabilities (includes variable interest entity liabilities of $471 and $394) | 8,443 | 9,187 | ||||||
Separate account liabilities | 143,870 | 159,742 | ||||||
Total liabilities | 281,154 | 298,035 | ||||||
Commitments and Contingencies (Note 12) | ||||||||
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, 469,750,171 and 469,754,771 shares issued | 5 | 5 | ||||||
Additional paid-in capital | 10,391 | 10,448 | ||||||
Retained earnings | 12,519 | 12,077 | ||||||
Treasury stock, at cost — 27,211,115 and 25,205,283 shares | (1,718 | ) | (1,774 | ) | ||||
Accumulated other comprehensive income (loss), net of tax | 1,157 | (1,001 | ) | |||||
Total stockholders’ equity | 22,910 | 20,311 | ||||||
Total liabilities and stockholders’ equity | $ | 304,064 | $ | 318,346 | ||||
F-5
Table of Contents
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, | ||||||||||||
(In millions, except for share data) | 2011 | 2010 | 2009 | |||||||||
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 | — | |||||||||
Issuance (redemption) of preferred stock to the U.S. Treasury | — | (3,400 | ) | 2,920 | ||||||||
Accretion of preferred stock discount on issuance to U.S. Treasury | — | — | 40 | |||||||||
Preferred Stock, at end of period | 556 | 556 | 2,960 | |||||||||
Common Stock | 5 | 5 | 4 | |||||||||
Additional Paid-in Capital, at beginning of period | 10,448 | 8,985 | 7,569 | |||||||||
Issuance of common shares under public offering | — | 1,599 | — | |||||||||
Issuance of shares under incentive and stock compensation plans | (50 | ) | (130 | ) | (126 | ) | ||||||
Tax expense on employee stock options and awards | (7 | ) | (6 | ) | (11 | ) | ||||||
Issuance of shares under discretionary equity issuance plan | — | — | 887 | |||||||||
Issuance of warrants to U.S. Treasury | — | — | 480 | |||||||||
Reclassification of warrants from other liabilities to equity and extension of warrants’ term | — | — | 186 | |||||||||
Additional Paid-in Capital, at end of period | 10,391 | 10,448 | 8,985 | |||||||||
Retained Earnings, at beginning of period, before cumulative effect of accounting change, net of tax | 12,077 | 11,164 | 11,336 | |||||||||
Cumulative effect of accounting change, net of tax | — | 26 | — | |||||||||
Retained Earnings, at beginning of period, as adjusted | 12,077 | 11,190 | 11,336 | |||||||||
Net income (loss) | 662 | 1,680 | (887 | ) | ||||||||
Cumulative effect of accounting changes, net of tax | — | (194 | ) | 912 | ||||||||
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury | — | (440 | ) | — | ||||||||
Dividends on preferred stock | (42 | ) | (75 | ) | (87 | ) | ||||||
Dividends declared on common stock | (178 | ) | (84 | ) | (70 | ) | ||||||
Accretion of preferred stock discount on issuance to U.S. Treasury | — | — | (40 | ) | ||||||||
Retained Earnings, at end of period | 12,519 | 12,077 | 11,164 | |||||||||
Treasury Stock, at Cost, at beginning of period | (1,774 | ) | (1,936 | ) | (2,120 | ) | ||||||
Issuance of shares under incentive and stock compensation plans from treasury stock | 115 | 165 | 187 | |||||||||
Treasury stock acquired | (51 | ) | — | — | ||||||||
Return of shares under incentive and stock compensation plans to treasury stock | (8 | ) | (3 | ) | (3 | ) | ||||||
Treasury Stock, at Cost, at end of period | (1,718 | ) | (1,774 | ) | (1,936 | ) | ||||||
Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period | (1,001 | ) | (3,312 | ) | (7,520 | ) | ||||||
Cumulative effect of accounting changes, net of tax | — | 194 | (912 | ) | ||||||||
Total other comprehensive income | 2,158 | 2,117 | 5,120 | |||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax, at end of period | 1,157 | (1,001 | ) | (3,312 | ) | |||||||
Noncontrolling Interest, at beginning of period | — | 29 | 92 | |||||||||
Recognition of noncontrolling interest in other liabilities | — | (29 | ) | — | ||||||||
Change in noncontrolling interest ownership | — | — | (56 | ) | ||||||||
Noncontrolling loss | — | — | (7 | ) | ||||||||
Noncontrolling Interest, at end of period | — | — | 29 | |||||||||
Total Stockholders’ Equity | $ | 22,910 | $ | 20,311 | $ | 17,894 | ||||||
Preferred Shares Outstanding, at beginning of period (in thousands) | 575 | 3,400 | 6,048 | |||||||||
Redemption of preferred shares issued to the U.S. Treasury | — | (3,400 | ) | — | ||||||||
Issuance of mandatory convertible preferred shares | — | 575 | — | |||||||||
Conversion of preferred to common shares | — | — | (6,048 | ) | ||||||||
Issuance of shares to U.S. Treasury | — | — | 3,400 | |||||||||
Preferred Shares Outstanding, at end of period | 575 | 575 | 3,400 | |||||||||
Common Shares Outstanding, at beginning of period (in thousands) | 444,549 | 383,007 | 300,579 | |||||||||
Issuance of shares under public offering | — | 59,590 | — | |||||||||
Issuance of shares under incentive and stock compensation plans | 1,476 | 2,095 | 2,356 | |||||||||
Return of shares under incentive and stock compensation plans and other to treasury stock | (261 | ) | (143 | ) | (204 | ) | ||||||
Treasury stock acquired | (3,225 | ) | — | (27 | ) | |||||||
Conversion of preferred to common shares | — | — | 24,194 | |||||||||
Issuance of shares under discretionary equity issuance plan | — | — | 56,109 | |||||||||
Common Shares Outstanding, at end of period | 442,539 | 444,549 | 383,007 | |||||||||
F-6
Table of Contents
For the years ended December 31, | ||||||||||||
(In millions) | 2011 | 2010 | 2009 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,427 | 2,544 | 4,267 | |||||||||
Additions to deferred policy acquisition costs and present value of future profits | (2,608 | ) | (2,648 | ) | (2,853 | ) | ||||||
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums | 1,451 | (93 | ) | 558 | ||||||||
Change in reinsurance recoverables | (31 | ) | 353 | 236 | ||||||||
Change in receivables and other assets | (211 | ) | 437 | 380 | ||||||||
Change in payables and accruals | (491 | ) | (612 | ) | (1,271 | ) | ||||||
Change in accrued and deferred income taxes | (103 | ) | 561 | (246 | ) | |||||||
Net realized capital losses | 24 | 554 | 2,010 | |||||||||
Net receipts (disbursements) from investment contracts related to policyholder funds — international variable annuities | (2,332 | ) | 497 | 1,498 | ||||||||
Net (increase) decrease in equity securities, trading | 2,321 | (499 | ) | (1,501 | ) | |||||||
Depreciation and amortization | 668 | 596 | 470 | |||||||||
Goodwill impairment | 30 | 153 | 32 | |||||||||
Other operating activities, net | (533 | ) | (214 | ) | 281 | |||||||
Net cash provided by operating activities | 2,274 | 3,309 | 2,974 | |||||||||
Investing Activities | ||||||||||||
Proceeds from the sale/maturity/prepayment of: | ||||||||||||
Fixed maturities, available-for-sale | 37,914 | 49,155 | 53,538 | |||||||||
Fixed maturities, fair value option | 37 | 20 | — | |||||||||
Equity securities, available-for-sale | 239 | 325 | 949 | |||||||||
Mortgage loans | 515 | 1,723 | 629 | |||||||||
Partnerships | 237 | 367 | 391 | |||||||||
Payments for the purchase of: | ||||||||||||
Fixed maturities, available-for-sale | (37,627 | ) | (50,807 | ) | (54,346 | ) | ||||||
Fixed maturities, fair value option | (664 | ) | (75 | ) | — | |||||||
Equity securities, available-for-sale | (270 | ) | (163 | ) | (307 | ) | ||||||
Mortgage loans | (1,800 | ) | (291 | ) | (233 | ) | ||||||
Partnerships | (784 | ) | (348 | ) | (274 | ) | ||||||
Proceeds from business sold | 278 | 241 | (7 | ) | ||||||||
Derivatives, net | 720 | (338 | ) | (561 | ) | |||||||
Change in policy loans, net | 180 | (7 | ) | 34 | ||||||||
Change in payables for collateral under securities lending, net | — | (46 | ) | (2,925 | ) | |||||||
Other investing activities, net | (157 | ) | (190 | ) | (11 | ) | ||||||
Net cash used for investing activities | (1,182 | ) | (434 | ) | (3,123 | ) | ||||||
Financing Activities | ||||||||||||
Deposits and other additions to investment and universal life-type contracts | 11,531 | 12,602 | 14,239 | |||||||||
Withdrawals and other deductions from investment and universal life-type contracts | (21,022 | ) | (22,476 | ) | (24,341 | ) | ||||||
Net transfers from separate accounts related to investment and universal life-type contracts | 9,843 | 8,409 | 7,203 | |||||||||
Proceeds from issuance of long-term debt | — | 1,090 | — | |||||||||
Repayments at maturity for long-term debt and payments on capital lease obligations | (405 | ) | (343 | ) | (24 | ) | ||||||
Change in commercial paper | — | — | (375 | ) | ||||||||
Repayments at maturity or settlement of consumer notes | (68 | ) | (754 | ) | (74 | ) | ||||||
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 issuance of preferred stock and warrants to U.S. Treasury | — | — | 3,400 | |||||||||
Net proceeds from issuance of common shares under discretionary equity issuance plan | — | — | 887 | |||||||||
Proceeds from net issuance of shares under incentive and stock compensation plans and excess tax benefit | 10 | 25 | 17 | |||||||||
Treasury stock acquired | (46 | ) | — | — | ||||||||
Dividends paid on preferred stock | (42 | ) | (85 | ) | (73 | ) | ||||||
Dividends paid on common stock | (153 | ) | (85 | ) | (149 | ) | ||||||
Changes in bank deposits and payments on bank advances | (257 | ) | (94 | ) | (187 | ) | ||||||
Net cash provided by (used for) financing activities | (609 | ) | (2,955 | ) | 523 | |||||||
Foreign exchange rate effect on cash | 36 | — | (43 | ) | ||||||||
Net increase (decrease) in cash | 519 | (80 | ) | 331 | ||||||||
Cash — beginning of period | 2,062 | 2,142 | 1,811 | |||||||||
Cash — end of period | $ | 2,581 | $ | 2,062 | $ | 2,142 | ||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||
Income taxes paid (received) | $ | 179 | $ | 308 | $ | (243 | ) | |||||
Interest paid | $ | 501 | $ | 485 | $ | 475 |
F-7
Table of Contents
F-8
Table of Contents
Accounting Policy | Note | |||
Fair Value Measurements | 4 | |||
Investments and Derivative Instruments | 5 | |||
Reinsurance | 6 | |||
Deferred Policy Acquisition Costs and Present Value of Future Profits | 7 | |||
Goodwill and Other Intangible Assets | 8 | |||
Separate Accounts, Death Benefits and Other Insurance Benefit Features | 9 | |||
Sales Inducements | 10 | |||
Reserve for Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses | 11 | |||
Commitments and Contingencies | 12 | |||
Income Taxes | 13 | |||
Employee Benefit Plans | 17 |
F-9
Table of Contents
F-10
Table of Contents
For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2009 | |||||||||
Earnings | ||||||||||||
Income (loss) from continuing operations | ||||||||||||
Income (loss) from continuing operations, net of tax | $ | 576 | $ | 1,744 | $ | (883 | ) | |||||
Less: Preferred stock dividends and accretion of discount | 42 | 515 | 127 | |||||||||
Income (loss) from continuing operations, net of tax, available to common shareholders | 534 | 1,229 | (1,010 | ) | ||||||||
Add: Dilutive effect of preferred stock dividends | — | 33 | — | |||||||||
Income (loss) from continuing operations, net of tax, available to common shareholders and assumed conversion of preferred shares | $ | 534 | $ | 1,262 | $ | (1,010 | ) | |||||
Income (loss) from discontinued operations, net of tax | $ | 86 | $ | (64 | ) | $ | (4 | ) | ||||
Net income | ||||||||||||
Net income | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
Less: Preferred stock dividends and accretion of discount | 42 | 515 | 127 | |||||||||
Net income (loss) available to common shareholders | 620 | 1,165 | (1,014 | ) | ||||||||
Add: Dilutive effect of preferred stock dividends | — | 33 | — | |||||||||
Net income (loss) available to common shareholders and assumed conversion of preferred shares | $ | 620 | $ | 1,198 | $ | (1,014 | ) | |||||
Shares | ||||||||||||
Weighted average common shares outstanding, basic | 445.0 | 431.5 | 346.3 | |||||||||
Dilutive effect of warrants | 31.9 | 32.3 | — | |||||||||
Dilutive effect of stock compensation plans | 1.1 | 1.3 | — | |||||||||
Dilutive effect of mandatory convertible preferred shares | — | 16.4 | — | |||||||||
Weighted average shares outstanding and dilutive potential common shares | 478.0 | 481.5 | 346.3 | |||||||||
Earnings (loss) per common share | ||||||||||||
Basic | ||||||||||||
Income (loss) from continuing operations, net of tax, available to common shareholders | $ | 1.20 | $ | 2.85 | $ | (2.92 | ) | |||||
Income (loss) from discontinued operations, net of tax | 0.19 | (0.15 | ) | (0.01 | ) | |||||||
Net income (loss) available to common shareholders | $ | 1.39 | $ | 2.70 | $ | (2.93 | ) | |||||
Diluted | ||||||||||||
Income (loss) from continuing operations, net of tax, available to common shareholders | $ | 1.12 | $ | 2.62 | $ | (2.92 | ) | |||||
Income (loss) from discontinued operations, net of tax | 0.18 | (0.13 | ) | (0.01 | ) | |||||||
Net income (loss) available to common shareholders | $ | 1.30 | $ | 2.49 | $ | (2.93 | ) | |||||
F-11
Table of Contents
F-12
Table of Contents
F-13
Table of Contents
For the years ended December 31, | ||||||||||||
Net income (loss) | 2011 | 2010 | 2009 | |||||||||
Property & Casualty Commercial | $ | 528 | $ | 995 | $ | 899 | ||||||
Group Benefits | 90 | 185 | 193 | |||||||||
Consumer Markets | 5 | 143 | 140 | |||||||||
Individual Annuity | (14 | ) | 527 | (444 | ) | |||||||
Individual Life | 133 | 229 | 15 | |||||||||
Retirement Plans | 15 | 47 | (222 | ) | ||||||||
Mutual Funds | 98 | 132 | 34 | |||||||||
Life Other Operations | 358 | (90 | ) | (698 | ) | |||||||
Property & Casualty Other Operations | (117 | ) | (53 | ) | (78 | ) | ||||||
Corporate | (434 | ) | (435 | ) | (726 | ) | ||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
F-14
Table of Contents
For the years ended December 31, | ||||||||||||
Revenues | 2011 | 2010 | 2009 | |||||||||
Earned premiums, fees, and other considerations | ||||||||||||
Property & Casualty Commercial | ||||||||||||
Workers’ compensation | $ | 2,809 | $ | 2,387 | $ | 2,275 | ||||||
Property | 528 | 547 | 597 | |||||||||
Automobile | 583 | 598 | 646 | |||||||||
Package business | 1,145 | 1,124 | 1,123 | |||||||||
Liability | 540 | 540 | 619 | |||||||||
Fidelity and surety | 215 | 224 | 250 | |||||||||
Professional liability | 307 | 324 | 393 | |||||||||
Total Property & Casualty Commercial | 6,127 | 5,744 | 5,903 | |||||||||
Group Benefits | ||||||||||||
Group disability | 1,929 | 2,004 | 1,975 | |||||||||
Group life and accident | 2,024 | 2,052 | 2,126 | |||||||||
Other | 194 | 222 | 249 | |||||||||
Total Group Benefits | 4,147 | 4,278 | 4,350 | |||||||||
Consumer Markets | ||||||||||||
Automobile | 2,619 | 2,806 | 2,857 | |||||||||
Homeowners | 1,128 | 1,141 | 1,102 | |||||||||
Total Consumer Markets [1] | 3,747 | 3,947 | 3,959 | |||||||||
Individual Annuity | ||||||||||||
Variable annuity | 1,604 | 1,702 | 1,468 | |||||||||
Fixed / MVA and other annuity | 56 | 14 | (3 | ) | ||||||||
Total Individual Annuity | 1,660 | 1,716 | 1,465 | |||||||||
Individual Life | ||||||||||||
Variable life | 396 | 416 | 503 | |||||||||
Universal life | 455 | 391 | 390 | |||||||||
Term / Other life | 48 | 49 | 47 | |||||||||
Total Individual Life | 899 | 856 | 940 | |||||||||
Retirement Plans | ||||||||||||
401(k) | 332 | 318 | 286 | |||||||||
Government plans | 48 | 41 | 38 | |||||||||
Total Retirement Plans | 380 | 359 | 324 | |||||||||
Mutual Funds | ||||||||||||
Non-Proprietary | 590 | 603 | 518 | |||||||||
Proprietary | 59 | 61 | — | |||||||||
Total Mutual Funds | 649 | 664 | 518 | |||||||||
Life Other Operations | 1,020 | 1,049 | 1,293 | |||||||||
Property & Casualty Other Operations | — | 1 | — | |||||||||
Corporate | 209 | 189 | 219 | |||||||||
Total earned premiums, fees, and other considerations | 18,838 | 18,803 | 18,971 | |||||||||
Net investment income (loss): | ||||||||||||
Securities available-for-sale and other | 4,272 | 4,364 | 4,017 | |||||||||
Equity securities, trading | (1,359 | ) | (774 | ) | 3,188 | |||||||
Total net investment income (loss) | 2,913 | 3,590 | 7,205 | |||||||||
Net realized capital gains (losses) | (145 | ) | (611 | ) | (2,004 | ) | ||||||
Other revenues | 253 | 267 | 261 | |||||||||
Total revenues | $ | 21,859 | $ | 22,049 | $ | 24,433 | ||||||
