þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware (State or other jurisdiction of incorporation or organization) |
13-3317783 (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Item | Description | Page | ||||||
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2. | 61 | |||||||
3. | 121 | |||||||
4. | 121 | |||||||
1. | 122 | |||||||
1A. | 124 | |||||||
2. | 124 | |||||||
6. | 124 | |||||||
125 | ||||||||
126 | ||||||||
Exhibit 15.01 | ||||||||
Exhibit 31.01 | ||||||||
Exhibit 31.02 | ||||||||
Exhibit 32.01 | ||||||||
Exhibit 32.02 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
| challenges related to the Companys current operating environment, including continuing
uncertainty about the strength and speed of the recovery in the United States and other key
economies and the impact of governmental stimulus and austerity initiatives, sovereign credit
concerns, including the potential consequences associated with downgrades to the credit
ratings of debt issued by the United States government, and other developments on financial,
commodity and credit markets and consumer spending and investment; |
| the success of our initiatives relating to the realignment of our business in 2010 and
plans to improve the profitability and long-term growth prospects of our key divisions,
including through opportunistic acquisitions or divestitures, and the impact of regulatory or
other constraints on our ability to complete these initiatives and deploy capital among our
businesses as and when planned; |
| market risks associated with our business, including changes in interest rates, credit
spreads, equity prices, foreign exchange rates, and implied volatility levels, as well as
continuing uncertainty in key sectors such as the global real estate market; |
| volatility in our earnings resulting from our adjustment of our risk management program to
emphasize protection of statutory surplus, and cash flows; |
| the impact on our statutory capital of various factors, including many that are outside the
Companys 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 Companys 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 Companys financial instruments that could
result in changes to investment valuations; |
| the subjective determinations that underlie the Companys 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 Companys ability to contain its
exposure, including the effect of the absence or insufficiency of applicable terrorism
legislation on coverage; |
| the difficulty in predicting the Companys potential exposure for asbestos and
environmental claims; |
| the possibility of a pandemic, earthquake, or other natural or man-made disaster that may
adversely affect our businesses and cost and availability of reinsurance; |
| weather and other natural physical events, including the severity and frequency of storms,
hail, winter storms, hurricanes and tropical storms, as well as climate change and its
potential impact on weather patterns; |
| the response of reinsurance companies under reinsurance contracts and the availability,
pricing and adequacy of reinsurance to protect the Company against losses; |
| the possibility of unfavorable loss development; |
| actions by our competitors, many of which are larger or have greater financial resources
than we do; |
| the restrictions, oversight, costs and other consequences of being a savings and loan
holding company, including from the supervision, regulation and examination by The Federal
Reserve as the Companys regulator and the Office of the Controller of the Currency as
regulator of Federal Trust Bank; |
3
| the cost and other effects of increased regulation as a result of the enactment of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), which
will, among other effects, vest a newly created Financial Services Oversight Council with the
power to designate systemically important institutions, require central clearing of, and/or
impose new margin and capital requirements on, derivatives transactions, and may affect our
ability as a savings and loan holding company to manage our general account by limiting or
eliminating investments in certain private equity and hedge funds; |
| the potential effect of other domestic and foreign regulatory developments, including those
that could adversely impact the demand for the Companys products, operating costs and
required capital levels, including changes to statutory reserves and/or risk-based capital
requirements related to secondary guarantees under universal life and variable annuity
products or changes in U.S. federal or other tax laws that affect the relative attractiveness
of our investment products; |
| the Companys ability to distribute its products through distribution channels, both
current and future; |
| the uncertain effects of emerging claim and coverage issues; |
| regulatory limitations on the ability of the Company and certain of its subsidiaries to
declare and pay dividends; |
| the Companys 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 Companys ability to maintain the availability of its systems and safeguard the
security of its data in the event of a disaster or other unanticipated events; |
| the risk that our framework for managing business risks may not be effective in mitigating
material risk and loss; |
| the potential for difficulties arising from outsourcing relationships; |
| the impact of potential changes in federal or state tax laws, including changes affecting
the availability of the separate account dividend received deduction; |
| the impact of potential changes in accounting principles and related financial reporting
requirements; |
| the Companys ability to protect its intellectual property and defend against claims of
infringement; |
| unfavorable judicial or legislative developments; and |
| other factors described in such forward-looking statements. |
4
Item 1. | Financial Statements |
5
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
||||||||||||||||
Earned premiums |
$ | 3,518 | $ | 3,513 | $ | 10,582 | $ | 10,546 | ||||||||
Fee income |
1,192 | 1,164 | 3,620 | 3,530 | ||||||||||||
Net investment income (loss): |
||||||||||||||||
Securities available-for-sale and other |
1,062 | 1,073 | 3,274 | 3,275 | ||||||||||||
Equity securities, trading |
(1,890 | ) | 1,043 | (1,684 | ) | (905 | ) | |||||||||
Total net investment income (loss) |
(828 | ) | 2,116 | 1,590 | 2,370 | |||||||||||
Net realized capital gains (losses): |
||||||||||||||||
Total other-than-temporary impairment (OTTI) losses |
(71 | ) | (146 | ) | (221 | ) | (778 | ) | ||||||||
OTTI losses recognized in other comprehensive income (OCI) |
11 | 31 | 83 | 403 | ||||||||||||
Net OTTI losses recognized in earnings |
(60 | ) | (115 | ) | (138 | ) | (375 | ) | ||||||||
Net realized capital gains (losses), excluding net OTTI losses
recognized in earnings |
635 | (142 | ) | 379 | (147 | ) | ||||||||||
Total net realized capital gains (losses) |
575 | (257 | ) | 241 | (522 | ) | ||||||||||
Other revenues |
63 | 66 | 188 | 195 | ||||||||||||
Total revenues |
4,520 | 6,602 | 16,221 | 16,119 | ||||||||||||
Benefits, losses and expenses |
||||||||||||||||
Benefits, losses and loss adjustment expenses |
4,006 | 3,037 | 11,160 | 9,762 | ||||||||||||
Benefits, losses and loss adjustment expenses returns
credited on international variable annuities |
(1,889 | ) | 1,043 | (1,683 | ) | (905 | ) | |||||||||
Amortization of deferred policy acquisition costs and
present value of future profits |
1,320 | 431 | 2,819 | 2,013 | ||||||||||||
Insurance operating costs and other expenses |
1,059 | 1,046 | 3,403 | 3,272 | ||||||||||||
Interest expense |
128 | 128 | 384 | 380 | ||||||||||||
Total benefits, losses and expenses |