[1] | For 2011, 2010 and 2009, AARP members accounted for earned premiums of $2.8 billion, $2.9 billion and $2.8 billion, respectively. |
F-15
Table of Contents
Geographical Revenue Information | For the years ended December 31, | |||||||||||
Revenues | 2011 | 2010 | 2009 | |||||||||
United States of America | $ | 21,561 | $ | 22,140 | $ | 20,189 | ||||||
Japan | 135 | (329 | ) | 3,816 | ||||||||
Other | 163 | 238 | 428 | |||||||||
Total revenues | $ | 21,859 | $ | 22,049 | $ | 24,433 | ||||||
Amortization of deferred policy acquisition costs and | For the years ended December 31, | |||||||||||
present value of future profits | 2011 | 2010 | 2009 | |||||||||
Property & Casualty Commercial | $ | 1,356 | $ | 1,353 | $ | 1,393 | ||||||
Group Benefits | 55 | 61 | 61 | |||||||||
Consumer Markets | 639 | 667 | 674 | |||||||||
Individual Annuity | 483 | (56 | ) | 1,339 | ||||||||
Individual Life | 221 | 119 | 314 | |||||||||
Retirement Plans | 134 | 27 | 56 | |||||||||
Mutual Funds | 47 | 51 | 50 | |||||||||
Life Other Operations | 492 | 305 | 370 | |||||||||
Total amortization of deferred policy acquisition costs and present value of future profits | $ | 3,427 | $ | 2,527 | $ | 4,257 | ||||||
For the years ended December 31, | ||||||||||||
Income tax expense (benefit) | 2011 | 2010 | 2009 | |||||||||
Property & Casualty Commercial | $ | 40 | $ | 407 | $ | 356 | ||||||
Group Benefits | — | 65 | 59 | |||||||||
Consumer Markets | (29 | ) | 52 | 48 | ||||||||
Individual Annuity | (274 | ) | 124 | (481 | ) | |||||||
Individual Life | 33 | 107 | (27 | ) | ||||||||
Retirement Plans | (45 | ) | 13 | (143 | ) | |||||||
Mutual Funds | 54 | 52 | 18 | |||||||||
Life Other Operations | 150 | — | (343 | ) | ||||||||
Property & Casualty Other Operations | (74 | ) | (40 | ) | (51 | ) | ||||||
Corporate | (201 | ) | (168 | ) | (274 | ) | ||||||
Total income tax expense (benefit) | $ | (346 | ) | $ | 612 | $ | (838 | ) | ||||
As of December 31, | ||||||||
Assets | 2011 | 2010 | ||||||
Property & Casualty Commercial | $ | 24,692 | $ | 23,736 | ||||
Group Benefits | 9,485 | 9,028 | ||||||
Consumer Markets | 6,513 | 6,778 | ||||||
Individual Annuity | 87,055 | 101,144 | ||||||
Individual Life | 17,930 | 16,538 | ||||||
Retirement Plans | 35,410 | 34,152 | ||||||
Mutual Funds | 307 | 301 | ||||||
Life Other Operations | 111,407 | 113,065 | ||||||
Property & Casualty Other Operations | 4,639 | 4,733 | ||||||
Corporate | 6,626 | 8,871 | ||||||
Total assets | $ | 304,064 | $ | 318,346 | ||||
F-16
Table of Contents
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. | |
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. | |
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, guaranteed product embedded and reinsurance derivatives and other complex derivative securities. 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. |
F-17
Table of Contents
December 31, 2011 | ||||||||||||||||
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 | $ | 3,153 | $ | — | $ | 2,792 | $ | 361 | ||||||||
CDOs | 2,487 | — | 2,119 | 368 | ||||||||||||
CMBS | 6,951 | — | 6,363 | 588 | ||||||||||||
Corporate | 44,011 | — | 41,756 | 2,255 | ||||||||||||
Foreign government/government agencies | 2,161 | — | 2,112 | 49 | ||||||||||||
States, municipalities and political subdivisions (“Municipal”) | 13,260 | — | 12,823 | 437 | ||||||||||||
RMBS | 5,757 | — | 4,694 | 1,063 | ||||||||||||
U.S. Treasuries | 4,029 | 750 | 3,279 | — | ||||||||||||
Total fixed maturities | 81,809 | 750 | 75,938 | 5,121 | ||||||||||||
Fixed maturities, FVO | 1,328 | — | 833 | 495 | ||||||||||||
Equity securities, trading | 30,499 | 1,967 | 28,532 | — | ||||||||||||
Equity securities, AFS | 921 | 352 | 476 | 93 | ||||||||||||
Derivative assets | ||||||||||||||||
Credit derivatives | (24 | ) | — | (11 | ) | (13 | ) | |||||||||
Equity derivatives | 31 | — | — | 31 | ||||||||||||
Foreign exchange derivatives | 519 | — | 519 | — | ||||||||||||
Interest rate derivatives | 195 | — | 147 | 48 | ||||||||||||
U.S. GMWB hedging instruments | 494 | — | 11 | 483 | ||||||||||||
U.S. macro hedge program | 357 | — | — | 357 | ||||||||||||
International program hedging instruments | 731 | — | 692 | 39 | ||||||||||||
Other derivative contracts | 28 | — | — | 28 | ||||||||||||
Total derivative assets [1] | 2,331 | — | 1,358 | 973 | ||||||||||||
Short-term investments | 7,736 | 750 | 6,986 | — | ||||||||||||
Reinsurance recoverable for U.S. GMWB | 443 | — | — | 443 | ||||||||||||
Separate account assets [2] | 139,432 | 101,644 | 36,757 | 1,031 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 264,499 | $ | 105,463 | $ | 150,880 | $ | 8,156 | ||||||||
Percentage of level to total | 100 | % | 40 | % | 57 | % | 3 | % | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
U.S guaranteed withdrawal benefits | $ | (2,538 | ) | $ | — | $ | — | $ | (2,538 | ) | ||||||
International guaranteed withdrawal benefits | (66 | ) | — | — | (66 | ) | ||||||||||
International other guaranteed living benefits | (5 | ) | — | — | (5 | ) | ||||||||||
Equity linked notes | (9 | ) | — | — | (9 | ) | ||||||||||
Total other policyholder funds and benefits payable | (2,618 | ) | — | — | (2,618 | ) | ||||||||||
Derivative liabilities | ||||||||||||||||
Credit derivatives | (573 | ) | — | (25 | ) | (548 | ) | |||||||||
Equity derivatives | 9 | — | — | 9 | ||||||||||||
Foreign exchange derivatives | 134 | — | 134 | — | ||||||||||||
Interest rate derivatives | (527 | ) | — | (421 | ) | (106 | ) | |||||||||
U.S. GMWB hedging instruments | 400 | — | — | 400 | ||||||||||||
International program hedging instruments | 19 | — | 23 | (4 | ) | |||||||||||
Total derivative liabilities [3] | (538 | ) | — | (289 | ) | (249 | ) | |||||||||
Other Liabilities | (9 | ) | — | — | (9 | ) | ||||||||||
Consumer notes [4] | (4 | ) | — | — | (4 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (3,169 | ) | $ | — | $ | (289 | ) | $ | (2,880 | ) | |||||
F-18
Table of Contents
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 | 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 | 795 | — | 795 | — | ||||||||||||
Interest rate derivatives | (106 | ) | — | (70 | ) | (36 | ) | |||||||||
U.S. GMWB hedging instruments | 339 | — | (122 | ) | 461 | |||||||||||
U.S. macro hedge program | 203 | — | — | 203 | ||||||||||||
International program hedging instruments | 256 | 2 | 249 | 5 | ||||||||||||
Other derivative contracts | 32 | — | — | 32 | ||||||||||||
Total derivative assets [1] | 1,524 | 2 | 834 | 688 | ||||||||||||
Short-term investments | 8,528 | 541 | 7,987 | — | ||||||||||||
Reinsurance recoverable for U.S. GMWB | 280 | — | — | 280 | ||||||||||||
Separate account assets [2] | 153,727 | 116,717 | 35,763 | 1,247 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 276,321 | $ | 120,271 | $ | 145,670 | $ | 10,380 | ||||||||
Percentage of level to total | 100 | % | 43 | % | 53 | % | 4 | % | ||||||||
F-19
Table of Contents
December 31, 2010 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
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 | ||||||||||||
Equity linked notes | (9 | ) | — | — | (9 | ) | ||||||||||
Total other policyholder funds and benefits payable | (1,653 | ) | — | — | (1,653 | ) | ||||||||||
Derivative liabilities | ||||||||||||||||
Credit derivatives | (482 | ) | — | (71 | ) | (411 | ) | |||||||||
Equity derivatives | 2 | — | — | 2 | ||||||||||||
Foreign exchange derivatives | (34 | ) | — | (34 | ) | — | ||||||||||
Interest rate derivatives | (266 | ) | — | (249 | ) | (17 | ) | |||||||||
U.S. GMWB hedging instruments | 128 | — | (11 | ) | 139 | |||||||||||
International program hedging instruments | (2 | ) | (2 | ) | — | — | ||||||||||
Total derivative liabilities [3] | (654 | ) | (2 | ) | (365 | ) | (287 | ) | ||||||||
Other liabilities | (37 | ) | — | — | (37 | ) | ||||||||||
Consumer notes [4] | (5 | ) | — | — | (5 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (2,349 | ) | $ | (2 | ) | $ | (365 | ) | $ | (1,982 | ) | ||||
[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, 2011 and 2010, $1.4 billion and $968, respectively, of cash collateral liability was netted against the derivative asset value in the Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. | |
[2] | Approximately $4.0 and $6.0 billion of investment sales receivable that are not subject to fair value accounting are excluded as of December 31, 2011 and 2010, respectively. | |
[3] | Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis. | |
[4] | Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes. |
F-20
Table of Contents
F-21
Table of Contents
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, including investment grade private placements— 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. |
F-22
Table of Contents
Level 3 | Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. This includes less liquid securities such as lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) CDOs and residential mortgage-backed securities (“RMBS”) primarily backed by below-prime loans. Primary inputs for these structured securities are consistent with the typical inputs used in Level 2 measurements noted above, but are Level 3 due to their illiquid markets. Additionally, certain long-dated securities are priced based on third party pricing services, including municipal securities, foreign government/government agencies, 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. |
F-23
Table of Contents
• | 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. |
F-24
Table of Contents
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||||||
Foreign | Total Fixed | Fixed | ||||||||||||||||||||||||||||||||||
govt./govt | Maturities, | Maturities, | ||||||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | FVO | |||||||||||||||||||||||||||
Fair value as of January 1, 2011 | $ | 477 | $ | 2,581 | $ | 689 | $ | 2,129 | $ | 56 | $ | 272 | $ | 1,285 | $ | 7,489 | $ | 522 | ||||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||||||
Included in net income [1], [2], [6] | (27 | ) | (41 | ) | 11 | (40 | ) | — | — | (21 | ) | (118 | ) | 22 | ||||||||||||||||||||||
Included in OCI [3] | 22 | 126 | 52 | (31 | ) | 1 | 48 | 3 | 221 | — | ||||||||||||||||||||||||||
Purchases | 58 | — | 29 | 108 | 3 | 131 | 25 | 354 | — | |||||||||||||||||||||||||||
Settlements | (37 | ) | (151 | ) | (86 | ) | (121 | ) | (4 | ) | — | (135 | ) | (534 | ) | (3 | ) | |||||||||||||||||||
Sales | (10 | ) | (66 | ) | (317 | ) | (162 | ) | (7 | ) | (2 | ) | (16 | ) | (580 | ) | (42 | ) | ||||||||||||||||||
Transfers into Level 3 [4] | 82 | 30 | 268 | 774 | 39 | 4 | 82 | 1,279 | — | |||||||||||||||||||||||||||
Transfers out of Level 3 [4] | (204 | ) | (2,111 | ) | (58 | ) | (402 | ) | (39 | ) | (16 | ) | (160 | ) | (2,990 | ) | (4 | ) | ||||||||||||||||||
Fair value as of December 31, 2011 | $ | 361 | $ | 368 | $ | 588 | $ | 2,255 | $ | 49 | $ | 437 | $ | 1,063 | $ | 5,121 | $ | 495 | ||||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7] | $ | (16 | ) | $ | (41 | ) | $ | (17 | ) | $ | (17 | ) | $ | — | $ | — | $ | (15 | ) | $ | (106 | ) | $ | 19 | ||||||||||||
Freestanding Derivatives [5] | ||||||||||||||||||||||||||||||||||||
U.S. | Intl. | |||||||||||||||||||||||||||||||||||
Equity | U.S. | Macro | Program | Total Free- | ||||||||||||||||||||||||||||||||
Securities, | Interest | GMWB | Hedge | Hedging | Other | Standing | ||||||||||||||||||||||||||||||
Assets (Liabilities) | AFS | Credit | Equity | Rate | Hedging | Program | Instr. | Contracts | Derivatives [5] | |||||||||||||||||||||||||||
Fair value as of January 1, 2011 | $ | 154 | $ | (390 | ) | $ | 4 | $ | (53 | ) | $ | 600 | $ | 203 | $ | 5 | $ | 32 | $ | 401 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||||||
Included in net income [1], [2], [6] | (12 | ) | (170 | ) | (9 | ) | (21 | ) | 279 | (128 | ) | (3 | ) | (4 | ) | (56 | ) | |||||||||||||||||||
Included in OCI [3] | (4 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Purchases | 39 | 1 | 45 | 64 | 23 | 347 | 33 | — | 513 | |||||||||||||||||||||||||||
Settlements | — | (2 | ) | — | (48 | ) | (19 | ) | (65 | ) | — | — | (134 | ) | ||||||||||||||||||||||
Sales | (10 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Transfers into Level 3 [4] | 7 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Transfers out of Level 3 [4] | (81 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Fair value as of December 31, 2011 | $ | 93 | $ | (561 | ) | $ | 40 | $ | (58 | ) | $ | 883 | $ | 357 | $ | 35 | $ | 28 | $ | 724 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7] | $ | (10 | ) | $ | (163 | ) | $ | (8 | ) | $ | (19 | ) | $ | 278 | $ | (107 | ) | $ | (5 | ) | $ | (4 | ) | $ | (28 | ) | ||||||||||
F-25
Table of Contents
Reinsurance Recoverable | ||||||||
Assets | for U.S. GMWB | Separate Accounts | ||||||
Fair value as of January 1, 2011 | $ | 280 | $ | 1,247 | ||||
Total realized/unrealized gains (losses) | ||||||||
Included in net income [1], [2], [6] | 131 | 25 | ||||||
Included in OCI [3] | — | — | ||||||
Purchases | — | 292 | ||||||
Settlements | 32 | — | ||||||
Sales | — | (171 | ) | |||||
Transfers into Level 3 [4] | — | 14 | ||||||
Transfers out of Level 3 [4] | — | (376 | ) | |||||
Fair value as of December 31, 2011 | $ | 443 | $ | 1,031 | ||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7] | $ | 131 | $ | (1 | ) | |||
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||||||||||
Total Other | ||||||||||||||||||||||||||||
U.S. | International | Policyholder | ||||||||||||||||||||||||||
Guaranteed | Guaranteed | International | Equity | Funds and | ||||||||||||||||||||||||
Withdrawal | Living | Other Living | Linked | Benefits | Other | Consumer | ||||||||||||||||||||||
Liabilities | Benefits | Benefits | Benefits | Notes | Payable | Liabilities | Notes | |||||||||||||||||||||
Fair value as of January 1, 2011 | $ | (1,611 | ) | $ | (36 | ) | $ | 3 | $ | (9 | ) | $ | (1,653 | ) | $ | (37 | ) | $ | (5 | ) | ||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||
Included in net income [1], [2], [6] | (780 | ) | (21 | ) | (4 | ) | — | (805 | ) | 28 | 1 | |||||||||||||||||
Included in OCI [3] | — | — | — | — | 0 | — | — | |||||||||||||||||||||
Settlements | (147 | ) | (9 | ) | (4 | ) | — | (160 | ) | — | — | |||||||||||||||||
Fair value as of December 31, 2011 | $ | (2,538 | ) | $ | (66 | ) | $ | (5 | ) | $ | (9 | ) | $ | (2,618 | ) | $ | (9 | ) | $ | (4 | ) | |||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7] | $ | (780 | ) | $ | (21 | ) | $ | (4 | ) | $ | — | $ | (805 | ) | $ | 28 | $ | 1 | ||||||||||
F-26
Table of Contents
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||||||
Foreign | Total Fixed | Fixed | ||||||||||||||||||||||||||||||||||
govt./govt. | Maturities, | Maturities, | ||||||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | FVO | |||||||||||||||||||||||||||
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], [2], [6] | (17 | ) | (151 | ) | (132 | ) | (14 | ) | — | 1 | (43 | ) | (356 | ) | 80 | |||||||||||||||||||||
Included in OCI [3] | 92 | 533 | 409 | 320 | 5 | 24 | 254 | 1,637 | — | |||||||||||||||||||||||||||
Purchases, issuances, and settlements | (74 | ) | (234 | ) | (186 | ) | 78 | (8 | ) | 14 | (161 | ) | (571 | ) | (11 | ) | ||||||||||||||||||||
Transfers into Level 3 [4] | 40 | 42 | 443 | 967 | 8 | 11 | 146 | 1,657 | 453 | |||||||||||||||||||||||||||
Transfers out of Level 3 [4] | (144 | ) | (444 | ) | (152 | ) | (7,249 | ) | (42 | ) | (40 | ) | (64 | ) | (8,135 | ) | — | |||||||||||||||||||
Fair value as of December 31, 2010 | $ | 477 | $ | 2,581 | $ | 689 | $ | 2,129 | $ | 56 | $ | 272 | $ | 1,285 | $ | 7,489 | $ | 522 | ||||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2010 [2] [7] | $ | (8 | ) | $ | (158 | ) | $ | (73 | ) | $ | (24 | ) | $ | — | $ | — | $ | (38 | ) | $ | (301 | ) | $ | 76 | ||||||||||||
Freestanding Derivatives [5] | ||||||||||||||||||||||||||||||||||||
U.S. | Intl. | |||||||||||||||||||||||||||||||||||
Equity | U.S. | Macro | Program | Total Free- | ||||||||||||||||||||||||||||||||
Securities, | Interest | GMWB | Hedge | Hedging | Other | Standing | ||||||||||||||||||||||||||||||
Assets (Liabilities) | AFS | Credit | Equity | Rate | Hedging | Program | Instr. | Contracts | Derivatives [5] | |||||||||||||||||||||||||||
Fair value as of January 1, 2010 | $ | 58 | $ | (228 | ) | $ | (2 | ) | $ | 5 | $ | 236 | $ | 278 | $ | 12 | $ | 36 | $ | 337 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||||||
Included in net income [1], [2], [6] | (6 | ) | 124 | 6 | (4 | ) | (74 | ) | (312 | ) | (29 | ) | (4 | ) | (293 | ) | ||||||||||||||||||||
Included in OCI [3] | 9 | — | — | 1 | — | — | — | — | 1 | |||||||||||||||||||||||||||
Purchases, issuances, and settlements | 16 | 4 | — | (44 | ) | 442 | 237 | 22 | — | 661 | ||||||||||||||||||||||||||
Transfers into Level 3 [4] | 98 | (290 | ) | — | — | — | — | — | — | (290 | ) | |||||||||||||||||||||||||
Transfers out of Level 3 [4] | (21 | ) | — | — | (11 | ) | (4 | ) | — | — | — | (15 | ) | |||||||||||||||||||||||
Fair value as of December 31, 2010 | $ | 154 | $ | (390 | ) | $ | 4 | $ | (53 | ) | $ | 600 | $ | 203 | $ | 5 | $ | 32 | $ | 401 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2010 [2] [7] | $ | (8 | ) | $ | 116 | $ | 6 | $ | (24 | ) | $ | (61 | ) | $ | (292 | ) | $ | (29 | ) | $ | (4 | ) | $ | (288 | ) | |||||||||||
Reinsurance Recoverable | ||||||||
Assets | for U.S. GMWB | Separate Accounts | ||||||
Fair value as of January 1, 2010 | $ | 347 | $ | 962 | ||||
Total realized/unrealized gains (losses) | ||||||||
Included in net income [1], [2], [6] | (102 | ) | 142 | |||||
Purchases, issuances, and settlements | 35 | 314 | ||||||
Transfers into Level 3 [4] | — | 14 | ||||||
Transfers out of Level 3 [4] | — | (185 | ) | |||||
Fair value as of December 31, 2010 | $ | 280 | $ | 1,247 | ||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2010 [2] [7] | $ | (102 | ) | $ | 20 | |||
F-27
Table of Contents
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||||||||||||||
Total Other | ||||||||||||||||||||||||||||||||
U.S. | International | Policyholder | ||||||||||||||||||||||||||||||
Guaranteed | Guaranteed | International | Equity | Funds and | ||||||||||||||||||||||||||||
Withdrawal | Living | Other Living | Linked | Institutional | Benefits | Other | Consumer | |||||||||||||||||||||||||
Liabilities | Benefits | Benefits | Benefits | Notes | Notes | Payable | Liabilities | Notes | ||||||||||||||||||||||||
Fair value as of January 1, 2010 | $ | (1,957 | ) | $ | (45 | ) | $ | 2 | $ | (10 | ) | $ | (2 | ) | $ | (2,012 | ) | $ | — | $ | (5 | ) | ||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1], [2], [6] | 486 | 22 | 4 | — | 2 | 514 | (26 | ) | — | |||||||||||||||||||||||
Included in OCI [3] | — | (4 | ) | — | — | — | (4 | ) | — | — | ||||||||||||||||||||||
Purchases, issuances, and settlements | (140 | ) | (9 | ) | (3 | ) | 1 | — | (151 | ) | — | — | ||||||||||||||||||||
Transfers into Level 3 [4] | — | — | — | — | — | — | (11 | ) | — | |||||||||||||||||||||||
Fair value as of December 31, 2010 | $ | (1,611 | ) | $ | (36 | ) | $ | 3 | $ | (9 | ) | $ | — | $ | (1,653 | ) | $ | (37 | ) | $ | (5 | ) | ||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2010 [2] [7] | $ | 486 | $ | 22 | $ | 4 | $ | — | $ | 2 | $ | 514 | $ | — | $ | — | ||||||||||||||||
[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 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 DAC. | |
[3] | All amounts are before income taxes and amortization of DAC. | |
[4] | 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. | |
[5] | Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Consolidated Balance Sheet in other investments and other liabilities. | |
[6] | Includes both market and non-market impacts in deriving realized and unrealized gains (losses). | |
[7] | Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein. |
For the years ended December 31, | ||||||||
2011 | 2010 | |||||||
Assets | ||||||||
Fixed maturities, FVO | ||||||||
ABS | $ | — | $ | (5 | ) | |||
Corporate | 10 | (7 | ) | |||||
CRE CDOs | (33 | ) | 83 | |||||
Foreign government | 45 | — | ||||||
RMBS | — | (1 | ) | |||||
Other liabilities | ||||||||
Credit-linked notes | 28 | (26 | ) | |||||
Total realized capital gains | $ | 50 | $ | 44 | ||||
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As of December 31, | ||||||||
2011 | 2010 | |||||||
Assets | ||||||||
Fixed maturities, FVO | ||||||||
ABS | $ | 65 | $ | 65 | ||||
CRE CDOs | 225 | 270 | ||||||
Corporate | 272 | 250 | ||||||
Foreign government | 766 | 64 | ||||||
Total fixed maturities, FVO | $ | 1,328 | $ | 649 | ||||
Other liabilities | ||||||||
Credit-linked notes [1] | $ | 9 | $ | 37 |
[1] | As of December 31, 2011 and 2010, the outstanding principal balance of the notes was $243. |
December 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets | ||||||||||||||||
Policy loans | $ | 2,001 | $ | 2,153 | $ | 2,181 | $ | 2,294 | ||||||||
Mortgage loans | 5,728 | 5,977 | 4,489 | 4,524 | ||||||||||||
Liabilities | ||||||||||||||||
Other policyholder funds and benefits payable [1] | $ | 10,343 | $ | 11,238 | $ | 11,155 | $ | 11,383 | ||||||||
Senior notes [2] | 4,481 | 4,623 | 4,880 | 5,072 | ||||||||||||
Junior subordinated debentures [2] | 1,735 | 2,430 | 1,727 | 2,596 | ||||||||||||
Consumer notes [3] | 310 | 305 | 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 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 value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates. |
• | Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans. |
• | 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. |
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Table of Contents
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
OTTI losses recognized in OCI | $ | (89 | ) | $ | (418 | ) | $ | (683 | ) | |||
Changes in fair value and/or sales | 112 | 647 | 244 | |||||||||
Tax and deferred acquisition costs | (14 | ) | (113 | ) | 215 | |||||||
Change in non-credit impairments recognized in OCI | $ | 9 | $ | 116 | $ | (224 | ) | |||||
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F-31
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F-32
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F-33
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For the years ended December 31, | ||||||||||||
(Before-tax) | 2011 | 2010 | 2009 | |||||||||
Fixed maturities | $ | 3,396 | $ | 3,489 | $ | 3,617 | ||||||
Equity securities, AFS | 36 | 53 | 93 | |||||||||
Mortgage loans | 281 | 260 | 307 | |||||||||
Policy loans | 131 | 132 | 139 | |||||||||
Limited partnerships and other alternative investments | 243 | 216 | (341 | ) | ||||||||
Other investments | 301 | 329 | 314 | |||||||||
Investment expenses | (116 | ) | (115 | ) | (112 | ) | ||||||
Total securities AFS and other | 4,272 | 4,364 | 4,017 | |||||||||
Equity securities, trading | (1,359 | ) | (774 | ) | 3,188 | |||||||
Total net investment income (loss) | $ | 2,913 | $ | 3,590 | $ | 7,205 | ||||||
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For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gross gains on sales | $ | 693 | $ | 836 | $ | 1,056 | ||||||
Gross losses on sales | (384 | ) | (522 | ) | (1,397 | ) | ||||||
Net OTTI losses recognized in earnings | (174 | ) | (434 | ) | (1,508 | ) | ||||||
Valuation allowances on mortgage loans | 24 | (154 | ) | (403 | ) | |||||||
Japanese fixed annuity contract hedges, net [1] | 3 | 27 | 47 | |||||||||
Periodic net coupon settlements on credit derivatives/Japan | (10 | ) | (17 | ) | (49 | ) | ||||||
Results of variable annuity hedge program | ||||||||||||
U.S. GMWB derivatives, net | (397 | ) | 89 | 1,464 | ||||||||
U.S. macro hedge program | (216 | ) | (445 | ) | (733 | ) | ||||||
Total U.S. program | (613 | ) | (356 | ) | 731 | |||||||
International program | 775 | 11 | (112 | ) | ||||||||
Total results of variable annuity hedge program | 162 | (345 | ) | 619 | ||||||||
Other, net [2] | (459 | ) | (2 | ) | (369 | ) | ||||||
Net realized capital losses, before-tax | $ | (145 | ) | $ | (611 | ) | $ | (2,004 | ) | |||
[1] | Relates to the Japanese fixed annuity product (adjustment ofproduct liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding net period coupon settlements, and Japan FVO securities). | |
[2] | Primarily consists of gains and losses on non-qualifyingderivatives and fixed maturities, FVO, Japan 3Win related foreign currency swaps, and other investment gains and losses. |
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Fixed maturities, AFS | ||||||||||||
Sale proceeds | $ | 36,956 | $ | 46,482 | $ | 41,973 | ||||||
Gross gains | 617 | 706 | 755 | |||||||||
Gross losses | (381 | ) | (452 | ) | (1,272 | ) | ||||||
Equity securities, AFS | ||||||||||||
Sale proceeds | $ | 239 | $ | 325 | $ | 941 | ||||||
Gross gains | 59 | 24 | 429 | |||||||||
Gross losses | — | (16 | ) | (151 | ) |
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Balance as of beginning of period | $ | (2,072 | ) | $ | (2,200 | ) | $ | — | ||||
Credit impairments remaining in retained earnings related to adoption of new accounting guidance in April 2009 | — | — | (1,320 | ) | ||||||||
Additions for credit impairments recognized on [1]: | ||||||||||||
Securities not previously impaired | (56 | ) | (211 | ) | (840 | ) | ||||||
Securities previously impaired | (69 | ) | (161 | ) | (292 | ) | ||||||
Reductions for credit impairments previously recognized on: | ||||||||||||
Securities that matured or were sold during the period | 505 | 468 | 245 | |||||||||
Securities that the Company intends to sell or more likely than not will be required to sell before recovery | — | — | 3 | |||||||||
Securities due to an increase in expected cash flows | 16 | 32 | 4 | |||||||||
Balance as of end of period | $ | (1,676 | ) | $ | (2,072 | ) | $ | (2,200 | ) | |||
[1] | These additions are included in the net OTTI losses recognized in earnings in the Consolidated Statements of Operations. |
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December 31, 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 | $ | 3,430 | $ | 55 | $ | (332 | ) | $ | 3,153 | $ | (7 | ) | $ | 3,247 | $ | 38 | $ | (396 | ) | $ | 2,889 | $ | (2 | ) | ||||||||||||||||
CDOs | 2,819 | 16 | (348 | ) | 2,487 | (44 | ) | 3,088 | 1 | (478 | ) | 2,611 | (82 | ) | ||||||||||||||||||||||||||
CMBS | 7,192 | 271 | (512 | ) | 6,951 | (31 | ) | 8,297 | 235 | (615 | ) | 7,917 | (9 | ) | ||||||||||||||||||||||||||
Corporate [2] | 41,161 | 3,661 | (739 | ) | 44,011 | — | 38,496 | 2,174 | (747 | ) | 39,884 | 7 | ||||||||||||||||||||||||||||
Foreign govt./govt. agencies | 2,030 | 141 | (10 | ) | 2,161 | — | 1,627 | 73 | (17 | ) | 1,683 | — | ||||||||||||||||||||||||||||
Municipal | 12,557 | 775 | (72 | ) | 13,260 | — | 12,469 | 150 | (495 | ) | 12,124 | — | ||||||||||||||||||||||||||||
RMBS | 5,961 | 252 | (456 | ) | 5,757 | (105 | ) | 6,036 | 109 | (462 | ) | 5,683 | (124 | ) | ||||||||||||||||||||||||||
U.S. Treasuries | 3,828 | 203 | (2 | ) | 4,029 | — | 5,159 | 24 | (154 | ) | 5,029 | — | ||||||||||||||||||||||||||||
Total fixed maturities, AFS | 78,978 | 5,374 | (2,471 | ) | 81,809 | (187 | ) | 78,419 | 2,804 | (3,364 | ) | 77,820 | (210 | ) | ||||||||||||||||||||||||||
Equity securities, AFS | 1,056 | 68 | (203 | ) | 921 | — | 1,013 | 92 | (132 | ) | 973 | — | ||||||||||||||||||||||||||||
Total AFS securities | $ | 80,034 | $ | 5,442 | $ | (2,674 | ) | $ | 82,730 | $ | (187 | ) | $ | 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 December 31, 2011 and 2010. | |
[2] | Gross unrealized gains (losses) exclude the fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in value will be recorded in net realized capital gains (losses). |
December 31, 2011 | ||||||||
Maturity | Amortized Cost | Fair Value | ||||||
One year or less | $ | 3,206 | $ | 3,240 | ||||
Over one year through five years | 16,140 | 16,790 | ||||||
Over five years through ten years | 15,041 | 16,111 | ||||||
Over ten years | 25,189 | 27,320 | ||||||
Subtotal | 59,576 | 63,461 | ||||||
Mortgage-backed and asset-backed securities | 19,402 | 18,348 | ||||||
Total | $ | 78,978 | $ | 81,809 | ||||
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December 31, 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 | $ | 629 | $ | 594 | $ | (35 | ) | $ | 1,169 | $ | 872 | $ | (297 | ) | $ | 1,798 | $ | 1,466 | $ | (332 | ) | |||||||||||||||
CDOs | 81 | 59 | (22 | ) | 2,709 | 2,383 | (326 | ) | 2,790 | 2,442 | (348 | ) | ||||||||||||||||||||||||
CMBS | 1,297 | 1,194 | (103 | ) | 2,144 | 1,735 | (409 | ) | 3,441 | 2,929 | (512 | ) | ||||||||||||||||||||||||
Corporate [1] | 4,388 | 4,219 | (169 | ) | 3,268 | 2,627 | (570 | ) | 7,656 | 6,846 | (739 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 218 | 212 | (6 | ) | 51 | 47 | (4 | ) | 269 | 259 | (10 | ) | ||||||||||||||||||||||||
Municipal | 299 | 294 | (5 | ) | 627 | 560 | (67 | ) | 926 | 854 | (72 | ) | ||||||||||||||||||||||||
RMBS | 415 | 330 | (85 | ) | 1,206 | 835 | (371 | ) | 1,621 | 1,165 | (456 | ) | ||||||||||||||||||||||||
U.S. Treasuries | 343 | 341 | (2 | ) | — | — | — | 343 | 341 | (2 | ) | |||||||||||||||||||||||||
Total fixed maturities | 7,670 | 7,243 | (427 | ) | 11,174 | 9,059 | (2,044 | ) | 18,844 | 16,302 | (2,471 | ) | ||||||||||||||||||||||||
Equity securities | 167 | 138 | (29 | ) | 439 | 265 | (174 | ) | 606 | 403 | (203 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss | $ | 7,837 | $ | 7,381 | $ | (456 | ) | $ | 11,613 | $ | 9,324 | $ | (2,218 | ) | $ | 19,450 | $ | 16,705 | $ | (2,674 | ) | |||||||||||||||
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 | 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). |
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December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Commercial | $ | 5,830 | $ | (102 | ) | $ | 5,728 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
Residential | — | — | — | 152 | (3 | ) | 149 | |||||||||||||||||
Total mortgage loans | $ | 5,830 | $ | (102 | ) | $ | 5,728 | $ | 4,644 | $ | (155 | ) | $ | 4,489 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. |
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Balance as of January 1 | $ | (155 | ) | $ | (366 | ) | $ | (26 | ) | |||
Additions | (26 | ) | (157 | ) | (408 | ) | ||||||
Deductions | 79 | 368 | 68 | |||||||||
Balance as of December 31 | $ | (102 | ) | $ | (155 | ) | $ | (366 | ) | |||
Commercial Mortgage Loans Credit Quality | ||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Avg. Debt-Service | Carrying | Avg. Debt-Service | |||||||||||||
Loan-to-value | Value | Coverage Ratio | Value | Coverage Ratio | ||||||||||||
Greater than 80% | $ | 707 | 1.45 | x | $ | 1,358 | 1.49 | x | ||||||||
65% – 80% | 2,384 | 1.60 | x | 1,829 | 1.93 | x | ||||||||||
Less than 65% | 2,637 | 2.40 | x | 1,153 | 2.26 | x | ||||||||||
Total commercial mortgage loans | $ | 5,728 | 1.94 | x | $ | 4,340 | 1.87 | x | ||||||||
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Table of Contents
Mortgage Loans by Region | ||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
East North Central | $ | 94 | 1.6 | % | $ | 77 | 1.7 | % | ||||||||
Middle Atlantic | 508 | 8.9 | % | 428 | 9.5 | % | ||||||||||
Mountain | 125 | 2.2 | % | 109 | 2.4 | % | ||||||||||
New England | 294 | 5.1 | % | 259 | 5.8 | % | ||||||||||
Pacific | 1,690 | 29.5 | % | 1,147 | 25.6 | % | ||||||||||
South Atlantic | 1,149 | 20.1 | % | 1,177 | 26.3 | % | ||||||||||
West North Central | 30 | 0.5 | % | 36 | 0.8 | % | ||||||||||
West South Central | 224 | 3.9 | % | 231 | 5.1 | % | ||||||||||
Other [1] | 1,614 | 28.2 | % | 1,025 | 22.8 | % | ||||||||||
Total mortgage loans | $ | 5,728 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
[1] | Primarily represents loans collateralized by multiple properties in various regions. |
Mortgage Loans by Property Type | ||||||||||||||||
December 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
Commercial | ||||||||||||||||
Agricultural | $ | 249 | 4.3 | % | $ | 315 | 7.0 | % | ||||||||
Industrial | 1,747 | 30.5 | % | 1,141 | 25.4 | % | ||||||||||
Lodging | 93 | 1.6 | % | 132 | 2.9 | % | ||||||||||
Multifamily | 1,070 | 18.7 | % | 713 | 15.9 | % | ||||||||||
Office | 1,078 | 18.8 | % | 986 | 22.1 | % | ||||||||||
Retail | 1,234 | 21.5 | % | 669 | 14.9 | % | ||||||||||
Other | 257 | 4.6 | % | 384 | 8.5 | % | ||||||||||
Residential | — | — | 149 | 3.3 | % | |||||||||||