4,624 | 5,685 | 16,083 | 14,522 | ||||||||||||
Income (loss) from continuing operations before income taxes |
(104 | ) | 917 | 138 | 1,597 | |||||||||||
Income tax expense (benefit) |
(101 | ) | 252 | (312 | ) | 437 | ||||||||||
Income (loss) from continuing operations, net of tax |
(3 | ) | 665 | 450 | 1,160 | |||||||||||
Income (loss) from discontinued operations, net of tax |
3 | 1 | 85 | (99 | ) | |||||||||||
Net income |
$ | | $ | 666 | $ | 535 | $ | 1,061 | ||||||||
Preferred stock dividends and accretion of discount |
10 | 10 | 31 | 504 | ||||||||||||
Net income (loss) available to common shareholders |
$ | (10 | ) | $ | 656 | $ | 504 | $ | 557 | |||||||
Income (loss) from continuing operations, net of tax, available
to common shareholders per common share |
||||||||||||||||
Basic |
$ | (0.03 | ) | $ | 1.47 | $ | 0.94 | $ | 1.54 | |||||||
Diluted |
$ | (0.03 | ) | $ | 1.34 | $ | 0.87 | $ | 1.42 | |||||||
Net income (loss) available to common shareholders per common share |
||||||||||||||||
Basic |
$ | (0.02 | ) | $ | 1.48 | $ | 1.13 | $ | 1.30 | |||||||
Diluted |
$ | (0.02 | ) | $ | 1.34 | $ | 1.05 | $ | 1.21 | |||||||
Cash dividends declared per common share |
$ | 0.10 | $ | 0.05 | $ | 0.30 | $ | 0.15 | ||||||||
6
September 30, | December 31, | |||||||
(In millions, except for share and per share data) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $77,838 and
$78,419) (includes variable interest entity assets, at fair value, of $154 and $406) |
$ | 80,263 | $ | 77,820 | ||||
Fixed maturities, at fair value using the fair value option (includes variable interest
entity assets of $338 and $323) |
1,323 | 649 | ||||||
Equity securities, trading, at fair value (cost of $33,565 and $33,899) |
30,770 | 32,820 | ||||||
Equity securities, available-for-sale, at fair value (cost of $1,093 and $1,013) |
989 | 973 | ||||||
Mortgage loans (net of allowances for loan losses of $147 and $155) |
5,590 | 4,489 | ||||||
Policy loans, at outstanding balance |
2,176 | 2,181 | ||||||
Limited partnerships and other alternative investments (includes variable interest
entity assets of $7 and $14) |
2,506 | 1,918 | ||||||
Other investments |
2,857 | 1,617 | ||||||
Short-term investments |
9,704 | 8,528 | ||||||
Total investments |
136,178 | 130,995 | ||||||
Cash |
2,589 | 2,062 | ||||||
Premiums receivable and agents balances, net |
3,525 | 3,273 | ||||||
Reinsurance recoverables, net |
5,253 | 4,862 | ||||||
Deferred policy acquisition costs and present value of future profits |
8,729 | 9,857 | ||||||
Deferred income taxes, net |
1,611 | 3,725 | ||||||
Goodwill |
1,036 | 1,051 | ||||||
Property and equipment, net |
1,029 | 1,150 | ||||||
Other assets |
1,725 | 1,629 | ||||||
Separate account assets |
143,923 | 159,742 | ||||||
Total assets |
$ | 305,598 | $ | 318,346 | ||||
Liabilities |
||||||||
Reserve for future policy benefits and unpaid losses and loss adjustment expenses |
$ | 41,034 | $ | 39,598 | ||||
Other policyholder funds and benefits payable |
45,868 | 44,550 | ||||||
Other policyholder funds and benefits payable international variable annuities |
30,734 | 32,793 | ||||||
Unearned premiums |
5,409 | 5,176 | ||||||
Short-term debt |
400 | 400 | ||||||
Long-term debt |
6,217 | 6,207 | ||||||
Consumer notes |
349 | 382 | ||||||
Other
liabilities (includes variable interest entity liabilities of $461 and $394) |
8,883 | 9,187 | ||||||
Separate account liabilities |
143,923 | 159,742 | ||||||
Total liabilities |
282,817 | 298,035 | ||||||
Commitments and Contingencies (Note 9) |
||||||||
Stockholders Equity |
||||||||
Preferred stock, $0.01 par value 50,000,000 shares authorized, 575,000 shares issued,
liquidation preference $1,000 per share |
556 | 556 | ||||||
Common stock, $0.01 par value 1,500,000,000 shares authorized,
469,754,771 shares issued |
5 | 5 | ||||||
Additional paid-in capital |
10,395 | 10,448 | ||||||
Retained earnings |
12,447 | 12,077 | ||||||
Treasury stock, at cost 24,241,076 and 25,205,283 shares |
(1,687 | ) | (1,774 | ) | ||||
Accumulated other comprehensive income (loss), net of tax |
1,065 | (1,001 | ) | |||||
Total stockholders equity |
22,781 | 20,311 | ||||||
Total liabilities and stockholders equity |
$ | 305,598 | $ | 318,346 | ||||
7
Nine Months Ended | ||||||||
September 30, | ||||||||
(In millions, except for share data) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Preferred Stock, at beginning of period |
$ | 556 | $ | 2,960 | ||||
Issuance of mandatory convertible preferred stock |
| 556 | ||||||
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury |
| 440 | ||||||
Redemption of preferred stock issued to the U.S. Treasury |
| (3,400 | ) | |||||
Preferred Stock, at end of period |
556 | 556 | ||||||
Common Stock |
5 | 5 | ||||||
Additional Paid-in Capital, at beginning of period |
10,448 | 8,985 | ||||||
Issuance of common shares under public offering |
| 1,599 | ||||||
Issuance of shares under incentive and stock compensation plans |
(43 | ) | (123 | ) | ||||
Tax expense on employee stock options and awards |
(10 | ) | (6 | ) | ||||
Additional Paid-in Capital, at end of period |
10,395 | 10,455 | ||||||
Retained Earnings, at beginning of period, before cumulative effect of accounting change, net
of tax |
12,077 | 11,164 | ||||||
Cumulative effect of accounting change, net of tax |
| 26 | ||||||
Retained Earnings, at beginning of period, as adjusted |
12,077 | 11,190 | ||||||
Net income |
535 | 1,061 | ||||||
Cumulative effect of accounting changes, net of tax |
| (194 | ) | |||||
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury |
| (440 | ) | |||||
Dividends on preferred stock |
(31 | ) | (64 | ) | ||||
Dividends declared on common stock |
(134 | ) | (65 | ) | ||||
Retained Earnings, at end of period |
12,447 | 11,488 | ||||||
Treasury Stock, at Cost, at beginning of period |
(1,774 | ) | (1,936 | ) | ||||
Issuance of shares under incentive and stock compensation plans from treasury stock |
94 | 150 | ||||||
Return of shares under incentive and stock compensation plans and other to treasury stock |
(7 | ) | (3 | ) | ||||
Treasury Stock, at Cost, at end of period |
(1,687 | ) | (1,789 | ) | ||||
Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period |
(1,001 | ) | (3,312 | ) | ||||
Cumulative effect of accounting changes, net of tax |
| 194 | ||||||
Total other comprehensive income |
2,066 | 3,312 | ||||||
Accumulated Other Comprehensive Income, Net of Tax, at end of period |
1,065 | 194 | ||||||
Noncontrolling Interest, at beginning of period |
| 29 | ||||||
Recognition of noncontrolling interest in other liabilities |
| (29 | ) | |||||
Noncontrolling Interest, at end of period |
| | ||||||
Total Stockholders Equity |
$ | 22,781 | $ | 20,909 | ||||
Preferred Shares Outstanding, at beginning of period (in thousands) |
575 | 3,400 | ||||||
Redemption of shares issued to the U.S. Treasury |
| (3,400 | ) | |||||
Issuance of mandatory convertible preferred shares |
| 575 | ||||||
Preferred Shares Outstanding, at end of period |
575 | 575 | ||||||
Common Shares Outstanding, at beginning of period (in thousands) |
444,549 | 383,007 | ||||||
Issuance of shares under public offering |
| 59,590 | ||||||
Issuance of shares under incentive and stock compensation plans |
1,203 | 1,901 | ||||||
Return of shares under incentive and stock compensation plans and other to treasury stock |
(238 | ) | (132 | ) | ||||
Common Shares Outstanding, at end of period |
445,514 | 444,366 | ||||||
8
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Comprehensive Income |
||||||||||||||||
Net income |
$ | | $ | 666 | $ | 535 | $ | 1,061 | ||||||||
Other comprehensive income (loss) |
||||||||||||||||
Change in net unrealized gain / loss on securities |
871 | 1,064 | 1,717 | 2,642 | ||||||||||||