Total mortgage loans | $ | 5,728 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
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Table of Contents
December 31, 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] | $ | 491 | $ | 471 | $ | 29 | $ | 729 | $ | 393 | $ | 289 | ||||||||||||
Limited partnerships | 7 | — | 7 | 14 | 1 | 13 | ||||||||||||||||||
Total | $ | 498 | $ | 471 | $ | 36 | $ | 743 | $ | 394 | $ | 302 | ||||||||||||
[1] | Included in other liabilities in the Company’s Consolidated Balance Sheets. | |
[2] | The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment. | |
[3] | Total assets included in fixed maturities, AFS, and fixed maturities, FVO, in the Company’s Consolidated Balance Sheets. |
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F-41
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F-42
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notional Amount | Fair Value | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Customized swaps | $ | 8,389 | $ | 10,113 | $ | 385 | $ | 209 | ||||||||
Equity swaps, options, and futures | 5,320 | 4,943 | 498 | 391 | ||||||||||||
Interest rate swaps and futures | 2,697 | 2,800 | 11 | (133 | ) | |||||||||||
Total | $ | 16,406 | $ | 17,856 | $ | 894 | $ | 467 | ||||||||
Notional Amount | Fair Value | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Equity futures | $ | 59 | $ | 166 | $ | — | $ | — | ||||||||
Equity options | 6,760 | 12,891 | 357 | 203 | ||||||||||||
Total | $ | 6,819 | $ | 13,057 | $ | 357 | $ | 203 | ||||||||
Notional Amount | Fair Value | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Currency forwards | $ | 8,622 | $ | 4,951 | $ | 446 | $ | 166 | ||||||||
Currency options [1] | 7,357 | 5,296 | 127 | 62 | ||||||||||||
Equity futures | 3,835 | 1,002 | — | — | ||||||||||||
Equity options | 1,565 | 1,073 | 74 | 4 | ||||||||||||
Equity swaps | 392 | 369 | (8 | ) | 1 | |||||||||||
Interest rate futures | 739 | — | — | — | ||||||||||||
Interest rate swaps and swaptions | 11,216 | 2,182 | 111 | 21 | ||||||||||||
Total | $ | 33,726 | $ | 14,873 | $ | 750 | $ | 254 | ||||||||
[1] | As of December 31, 2011 and 2010, notional amounts include $5.3 billion and $3.1 billion, respectively, related to long positions and $2.1 billion and $2.2 billion, respectively, related to short positions. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||||||
Notional Amount | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||||||||
Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | |||||||||||||||||||||||||
Hedge Designation/ Derivative Type | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 8,652 | $ | 10,290 | $ | 329 | $ | 115 | $ | 329 | $ | 188 | $ | — | $ | (73 | ) | |||||||||||||||
Foreign currency swaps | 291 | 335 | 6 | 6 | 30 | 29 | (24 | ) | (23 | ) | ||||||||||||||||||||||
Total cash flow hedges | 8,943 | 10,625 | 335 | 121 | 359 | 217 | (24 | ) | (96 | ) | ||||||||||||||||||||||
Fair value hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | 1,007 | 1,120 | (78 | ) | (46 | ) | — | 5 | (78 | ) | (51 | ) | ||||||||||||||||||||
Foreign currency swaps | 677 | 677 | (39 | ) | (12 | ) | 63 | 71 | (102 | ) | (83 | ) | ||||||||||||||||||||
Total fair value hedges | 1,684 | 1,797 | (117 | ) | (58 | ) | 63 | 76 | (180 | ) | (134 | ) | ||||||||||||||||||||
Non-qualifying strategies | ||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||
Interest rate swaps, caps, floors, and futures | 10,144 | 7,938 | (583 | ) | (441 | ) | 531 | 126 | (1,114 | ) | (567 | ) | ||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||
Foreign currency swaps and forwards | 380 | 368 | (12 | ) | (18 | ) | 6 | 1 | (18 | ) | (19 | ) | ||||||||||||||||||||
Japan 3Win foreign currency swaps | 2,054 | 2,285 | 184 | 177 | 184 | 177 | — | — | ||||||||||||||||||||||||
Japanese fixed annuity hedging instruments | 1,945 | 2,119 | 514 | 608 | 540 | 608 | (26 | ) | — | |||||||||||||||||||||||
Credit contracts | ||||||||||||||||||||||||||||||||
Credit derivatives that purchase credit protection | 1,721 | 2,559 | 36 | (9 | ) | 56 | 29 | (20 | ) | (38 | ) | |||||||||||||||||||||
Credit derivatives that assume credit risk [1] | 2,952 | 2,569 | (648 | ) | (434 | ) | 2 | 8 | (650 | ) | (442 | ) | ||||||||||||||||||||
Credit derivatives in offsetting positions | 8,189 | 8,367 | (57 | ) | (75 | ) | 164 | 98 | (221 | ) | (173 | ) | ||||||||||||||||||||
Equity contracts | ||||||||||||||||||||||||||||||||
Equity index swaps and options | 1,501 | 189 | 27 | (10 | ) | 40 | 5 | (13 | ) | (15 | ) | |||||||||||||||||||||
Variable annuity hedge program | ||||||||||||||||||||||||||||||||
U.S. GMWB product derivatives [2] | 34,569 | 40,255 | (2,538 | ) | (1,611 | ) | — | — | (2,538 | ) | (1,611 | ) | ||||||||||||||||||||
U.S. GMWB reinsurance contracts | 7,193 | 8,767 | 443 | 280 | 443 | 280 | — | — | ||||||||||||||||||||||||
U.S. GMWB hedging instruments | 16,406 | 17,856 | 894 | 467 | 1,022 | 647 | (128 | ) | (180 | ) | ||||||||||||||||||||||
U.S. macro hedge program | 6,819 | 13,057 | 357 | 203 | 357 | 203 | — | — | ||||||||||||||||||||||||
International program product derivatives [2] | 2,710 | 2,730 | (71 | ) | (33 | ) | — | 3 | (71 | ) | (36 | ) | ||||||||||||||||||||
International program hedging instruments | 33,726 | 14,873 | 750 | 254 | 887 | 265 | (137 | ) | (11 | ) | ||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Contingent capital facility put option | 500 | 500 | 28 | 32 | 28 | 32 | — | — | ||||||||||||||||||||||||
Total non-qualifying strategies | 130,809 | 124,432 | (676 | ) | (610 | ) | 4,260 | 2,482 | (4,936 | ) | (3,092 | ) | ||||||||||||||||||||
Total cash flow hedges, fair value hedges, and non-qualifying strategies | $ | 141,436 | $ | 136,854 | $ | (458 | ) | $ | (547 | ) | $ | 4,682 | $ | 2,775 | $ | (5,140 | ) | $ | (3,322 | ) | ||||||||||||
Balance Sheet Location | ||||||||||||||||||||||||||||||||
Fixed maturities, available-for-sale | $ | 703 | $ | 728 | $ | (72 | ) | $ | (39 | ) | $ | — | $ | — | $ | (72 | ) | $ | (39 | ) | ||||||||||||
Other investments | 60,227 | 55,948 | 2,331 | 1,524 | 3,165 | 2,105 | (834 | ) | (581 | ) | ||||||||||||||||||||||
Other liabilities | 35,944 | 28,333 | (538 | ) | (654 | ) | 1,074 | 387 | (1,612 | ) | (1,041 | ) | ||||||||||||||||||||
Consumer notes | 35 | 39 | (4 | ) | (5 | ) | — | — | (4 | ) | (5 | ) | ||||||||||||||||||||
Reinsurance recoverables | 7,193 | 8,767 | 443 | 280 | 443 | 280 | — | — | ||||||||||||||||||||||||
Other policyholder funds and benefits payable | 37,334 | 43,039 | (2,618 | ) | (1,653 | ) | — | 3 | (2,618 | ) | (1,656 | ) | ||||||||||||||||||||
Total derivatives | $ | 141,436 | $ | 136,854 | $ | (458 | ) | $ | (547 | ) | $ | 4,682 | $ | 2,775 | $ | (5,140 | ) | $ | (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. |
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | During 2011, the Company significantly strengthened its hedge protection of variable annuity products offered in Japan. As such, the notional amount related to the international program hedging instruments increased by $18.9 billion as the Company entered into additional foreign currency denominated interest rate swaps and swaptions, currency forwards, currency options and equity futures. |
• | The decrease of $8.7 billion in the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of policyholder lapses and withdrawals. |
• | The U.S. macro hedge program notional decreased $6.2 billion primarily due to the expiration of certain out of the money options in January of 2011. |
• | The fair value related to the international program hedging instruments increased as a result of the additional notional added during the year, as well as strengthening of the Japanese yen, lower global equity markets, and a decrease in interest rates. |
• | The decrease in the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of a general decrease in long-term interest rates and higher interest rate volatility. |
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||
Net Realized Capital Gains (Losses) | ||||||||||||||||||||||||
Gain (Loss) Recognized in OCI | Recognized in Income | |||||||||||||||||||||||
on Derivative (Effective Portion) | on Derivative (Ineffective Portion) | |||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
Interest rate swaps | $ | 337 | $ | 294 | $ | (461 | ) | $ | (4 | ) | $ | 2 | $ | (3 | ) | |||||||||
Foreign currency swaps | (3 | ) | 8 | (194 | ) | — | (1 | ) | 75 | |||||||||||||||
Total | $ | 334 | $ | 302 | $ | (655 | ) | $ | (4 | ) | $ | 1 | $ | 72 | ||||||||||
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||
Gain (Loss) Reclassified from AOCI | ||||||||||||||
into Income (Effective Portion) | ||||||||||||||
2011 | 2010 | 2009 | ||||||||||||
Interest rate swaps | Net realized capital gains (losses) | $ | 9 | $ | 18 | $ | 11 | |||||||
Interest rate swaps | Net investment income (loss) | 126 | 94 | 47 | ||||||||||
Foreign currency swaps | Net realized capital gains (losses) | (3 | ) | (7 | ) | (119 | ) | |||||||
Foreign currency swaps | Net investment income (loss) | — | — | 2 | ||||||||||
Total | $ | 132 | $ | 105 | $ | (59 | ) | |||||||
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivatives in Fair Value Hedging Relationships | ||||||||||||||||||||||||
Gain (Loss) Recognized in Income [1] | ||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||
Hedged | Hedged | Hedged | ||||||||||||||||||||||
Derivative | Item | Derivative | Item | Derivative | Item | |||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||
Net realized capital gains (losses) | $ | (73 | ) | $ | 70 | $ | (43 | ) | $ | 36 | $ | 72 | $ | (68 | ) | |||||||||
Benefits, losses and loss adjustment expenses | — | — | (1 | ) | 3 | (37 | ) | 40 | ||||||||||||||||
Foreign currency swaps | ||||||||||||||||||||||||
Net realized capital gains (losses) | (1 | ) | 1 | 8 | (8 | ) | 51 | (51 | ) | |||||||||||||||
Benefits, losses and loss adjustment expenses | (22 | ) | 22 | (12 | ) | 12 | 2 | (2 | ) | |||||||||||||||
Total | $ | (96 | ) | $ | 93 | $ | (48 | ) | $ | 43 | $ | 88 | $ | (81 | ) | |||||||||
[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. |
Non-qualifying Strategies | ||||||||||||
Gain (Loss) Recognized within Net Realized Capital Gains (Losses) | ||||||||||||
December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Interest rate contracts | ||||||||||||
Interest rate swaps, caps, floors, and forwards | $ | (22 | ) | $ | 45 | $ | 31 | |||||
Foreign exchange contracts | ||||||||||||
Foreign currency swaps and forwards | 3 | (1 | ) | (49 | ) | |||||||
Japan 3Win foreign currency swaps [1] | 31 | 215 | (22 | ) | ||||||||
Japanese fixed annuity hedging instruments [2] | 109 | 385 | (12 | ) | ||||||||
Credit contracts | ||||||||||||
Credit derivatives that purchase credit protection | (10 | ) | (23 | ) | (533 | ) | ||||||
Credit derivatives that assume credit risk | (174 | ) | 196 | 167 | ||||||||
Equity contracts | ||||||||||||
Equity index swaps and options | (89 | ) | 5 | (3 | ) | |||||||
Warrants | — | — | 70 | |||||||||
Variable annuity hedge program | ||||||||||||
U.S. GMWB product derivatives | (780 | ) | 486 | 4,686 | ||||||||
U.S. GMWB reinsurance contracts | 131 | (102 | ) | (988 | ) | |||||||
U.S. GMWB hedging instruments | 252 | (295 | ) | (2,234 | ) | |||||||
U.S. macro hedge program | (216 | ) | (445 | ) | (733 | ) | ||||||
International program product derivatives | (25 | ) | 26 | 67 | ||||||||
International program hedging instruments | 800 | (15 | ) | (179 | ) | |||||||
Other | ||||||||||||
Contingent capital facility put option | (5 | ) | (6 | ) | (8 | ) | ||||||
Total | $ | 5 | $ | 471 | $ | 260 | ||||||
[1] | The associated liability is adjusted for changes in spot rates through realized capital gains and was ($100), ($273) and $64 for the years ended December 31, 2011, 2010 and 2009, respectively. | |
[2] | The associated liability is adjusted for changes in spot rates through realized capital gains and losses and was ($129), ($332) and $67 for the years ended December 31, 2011, 2010 and 2009, respectively. |
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The net gain associated with the international program hedging instruments was primarily driven by strengthening of the Japanese yen, lower global equity markets, and a decrease in interest rates. |
• | The loss related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of a general decrease in long-term interest rates and higher interest rate volatility. |
• | The net loss on the U.S. macro hedge program was primarily driven by time decay and a decrease in equity market volatility since the purchase date of certain options during the fourth quarter. |
• | The loss on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spread widening. |
• | The net loss associated with the U.S. macro hedge program was primarily due to a higher equity market valuation, time decay, and lower implied market volatility. |
• | The net gain on the Japanese fixed annuity hedging instruments was primarily due to the strengthening of the Japanese yen in comparison to the U.S. dollar. |
• | The net gain related to the Japan 3Win foreign currency swaps 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 U.S. interest rates. |
• | The net gain associated with credit derivatives that assume credit risk as a part of replication transactions resulted from credit spread tightening. |
• | The gain related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of liability model assumption updates during third quarter, lower implied market volatility, and outperformance of the underlying actively managed funds as compared to their respective indices, partially offset by a general decrease in long-term interest rates and rising equity markets. |
• | The gain related to the net GMWB product, reinsurance, and hedging derivatives was primarily due to liability model assumption updates given favorable trends in policyholder experience, the relative outperformance of the underlying actively managed funds as compared to their respective indices, and the impact of the Company’s own credit standing. Additional net gains on GMWB related derivatives include lower implied market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. |
• | The net loss on the U.S. macro hedge program was primarily the result of a higher equity market valuation and the impact of trading activity. |
• | The net loss on credit derivatives that purchase credit protection to economically hedge fixed maturity securities and the net gain on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spreads tightening. |
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2011 | ||||||||||||||||||||||
Weighted | Underlying Referenced | |||||||||||||||||||||
Average | Credit Obligation(s) [1] | Offsetting | ||||||||||||||||||||
Credit Derivative type by derivative | Notional | Fair | Years to | Average 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 | $ | 1,628 | $ | (34 | ) | 3 years | Corporate Credit/ Foreign Gov. | A+ | $ | 1,424 | $ | (15 | ) | |||||||||
Below investment grade risk exposure | 170 | (7 | ) | 2 years | Corporate Credit | BB- | 144 | (5 | ) | |||||||||||||
Basket credit default swaps [4] | ||||||||||||||||||||||
Investment grade risk exposure | 3,645 | (92 | ) | 3 years | Corporate Credit | BBB+ | 2,001 | 29 | ||||||||||||||
Investment grade risk exposure | 525 | (98 | ) | 5 years | CMBS Credit | BBB+ | 525 | 98 | ||||||||||||||
Below investment grade risk exposure | 553 | (509 | ) | 3 years | Corporate Credit | BBB+ | — | — | ||||||||||||||
Embedded credit derivatives | ||||||||||||||||||||||
Investment grade risk exposure | 25 | 24 | 3 years | Corporate Credit | BBB- | — | — | |||||||||||||||
Below investment grade risk exposure | 500 | 411 | 5 years | Corporate Credit | BB+ | — | — | |||||||||||||||
Total | $ | 7,046 | $ | (305 | ) | $ | 4,094 | $ | 107 | |||||||||||||
As of December 31, 2010 | |||||||||||||||||||||||
Underlying Referenced | |||||||||||||||||||||||
Weighted | Credit Obligation(s) [1] | ||||||||||||||||||||||
Average | Average | Offsetting | |||||||||||||||||||||
Credit Derivative type by derivative | Notional | Years to | Credit | Notional | Offsetting | ||||||||||||||||||