Change in OTTI losses recognized in other comprehensive income |
10 | 44 | 11 | 97 | ||||||||||||
Change in net gain / loss on cash-flow hedging instruments |
154 | 79 | 157 | 308 | ||||||||||||
Change in foreign currency translation adjustments |
83 | 164 | 109 | 205 | ||||||||||||
Amortization of prior service cost and actuarial net losses
included in net periodic benefit costs |
24 | 28 | 72 | 60 | ||||||||||||
Total other comprehensive income |
1,142 | 1,379 | 2,066 | 3,312 | ||||||||||||
Total comprehensive income |
$ | 1,142 | $ | 2,045 | $ | 2,601 | $ | 4,373 | ||||||||
9
Nine Months Ended | ||||||||
September 30, | ||||||||
(In millions) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Operating Activities |
||||||||
Net income |
$ | 535 | $ | 1,061 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Amortization of deferred policy acquisition costs and present value of future profits |
2,819 | 2,027 | ||||||
Additions to deferred policy acquisition costs and present value of future profits |
(1,961 | ) | (1,999 | ) | ||||
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses
and unearned premiums |
1,309 | (17 | ) | |||||
Change in reinsurance recoverables |
(31 | ) | 247 | |||||
Change in receivables and other assets |
(452 | ) | (29 | ) | ||||
Change in payables and accruals |
(141 | ) | (92 | ) | ||||
Change in accrued and deferred income taxes |
(472 | ) | (5 | ) | ||||
Net realized capital (gains) losses |
(360 | ) | 526 | |||||
Net receipts (disbursements) from investment contracts related to policyholder funds -
international variable annuities |
(2,059 | ) | 174 | |||||
Net (increase) decrease in equity securities, trading |
2,050 | (174 | ) | |||||
Depreciation and amortization |
532 | 449 | ||||||
Goodwill impairment |
| 153 | ||||||
Other operating activities, net |
(145 | ) | (76 | ) | ||||
Net cash provided by operating activities |
1,624 | 2,245 | ||||||
Investing Activities |
||||||||
Proceeds from the sale/maturity/prepayment of: |
||||||||
Fixed maturities, available-for-sale |
26,124 | 37,320 | ||||||
Fixed maturities, fair value option |
40 | | ||||||
Equity securities, available-for-sale |
130 | 207 | ||||||
Mortgage loans |
366 | 1,517 | ||||||
Partnerships |
151 | 312 | ||||||
Payments for the purchase of: |
||||||||
Fixed maturities, available-for-sale |
(26,513 | ) | (39,485 | ) | ||||
Fixed maturities, fair value option |
(664 | ) | | |||||
Equity securities, available-for-sale |
(200 | ) | (135 | ) | ||||
Mortgage loans |
(1,503 | ) | (273 | ) | ||||
Partnerships |
(594 | ) | (226 | ) | ||||
Proceeds from business sold |
278 | 130 | ||||||
Derivatives, net |
1,603 | 504 | ||||||
Change in policy loans, net |
5 | (6 | ) | |||||
Change in payables for collateral under securities lending, net |
| (46 | ) | |||||
Other investing activities, net |
(119 | ) | (105 | ) | ||||
Net cash used for investing activities |
(896 | ) | (286 | ) | ||||
Financing Activities |
||||||||
Deposits and other additions to investment and universal life-type contracts |
8,419 | 9,458 | ||||||
Withdrawals and other deductions from investment and universal life-type contracts |
(16,123 | ) | (16,426 | ) | ||||
Net transfers from separate accounts related to investment and universal life-type contracts |
7,661 | 5,998 | ||||||
Proceeds from issuance of long-term debt |
| 1,090 | ||||||
Repayments at maturity for long-term debt and payments on capital lease obligations |
| (343 | ) | |||||
Repayments at maturity or settlement of consumer notes |
(33 | ) | (752 | ) | ||||
Net proceeds from issuance of mandatory convertible preferred stock |
| 556 | ||||||
Net proceeds from issuance of common shares under public offering |
| 1,600 | ||||||
Redemption of preferred stock issued to the U.S. Treasury |
| (3,400 | ) | |||||
Proceeds from net issuance of shares under incentive and stock compensation plans, excess
tax benefit and other |
6 | 17 | ||||||
Dividends paid on preferred stock |
(32 | ) | (75 | ) | ||||
Dividends paid on common stock |
(107 | ) | (62 | ) | ||||
Changes in bank deposits and payments on bank advances |
(30 | ) | (56 | ) | ||||
Net cash used for financing activities |
(239 | ) | (2,395 | ) | ||||
Foreign exchange rate effect on cash |
38 | 1 | ||||||
Net increase (decrease) in cash |
527 | (435 | ) | |||||
Cash beginning of period |
2,062 | 2,142 | ||||||
Cash end of period |
$ | 2,589 | $ | 1,707 | ||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Income taxes paid |
$ | 245 | $ | 249 | ||||
Interest paid |
$ | 340 | $ | 324 |
10
11
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Tax expense (benefit) at U.S. Federal statutory rate |
$ | (36 | ) | $ | 321 | $ | 48 | $ | 559 | |||||||
Tax-exempt interest |
(37 | ) | (38 | ) | (112 | ) | (116 | ) | ||||||||
Dividends-received deduction |
(42 | ) | (34 | ) | (169 | ) | (115 | ) | ||||||||
Valuation allowance |
6 | | (83 | ) | 86 | |||||||||||
Other |
8 | 3 | 4 | 23 | ||||||||||||
Income tax expense (benefit) |
$ | (101 | ) | $ | 252 | $ | (312 | ) | $ | 437 | ||||||
12
13
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Earnings |
||||||||||||||||
Income (loss) from continuing operations |
||||||||||||||||
Income (loss) from continuing operations, net of tax |
$ | (3 | ) | $ | 665 | $ | 450 | $ | 1,160 | |||||||
Less: Preferred stock dividends and accretion of discount |
10 | 10 | 31 | 504 | ||||||||||||
Income (loss) from continuing operations, net of tax,
available to common shareholders |
(13 | ) | 655 | 419 | 656 | |||||||||||
Add: Dilutive effect of preferred stock dividends |
| 10 | | | ||||||||||||
Income (loss) from continuing operations, net of tax,
available to common shareholders and assumed conversion
of preferred shares |
$ | (13 | ) | $ | 665 | $ | 419 | $ | 656 | |||||||
Income (loss) from discontinued operations, net of tax |
$ | 3 | $ | 1 | $ | 85 | $ | (99 | ) | |||||||
Net income |
||||||||||||||||
Net income |
$ | | $ | 666 | $ | 535 | $ | 1,061 | ||||||||
Less: Preferred stock dividends and accretion of discount |
10 | 10 | 31 | 504 | ||||||||||||
Net income (loss) available to common shareholders |
(10 | ) | 656 | 504 | 557 | |||||||||||
Add: Dilutive effect of preferred stock dividends |
| 10 | | | ||||||||||||
Net income (loss) available to common shareholders and
assumed conversion of preferred shares |
$ | (10 | ) | $ | 666 | $ | 504 | $ | 557 | |||||||
Shares |
||||||||||||||||
Weighted average common shares outstanding, basic |
445.3 | 444.1 | 445.0 | 427.2 | ||||||||||||
Dilutive effect of warrants |
| 29.0 | 34.8 | 32.6 | ||||||||||||
Dilutive effect of stock compensation plans |
| 1.4 | 1.2 | 1.3 | ||||||||||||
Dilutive effect of mandatory convertible preferred shares |
| 20.8 | | | ||||||||||||
Weighted average shares outstanding and dilutive
potential common shares |
445.3 | 495.3 | 481.0 | 461.1 | ||||||||||||
Earnings (loss) per common share |
||||||||||||||||
Basic |
||||||||||||||||
Income (loss) from continuing operations, net of tax,
available to common shareholders |
$ | (0.03 | ) | $ | 1.47 | $ | 0.94 | $ | 1.54 | |||||||
Income (loss) from discontinued operations, net of tax |
0.01 | 0.01 | 0.19 | (0.24 | ) | |||||||||||
Net income (loss) available to common shareholders |
$ | (0.02 | ) | $ | 1.48 | $ | 1.13 | $ | 1.30 | |||||||
Diluted |
||||||||||||||||
Income (loss) from continuing operations, net of tax,
available to common shareholders |
$ | (0.03 | ) | $ | 1.34 | $ | 0.87 | $ | 1.42 | |||||||
Income (loss) from discontinued operations, net of tax |
0.01 | | 0.18 | (0.21 | ) | |||||||||||
Net income (loss) available to common shareholders |
$ | (0.02 | ) | $ | 1.34 | $ | 1.05 | $ | 1.21 | |||||||
14
15
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Property & Casualty Commercial |
$ | 52 | $ | 306 | $ | 500 | $ | 782 | ||||||||
Group Benefits |
25 | 46 | 77 | 145 | ||||||||||||
Consumer Markets |
(16 | ) | 70 | (80 | ) | 113 | ||||||||||
Global Annuity |
49 | 175 | 327 | 141 | ||||||||||||
Life Insurance |
(3 | ) | 97 | 98 | 224 | |||||||||||
Retirement Plans |
(32 | ) | 30 | 13 | 38 | |||||||||||
Mutual Funds |
24 | 18 | 79 | 67 | ||||||||||||
Corporate and Other |
(99 | ) | (76 | ) | (479 | ) | (449 | ) | ||||||||
Net income |
$ | | $ | 666 | $ | 535 | $ | 1,061 | ||||||||
16
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Earned premiums, fees, and other considerations |
||||||||||||||||
Property & Casualty Commercial |
||||||||||||||||
Workers compensation |
$ | 721 | $ | 605 | $ | 2,071 | $ | 1,754 | ||||||||
Property |
129 | 137 | 398 | 412 | ||||||||||||
Automobile |
146 | 149 | 437 | 453 | ||||||||||||
Package business |
289 | 281 | 857 | 842 | ||||||||||||
Liability |
135 | 129 | 404 | 405 | ||||||||||||
Fidelity and surety |
55 | 56 | 164 | 169 | ||||||||||||
Professional liability |
78 | 82 | 237 | 243 | ||||||||||||
Total Property & Casualty Commercial |
1,553 | 1,439 | 4,568 | 4,278 | ||||||||||||
Group Benefits |
||||||||||||||||
Group disability |
467 | 487 | 1,460 | 1,520 | ||||||||||||
Group life and accident |
501 | 513 | 1,529 | 1,539 | ||||||||||||
Other |
48 | 58 | 147 | 175 | ||||||||||||
Total Group Benefits |
1,016 | 1,058 | 3,136 | 3,234 | ||||||||||||
Consumer Markets |
||||||||||||||||
Automobile |
649 | 698 | 1,978 | 2,122 | ||||||||||||
Homeowners |
281 | 287 | 847 | 854 | ||||||||||||
Total Consumer Markets [1] |
930 | 985 | 2,825 | 2,976 | ||||||||||||
Global Annuity |
||||||||||||||||
Variable annuity |
600 | 629 | 1,870 | 1,855 | ||||||||||||
Fixed / MVA and other annuity |
29 | 24 | 56 | 49 | ||||||||||||
Institutional investment products |
(5 | ) | 4 | (7 | ) | 21 | ||||||||||
Total Global Annuity |
624 | 657 | 1,919 | 1,925 | ||||||||||||
Life Insurance |
||||||||||||||||
Variable life |
122 | 113 | 304 | 315 | ||||||||||||
Universal life |
109 | 72 | 324 | 282 | ||||||||||||
Term / other life |
13 | 12 | 37 | 36 | ||||||||||||
PPLI |
42 | 46 | 131 | 129 | ||||||||||||
Total Life Insurance |
286 | 243 | 796 | 762 | ||||||||||||
Retirement Plans |
||||||||||||||||
401(k) |
82 | 77 | 254 | 233 | ||||||||||||
Government plans |
11 | 12 | 37 | 32 | ||||||||||||
Total Retirement Plans |
93 | 89 | 291 | 265 | ||||||||||||
Mutual Funds |
||||||||||||||||
Non-proprietary |
138 | 144 | 461 | 447 | ||||||||||||
Proprietary |
15 | 15 | 45 | 46 | ||||||||||||
Total Mutual Funds |
153 | 159 | 506 | 493 | ||||||||||||
Corporate and Other |
55 | 47 | 161 | 143 | ||||||||||||
Total earned premiums, fees, and other considerations |
4,710 | 4,677 | 14,202 | 14,076 | ||||||||||||
Net investment income (loss): |
||||||||||||||||
Securities available-for-sale and other |
1,062 | 1,073 | 3,274 | 3,275 | ||||||||||||
Equity securities, trading |
(1,890 | ) | 1,043 | (1,684 | ) | (905 | ) | |||||||||
Total net investment income (loss) |
(828 | ) | 2,116 | 1,590 | 2,370 | |||||||||||
Net realized capital gains (losses) |
575 | (257 | ) | 241 | (522 | ) | ||||||||||
Other revenues |
63 | 66 | 188 | 195 | ||||||||||||
Total revenues |
$ | 4,520 | $ | 6,602 | $ | 16,221 | $ | 16,119 | ||||||||
[1] | For the three months ended September 30, 2011 and 2010, AARP members accounted for
earned premiums of $687 and $712, respectively. For the nine months ended September 30,
2011 and 2010, AARP members accounted for earned premiums of $2.1 billion and $2.1 billion,
respectively. |
17
Level 1
|
Observable inputs that reflect quoted prices for identical assets
or liabilities in active markets that the Company has the ability
to access at the measurement date. Level 1 securities include
highly liquid U.S. Treasuries, money market funds and exchange
traded equity securities, open-ended mutual funds reported in
separate account assets and derivative securities, including
futures and certain option contracts. |
|
Level 2
|
Observable inputs, other than quoted prices included in Level 1,
for the asset or liability or prices for similar assets and
liabilities. Most fixed maturities and preferred stocks,
including those reported in separate account assets, are model
priced by vendors using observable inputs and are classified
within Level 2. Also included in the Level 2 category are
exchange traded equity securities, investment grade private
placement securities and derivative instruments that are priced
using models with significant observable market inputs, including
interest rate, foreign currency and certain credit default swap
contracts and have no significant unobservable market inputs. |
|
Level 3
|
Valuations that are derived from techniques in which one or more
of the significant inputs are unobservable (including assumptions
about risk). Level 3 securities include less liquid securities
such as lower quality asset-backed securities (ABS), commercial
mortgage-backed securities (CMBS), commercial real estate
(CRE) collateralized debt obligations (CDOs), residential
mortgage-backed securities (RMBS) primarily backed by
below-prime loans and below investment grade private placement
securities. Also included in Level 3 are guaranteed product
embedded and reinsurance derivatives and other complex derivative
securities, including customized guaranteed minimum withdrawal
benefit (GMWB) hedging derivatives (see Note 4a for further
information on GMWB product related financial instruments), equity
derivatives, long dated derivatives, swaps with optionality,
certain complex credit derivatives and certain other liabilities.
Because Level 3 fair values, by their nature, contain one or more
significant unobservable inputs as there is little or no
observable market for these assets and liabilities, considerable
judgment is used to determine the Level 3 fair values. Level 3
fair values represent the Companys best estimate of an amount
that could be realized in a current market exchange absent actual
market exchanges. |
18
September 30, 2011 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis |
||||||||||||||||
Fixed maturities, AFS |
||||||||||||||||
ABS |
$ | 3,504 | $ | | $ | 3,034 | $ | 470 | ||||||||
CDOs |
2,465 | | | 2,465 | ||||||||||||
CMBS |
6,960 | | 6,306 | 654 | ||||||||||||
Corporate |
43,316 | | 41,097 | 2,219 | ||||||||||||
Foreign government/government agencies |
1,944 | | 1,867 | 77 | ||||||||||||
States, municipalities and political subdivisions (Municipal) |
13,164 | | 12,753 | 411 | ||||||||||||
RMBS |
5,336 | | 4,229 | 1,107 | ||||||||||||
U.S. Treasuries |
3,574 | 574 | 3,000 | | ||||||||||||
Total fixed maturities, AFS |
80,263 | 574 | 72,286 | 7,403 | ||||||||||||
Fixed maturities, FVO |
1,323 | | 831 | 492 | ||||||||||||
Equity securities, trading |
30,770 | 1,953 | 28,817 | | ||||||||||||
Equity securities, AFS |
989 | 346 | 550 | 93 | ||||||||||||
Derivative assets |
||||||||||||||||
Credit derivatives |
(26 | ) | | (24 | ) | (2 | ) | |||||||||
Equity derivatives |
35 | | | 35 | ||||||||||||
Foreign exchange derivatives |
724 | | 724 | | ||||||||||||
Interest rate derivatives |
267 | | 228 | 39 | ||||||||||||
Other derivative contracts |
29 | | | 29 | ||||||||||||
Total derivative assets [1] |
1,029 | | 928 | 101 | ||||||||||||
Short-term investments |
9,704 | 337 | 9,367 | | ||||||||||||
Separate account assets [2] |
136,113 | 97,722 | 37,207 | 1,184 | ||||||||||||
Total assets accounted for at fair value on a recurring basis |
$ | 260,191 | $ | 100,932 | $ | 149,986 | $ | 9,273 | ||||||||
Percentage of level to total |
100 | % | 39 | % | 57 | % | 4 | % | ||||||||
Liabilities accounted for at fair value on a recurring basis |
||||||||||||||||
Other policyholder funds and benefits payable |
||||||||||||||||