risk exposure | Amount [2] | Fair 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 $4.2 billion and $3.9 billion as of December 31, 2011 and 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 December 31, 2011 and 2010, respectively, of customized diversified portfolios of corporate issuers referenced through credit default swaps. |
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2011 | December 31, 2010 | |||||||
Fixed maturities, AFS | $ | 1,086 | $ | 823 | ||||
Short-term investments | 199 | — | ||||||
Total collateral pledged | $ | 1,285 | $ | 823 | ||||
F-49
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gross fee income, earned premiums and other | $ | 9,342 | $ | 9,482 | $ | 9,419 | ||||||
Reinsurance assumed | 134 | 192 | 162 | |||||||||
Reinsurance ceded | (524 | ) | (576 | ) | (484 | ) | ||||||
Net fee income, earned premiums and other | $ | 8,952 | $ | 9,098 | $ | 9,097 | ||||||
F-50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Premiums Written | 2011 | 2010 | 2009 | |||||||||
Direct | $ | 10,368 | $ | 10,070 | $ | 10,185 | ||||||
Assumed | 226 | 234 | 238 | |||||||||
Ceded | (742 | ) | (619 | ) | (712 | ) | ||||||
Net | $ | 9,852 | $ | 9,685 | $ | 9,711 | ||||||
Premiums Earned | ||||||||||||
Direct | $ | 10,337 | $ | 10,105 | $ | 10,386 | ||||||
Assumed | 225 | 256 | 253 | |||||||||
Ceded | (688 | ) | (668 | ) | (778 | ) | ||||||
Net | $ | 9,874 | $ | 9,693 | $ | 9,861 | ||||||
F-51
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-52
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2011 | 2010 | 2009 | ||||||||||
Balance, January 1 | $ | 9,857 | $ | 10,686 | $ | 13,248 | ||||||
Deferred Costs | 2,608 | 2,648 | 2,853 | |||||||||
Amortization — DAC | (2,920 | ) | (2,665 | ) | (3,247 | ) | ||||||
Amortization — DAC from discontinued operations | — | (17 | ) | (10 | ) | |||||||
Amortization — Unlock benefit (charge), pre-tax [1] | (507 | ) | 138 | (1,010 | ) | |||||||
Adjustments to unrealized gains and losses on securities available-for-sale and other [2] | (377 | ) | (1,159 | ) | (1,031 | ) | ||||||
Effect of currency translation | 83 | 215 | (39 | ) | ||||||||
Cumulative effect of accounting change, pre-tax [3] | — | 11 | (78 | ) | ||||||||
Balance, December 31 | $ | 8,744 | $ | 9,857 | $ | 10,686 | ||||||
[1] | The most significant contributors to the Unlock charge recorded during the year ended December 31, 2011 were assumption changes which reduced expected future gross profits including additional costs associated with implementing the Japan hedging strategy and the U.S. variable annuity macro hedge program, as well as actual separate account returns below our aggregated estimated return. | |
The most significant contributors to the Unlock benefit recorded during the year ended December 31, 2010 were actual separate account returns being above our aggregated estimated return. Also included in the benefit are assumption updates related to benefits from withdrawals and lapses, offset by hedging, annuitization estimates on Japan products, and long-term expected rate of return updates. | ||
The most significant contributors to the Unlock charge recorded during the year ended December 31, 2009 were the results of actual separate account returns being significantly below our aggregated estimated return for the first quarter of 2009, partially offset by actual returns being greater than our aggregated estimated return for the period from April 1, 2009 to December 31, 2009. | ||
[2] | The most significant contributor to the adjustments was the effect of declining interest rates, resulting in unrealized gains on securities classified in AOCI. Other includes a $34 decrease as a result of the disposition of DAC from the sale of the Hartford Investment Canadian Canada in 2010. | |
[3] | For the year ended December 31, 2010 the effect of adopting new accounting guidance for embedded credit derivatives resulted in a decrease to retained earnings and, as a result, a DAC benefit. In addition, an offsetting amount was recorded in unrealized losses as unrealized losses decreased upon adoption of the new accounting guidance. For the year ended December 31, 2009 the effect of adopting new accounting guidance for investments other- than- temporarily impaired resulted in an increase to retained earnings and, as a result, a DAC charge. In addition, an offsetting amount was recorded in unrealized losses as unrealized losses increased upon adoption of the new accounting guidance. |
F-53
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Accumulated | Discontinued | Carrying | Accumulated | Discontinued | Carrying | |||||||||||||||||||||||||||
Gross | Impairments | Operations[1] | Value | Gross | Impairments | Operations[1] | Value | |||||||||||||||||||||||||
Commercial Markets | ||||||||||||||||||||||||||||||||
Property & Casualty Commercial | $ | 30 | $ | (30 | ) | $ | — | $ | — | $ | 30 | $ | — | $ | — | $ | 30 | |||||||||||||||
Consumer Markets | 119 | — | — | 119 | 119 | — | — | 119 | ||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||||||
Individual Life | 224 | — | — | 224 | 224 | — | — | 224 | ||||||||||||||||||||||||
Retirement Plans | 87 | — | — | 87 | 87 | — | — | 87 | ||||||||||||||||||||||||
Mutual Funds | 159 | — | — | 159 | 159 | — | — | 159 | ||||||||||||||||||||||||
Total Wealth Management | 470 | — | — | 470 | 470 | — | — | 470 | ||||||||||||||||||||||||
Corporate | 787 | (355 | ) | (15 | ) | 417 | 940 | (355 | ) | (153 | ) | 432 | ||||||||||||||||||||
Total Goodwill | $ | 1,406 | $ | (385 | ) | $ | (15 | ) | $ | 1,006 | $ | 1,559 | $ | (355 | ) | $ | (153 | ) | $ | 1,051 | ||||||||||||
[1] | Represents goodwill written off related to Federal Trust Corporation which is currently recorded in discontinued operations. |
F-54
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-55
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gross carrying amount, beginning of year | $ | 89 | $ | 90 | $ | 121 | ||||||
Accumulated net amortization | 25 | 18 | 47 | |||||||||
Net carrying amount, beginning of year | 64 | 72 | 74 | |||||||||
Acquisition of business | — | (1 | ) | 6 | ||||||||
Amortization, net of the accretion of interest | (9 | ) | (7 | ) | (8 | ) | ||||||
Net carrying amount, end of year | 55 | 64 | 72 | |||||||||
Accumulated net amortization | 34 | 25 | 18 | |||||||||
Gross carrying amount, end of year | $ | 89 | $ | 89 | $ | 90 | ||||||
F-56
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-57
Table of Contents
NOTES TO 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 | 220 | 122 | 53 | |||||||||
Paid | (222 | ) | (165 | ) | — | |||||||
Unlock | 53 | 287 | 62 | |||||||||
Currency translation adjustment | — | 35 | — | |||||||||
Liability balance as of December 31, 2011 | $ | 1,104 | $ | 975 | $ | 228 | ||||||
Reinsurance recoverable asset, as of January 1, 2011 | $ | 686 | $ | 36 | $ | 30 | ||||||
Incurred | 128 | 18 | (8 | ) | ||||||||
Paid | (143 | ) | (30 | ) | — | |||||||
Unlock | 53 | 15 | — | |||||||||
Currency translation adjustment | — | 1 | — | |||||||||
Reinsurance recoverable asset, as of December 31, 2011 | $ | 724 | $ | 40 | $ | 22 | ||||||
International | UL Secondary | |||||||||||
U.S. GMDB | GMDB/GMIB | Guarantees | ||||||||||
Liability balance as of January 1, 2010 | $ | 1,233 | $ | 599 | $ | 76 | ||||||
Incurred | 239 | 103 | 39 | |||||||||
Paid | (294 | ) | (134 | ) | — | |||||||
Unlock | (125 | ) | 39 | (2 | ) | |||||||
Currency translation adjustment | — | 89 | — | |||||||||
Liability balance as of December 31, 2010 | $ | 1,053 | $ | 696 | $ | 113 | ||||||
Reinsurance recoverable asset, as of January 1, 2010 | $ | 787 | $ | 51 | $ | 22 | ||||||
Incurred | 139 | (26 | ) | 8 | ||||||||
Paid | (176 | ) | 1 | — | ||||||||
Unlock | (64 | ) | 5 | — | ||||||||
Currency translation adjustment | — | 5 | — | |||||||||
Reinsurance recoverable asset, as of December 31, 2010 | $ | 686 | $ | 36 | $ | 30 | ||||||
F-58
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Individual Variable and Group Annuity Account Value by GMDB/GMIB Type | ||||||||||||||||
Retained Net | ||||||||||||||||
Account | Net Amount | Amount | Weighted Average | |||||||||||||
Value | at Risk | at Risk | Attained Age of | |||||||||||||
Maximum anniversary value (“MAV”) [1] | (“AV”) [8] | (“NAR”) [10] | (“RNAR”) [10] | Annuitant | ||||||||||||
MAV only | $ | 20,718 | $ | 5,998 | $ | 1,500 | 68 | |||||||||
With 5% rollup [2] | 1,469 | 521 | 181 | 68 | ||||||||||||
With Earnings Protection Benefit Rider (“EPB”) [3] | 5,378 | 940 | 104 | 65 | ||||||||||||
With 5% rollup & EPB | 585 | 169 | 35 | 68 | ||||||||||||
Total MAV | 28,150 | 7,628 | 1,820 | |||||||||||||
Asset Protection Benefit (“APB”) [4] | 22,343 | 3,139 | 2,042 | 66 | ||||||||||||
Lifetime Income Benefit (“LIB”) — Death Benefit [5] | 1,095 | 120 | 120 | 64 | ||||||||||||
Reset [6] (5-7 years) | 3,139 | 307 | 304 | 68 | ||||||||||||
Return of Premium (“ROP”) [7]/Other | 21,512 | 876 | 850 | 65 | ||||||||||||
Subtotal U.S. GMDB | 76,239 | 12,070 | 5,136 | 67 | ||||||||||||
Less: General Account Value with U.S. GMDB | 7,251 | |||||||||||||||
Subtotal Separate Account Liabilities with GMDB | 68,988 | |||||||||||||||
Separate Account Liabilities without U.S. GMDB | 74,882 | |||||||||||||||
Total Separate Account Liabilities | $ | 143,870 | ||||||||||||||
Japan GMDB [9], [11] | $ | 29,234 | $ | 10,857 | $ | 9,413 | 70 | |||||||||
Japan GMIB [9], [11] | $ | 27,282 | $ | 7,502 | $ | 7,502 | 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 $34.1 billion and $33.9 billion as of December 31, 2011 and December 31, 2010, respectively. The GRB related to the Japan GMAB and GMWB was $701 as of December 31, 2011 and $707 as of December 31, 2010. These liabilities are not included in the Separate Account as they are not legally insulated from the general account liabilities of the insurance enterprise. As of December 31, 2011, 55% of the GMDB RNAR and 65% 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 December 31, 2011 | As of December 31, 2010 | ||||||
Equity securities (including mutual funds) | $ | 61,472 | $ | 75,601 | ||||
Cash and cash equivalents | 7,516 | 8,365 | ||||||
Total | $ | 68,988 | $ | 83,966 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2011 | 2010 | 2009 | ||||||||||
Balance, beginning of year | $ | 459 | $ | 438 | $ | 553 | ||||||
Sales inducements deferred | 20 | 31 | 59 | |||||||||
Amortization charged to income | (17 | ) | (8 | ) | (105 | ) | ||||||
Amortization — Unlock | (28 | ) | (2 | ) | (69 | ) | ||||||
Balance, end of year | $ | 434 | $ | 459 | $ | 438 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 6,388 | $ | 6,131 | $ | 6,066 | ||||||
Reinsurance recoverables | 209 | 213 | 231 | |||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 6,179 | 5,918 | 5,835 | |||||||||
Add provision for unpaid losses and loss adjustment expenses | ||||||||||||
Current year | 3,196 | 3,260 | 3,244 | |||||||||
Prior years | 98 | 70 | (88 | ) | ||||||||
Total provision for unpaid losses and loss adjustment expenses | 3,294 | 3,330 | 3,156 | |||||||||
Less payments | ||||||||||||
Current year | 1,524 | 1,552 | 1,580 | |||||||||
Prior years | 1,635 | 1,517 | 1,493 | |||||||||
Total payments | 3,159 | 3,069 | 3,073 | |||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 6,314 | 6,179 | 5,918 | |||||||||
Reinsurance recoverables | 233 | 209 | 213 | |||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 6,547 | $ | 6,388 | $ | 6,131 | ||||||
2011 | 2010 | |||||||
Group Life Term, Disability and Accident unpaid losses and loss adjustment expenses | $ | 6,547 | $ | 6,388 | ||||
Group Life Other unpaid losses and loss adjustment expenses | 213 | 216 | ||||||
Individual Life unpaid losses and loss adjustment expenses | 134 | 110 | ||||||
Future Policy Benefits | 12,572 | 11,859 | ||||||
Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses | $ | 19,466 | $ | 18,573 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 21,025 | $ | 21,651 | $ | 21,933 | ||||||
Reinsurance and other recoverables | 3,077 | 3,441 | 3,586 | |||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 17,948 | 18,210 | 18,347 | |||||||||
Add provision for unpaid losses and loss adjustment expenses | ||||||||||||
Current year | 7,420 | 6,768 | 6,596 | |||||||||
Prior years | 367 | (196 | ) | (186 | ) | |||||||
Total provision for unpaid losses and loss adjustment expenses | 7,787 | 6,572 | 6,410 | |||||||||
Less payments | ||||||||||||
Current year | 3,181 | 2,952 | 2,776 | |||||||||
Prior years | 4,037 | 3,882 | 3,771 | |||||||||
Total payments | 7,218 | 6,834 | 6,547 | |||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 18,517 | 17,948 | 18,210 | |||||||||
Reinsurance and other recoverables | 3,033 | 3,077 | 3,441 | |||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 21,550 | $ | 21,025 | $ | 21,651 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Auto liability | $ | (97 | ) | $ | (169 | ) | $ | (124 | ) | |||
Professional liability | 29 | (88 | ) | (127 | ) | |||||||
Workers’ compensation | 171 | (70 | ) | (92 | ) | |||||||
General liability | (40 | ) | (108 | ) | (112 | ) | ||||||
Package business | (76 | ) | (19 | ) | 38 | |||||||
Commercial property | (4 | ) | (16 | ) | — | |||||||
Fidelity and surety | (7 | ) | (5 | ) | 28 | |||||||
Homeowners | (1 | ) | 23 | 18 | ||||||||
Net environmental reserves | 26 | 67 | 75 | |||||||||
Net asbestos reserves | 294 | 189 | 138 | |||||||||
All other non-A&E | — | 11 | 35 | |||||||||
Uncollectible reinsurance | — | (30 | ) | (40 | ) | |||||||
Change in workers’ compensation discount, including accretion | 38 | 26 | 24 | |||||||||
Catastrophes | 37 | 11 | (23 | ) | ||||||||
Other reserve re-estimates, net | (3 | ) | (18 | ) | (24 | ) | ||||||
Total prior accident years development | $ | 367 | $ | (196 | ) | $ | (186 | ) | ||||
• | a strengthening of reserves for workers’ compensation reserves, for accident years 2008 to 2010; | ||
• | a strengthening of asbestos and environmental reserves; | ||
• | partially offset by a release of auto liability claims for accident years 2006 to 2010; and | ||
• | also offset by a release of package business liability coverages in accident years 2005 to 2009. |
• | a release of reserves for auto liability, claims, for accident years 2002 to 2009; | ||
• | a release of reserves for professional liability claims, for accident years 2004 to 2008; | ||
• | a release of general liability claims, primarily related to accident years 2005 to 2008; | ||
• | a release of workers’ compensation reserves related to accident years 2006 and 2007; and | ||
• | partially offset by a strengthening of asbestos and environmental reserves. |
• | a release of reserves for professional liability claims, for accident years 2003 to 2008; | ||
• | a release of general liability claims, primarily related to accident years 2003 to 2007; | ||
• | a release of workers’ compensation reserves; and | ||
• | partially offset by a strengthening of asbestos and environmental reserves. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ending December 31, | Operating Leases | |||
2012 | $ | 58 | ||
2013 | 47 | |||
2014 | 34 | |||
2015 | 26 | |||
2016 | 21 | |||
Thereafter | 56 | |||
Total minimum lease payments [1] | $ | 242 | ||
[1] | Excludes expected future minimum sublease income of approximately $7and $3 in 2012 and 2013, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Income Tax Expense (Benefit) | ||||||||||||
Current - U.S. Federal | $ | (495 | ) | $ | 106 | $ | 509 | |||||
- International | 22 | 69 | — | |||||||||
Total current | (473 | ) | 175 | 509 | ||||||||
Deferred - U.S. Federal Excluding NOL Carryforward | 900 | 133 | (1,584 | ) | ||||||||
- Net Operating Loss Carryforward | (652 | ) | 1 | 712 | ||||||||
- International | (121 | ) | 303 | (475 | ) | |||||||
Total deferred | 127 | 437 | (1,347 | ) | ||||||||
Total income tax expense (benefit) | $ | (346 | ) | $ | 612 | $ | (838 | ) | ||||
Deferred Tax Assets | 2011 | 2010 | ||||||
Tax discount on loss reserves | $ | 632 | $ | 647 | ||||
Tax basis deferred policy acquisition costs | 528 | 579 | ||||||
Unearned premium reserve and other underwriting related reserves | 421 | 401 | ||||||
Investment-related items | 1,159 | 1,454 | ||||||
Insurance product derivatives | 913 | 1,792 | ||||||
Employee benefits | 523 | 555 | ||||||
Net unrealized losses on investments | — | 4 | ||||||
Minimum tax credit | 868 | 1,183 | ||||||
Net operating loss carryover | 747 | 88 | ||||||
Other | 149 | 63 | ||||||
Total Deferred Tax Assets | 5,940 | 6,766 | ||||||
Valuation Allowance | (95 | ) | (173 | ) | ||||
Deferred Tax Assets, Net of Valuation Allowance | 5,845 | 6,593 | ||||||
Deferred Tax Liabilities | ||||||||
Financial statement deferred policy acquisition costs and reserves | (3,094 | ) | (2,721 | ) | ||||
Net unrealized gains on investments | (1,210 | ) | — | |||||
Other depreciable & amortizable assets | (104 | ) | (42 | ) | ||||
Other | (39 | ) | (105 | ) | ||||
Total Deferred Tax Liabilities | (4,447 | ) | (2,868 | ) | ||||
Net Deferred Tax Asset | $ | 1,398 | $ | 3,725 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Balance, at January 1 | $ | 48 | $ | 48 | 91 | |||||||
Additions based on tax positions related to the current year | — | — | — | |||||||||
Additions for tax positions for prior years | — | — | — | |||||||||
Reductions for tax positions for prior years | — | — | (35 | ) | ||||||||
Settlements | — | — | (8 | ) | ||||||||
Balance, at December 31 | $ | 48 | $ | 48 | 48 | |||||||
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Tax provision at U.S. Federal statutory rate | $ | 81 | 825 | (602 | ) | |||||||
Tax-exempt interest | (148 | ) | (152 | ) | (149 | ) | ||||||
Dividends received deduction | (206 | ) | (154 | ) | (188 | ) | ||||||
Nondeductible costs associated with warrants | — | — | 78 | |||||||||
Valuation allowance | (78 | ) | 87 | 30 | ||||||||
Goodwill | — | — | 12 | |||||||||
Other | 5 | 6 | (19 | ) | ||||||||
Provision for income taxes | $ | (346 | ) | 612 | (838 | ) | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Short-Term Debt | 2011 | 2010 | ||||||
Current maturities of long-term debt and capital lease obligations | $ | — | $ | 400 | ||||
Total Short-Term Debt | $ | — | $ | 400 | ||||
Long-Term Debt | ||||||||
Senior Notes and Debentures | ||||||||
4.625% Notes, due 2013 | 320 | 320 | ||||||
4.75% Notes, due 2014 | 200 | 200 | ||||||
4.0% Notes, due 2015 | 300 | 300 | ||||||
7.3% Notes, due 2015 | 200 | 200 | ||||||
5.5% Notes, due 2016 | 300 | 300 | ||||||
5.375% Notes, due 2017 | 499 | 499 | ||||||
6.3% Notes, due 2018 | 500 | 500 | ||||||
6.0% Notes, due 2019 | 500 | 500 | ||||||
5.5% Notes, due 2020 | 499 | 499 | ||||||
7.65% Notes, due 2027 | 149 | 149 | ||||||
7.375% Notes, due 2031 | 92 | 92 | ||||||
5.95% Notes, due 2036 | 298 | 298 | ||||||
6.625% Notes, due 2040 | 299 | 299 | ||||||
6.1% Notes, due 2041 | 325 | 324 | ||||||
Total Senior Notes and Debentures | 4,481 | 4,480 | ||||||
Junior Subordinated Debentures | ||||||||
3 month LIBOR plus 295 basis points, Notes due 2033 | — | 5 | ||||||
8.125% Notes, due 2068 | 500 | 500 | ||||||
10.0% Notes, due 2068 | 1,235 | 1,222 | ||||||
Total Junior Subordinated Debentures | 1,735 | 1,727 | ||||||
Total Long-Term Debt | $ | 6,216 | $ | 6,207 | ||||
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Short-term debt | $ | — | $ | — | $ | 3 | ||||||
Long-term debt | 508 | 508 | 473 | |||||||||
Total interest expense | $ | 508 | $ | 508 | $ | 476 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2012 | $ | — | ||
2013 | 320 | |||
2014 | 200 | |||
2015 | 500 | |||
2016 | 300 | |||
Thereafter | 5,500 | |||
Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | December 31, | 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Statutory Net Income (Loss) | 2011 | 2010 | 2009 | |||||||||
U.S. life insurance subsidiaries, includes domestic captive insurance subsidiaries | $ | (1,272 | ) | $ | (140 | ) | $ | 1,714 | ||||
Property and casualty insurance subsidiaries | 514 | 1,477 | 889 | |||||||||
Total | $ | (758 | ) | $ | 1,337 | $ | 2,603 | |||||
As of December 31, | ||||||||
Statutory Surplus | 2011 | 2010 | ||||||
U.S. life insurance subsidiaries, includes domestic captive insurance subsidiaries | $ | 7,388 | $ | 7,731 | ||||
Property and casualty insurance subsidiaries | 7,412 | 7,721 | ||||||
Total | $ | 14,800 | $ | 15,452 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Gain | Pension and | |||||||||||||||||||
(Loss) on | Foreign | Other | Accumulated | |||||||||||||||||
Unrealized | Cash-Flow | Currency | Postretirement | Other | ||||||||||||||||
Gain (Loss) | Hedging | Translation | Plan | Comprehensive | ||||||||||||||||
on Securities | Instruments | Adjustments | Adjustment | Income (Loss) | ||||||||||||||||
For the year ended December 31, 2011 | ||||||||||||||||||||
Balance, beginning of year | $ | (696 | ) | $ | 385 | $ | 488 | $ | (1,178 | ) | $ | (1,001 | ) | |||||||
Unrealized gain on securities [1] [2] | 1,979 | — | — | — | 1,979 | |||||||||||||||
Change in other-than-temporary impairment losses recognized in other comprehensive income [1] | 9 | — | — | — | 9 | |||||||||||||||
Change in net loss on cash-flow hedging instruments [1] [3] | — | 131 | — | — | 131 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | 112 | — | 112 | |||||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | (73 | ) | (73 | ) | |||||||||||||
Balance, end of year | $ | 1,292 | $ | 516 | $ | 600 | $ | (1,251 | ) | $ | 1,157 | |||||||||
For the year ended December 31, 2010 | ||||||||||||||||||||
Balance, beginning of year | $ | (2,713 | ) | $ | 257 | $ | 199 | $ | (1,055 | ) | $ | (3,312 | ) | |||||||
Unrealized gain on securities [1] [2] | 1,707 | — | — | — | 1,707 | |||||||||||||||
Change in other-than-temporary impairment losses recognized in other comprehensive income [1] | 116 | — | — | — | 116 | |||||||||||||||
Cumulative effect of accounting change | 194 | — | — | — | 194 | |||||||||||||||
Change in net loss on cash-flow hedging instruments [1] [3] | — | 128 | — | — | 128 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | 289 | — | 289 | |||||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | (123 | ) | (123 | ) | |||||||||||||
Balance, end of year | $ | (696 | ) | $ | 385 | $ | 488 | $ | (1,178 | ) | $ | (1,001 | ) | |||||||
For the year ended December 31, 2009 | ||||||||||||||||||||
Balance, beginning of year | $ | (7,486 | ) | $ | 644 | $ | 222 | $ | (900 | ) | $ | (7,520 | ) | |||||||
Unrealized gain on securities [1] [2] | 5,909 | — | — | — | 5,909 | |||||||||||||||
Change in other-than-temporary impairment losses recognized in other comprehensive income [1] | (224 | ) | — | — | — | (224 | ) | |||||||||||||
Cumulative effect of accounting change | (912 | ) | — | — | — | (912 | ) | |||||||||||||
Change in net loss on cash-flow hedging instruments [1] [3] | — | (387 | ) | — | — | (387 | ) | |||||||||||||
Change in foreign currency translation adjustments [1] | — | — | (23 | ) | — | (23 | ) | |||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | (155 | ) | (155 | ) | |||||||||||||
Balance, end of year | $ | (2,713 | ) | $ | 257 | $ | 199 | $ | (1,055 | ) | $ | (3,312 | ) | |||||||
[1] | Included in the unrealized gain (loss) balance as of December 31, 2011, 2010 and 2009 was net unrealized gains (losses) credited to policyholders of $(65), $(87), and $(82), respectively. Included in the AOCI components were the following: |
• | Unrealized gain (loss) on securities is net of tax and deferred acquisition costs of $1,217, $3,574, and $2,358, for the years ended December 31, 2011, 2010 and 2009, respectively. | ||
• | Change in other-than-temporary impairment losses recognized in other comprehensive income is net of changes in the fair value of non-credit impaired securities of $112, $647 and $244 for the years ended December 31, 2011, 2010 and 2009, respectively, and net of tax and deferred acquisition costs of $(14). $(113) and $215 for the years ended December 31, 2011, 2010 and 2009, respectively. | ||
• | Net gain (loss) on cash-flow hedging instruments is net of tax of $71, $69, and $(208) for the years ended December 31, 2011, 2010 and 2009, respectively. | ||
• | Changes in foreign currency translation adjustments are net of tax of $60, $156 and $(12) for the years ended December 31, 2011, 2010 and 2009, respectively. | ||
• | Change in pension and other postretirement plan adjustment is net of tax of $(39), $(66), and $(86) for the years ended December 31, 2011, 2010 and 2009, respectively. |
[2] | Net of reclassification adjustment for gains (losses) realized in net income of $88, $(78), and $(1,202) for the years ended for the years ended December 31, 2011, 2010 and 2009, respectively. | |
[3] | Net of amortization adjustment of $125, $94, and $49 to net investment income for the years ended December 31, 2011, 2010 and 2009, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Discount rate | 4.75 | % | 5.50 | % | 4.50 | % | 5.25 | % | ||||||||
Rate of increase in compensation levels | 3.75 | % | 4.00 | % | N/A | N/A |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Discount rate | 5.50 | % | 6.00 | % | 6.25 | % | ||||||
Expected long-term rate of return on plan assets | 7.30 | % | 7.30 | % | 7.30 | % | ||||||
Rate of increase in compensation levels | 4.00 | % | 4.00 | % | 4.25 | % |
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Discount rate | 5.25 | % | 5.75 | % | 6.25 | % | ||||||
Expected long-term rate of return on plan assets | 7.30 | % | 7.30 | % | 7.30 | % |
As of December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Pre-65 health care cost trend rate | 8.95 | % | 9.70 | % | 9.05 | % | ||||||
Post-65 health care cost trend rate | 7.75 | % | 8.25 | % | 7.60 | % | ||||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2019 | 2018 | 2018 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Postretirement | ||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
Change in Benefit Obligation | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Benefit obligation — beginning of year | $ | 4,795 | $ | 4,283 | $ | 408 | $ | 401 | ||||||||
Service cost (excluding expenses) | 102 | 102 | 5 | 7 | ||||||||||||
Interest cost | 259 | 252 | 20 | 22 | ||||||||||||
Plan participants’ contributions | — | — | 18 | 15 | ||||||||||||
Actuarial loss (gain) | 43 | 86 | (15 | ) | (7 | ) | ||||||||||
Settlements | — | (43 | ) | — | — | |||||||||||
Change in assumptions | 497 | 348 | 37 | 17 | ||||||||||||
Benefits paid | (230 | ) | (234 | ) | (52 | ) | (49 | ) | ||||||||
Retiree drug subsidy | — | — | 3 | 2 | ||||||||||||
Foreign exchange adjustment | (1 | ) | 1 | — | ||||||||||||
Benefit obligation — end of year | $ | 5,465 | $ | 4,795 | $ | 424 | $ | 408 | ||||||||
Other Postretirement | ||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
Change in Plan Assets | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Fair value of plan assets — beginning of year | $ | 3,922 | $ | 3,526 | $ | 190 | $ | 175 | ||||||||
Actual return on plan assets | 613 | 434 | 13 | 15 | ||||||||||||
Employer contributions | 201 | 201 | — | — | ||||||||||||
Benefits paid | (210 | ) | (228 | ) | — | — | ||||||||||
Expenses paid | (12 | ) | (12 | ) | — | — | ||||||||||
Foreign exchange adjustment | (1 | ) | 1 | — | — | |||||||||||
Fair value of plan assets — end of year | $ | 4,513 | $ | 3,922 | $ | 203 | $ | 190 | ||||||||
Funded status — end of year | $ | (952 | ) | $ | (873 | ) | $ | (221 | ) | $ | (218 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, | ||||||||
2011 | 2010 | |||||||
Projected benefit obligation | $ | 5,441 | $ | 4,771 | ||||
Accumulated benefit obligation | 5,394 | 4,733 | ||||||
Fair value of plan assets | 4,492 | 3,901 |
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Other Assets | ||||||||||||||||
Noncurrent assets | $ | — | $ | — | $ | — | $ | — | ||||||||
Other Liabilities | ||||||||||||||||
Current liabilities | 21 | 19 | 34 | 34 | ||||||||||||
Noncurrent liabilities | 931 | 854 | 187 | 184 | ||||||||||||
Total | $ | 952 | $ | 873 | $ | 221 | $ | 218 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
Service cost | $ | 102 | $ | 102 | $ | 105 | $ | 5 | $ | 7 | $ | 6 | ||||||||||||
Interest cost | 259 | 252 | 243 | 20 | 22 | 24 | ||||||||||||||||||
Expected return on plan assets | (298 | ) | (286 | ) | (276 | ) | (14 | ) | (13 | ) | (11 | ) | ||||||||||||
Amortization of prior service credit | (9 | ) | (9 | ) | (9 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||
Amortization of actuarial loss | 159 | 107 | 74 | — | — | — | ||||||||||||||||||
Settlements | — | 20 | — | — | — | — | ||||||||||||||||||
Net periodic benefit cost | $ | 213 | $ | 186 | $ | 137 | $ | 10 | $ | 15 | $ | 18 | ||||||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Amortization of actuarial loss | $ | (159 | ) | $ | (107 | ) | $ | — | $ | — | ||||||
Settlement loss | — | (20 | ) | — | — | |||||||||||
Amortization of prior service credit | 9 | 9 | 1 | 1 | ||||||||||||
Net loss arising during the year | 237 | 298 | 24 | 7 | ||||||||||||
Total | $ | 87 | $ | 180 | $ | 25 | $ | 8 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss | $ | 1,930 | $ | 1,852 | $ | 39 | $ | 17 | ||||||||
Prior service credit | (21 | ) | (30 | ) | 1 | — | ||||||||||
Transition obligation | — | — | 2 | — | ||||||||||||
Total | $ | 1,909 | $ | 1,822 | $ | 42 | $ | 17 | ||||||||
Target Asset Allocation | ||||||||
Pension Plans | Other Postretirement Plans | |||||||
Equity securities | 10% – 32 | % | 15% – 35 | % | ||||
Fixed income securities | 50% – 70 | % | 55% – 85 | % | ||||
Alternative assets | 10% – 25 | % | — |
Percentage of Pension Plans Assets | Percentage of Other Postretirement Plans | |||||||||||||||
At Fair Value as of December 31, | Assets at Fair Value as of December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Equity securities | 20 | % | 22 | % | 22 | % | 22 | % | ||||||||
Fixed income securities | 62 | % | 61 | % | 78 | % | 78 | % | ||||||||
Alternative Assets | 18 | % | 17 | % | — | — | ||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Plan Assets at Fair Value as of December 31, 2011 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments: | $ | 119 | $ | 549 | $ | — | $ | 668 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 741 | 3 | 744 | ||||||||||||
RMBS | — | 334 | 11 | 345 | ||||||||||||
U.S. Treasuries | 59 | 819 | — | 878 | ||||||||||||
Foreign government | — | 53 | 3 | 56 | ||||||||||||
CMBS | — | 117 | — | 117 | ||||||||||||
Other fixed income [1] | — | 70 | 4 | 74 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-cap domestic | — | 570 | — | 570 | ||||||||||||
Mid-cap domestic | 52 | — | — | 52 | ||||||||||||
Small-cap domestic | 38 | — | — | 38 | ||||||||||||
International | 217 | — | — | 217 | ||||||||||||
Other equities | — | 1 | — | 1 | ||||||||||||
Other investments: | ||||||||||||||||
Hedge funds | — | — | 759 | 759 | ||||||||||||
Total pension plan assets at fair value [2] | $ | 485 | $ | 3,254 | $ | 780 | $ | 4,519 | ||||||||
[1] | Includes ABS and municipal bonds. | |
[2] | Excludes approximately $43 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $37 of interest receivable carried at fair value. |
Pension Plan Assets at Fair Value as of December 31, 2010 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments: [1] | $ | 75 | $ | 406 | $ | — | $ | 481 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 882 | 3 | 885 | ||||||||||||
RMBS | — | 450 | 9 | 459 | ||||||||||||
U.S. Treasuries | 7 | 330 | — | 337 | ||||||||||||
Foreign government | — | 61 | 2 | 63 | ||||||||||||
CMBS | — | 174 | 1 | 175 | ||||||||||||
Other fixed income [2] | — | 56 | 7 | 63 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-cap domestic | — | 496 | — | 496 | ||||||||||||
Mid-cap domestic | 62 | — | — | 62 | ||||||||||||
Small-cap domestic | 47 | — | — | 47 | ||||||||||||
International | 248 | — | — | 248 | ||||||||||||
Other investments: | ||||||||||||||||
Hedge funds | — | — | 635 | 635 | ||||||||||||
Total pension plan assets at fair value [3] | $ | 439 | $ | 2,855 | $ | 657 | $ | 3,951 | ||||||||
[1] | Includes $30 of initial margin requirements related to the Plan’s duration overlay program. | |
[2] | Includes ABS and municipal bonds. | |