Equity linked notes |
$ | (6 | ) | $ | | $ | | $ | (6 | ) | ||||||
Derivative liabilities |
||||||||||||||||
Credit derivatives |
(542 | ) | | (1 | ) | (541 | ) | |||||||||
Equity derivatives |
1 | | | 1 | ||||||||||||
Foreign exchange derivatives |
(12 | ) | | (12 | ) | | ||||||||||
Interest rate derivatives |
(310 | ) | | (262 | ) | (48 | ) | |||||||||
Total derivative liabilities [3] |
(863 | ) | | (275 | ) | (588 | ) | |||||||||
Other liabilities |
(13 | ) | | | (13 | ) | ||||||||||
Consumer notes [4] |
(4 | ) | | | (4 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring
basis |
$ | ( 886 | ) | $ | | $ | ( 275 | ) | $ | ( 611 | ) | |||||
[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 September 30, 2011, $2.0 billion of a cash collateral liability was netted against the derivative asset value in
the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. |
|
[2] | As of September 30, 2011, excludes approximately $8 billion of investment sales receivable that are not subject to fair value accounting. |
|
[3] | Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3
roll-forward table included below in this Note 4, the derivative asset and liability are referred to as freestanding derivatives and
are presented on a net basis. |
|
[4] | Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes. |
19
December 31, 2010 | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis |
||||||||||||||||
Fixed maturities, AFS |
||||||||||||||||
ABS |
$ | 2,889 | $ | | $ | 2,412 | $ | 477 | ||||||||
CDOs |
2,611 | | 30 | 2,581 | ||||||||||||
CMBS |
7,917 | | 7,228 | 689 | ||||||||||||
Corporate |
39,884 | | 37,755 | 2,129 | ||||||||||||
Foreign government/government agencies |
1,683 | | 1,627 | 56 | ||||||||||||
Municipal |
12,124 | | 11,852 | 272 | ||||||||||||
RMBS |
5,683 | | 4,398 | 1,285 | ||||||||||||
U.S. Treasuries |
5,029 | 434 | 4,595 | | ||||||||||||
Total fixed maturities, AFS |
77,820 | 434 | 69,897 | 7,489 | ||||||||||||
Fixed maturities, FVO |
649 | | 127 | 522 | ||||||||||||
Equity securities, trading |
32,820 | 2,279 | 30,541 | | ||||||||||||
Equity securities, AFS |
973 | 298 | 521 | 154 | ||||||||||||
Derivative assets |
||||||||||||||||
Credit derivatives |
3 | | (18 | ) | 21 | |||||||||||
Equity derivatives |
2 | | | 2 | ||||||||||||
Foreign exchange derivatives |
868 | | 868 | | ||||||||||||
Interest rate derivatives |
(106 | ) | | (70 | ) | (36 | ) | |||||||||
Other derivative contracts |
32 | | | 32 | ||||||||||||
Total derivative assets [1] |
799 | | 780 | 19 | ||||||||||||
Short-term investments |
8,528 | 541 | 7,987 | | ||||||||||||
Separate account assets [2] |
153,727 | 116,717 | 35,763 | 1,247 | ||||||||||||
Total assets accounted for at fair value on a recurring basis |
$ | 275,316 | $ | 120,269 | $ | 145,616 | $ | 9,431 | ||||||||
Percentage of level to total |
100 | % | 44 | % | 53 | % | 3 | % | ||||||||
Liabilities accounted for at fair value on a recurring basis |
||||||||||||||||
Other policyholder funds and benefits payable |
||||||||||||||||
Equity linked notes |
$ | (9 | ) | $ | | $ | | $ | (9 | ) | ||||||
Derivative liabilities |
||||||||||||||||
Credit derivatives |
(482 | ) | | (71 | ) | (411 | ) | |||||||||
Equity derivatives |
2 | | | 2 | ||||||||||||
Foreign exchange derivatives |
(34 | ) | | (34 | ) | | ||||||||||
Interest rate derivatives |
(266 | ) | | (249 | ) | (17 | ) | |||||||||
Total derivative liabilities [3] |
(780 | ) | | (354 | ) | (426 | ) | |||||||||
Other liabilities |
(37 | ) | | | (37 | ) | ||||||||||
Consumer notes [4] |
(5 | ) | | | (5 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring
basis |
$ | (831 | ) | $ | | $ | (354 | ) | $ | (477 | ) | |||||
[1] | Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral
to the Company. As of December 31, 2010, $968 of cash collateral liability was netted against the derivative asset value in the
Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. |
|
[2] | As of December 31, 2010, excludes approximately $6 billion of investment sales receivable that are not subject to fair value accounting. |
|
[3] | Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3
roll-forward table included below in this Note 4, the derivative asset and liability are referred to as freestanding derivatives and
are presented on a net basis. |
|
[4] | Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes. |
20
21
Level 2
|
The fair values of most of the Companys Level 2 investments are
determined by management after considering prices received from third
party pricing services. These investments include most fixed maturities
and preferred stocks, including those reported in separate account
assets. |
| ABS, CDOs, CMBS and RMBS Primary inputs also include monthly payment
information, collateral performance, which varies by vintage year and includes
delinquency rates, collateral valuation loss severity rates, collateral refinancing
assumptions, credit default swap indices and, for ABS and RMBS, estimated prepayment
rates. |
||
| Corporates Primary inputs also include observations of credit default swap
curves related to the issuer. |
||
| Foreign government/government agencies - Primary inputs also include observations
of credit default swap curves related to the issuer and political events in emerging
markets. |
||
| Municipals Primary inputs also include Municipal Securities Rulemaking Board
reported trades and material event notices, and issuer financial statements. |
||
| Short-term investments Primary inputs also include material event notices and
new issue money market rates. |
||
| Equity securities, trading Consist of investments in mutual funds. Primary
inputs include net asset values obtained from third party pricing services. |
||
| Credit derivatives Significant inputs primarily include the swap yield curve and
credit curves. |
||
| Foreign exchange derivatives Significant inputs primarily include the swap yield
curve, currency spot and forward rates, and cross currency basis curves. |
||
| Interest rate derivatives Significant input is primarily the swap yield curve. |
22
Level 3
|
Most of the Companys securities classified as Level 3 are valued based on brokers prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as bank loans and below investment grade private placement securities. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but also may include the following: |
| Credit derivatives Significant unobservable inputs may include credit
correlation and swap yield curve and credit curve extrapolation beyond observable
limits. |
| Equity derivatives Significant unobservable inputs may include equity
volatility. |
| Interest rate contracts Significant unobservable inputs may include swap yield
curve extrapolation beyond observable limits and interest rate volatility. |
23
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||||||||||
govt./govt. | Total Fixed | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | Maturities, AFS | ||||||||||||||||||||||||
Fair value as of June 30, 2011 |
$ | 452 | $ | 2,575 | $ | 654 | $ | 2,110 | $ | 51 | $ | 280 | $ | 1,114 | $ | 7,236 | ||||||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
(15 | ) | (26 | ) | | (9 | ) | | | | (50 | ) | ||||||||||||||||||||
Included in OCI [2] |
(2 | ) | (34 | ) | (56 | ) | (63 | ) | (1 | ) | 46 | (39 | ) | (149 | ) | |||||||||||||||||
Purchases |
58 | | 25 | 42 | 1 | 85 | | 211 | ||||||||||||||||||||||||
Settlements |
(14 | ) | (50 | ) | (12 | ) | (41 | ) | (1 | ) | | (36 | ) | (154 | ) | |||||||||||||||||
Sales |
(8 | ) | | (2 | ) | (7 | ) | (1 | ) | | | (18 | ) | |||||||||||||||||||
Transfers into Level 3 [3] |
14 | | 45 | 268 | 28 | | 68 | 423 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
(15 | ) | | | (81 | ) | | | | (96 | ) | |||||||||||||||||||||
Fair value as of September 30, 2011 |
$ | 470 | $ | 2,465 | $ | 654 | $ | 2,219 | $ | 77 | $ | 411 | $ | 1,107 | $ | 7,403 | ||||||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2011 [1] |
$ | (15 | ) | $ | (26 | ) | $ | | $ | (9 | ) | $ | | $ | | $ | | $ | (50 | ) | ||||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of June 30, 2011 |
$ | 556 | $ | 100 | $ | (402 | ) | $ | 6 | $ | 7 | $ | 30 | $ | (359 | ) | $ | 1,068 | ||||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
(24 | ) | | (142 | ) | 5 | (16 | ) | (1 | ) | (154 | ) | 11 | |||||||||||||||||||
Included in OCI [2] |
| (6 | ) | | | | | | | |||||||||||||||||||||||
Purchases |
| | | 25 | | | 25 | 131 | ||||||||||||||||||||||||
Settlements |
(1 | ) | | 1 | | | | 1 | | |||||||||||||||||||||||
Sales |
(39 | ) | (1 | ) | | | | | | (11 | ) | |||||||||||||||||||||
Transfers into Level 3 [3] |
| | | | | | | 1 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
| | | | | | | (16 | ) | |||||||||||||||||||||||
Fair value as of September 30, 2011 |
$ | 492 | $ | 93 | $ | (543 | ) | $ | 36 | $ | (9 | ) | $ | 29 | $ | (487 | ) | $ | 1,184 | |||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2011 [1] |
$ | (24 | ) | $ | | $ | (140 | ) | $ | 5 | $ | (16 | ) | $ | (1 | ) | $ | (152 | ) | $ | 8 | |||||||||||
Liabilities | Equity Linked Notes | Other Liabilities | Consumer Notes | |||||||||
Fair value as of June 30, 2011 |
$ | (10 | ) | $ | (44 | ) | $ | (4 | ) | |||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1] |
4 | 31 | | |||||||||
Fair value as of September 30, 2011 |
$ | (6 | ) | $ | (13 | ) | $ | (4 | ) | |||
Changes in unrealized gains
(losses) included in net income related
to financial instruments still held at
September 30, 2011 [1] |
$ | 4 | $ | 31 | $ | | ||||||
24
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of January 1, 2011 |
$ | 477 | $ | 2,581 | $ | 689 | $ | 2,129 | $ | 56 | $ | 272 | $ | 1,285 | $ | 7,489 | ||||||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
(21 | ) | (41 | ) | 11 | (37 | ) | | | (9 | ) | (97 | ) | |||||||||||||||||||
Included in OCI [2] |
35 | 89 | 91 | (44 | ) | | 55 | (14 | ) | 212 | ||||||||||||||||||||||
Purchases |
58 | | 25 | 94 | 3 | 85 | 25 | 290 | ||||||||||||||||||||||||
Settlements |
(32 | ) | (128 | ) | (42 | ) | (114 | ) | (3 | ) | | (103 | ) | (422 | ) | |||||||||||||||||
Sales |
(10 | ) | (66 | ) | (317 | ) | (141 | ) | (6 | ) | (2 | ) | (16 | ) | (558 | ) | ||||||||||||||||
Transfers into Level 3 [3] |
82 | 30 | 197 | 541 | 39 | 4 | 82 | 975 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
(119 | ) | | | (209 | ) | (12 | ) | (3 | ) | (143 | ) | (486 | ) | ||||||||||||||||||
Fair value as of September 30, 2011 |
$ | 470 | $ | 2,465 | $ | 654 | $ | 2,219 | $ | 77 | $ | 411 | $ | 1,107 | $ | 7,403 | ||||||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2011 [1] |
$ | (21 | ) | $ | (41 | ) | $ | 11 | $ | (37 | ) | $ | | $ | | $ | (9 | ) | $ | (97 | ) | |||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of January 1, 2011 |
$ | 522 | $ | 154 | $ | (390 | ) | $ | 4 | $ | (53 | ) | $ | 32 | $ | (407 | ) | $ | 1,247 | |||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
12 | (10 | ) | (148 | ) | 7 | (21 | ) | (3 | ) | (165 | ) | 35 | |||||||||||||||||||
Included in OCI [2] |
| (5 | ) | | | | | | | |||||||||||||||||||||||
Purchases |
| 37 | 1 | 25 | 64 | 90 | 165 | |||||||||||||||||||||||||
Settlements |
(3 | ) | | | | | | | | |||||||||||||||||||||||
Sales |
(39 | ) | (2 | ) | (6 | ) | | 1 | | (5 | ) | (180 | ) | |||||||||||||||||||
Transfers into Level 3 [3] |
| | | | | | | 13 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
| (81 | ) | | | | | | (96 | ) | ||||||||||||||||||||||
Fair value as of September 30, 2011 |
$ | 492 | $ | 93 | $ | (543 | ) | $ | 36 | $ | (9 | ) | $ | 29 | $ | (487 | ) | $ | 1,184 | |||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2011 [1] |
$ | 12 | $ | (11 | ) | $ | (148 | ) | $ | 7 | $ | (19 | ) | $ | (3 | ) | $ | (163 | ) | $ | 9 | |||||||||||
Liabilities | Equity Linked Notes | Other Liabilities | Consumer Notes | |||||||||
Fair value as of January 1, 2011 |
$ | (9 | ) | $ | (37 | ) | $ | (5 | ) | |||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1] |
3 | 24 | 1 | |||||||||
Settlements |
| |||||||||||
Fair value as of September 30, 2011 |
$ | (6 | ) | $ | (13 | ) | $ | (4 | ) | |||
Changes in unrealized gains
(losses) included in net income related
to financial instruments still held at
September 30, 2011 [1] |
$ | 3 | $ | 24 | $ | 1 | ||||||
25
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./ govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of June 30, 2010 |
$ | 548 | $ | 2,778 | $ | 652 | $ | 8,816 | $ | 51 | $ | 317 | $ | 1,466 | $ | 14,628 | ||||||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
(6 | ) | (45 | ) | (23 | ) | (10 | ) | | 1 | (4 | ) | (87 | ) | ||||||||||||||||||
Included in OCI [2] |
28 | 110 | 58 | 74 | 1 | 14 | 56 | 341 | ||||||||||||||||||||||||
Purchases, issuances, and settlements |
(26 | ) | (110 | ) | (32 | ) | (140 | ) | (1 | ) | (30 | ) | (243 | ) | (582 | ) | ||||||||||||||||
Transfers into Level 3 [3] |
| 15 | 36 | 5 | | 11 | | 67 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
(35 | ) | (192 | ) | (78 | ) | (6,635 | ) | | (24 | ) | (3 | ) | (6,967 | ) | |||||||||||||||||
Fair value as of September 30, 2010 |
$ | 509 | $ | 2,556 | $ | 613 | $ | 2,110 | $ | 51 | $ | 289 | $ | 1,272 | $ | 7,400 | ||||||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | | $ | (47 | ) | $ | (34 | ) | $ | (11 | ) | $ | | $ | | $ | (4 | ) | $ | (96 | ) | |||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of June 30, 2010 |
$ | | $ | 80 | $ | (533 | ) | $ | | $ | (49 | ) | $ | 35 | $ | (547 | ) | $ | 937 | |||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
48 | | 80 | 4 | | (1 | ) | 83 | 13 | |||||||||||||||||||||||
Included in OCI [2] |
| (1 | ) | | | | | | | |||||||||||||||||||||||
Purchases, issuances, and settlements |
(1 | ) | 7 | (3 | ) | | | | (3 | ) | 72 | |||||||||||||||||||||
Transfers into Level 3 [3] |
453 | 14 | | | | | | 61 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
| | | | | | | (6 | ) | |||||||||||||||||||||||
Fair value as of September 30, 2010 |
$ | 500 | $ | 100 | $ | (456 | ) | $ | 4 | $ | (49 | ) | $ | 34 | $ | (467 | ) | $ | 1,077 | |||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | 48 | $ | | $ | 79 | $ | 4 | $ | 1 | $ | (1 | ) | $ | 83 | $ | 9 | |||||||||||||||
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||
Total Other | ||||||||||||||||||||
Institutional | Equity Linked | Policyholder Funds | ||||||||||||||||||
Liabilities | Notes | Notes | and Benefits Payable | Other Liabilities | Consumer Notes | |||||||||||||||
Fair value as of June 30, 2010 |
$ | 2 | $ | (7 | ) | $ | (5 | ) | $ | (16 | ) | $ | (4 | ) | ||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||
Included in net income [1] |
1 | (1 | ) | | (14 | ) | | |||||||||||||
Fair Value as of September 30, 2010 |
$ | 3 | $ | (8 | ) | $ | (5 | ) | $ | (30 | ) | $ | (4 | ) | ||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | 1 | $ | (1 | ) | $ | | $ | | $ | | |||||||||
26
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./ govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of January 1, 2010 |
$ | 580 | $ | 2,835 | $ | 307 | $ | 8,027 | $ | 93 | $ | 262 | $ | 1,153 | $ | 13,257 | ||||||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
(9 | ) | (130 | ) | (137 | ) | (2 | ) | | 1 | (38 | ) | (315 | ) | ||||||||||||||||||
Included in OCI [2] |
71 | 430 | 333 | 306 | 3 | 48 | 220 | 1,411 | ||||||||||||||||||||||||
Purchases, issuances, and settlements |
(49 | ) | (177 | ) | (55 | ) | 137 | (9 | ) | (5 | ) | (37 | ) | (195 | ) | |||||||||||||||||
Transfers into Level 3 [3] |