[3] | Excludes approximately $61 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $32 of interest receivable carried at fair value. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
Foreign | Other fixed | Hedge | ||||||||||||||||||||||
Assets | Corporate | RMBS | government | income | funds | Totals | ||||||||||||||||||
Fair Value as of January 1, 2011 | $ | 3 | $ | 9 | $ | 2 | $ | 8 | $ | 635 | $ | 657 | ||||||||||||
Actual return on plan assets | ||||||||||||||||||||||||
Relating to assets still held at the reporting date | 1 | — | — | 2 | 21 | 24 | ||||||||||||||||||
Purchases | 2 | 10 | 3 | 1 | 223 | 239 | ||||||||||||||||||
Sales | (1 | ) | (9 | ) | (2 | ) | (4 | ) | (120 | ) | (136 | ) | ||||||||||||
Transfers into Level 3 | 1 | 1 | 6 | 2 | — | 10 | ||||||||||||||||||
Transfers out of Level 3 | (3 | ) | — | (6 | ) | (5 | ) | — | (14 | ) | ||||||||||||||
Fair Value as of December 31, 2011 | $ | 3 | $ | 11 | $ | 3 | $ | 4 | $ | 759 | $ | 780 | ||||||||||||
Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
Other fixed | ||||||||||||||||||||||||
Foreign | income and | Hedge | ||||||||||||||||||||||
Assets | Corporate | RMBS | government | CMBS | funds | Totals | ||||||||||||||||||
Fair Value as of January 1, 2010 | $ | 12 | $ | 24 | $ | 2 | $ | 8 | $ | 501 | $ | 547 | ||||||||||||
Actual return on plan assets | ||||||||||||||||||||||||
Relating to assets still held at the reporting date | (1 | ) | — | — | 1 | 29 | 29 | |||||||||||||||||
Relating to assets sold during the period | 1 | — | — | — | 4 | 5 | ||||||||||||||||||
Purchases | 6 | 62 | 2 | 9 | 200 | 279 | ||||||||||||||||||
Sales | (12 | ) | (77 | ) | — | (5 | ) | (99 | ) | (193 | ) | |||||||||||||
Transfers into Level 3 | 2 | — | — | 2 | — | 4 | ||||||||||||||||||
Transfers out of Level 3 | (5 | ) | — | (2 | ) | (7 | ) | — | (14 | ) | ||||||||||||||
Fair Value as of December 31, 2010 | $ | 3 | $ | 9 | $ | 2 | $ | 8 | $ | 635 | $ | 657 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Postretirement Plan Assets | ||||||||||||||||
at Fair Value as of December 31, 2011 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments | $ | — | $ | 9 | $ | — | $ | 9 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 53 | — | 53 | ||||||||||||
RMBS | — | 48 | — | 48 | ||||||||||||
U.S. Treasuries | — | 28 | — | 28 | ||||||||||||
Foreign government | — | 2 | — | 2 | ||||||||||||
CMBS | — | 18 | — | 18 | ||||||||||||
Other fixed income | — | 4 | — | 4 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-cap | — | 43 | — | 43 | ||||||||||||
Total other postretirement plan assets at fair value [1] | $ | — | $ | 205 | $ | — | $ | 205 | ||||||||
[1] | Excludes approximately $3 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $1 of interest receivable carried at fair value. |
Other Postretirement Plan Assets | ||||||||||||||||
at Fair Value as of December 31, 2010 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments | $ | — | $ | 10 | $ | — | $ | 10 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 57 | — | 57 | ||||||||||||
RMBS | — | 44 | — | 44 | ||||||||||||
U.S. Treasuries | — | 19 | — | 19 | ||||||||||||
CMBS | — | 17 | — | 17 | ||||||||||||
Other fixed income | — | 6 | — | 6 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-cap | — | 43 | — | 43 | ||||||||||||
Total other postretirement plan assets at fair value [1] | $ | — | $ | 196 | $ | — | $ | 196 | ||||||||
[1] | Excludes approximately $7 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $1 of interest receivable carried at fair value. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Employer Contributions | Pension Benefits | Other Postretirement Benefits | ||||||
2011 | $ | 201 | $ | — | ||||
2010 | $ | 201 | — |
Pension Benefits | Other Postretirement Benefits | |||||||
2012 | $ | 272 | $ | 38 | ||||
2013 | 291 | 40 | ||||||
2014 | 309 | 40 | ||||||
2015 | 325 | 40 | ||||||
2016 | 341 | 39 | ||||||
2017-2021 | 1,888 | 183 | ||||||
Total | $ | 3,426 | $ | 380 | ||||
2012 | $ | 4 | ||
2013 | 4 | |||
2014 | 5 | |||
2015 | 4 | |||
2016 | 5 | |||
2017-2021 | 31 | |||
Total | $ | 53 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock-based compensation plans expense | $ | 53 | $ | 94 | $ | 72 | ||||||
Income tax benefit | (19 | ) | (33 | ) | (20 | ) | ||||||
Total stock-based compensation plans expense, after-tax | $ | 34 | $ | 61 | $ | 52 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, | ||||||
2011 | 2009 | |||||
Expected dividend yield | 1.3% | 3.2% | ||||
Expected annualized spot volatility | 35.8% – 47.1% | 57.8% – 57.8% | ||||
Weighted average annualized volatility | 41.7% | 57.8% | ||||
Risk-free spot rate | 0.1% – 3.5% | 0.3% – 4.2% | ||||
Expected term | 5.7 years | 7.3 years |
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Number of Options | Average | Contractual | Aggregate | |||||||||||||
(in thousands) | Exercise Price | Term | Intrinsic Value | |||||||||||||
Outstanding at beginning of year | 5,279 | $ | 52.90 | 2.9 | $ | — | ||||||||||
Granted | 1,189 | 27.90 | ||||||||||||||
Exercised | (232 | ) | 15.41 | |||||||||||||
Forfeited | (537 | ) | 44.09 | |||||||||||||
Expired | (860 | ) | 62.11 | |||||||||||||
Outstanding at end of year | 4,839 | 47.89 | 3.7 | — | ||||||||||||
Exercisable at end of year | 3,641 | $ | 55.52 | 2.0 | — |
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares | Weighted-Average | |||||||
Non-vested Shares | (in thousands) | Grant-Date Fair Value | ||||||
Non-vested at beginning of year | 1,889 | $ | 35.83 | |||||
Granted | 3,400 | 28.22 | ||||||
Decrease for change in estimated performance factors | (232 | ) | — | |||||
Vested | (637 | ) | 46.00 | |||||
Forfeited | (256 | ) | 34.14 | |||||
Non-vested at end of year | 4,164 | $ | 27.60 | |||||
F-89
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Units | Weighted-Average | |||||||
Non-vested Units | (in thousands) | Grant-Date Fair Value | ||||||
Non-vested at beginning of year | 648 | $ | 24.70 | |||||
Granted | — | — | ||||||
Vested | (49 | ) | 24.27 | |||||
Forfeited | (108 | ) | 24.31 | |||||
Non-vested at end of year | 491 | $ | 24.84 | |||||
For the year ended | ||||
December 31, | ||||
2009 | ||||
Dividend yield | 1.4 | % | ||
Implied volatility | 91.4 | % | ||
Risk-free spot rate | 0.3 | % | ||
Expected term | 6 months |
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-91
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues | ||||||||||||
Fee income and other | $ | — | $ | 36 | $ | 29 | ||||||
Net investment income | 17 | 28 | 14 | |||||||||
Net realized capital gains (losses) | (6 | ) | (5 | ) | (6 | ) | ||||||
Other revenues | 48 | 213 | 231 | |||||||||
Total revenues | 59 | 272 | 268 | |||||||||
Benefits, losses and expenses | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | — | 17 | 10 | |||||||||
Insurance operating and other expenses | 54 | 256 | 265 | |||||||||
Goodwill Impairment | — | 153 | — | |||||||||
Total benefits, losses and expenses | 54 | 426 | 275 | |||||||||
Income (loss) before income taxes | 5 | (154 | ) | (7 | ) | |||||||
Income tax expense (benefit) | 1 | (53 | ) | (3 | ) | |||||||
Income (loss) from operations of discontinued operations, net of tax | 4 | (101 | ) | (4 | ) | |||||||
Net realized capital gain on disposal, net of tax | 82 | 37 | — | |||||||||
Income (loss) from discontinued operations, net of tax | $ | 86 | $ | (64 | ) | $ | (4 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2011 | 2010 | 2009 | ||||||||||
Severance benefits | $ | 17 | $ | 25 | $ | 52 | ||||||
Asset impairment charges | — | 1 | 53 | |||||||||
Other contract termination charges | 8 | — | 34 | |||||||||
Total restructuring, severance and other costs | $ | 25 | $ | 26 | $ | 139 | ||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
Revenues | $ | 6,308 | $ | 6,257 | $ | 5,401 | $ | 3,265 | $ | 4,520 | $ | 6,602 | $ | 5,638 | $ | 5,930 | ||||||||||||||||
Benefits, losses and expenses | 5,898 | 5,722 | 5,566 | 3,121 | 4,624 | 5,685 | 5,546 | 5,171 | ||||||||||||||||||||||||
Income (loss) from continuing operations, net of tax | 351 | 319 | 104 | 175 | (3 | ) | 665 | 126 | 584 | |||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | 160 | — | (80 | ) | (99 | ) | 3 | 1 | 1 | 35 | ||||||||||||||||||||||
Net income (loss) [1] | 511 | 319 | 24 | 76 | — | 666 | 127 | 619 | ||||||||||||||||||||||||
Less: Preferred stock dividends and accretion of discount | 10 | 483 | 11 | 11 | 10 | 10 | 11 | 11 | ||||||||||||||||||||||||
Net income (loss) available to common shareholders | $ | 501 | $ | (164 | ) | $ | 13 | $ | 65 | $ | (10 | ) | $ | 656 | $ | 116 | $ | 608 | ||||||||||||||
Basic earnings (losses) per common share | $ | 1.13 | $ | (0.42 | ) | $ | 0.03 | $ | 0.15 | $ | (0.02 | ) | $ | 1.48 | $ | 0.26 | $ | 1.37 | ||||||||||||||
Diluted earnings (losses) per common share [1] | $ | 1.01 | $ | (0.42 | ) | $ | 0.03 | $ | 0.14 | $ | (0.02 | ) | $ | 1.34 | $ | 0.25 | $ | 1.24 | ||||||||||||||
Weighted average common shares outstanding, basic | 444.6 | 393.7 | 445.1 | 443.9 | 445.3 | 444.1 | 445.1 | 444.3 | ||||||||||||||||||||||||
Weighted average shares outstanding and dilutive potential common shares | 508.2 | 393.7 | 482.4 | 480.2 | 445.3 | 495.3 | 468.9 | 497.8 |
[1] | In periods of a net loss available to common shareholders, the Company uses basic weighted average common shares outstanding in the calculation of diluted loss per common share, since the inclusion of shares for warrants, stock compensation plans and the assumed conversion of the preferred shares to common would have been antidilutive to the earnings per common share calculation. In the absence of the net loss available to common shareholders, weighted average common shares outstanding and dilutive potential common shares would have totaled 428.5 million and 473.4 million for the three months ended March 31, 2010 and September 30, 2011, respectively. In addition, assuming the impact of mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 431.9 million, 503.1 million, 501.0 million, 494.1 million, and 489.6 for the three months ended March 31, 2010, June 30, 2011, June 30, 2010, September 30, 2011 and December 31, 2011, respectively. |
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As of December 31, 2011 | ||||||||||||
Amount at | ||||||||||||
which shown on | ||||||||||||
Type of Investment | Cost | Fair Value | Balance Sheet | |||||||||
Fixed Maturities | ||||||||||||
Bonds and notes | ||||||||||||
U.S. government and government agencies and authorities (guaranteed and sponsored) | $ | 8,901 | $ | 9,364 | $ | 9,364 | ||||||
States, municipalities and political subdivisions | 12,557 | 13,260 | 13,260 | |||||||||
Foreign governments | 2,030 | 2,161 | 2,161 | |||||||||
Public utilities | 8,236 | 9,055 | 9,055 | |||||||||
All other corporate bonds | 32,925 | 34,956 | 34,956 | |||||||||
All other mortgage-backed and asset-backed securities | 14,329 | 13,013 | 13,013 | |||||||||
Total fixed maturities, available-for-sale | 78,978 | 81,809 | 81,809 | |||||||||
Fixed maturities, at fair value using fair value option | 1,501 | 1,328 | 1,328 | |||||||||
Total fixed maturities | 80,479 | 83,137 | 83,137 | |||||||||
Equity Securities | ||||||||||||
Common stocks | ||||||||||||
Industrial, miscellaneous and all other | 420 | 443 | 443 | |||||||||
Non-redeemable preferred stocks | 636 | 478 | 478 | |||||||||
Total equity securities, available-for-sale | 1,056 | 921 | 921 | |||||||||
Equity securities, trading | 32,928 | 30,499 | 30,499 | |||||||||
Total equity securities | 33,984 | 31,420 | 31,420 | |||||||||
Mortgage loans | 5,728 | 5,977 | 5,728 | |||||||||
Policy loans | 2,001 | 2,153 | 2,001 | |||||||||
Investments in partnerships and trusts | 2,532 | 2,532 | 2,532 | |||||||||
Futures, options and miscellaneous | 1,316 | 2,394 | 2,394 | |||||||||
Short-term investments | 7,736 | 7,736 | 7,736 | |||||||||
Total investments | $ | 133,776 | $ | 135,349 | $ | 134,948 | ||||||
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Table of Contents
As of December 31, | ||||||||
Condensed Balance Sheets | 2011 | 2010 | ||||||
Assets | ||||||||
Fixed maturities, available-for-sale, at fair value | $ | 152 | $ | 251 | ||||
Other investments | 28 | 31 | ||||||
Short-term investments | 1,425 | 1,762 | ||||||
Investment in affiliates | 27,575 | 25,227 | ||||||
Deferred income taxes | 1,109 | 885 | ||||||
Unamortized Issue Costs | 51 | 55 | ||||||
Other assets | 31 | 22 | ||||||
Total assets | $ | 30,371 | $ | 28,233 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Net payable to affiliates | $ | 283 | $ | 430 | ||||
Short-term debt (includes current maturities of long-term debt) | — | 400 | ||||||
Long-term debt | 5,975 | 5,961 | ||||||
Other liabilities | 1,203 | 1,131 | ||||||
Total liabilities | 7,461 | 7,922 | ||||||
Total stockholders’ equity | 22,910 | 20,311 | ||||||
Total liabilities and stockholders’ equity | $ | 30,371 | $ | 28,233 | ||||
For the years ended December 31, | ||||||||||||
Condensed Statements of Operations | 2011 | 2010 | 2009 | |||||||||
Net investment income | $ | 2 | $ | 5 | $ | 8 | ||||||
Net realized capital gains (losses) | (5 | ) | (5 | ) | (231 | ) | ||||||
Total revenues | (3 | ) | — | (223 | ) | |||||||
Interest expense | 490 | 489 | 457 | |||||||||
Other expenses | (41 | ) | 11 | 8 | ||||||||
Total expenses | 449 | 500 | 465 | |||||||||
Loss before income taxes and earnings (losses) of subsidiaries | (452 | ) | (500 | ) | (688 | ) | ||||||
Income tax benefit | (154 | ) | (170 | ) | (157 | ) | ||||||
Loss before earnings (losses)of subsidiaries | (298 | ) | (330 | ) | (531 | ) | ||||||
Earnings (losses) of subsidiaries | 960 | 2,010 | (356 | ) | ||||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
the consolidated financial statements and notes thereto.
S-2
Table of Contents
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF
THE HARTFORD FINANCIAL SERVICES GROUP, INC. (continued)
(Registrant)
(In millions)
For the years ended December 31, | ||||||||||||
Condensed Statements of Cash Flows | 2011 | 2010 | 2009 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 662 | $ | 1,680 | $ | (887 | ) | |||||
Undistributed earnings (losses) of subsidiaries | (961 | ) | (1,004 | ) | 1,307 | |||||||
Change in operating assets and liabilities | 625 | (21 | ) | (590 | ) | |||||||
Cash provided by (used for) operating activities | 326 | 655 | (170 | ) | ||||||||
Investing Activities | ||||||||||||
Net sales (purchases) of short-term investments | 432 | 233 | (412 | ) | ||||||||
Purchase price of business acquired | — | — | (10 | ) | ||||||||
Capital contributions to subsidiaries | (126 | ) | (311 | ) | (3,115 | ) | ||||||
Cash provided by (used for) investing activities | 306 | (78 | ) | (3,537 | ) | |||||||
Financing Activities | ||||||||||||
Issuance of long-term debt | — | 1,090 | — | |||||||||
Repayments at maturity of long-term debt | (400 | ) | (275 | ) | — | |||||||
Change in commercial paper | — | — | (375 | ) | ||||||||
Net proceeds from issuance of mandatory convertible preferred stock | — | 556 | — | |||||||||
Net proceeds from issuance of common shares under public offering | — | 1,600 | — | |||||||||
Proceeds from net issuance of preferred stock and warrants to U.S. Treasury | — | — | 3,400 | |||||||||
Redemption of preferred stock issued to the U.S. Treasury | — | (3,400 | ) | — | ||||||||
Net proceeds from issuance of common shares under discretionary equity issuance plan | — | — | 887 | |||||||||
Treasury stock acquired | (46 | ) | — | — | ||||||||
Proceeds from net issuances of common shares under incentive and stock compensation plans and excess tax benefits | 9 | 22 | 17 | |||||||||
Dividends paid — Preferred shares | (42 | ) | (85 | ) | (73 | ) | ||||||
Dividends paid — Common Shares | (153 | ) | (85 | ) | (149 | ) | ||||||
Cash provided by (used for) financing activities | (632 | ) | (577 | ) | 3,707 | |||||||
Net change in cash | — | — | — | |||||||||
Cash — beginning of year | — | — | — | |||||||||
Cash — end of year | $ | — | $ | — | $ | — | ||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||
Interest Paid | $ | 483 | $ | 465 | $ | 454 | ||||||
Dividends Received from Subsidiaries | $ | 976 | $ | 1,006 | $ | 243 |
the consolidated financial statements and notes thereto.
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SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
Deferred Policy | ||||||||||||||||
Acquisition Costs | Other | |||||||||||||||
and Present | Future Policy Benefits, | Policyholder | ||||||||||||||
Value of Future | Unpaid Losses and Loss | Unearned | Funds and | |||||||||||||
Segment | Profits | Adjustment Expenses | Premiums | Benefits Payable | ||||||||||||
As of December 31, 2011 | ||||||||||||||||
Property & Casualty Commercial | $ | 611 | $ | 15,438 | $ | 3,235 | $ | — | ||||||||
Group Benefits | 60 | 6,796 | 76 | 266 | ||||||||||||
Consumer Markets | 650 | 2,060 | 1,803 | — | ||||||||||||
Individual Annuity | 2,802 | 2,538 | 29 | 17,017 | ||||||||||||
Individual Life | 2,558 | 1,061 | 1 | 7,413 | ||||||||||||
Retirement Plans | 714 | 436 | 2 | 7,959 | ||||||||||||
Mutual Funds | 27 | — | — | 4 | ||||||||||||
Life Other Operations | 1,322 | 8,635 | 74 | 43,414 | ||||||||||||
Property & Casualty Other Operations | — | 4,053 | 1 | — | ||||||||||||
Corporate | — | (1 | ) | 1 | — | |||||||||||
Consolidated | $ | 8,744 | $ | 41,016 | $ | 5,222 | $ | 76,073 | ||||||||
As of December 31, 2010 | ||||||||||||||||
Property & Casualty Commercial | $ | 603 | 14,727 | 3,126 | — | |||||||||||
Group Benefits | 67 | 6,640 | 76 | 320 | ||||||||||||
Consumer Markets | 660 | 2,177 | 1,875 | — | ||||||||||||
Individual Annuity | 3,216 | 2,270 | 22 | 16,871 | ||||||||||||
Individual Life | 2,627 | 898 | 1 | 6,765 | ||||||||||||
Retirement Plans | 842 | 458 | 3 | 6,841 | ||||||||||||
Mutual Funds | 43 | — | — | 4 | ||||||||||||
Life Other Operations | 1,799 | 8,307 | 72 | 46,542 | ||||||||||||
Property & Casualty Other Operations | — | 4,122 | 1 | — | ||||||||||||
Corporate | — | (1 | ) | — | — | |||||||||||
Consolidated | $ | 9,857 | $ | 39,598 | $ | 5,176 | $ | 77,343 | ||||||||
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Amortization of | Insurance | |||||||||||||||||||||||
Deferred Policy | Operating | |||||||||||||||||||||||
Earned | Benefits, Losses | Acquisition Costs | Costs and | |||||||||||||||||||||
Premiums, | Net | and Loss | and Present | Other | ||||||||||||||||||||
Fee Income | Investment | Adjustment | Value of Future | Expenses | Net Written | |||||||||||||||||||
Segment | and Other | Income | Expenses | Profits | [1] | Premiums | ||||||||||||||||||
For the year ended December 31, 2011 | ||||||||||||||||||||||||
Property & Casualty Commercial | $ | 6,224 | $ | 910 | $ | 4,584 | $ | 1,356 | $ | 726 | $ | 6,176 | ||||||||||||
Group Benefits | 4,147 | 411 | 3,306 | 55 | 1,104 | N/A | ||||||||||||||||||
Consumer Markets | 3,903 | 187 | 2,886 | 639 | 578 | 3,675 | ||||||||||||||||||
Individual Annuity | 1,660 | 768 | 1,106 | 483 | 536 | N/A | ||||||||||||||||||
Individual Life | 899 | 456 | 816 | 221 | 182 | N/A | ||||||||||||||||||
Retirement Plans | 380 | 396 | 308 | 134 | 354 | N/A | ||||||||||||||||||
Mutual Funds | 649 | (3 | ) | — | 47 | 448 | N/A | |||||||||||||||||
Life Other Operations | 1,020 | (386 | ) | (54 | ) | 492 | 274 | N/A | ||||||||||||||||
Property & Casualty Other Operations | — | 151 | 317 | — | 24 | 1 | ||||||||||||||||||
Corporate | 209 | 23 | (3 | ) | — | 710 | N/A | |||||||||||||||||
Consolidated | $ | 19,091 | $ | 2,913 | $ | 13,266 | $ | 3,427 | $ | 4,936 | $ | 9,852 | ||||||||||||
For the year ended December 31, 2010 | ||||||||||||||||||||||||
Property & Casualty Commercial | $ | 5,840 | $ | 935 | $ | 3,370 | $ | 1,353 | $ | 665 | $ | 5,796 | ||||||||||||
Group Benefits | 4,278 | 429 | 3,331 | 61 | 1,111 | N/A | ||||||||||||||||||
Consumer Markets | 4,119 | 187 | 2,951 | 667 | 493 | 3,886 | ||||||||||||||||||
Individual Annuity | 1,716 | 814 | 1,054 | (56 | ) | 542 | N/A | |||||||||||||||||
Individual Life | 856 | 400 | 644 | 119 | 181 | N/A | ||||||||||||||||||
Retirement Plans | 359 | 364 | 278 | 27 | 340 | N/A | ||||||||||||||||||
Mutual Funds | 664 | (8 | ) | — | 51 | 458 | N/A | |||||||||||||||||
Life Other Operations | 1,049 | 225 | 374 | 305 | 262 | N/A | ||||||||||||||||||
Property & Casualty Other Operations | 1 | 163 | 251 | — | 30 | 2 | ||||||||||||||||||
Corporate | 188 | 81 | (2 | ) | — | 833 | 1 | |||||||||||||||||
Consolidated | $ | 19,070 | $ | 3,590 | $ | 12,251 | $ | 2,527 | $ | 4,915 | $ | 9,685 | ||||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||||||
Property & Casualty Commercial | $ | 6,006 | $ | 755 | $ | 3,266 | 1,393 | 645 | 5,715 | |||||||||||||||
Group Benefits | 4,350 | 403 | 3,196 | 61 | 1,120 | N/A | ||||||||||||||||||
Consumer Markets | 4,113 | 178 | 2,902 | 674 | 475 | 3,995 | ||||||||||||||||||
Individual Annuity | 1,465 | 771 | 1,310 | 1,339 | 505 | N/A | ||||||||||||||||||
Individual Life | 940 | 335 | 640 | 314 | 188 | N/A | ||||||||||||||||||
Retirement Plans | 324 | 315 | 269 | 56 | 346 | N/A | ||||||||||||||||||
Mutual Funds | 518 | (21 | ) | — | 50 | 395 | N/A | |||||||||||||||||
Life Other Operations | 1,293 | 4,135 | 5,042 | 370 | 350 | N/A | ||||||||||||||||||
Property & Casualty Other Operations | — | 161 | 241 | — | 23 | 4 | ||||||||||||||||||
Corporate | 223 | 173 | 153 | — | 831 | (3 | ) | |||||||||||||||||
Consolidated | $ | 19,232 | $ | 7,205 | $ | 17,019 | $ | 4,257 | $ | 4,878 | $ | 9,711 | ||||||||||||
[1] | Includes interest expense and goodwill impairment. | |
N/A | — Not applicable to life insurance pursuant to Regulation S-X. |
S-5
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Percentage | ||||||||||||||||||||
Assumed | of Amount | |||||||||||||||||||
Gross | Ceded to Other | From Other | Net | Assumed | ||||||||||||||||
Amount | Companies | Companies | Amount | to Net | ||||||||||||||||
For the year ended December 31, 2011 | ||||||||||||||||||||
Life insurance in-force | $ | 992,921 | $ | 139,590 | $ | 47,365 | $ | 900,696 | 5 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,337 | 688 | 225 | 9,874 | 2 | % | |||||||||||||
Life insurance and annuities | 7,220 | 463 | 71 | 6,828 | 1 | % | ||||||||||||||
Accident and health insurance | 2,122 | 61 | 63 | 2,124 | 3 | % | ||||||||||||||
Total insurance revenues | $ | 19,679 | $ | 1,212 | $ | 359 | $ | 18,826 | 2 | % | ||||||||||
For the year ended December 31, 2010 | ||||||||||||||||||||
Life insurance in-force | $ | 987,104 | $ | 135,269 | $ | 43,999 | $ | 895,834 | 5 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,105 | 668 | 256 | 9,693 | 3 | % | |||||||||||||
Life insurance and annuities | 7,261 | 518 | 128 | 6,871 | 2 | % | ||||||||||||||
Accident and health insurance | 2,221 | 58 | 64 | 2,227 | 3 | % | ||||||||||||||
Total insurance revenues | $ | 19,587 | $ | 1,244 | $ | 448 | $ | 18,791 | 2 | % | ||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||
Life insurance in-force | $ | 970,455 | $ | 128,144 | $ | 49,273 | $ | 891,584 | 6 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,386 | $ | 778 | $ | 253 | $ | 9,861 | 3 | % | ||||||||||
Life insurance and annuities | 7,216 | 433 | 91 | 6,874 | 1 | % | ||||||||||||||
Accident and health insurance | 2,203 | 51 | 71 | 2,223 | 3 | % | ||||||||||||||
Total insurance revenues | $ | 19,805 | $ | 1,262 | $ | 415 | $ | 18,958 | 2 | % | ||||||||||
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Charged to | Write-offs/ | |||||||||||||||||||
Balance | Costs and | Translation | Payments/ | Balance | ||||||||||||||||
January 1, | Expenses | Adjustment | Other | December 31, | ||||||||||||||||
2011 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 119 | $ | 45 | $ | — | $ | (45 | ) | $ | 119 | |||||||||
Allowance for uncollectible reinsurance | 290 | 5 | — | (5 | ) | 290 | ||||||||||||||
Valuation allowance on mortgage loans | 155 | 26 | — | (79 | ) | 102 | ||||||||||||||
Valuation allowance for deferred taxes | 173 | (78 | ) | — | — | 95 | ||||||||||||||
2010 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 121 | $ | 53 | $ | — | $ | (55 | ) | $ | 119 | |||||||||
Allowance for uncollectible reinsurance | 335 | 11 | — | (56 | ) | 290 | ||||||||||||||
Valuation allowance on mortgage loans | 366 | 157 | — | (368 | ) | 155 | ||||||||||||||
Valuation allowance for deferred taxes | 86 | 87 | — | — | 173 | |||||||||||||||
2009 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 125 | $ | 53 | $ | — | $ | (57 | ) | $ | 121 | |||||||||
Allowance for uncollectible reinsurance | 379 | 11 | — | (55 | ) | 335 | ||||||||||||||
Valuation allowance on mortgage loans | 26 | 408 | — | (68 | ) | 366 | ||||||||||||||
Valuation allowance for deferred taxes | 75 | 11 | — | — | 86 | |||||||||||||||
Discount | Losses and Loss Adjustment | Paid Losses and | ||||||||||||||
Deducted From | Expenses Incurred Related to: | Loss Adjustment | ||||||||||||||
Liabilities [1] | Current Year | Prior Year | Expenses | |||||||||||||
Years ended December 31, | ||||||||||||||||
2011 | $ | 542 | $ | 7,420 | $ | 367 | $ | 7,218 | ||||||||
2010 | $ | 524 | $ | 6,768 | $ | (196 | ) | $ | 6,834 | |||||||
2009 | $ | 511 | $ | 6,596 | $ | (186 | ) | $ | 6,547 |
[1] | Reserves for permanently disabled claimants and certain structured settlement contracts that fund loss run-offs have been discounted using the weighted average interest rates of 4.4%, 4.8%, and 5.0% for 2011, 2010, and 2009, respectively. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
THE HARTFORD FINANCIAL SERVICES GROUP, INC. | ||||
By: | /s/ Beth A. Bombara | |||
Beth A. Bombara | ||||
Senior Vice President and Controller (Chief Accounting Officer and duly authorized signatory) |
Signature | Title | Date | ||||
/s/ Liam E. McGee | Chairman, Chief Executive Officer and Director | February 24, 2012 | ||||
Liam E. McGee | (Principal Executive Officer) | |||||
/s/ Christopher J. Swift | Executive Vice President and Chief Financial Officer | February 24, 2012 | ||||
Christopher J. Swift | (Principal Financial Officer) | |||||
/s/ Beth A. Bombara | Senior Vice President and Controller | February 24, 2012 | ||||
Beth A. Bombara | (Principal Accounting Officer) | |||||
* | Director | February 24, 2012 | ||||
Robert B. Allardice III | ||||||
* | Director | February 24, 2012 | ||||
Trevor Fetter | ||||||
* | Director | February 24, 2012 | ||||
Paul G. Kirk, Jr. | ||||||
* | Director | February 24, 2012 | ||||
Kathryn A. Mikells | ||||||
* | Director | February 24, 2012 | ||||
Michael G. Morris | ||||||
* | Director | February 24, 2012 | ||||
Thomas A. Renyi | ||||||
* | Director | February 24, 2012 | ||||
Charles B. Strauss | ||||||
* | Director | February 24, 2012 | ||||
H. Patrick Swygert | ||||||
*By: | /s/ Alan J. Kreczko | |||||
Alan J. Kreczko | ||||||
As Attorney-in-Fact |
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Exhibit No. | Description | |||
3.01 | Amended and Restated Certificate of Incorporation of The Hartford Financial Services Group, Inc. (“The Hartford”), (as amended by Certificate of Designations with respect to 7.25% Mandatory Convertible Preferred Stock Series F dated March 23, 2010 and the Certificate of Elimination of the Series A Participating Cumulative Preferred Stock, Series D Non-Voting Contingent Convertible Preferred Stock and Fixed Rate Cumulative Perpetual Preferred Stock, Series E, dated April 26, 2010), incorporated by reference to Exhibit 3.01 to The Hartford’s Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2010. | |||
3.04 | Amended and Restated By-Laws of The Hartford, amended effective October 21, 2010 (incorporated herein by reference to Exhibit 3.1 to The Hartford’s Current Report on Form 8-K, filed October 27, 2010). | |||
4.01 | Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws of The Hartford (incorporated by reference as indicated in Exhibits 3.01 and 3.04 hereto, respectively). | |||
4.02 | Senior Indenture, dated as of October 20, 1995, between The Hartford and The Chase Manhattan Bank (National Association) as Trustee (incorporated herein by reference to Exhibit 4.03 to the Registration Statement on Form S-3 (Registration No. 333-103915) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI). | |||
4.03 | Supplemental Indenture No. 1, dated as of December 27, 2000, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.30 to The Hartford’s Registration Statement on Form S-3 (Amendment No. 1) (Registration No. 333-49666) dated December 27, 2000). | |||
4.04 | Supplemental Indenture No. 2, dated as of September 13, 2002, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed September 17, 2002). | |||
4.05 | Supplemental Indenture No. 3, dated as of May 23, 2003, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 of The Hartford’s Current Report on Form 8-K, filed May 30, 2003). | |||
4.06 | Senior Indenture, dated as of March 9, 2004, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed March 12, 2004). | |||
4.07 | Junior Subordinated Indenture, dated as of February 12, 2007, between The Hartford and LaSalle Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed February 16, 2007). | |||
4.08 | Senior Indenture, dated as of April 11, 2007, between The Hartford and The Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.03 to the Registration Statement on Form S-3 (Registration No. 333-142044) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI, filed on April 11, 2007). | |||
4.09 | Junior Subordinated Indenture, dated as of June 6, 2008, between The Hartford Financial Services Group, Inc. and The Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 6, 2008). | |||
4.10 | First Supplemental Indenture, dated as of June 6, 2008, between The Hartford Financial Services Group, Inc. and The Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 6, 2008). | |||
4.11 | Replacement Capital Covenant, dated as of June 6, 2008 (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on June 6, 2008). | |||
4.12 | Second Supplemental Indenture, dated as of October 17, 2008, between The Hartford and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 10% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068, including form of Debenture (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K/A filed on October 17, 2008). | |||
4.13 | Form of Series B Warrant to Purchase Shares of Non-Voting Contingent Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K/A filed on October 17, 2008). |
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Table of Contents
Exhibit No. | Description | |||
4.14 | Form of Series C Warrant to Purchase Shares of Non-Voting Contingent Convertible Preferred Stock (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K/A filed on October 17, 2008). | |||
4.15 | Registration Rights Agreement, dated as of October 17, 2008, between The Hartford and Allianz SE (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K/A filed on October 17, 2008). | |||
4.16 | Deposit Agreement, dated as of March 23, 2010, among The Hartford Financial Services Group, Inc., The Bank of New York Mellon, as Depository, and holders from time to time of the Receipt issued thereunder (including form of Depository Receipt) (incorporated herein by reference to (incorporated by reference to Exhibit 4.6 to The Hartford’s Current Report on Form 8-K, filed March 23, 2010). | |||
4.17 | Warrant to Purchase Shares of Common Stock of The Hartford Financial Services Group, Inc., dated June 26, 2009 (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed June 26, 2009). | |||
10.01 | Form of Depository Receipt for the Depositary Shares (included as Exhibit A to Exhibit 4.06) (incorporated herein by reference to Exhibit 4.7 to The Hartford’s Current Report on Form 8-K, filed on March 9, 2010). | |||
10.02 | Letter Agreement, dated as of March 13, 2010, by and between The Hartford Financial Services Group, Inc., Allianz SE (including letter of Allianz SE of March 12, 2010 attached thereto) (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed March 16, 2010). | |||
10.03 | Letter Agreement, dated as of June 9, 2009, by and between The Hartford Financial Services Group, Inc., Allianz SE and Allianz Finance II Luxembourg S.a.r.l. (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed June 12, 2009). | |||
10.04 | Preferred Partnership Agreement dated December 5, 2011 by and between The Hartford Financial Services Group, Inc., Hartford Life, Inc., Hartford Investment Financial Services, LLC, HL Investment Advisors, LLC and Wellington Management Company, LLP. †** | |||
10.05 | Four-Year Revolving Credit Facility Agreement, dated January 6, 2012, among The Hartford Financial Services Group, Inc., Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A. and Citibank, N.A., as syndication agents, and the lenders referred to therein (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed January 6, 2012). | |||
10.06 | Investment Agreement, dated as of October 17, 2008 between The Hartford and Allianz SE (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed October 17, 2008). | |||
10.07 | Written Summary of Compensation-related Arrangement with a Named Executive Officer effective May 18, 2011 (incorporated by reference to Exhibit 10.01 to The Hartford’s Quarterly Report on Form 10-Q for the second quarter ended June 30, 2011). | |||
*10.08 | The Hartford Senior Executive Officer Severance Pay Plan (incorporated by reference to Exhibit 10.07 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2010). | |||
*10.09 | Amended and Restated The Hartford Senior Executive Severance Pay Plan, amended effective February 22, 2011 (incorporated by reference to Exhibit 10.08 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2010). | |||
*10.10 | 2010 Incentive Stock Plan, as amended effective January 27, 2011 (incorporated by reference to Exhibit 10.09 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2010). | |||
*10.11 | The Hartford 2010 Incentive Stock Plan Administrative Rules Related to Awards for Key Employees, as amended effective December 15, 2010 (incorporated by reference to Exhibit 10.10 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2010). | |||
*10.12 | The Hartford 2010 Incentive Stock Plan Administrative Rules Related to Awards for Non-Employee Directors, as amended effective December 15, 2010 (incorporated by reference to Exhibit 10.11 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2010). | |||
*10.13 | The Hartford 2010 Incentive Stock Plan Forms of Individual Award Agreements (incorporated by reference to Exhibit 10.12 of The Hartford’s Quarterly Report on Form 10-Q for the second quarter ended June 30, 2010). | |||
*10.14 | Summary of Annual Executive Bonus Program (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed on May 25, 2010). | |||
*10.15 | Written Summary of Compensation-related Arrangement with a Named Executive Officer effective May 18, 2011 (incorporated by reference to Exhibit 10.01 of The Hartford’s Quarterly Report on Form 10-Q for the second quarter ended June 30, 2011) | |||
*10.16 | The Hartford 2005 Incentive Stock Plan, as amended (incorporated by reference to Exhibit 10.10 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2009). | |||
*10.17 | Employment Agreement between The Hartford and Christopher J. Swift dated February 14, 2010 (incorporated by reference to Exhibit 10.16 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended 2009). |
II-3
Table of Contents
Exhibit No. | Description | |||
*10.18 | The Hartford Deferred Stock Unit Plan, as amended on October 22, 2009 (incorporated by reference to Exhibit 10.02 to The Hartford’s Current Report on Form 8-K, filed October 22, 2009). | |||
*10.19 | Form of Award Letters for Deferred Unit and Restricted Units under The Hartford’s Deferred Stock Unit Plan (incorporated by reference to Exhibit 10.03 to The Hartford’s Quarterly Report on Form 10-Q for the third quarter ended September 30, 2009). | |||
*10.20 | Letter Agreement between The Hartford Financial Services Group, Inc. and Liam E McGee, dated September 23, 2009 (incorporated herein by reference to Exhibit 10.01 to The Hartford Current Report on Form 8-K, filed September 30, 2009). | |||
*10.21 | Form of Key Executive Employment Protection Agreement between The Hartford and certain executive officers of The Hartford, as amended (incorporated herein by reference to Exhibit 10.06 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). | |||
*10.22 | The Hartford 2005 Incentive Stock Plan Forms of Individual Award Agreements (incorporated herein by reference to Exhibit 10.2 to The Hartford’s Current Report on Form 8-K, filed May 24, 2005). | |||
*10.23 | The Hartford Incentive Stock Plan, as amended (incorporated herein by reference to Exhibit 10.09 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). | |||
*10.24 | The Hartford Deferred Restricted Stock Unit Plan, as amended (incorporated herein by reference to Exhibit 10.12 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). | |||
*10.25 | The Hartford Deferred Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.12 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). | |||
*10.26 | The Hartford Planco Non-Employee Option Plan, as amended (incorporated herein by reference to Exhibit 10.19 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002). | |||
*10.27 | The Hartford Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.16 of The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008). | |||
*10.28 | The Hartford Investment and Savings Plan, as amended effective February 1, 2012. ** | |||
10.29 | Put Option Agreement, dated February 12, 2007, among The Hartford, Glen Meadow ABC Trust and LaSalle Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed February 16, 2007). | |||
18.01 | Preferability letter from Deloitte & Touche LLP regarding change in accounting principle.** | |||
12.01 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. ** | |||
21.01 | Subsidiaries of The Hartford Financial Services Group, Inc. ** | |||
23.01 | Consent of Deloitte & Touche LLP to the incorporation by reference into The Hartford’s Registration Statements on Form S-8 and Form S-3 of the report of Deloitte & Touche LLP contained in this Form 10-K regarding the audited financial statements is filed herewith. ** | |||
24.01 | Power of Attorney. ** | |||
31.01 | Certification of Liam E. McGee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** | |||
31.02 | Certification of 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 contract, compensatory plan or arrangement. | |
** | Filed with the Securities and Exchange Commission as an exhibit to this report. | |
† | Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission. |
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