28 | 42 | 302 | 515 | 6 | 11 | | 904 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] |
(112 | ) | (444 | ) | (137 | ) | (6,873 | ) | (42 | ) | (28 | ) | (26 | ) | (7,662 | ) | ||||||||||||||||
Fair value as of September 30, 2010 |
$ | 509 | $ | 2,556 | $ | 613 | $ | 2,110 | $ | 51 | $ | 289 | $ | 1,272 | $ | 7,400 | ||||||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | (2 | ) | $ | (137 | ) | $ | (108 | ) | $ | (4 | ) | $ | | $ | | $ | (33 | ) | $ | (284 | ) | ||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of January 1, 2010 |
$ | | $ | 58 | $ | (228 | ) | $ | (2 | ) | $ | 5 | $ | 36 | $ | (189 | ) | $ | 962 | |||||||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||||||||||||||
Included in net income [1] |
48 | (2 | ) | 60 | 6 | 1 | (2 | ) | 65 | 29 | ||||||||||||||||||||||
Included in OCI [2] |
| 8 | | | | | | | ||||||||||||||||||||||||
Purchases, issuances, and settlements |
(1 | ) | 16 | 2 | | (44 | ) | | (42 | ) | 154 | |||||||||||||||||||||
Transfers into Level 3 [3] |
453 | 20 | (290 | ) | | | | (290 | ) | 65 | ||||||||||||||||||||||
Transfers out of Level 3 [3] |
| | | | (11 | ) | | (11 | ) | (133 | ) | |||||||||||||||||||||
Fair value as of September 30, 2010 |
$ | 500 | $ | 100 | $ | (456 | ) | $ | 4 | $ | (49 | ) | $ | 34 | $ | (467 | ) | $ | 1,077 | |||||||||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | 48 | $ | (5 | ) | $ | 59 | $ | 6 | $ | (19 | ) | $ | (2 | ) | $ | 44 | $ | 21 | |||||||||||||
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||
Total Other | ||||||||||||||||||||
Institutional | Equity Linked | Policyholder Funds | ||||||||||||||||||
Liabilities | Notes | Notes | and Benefits Payable | Other Liabilities | Consumer Notes | |||||||||||||||
Fair value as of January 1, 2010 |
$ | (2 | ) | $ | (10 | ) | $ | (12 | ) | $ | | $ | (5 | ) | ||||||
Total realized/unrealized gains (losses) |
||||||||||||||||||||
Included in net income [1] |
5 | 2 | 7 | (19 | ) | 1 | ||||||||||||||
Transfers into Level 3 [3] |
| | | (11 | ) | | ||||||||||||||
Fair Value as of September 30, 2010 |
$ | 3 | $ | (8 | ) | $ | (5 | ) | $ | (30 | ) | $ | (4 | ) | ||||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2010 [1] |
$ | 5 | $ | 2 | $ | 7 | $ | | $ | 1 | ||||||||||
[1] | All amounts in these rows are reported in net realized capital
gains/losses. The realized/unrealized gains (losses) included in net
income for separate account assets are offset by an equal amount for
separate account liabilities, which results in a net zero impact on
net income for the Company. All amounts are before income taxes and
amortization DAC. |
|
[2] | All amounts are before income taxes and amortization of DAC. |
|
[3] | Transfers in and/or (out) of Level 3 are primarily attributable to the
availability of market observable information and the re-evaluation of
the observability of pricing inputs. |
|
[4] | Derivative instruments are reported in this table on a net basis for
asset/(liability) positions and reported in the Condensed Consolidated
Balance Sheet in other investments and other liabilities. |
27
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Assets |
||||||||||||||||
Fixed maturities, FVO |
||||||||||||||||
ABS |
$ | | $ | 1 | $ | | $ | 3 | ||||||||
CRE CDOs |
(64 | ) | 44 | (43 | ) | 44 | ||||||||||
Corporate |
(3 | ) | 4 | 11 | | |||||||||||
Foreign government |
33 | | 44 | | ||||||||||||
Other liabilities |
||||||||||||||||
Credit-linked notes |
31 | (14 | ) | 24 | (19 | ) | ||||||||||
Total realized capital gains (losses) |
$ | (3 | ) | $ | 35 | $ | 36 | $ | 28 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Assets |
||||||||
Fixed maturities, FVO |
||||||||
ABS |
$ | 65 | $ | 65 | ||||
CRE CDOs |
225 | 270 | ||||||
Corporate |
268 | 250 | ||||||
Foreign government |
765 | 64 | ||||||
Total fixed maturities, FVO |
$ | 1,323 | $ | 649 | ||||
Other liabilities |
||||||||
Credit-linked notes [1] |
$ | 13 | $ | 37 | ||||
[1] | As of September 30, 2011 and December 31, 2010, the outstanding principal balance of
the notes was $243. |
28
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets |
||||||||||||||||
Mortgage loans |
$ | 5,590 | $ | 5,905 | $ | 4,489 | $ | 4,524 | ||||||||
Policy loans |
2,176 | 2,335 | 2,181 | 2,294 | ||||||||||||
Liabilities |
||||||||||||||||
Other policyholder funds and benefits payable [1] |
$ | 11,001 | $ | 11,296 | $ | 11,155 | $ | 11,383 | ||||||||
Senior notes [2] |
4,880 | 4,898 | 4,880 | 5,072 | ||||||||||||
Junior subordinated debentures [2] |
1,737 | 2,265 | 1,727 | 2,596 | ||||||||||||
Consumer notes [3] |
345 | 359 | 377 | 392 |
[1] | Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including
corporate owned life insurance. |
|
[2] | Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are
included in short-term debt. |
|
[3] | Excludes amounts carried at fair value and included in disclosures above. |
| Fair values for mortgage loans were estimated using discounted cash flow calculations based
on current lending rates for similar type loans. Current lending rates reflect changes in
credit spreads and the remaining terms of the loans. |
| Fair value for policy loans and consumer notes were estimated using discounted cash flow
calculations using current interest rates. |
| Fair values for other policyholder funds and benefits payable, not carried at fair value,
are determined by estimating future cash flows, discounted at the current market rate. |
| Fair values for senior notes and junior subordinated debentures are based primarily on
market quotations from independent third-party pricing services. |
29
September 30, 2011 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis |
||||||||||||||||
Variable annuity hedging derivatives |
$ | 906 | $ | | $ | 2 | $ | 904 | ||||||||
Macro hedge program |
865 | | 434 | 431 | ||||||||||||
Reinsurance recoverable for U.S. GMWB |
485 | | | 485 | ||||||||||||
Total assets accounted for at fair value on a recurring basis |
$ | 2,256 | $ | | $ | 436 | $ | 1,820 | ||||||||
Liabilities accounted for at fair value on a recurring basis |
||||||||||||||||
Other policyholder funds and benefits payable |
||||||||||||||||
U.S. guaranteed withdrawal benefits |
$ | (2,771 | ) | $ | | $ | | $ | (2,771 | ) | ||||||
International guaranteed withdrawal benefits |
(81 | ) | | | (81 | ) | ||||||||||
International other guaranteed living benefits |
(6 | ) | | | (6 | ) | ||||||||||
Variable annuity hedging derivatives |
155 | | (2 | ) | 157 | |||||||||||
Macro hedge program |
210 | | 219 | (9 | ) | |||||||||||
Total liabilities accounted for at fair value on a recurring
basis |
$ | (2,493 | ) | $ | | $ | 217 | $ | (2,710 | ) | ||||||
December 31, 2010 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis |
||||||||||||||||
Variable annuity hedging derivatives |
$ | 339 | $ | | $ | (122 | ) | $ | 461 | |||||||
Macro hedge program |
386 | 2 | 176 | 208 | ||||||||||||
Reinsurance recoverable for U.S. GMWB |
280 | | | 280 | ||||||||||||
Total assets accounted for at fair value on a recurring basis |
$ | 1,005 | $ | 2 | $ | 54 | $ | 949 | ||||||||
Liabilities accounted for at fair value on a recurring basis |
||||||||||||||||
Other policyholder funds and benefits payable |
||||||||||||||||
U.S. guaranteed withdrawal benefits |
$ | (1,611 | ) | $ | | $ | | $ | (1,611 | ) | ||||||
International guaranteed withdrawal benefits |
(36 | ) | | | (36 | ) | ||||||||||
International other guaranteed living benefits |
3 | | | 3 | ||||||||||||
Variable annuity hedging derivatives |
128 | | (11 | ) | 139 | |||||||||||
Macro hedge program |
(2 | ) | (2 | ) | | | ||||||||||
Total liabilities accounted for at fair value on a recurring
basis |
$ | (1,518 | ) | $ | (2 | ) | $ | (11 | ) | $ | (1,505 | ) | ||||
30
| 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 indices compared to separate account fund regression. |
31
32
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of June 30, 2011 |
$ | (119 | ) | $ | 548 | $ | 429 | |||||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1],[2],[6] |
235 | 516 | 751 | |||||||||
Settlements[3] |
(116 | ) | (3 | ) | (119 | ) | ||||||
Fair value as of September 30, 2011 |
$ | | $ | 1,061 | $ | 1,061 | ||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [1], [2], [4] |
$ | 510 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset (liability) | for GMWB | Benefits Level 3 | Benefits Level 3 | Derivatives | ||||||||||||
Fair value as of June 30, 2011 |
$ | 237 | $ | (1,420 | ) | $ | (30 | ) | $ | (784 | ) | |||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
241 | (1,315 | ) | (49 | ) | (372 | ) | |||||||||
Settlements[3] |
7 | (36 | ) | (2 | ) | (150 | ) | |||||||||
Fair value as of September 30, 2011 |
$ | 485 | $ | (2,771 | ) | $ | (81 | ) | $ | (1,306 | ) | |||||
Changes in unrealized gains (losses)
included in net income related to
financial instruments still held at
September 30, 2011 [1], [2], [4] |
$ | 241 | $ | (1,315 | ) | $ | (49 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits Level 3 | ||||||||||||
Fair value as of June 30, 2011 |
$ | 214 | $ | 257 | $ | 471 | $ | | ||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
1,072 | 165 | 1,237 | (5 | ) | |||||||||||
Purchases [3] |
119 | | 119 | | ||||||||||||
Settlements[3] |
(752 | ) | | (752 | ) | (1 | ) | |||||||||
Fair value as of September 30, 2011 |
$ | 653 | $ | 422 | $ | 1,075 | $ | (6 | ) | |||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [1], [2], [4] |
$ | 165 | $ | (5 | ) | |||||||||||
33
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of January 1, 2011 |
$ | (133 | ) | $ | 600 | $ | 467 | |||||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1],[2],[6] |
110 | 457 | 567 | |||||||||
Purchases [3] |
| 23 | 23 | |||||||||
Settlements[3] |
23 | (19 | ) | 4 | ||||||||
Fair value as of September 30, 2011 |
$ | | $ | 1,061 | $ | 1,061 | ||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [1], [2], [4] |
$ | 449 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset (liability) | for GMWB | Benefits Level 3 | Benefits Level 3 | Derivatives | ||||||||||||
Fair value as of January 1, 2011 |
$ | 280 | $ | (1,611 | ) | $ | (36 | ) | $ | (900 | ) | |||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
180 | (1,047 | ) | (38 | ) | (338 | ) | |||||||||
Purchases [3] |
| | | 23 | ||||||||||||
Settlements[3] |
25 | (113 | ) | (7 | ) | (91 | ) | |||||||||
Fair value as of September 30, 2011 |
$ | 485 | $ | (2,771 | ) | $ | (81 | ) | $ | (1,306 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [1], [2], [4] |
$ | 180 | $ | (1,047 | ) | $ | (38 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits Level 3 | ||||||||||||
Fair value as of January 1, 2011 |
$ | 176 | $ | 208 | $ | 384 | $ | 3 | ||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
851 | 64 | 915 | (6 | ) | |||||||||||
Purchases [3] |
218 | 185 | 403 | | ||||||||||||
Settlements[3] |
(592 | ) | (35 | ) | (627 | ) | (3 | ) | ||||||||
Fair value as of September 30, 2011 |
$ | 653 | $ | 422 | $ | 1,075 | $ | (6 | ) | |||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [1], [2], [4] |
$ | 80 | $ | (6 | ) | |||||||||||
34
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of June 30, 2010 |
$ | (91 | ) | $ | 928 | $ | 837 | |||||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1],[2],[6] |
(89 | ) | (295 | ) | (384 | ) | ||||||
Purchases, issuances, and settlements [3] |
134 | (73 | ) | 61 | ||||||||
Fair value as of September 30, 2010 |
$ | (46 | ) | $ | 560 | $ | 514 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2],[4] |
$ | (241 | ) | |||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset (liability) | for GMWB | Benefits Level 3 | Benefits Level 3 | Derivatives | ||||||||||||
Fair value as of June 30, 2010 |
$ | 550 | $ | (3,148 | ) | $ | (72 | ) | $ | (1,833 | ) | |||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
(101 | ) | 639 | 16 | 170 | |||||||||||
Included in OCI [2] |
| | (4 | ) | (4 | ) | ||||||||||
Purchases, issuances, and settlements [3] |
9 | (32 | ) | (4 | ) | 34 | ||||||||||
Fair value as of September 30, 2010 |
$ | 458 | $ | (2,541 | ) | $ | (64 | ) | $ | (1,633 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2], [4] |
$ | (101 | ) | $ | 639 | $ | 16 | |||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits Level 3 | ||||||||||||
Fair Value as of June 30, 2010 |
$ | 190 | $ | 663 | $ | 853 | $ | (1 | ) | |||||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
(165 | ) | (278 | ) | (443 | ) | 3 | |||||||||
Purchases, issuances, and settlements [3] |
161 | 27 | 188 | (1 | ) | |||||||||||
Fair value as of September 30, 2010 |
$ | 186 | $ | 412 | $ | 598 | $ | 1 | ||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2],[4] |
$ | (278 | ) | $ | 3 | |||||||||||
35
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of January 1, 2010 |
$ | (184 | ) | $ | 236 | $ | 52 | |||||
Total realized/unrealized gains (losses) |
||||||||||||
Included in net income [1],[2],[6] |
34 | 244 | 278 | |||||||||
Purchases, issuances, and settlements [3] |
104 | 80 | 184 | |||||||||
Fair value as of September 30, 2010 |
$ | (46 | ) | $ | 560 | $ | 514 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2],[4] |
$ | 261 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset (liability) | for GMWB | Benefits Level 3 | Benefits Level 3 | Derivatives | ||||||||||||
Fair value as of January 1, 2010 |
$ | 347 | $ | (1,957 | ) | $ | (45 | ) | $ | (1,603 | ) | |||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
84 | (481 | ) | (8 | ) | (127 | ) | |||||||||
Included in OCI [2] |
| | (4 | ) | (4 | ) | ||||||||||
Purchases, issuances, and settlements [3] |
27 | (103 | ) | (7 | ) | 101 | ||||||||||
Fair value as of September 30, 2010 |
$ | 458 | $ | (2,541 | ) | $ | (64 | ) | $ | (1,633 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2], [4] |
$ | 84 | $ | (481 | ) | $ | (8 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset (liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits Level 3 | ||||||||||||
Fair Value as of January 1, 2010 |
$ | 28 | $ | 290 | $ | 318 | $ | 2 | ||||||||
Total realized/unrealized gains (losses) |
||||||||||||||||
Included in net income [1],[2],[6] |
(73 | ) | (137 | ) | (210 | ) | 1 | |||||||||
Purchases, issuances, and settlements [3] |
231 | 259 | 490 | (2 | ) | |||||||||||
Fair value as of September 30, 2010 |
$ | 186 | $ | 412 | $ | 598 | $ | 1 | ||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [1], [2],[4] |
$ | (117 | ) | $ | 1 | |||||||||||
[1] | The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as
unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract
basis the realized gains (losses) for these derivatives and embedded derivatives. |
|
[2] | All amounts are before income taxes and amortization of DAC. |
|
[3] | The Purchases, issuances, and settlements primarily relates to the payment and receipt of cash on futures and option contracts
classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. As of January 1, 2011, for
GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid
and the attributed fees collected, respectively. |
|
[4] | Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only. |
|
[5] | The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for
asset (liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities. |
|
[6] | Includes both market and non-market impacts in deriving realized and unrealized gains (losses). |
36
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
OTTI losses recognized in OCI |
$ | (11 | ) | $ | (31 | ) | $ | (83 | ) | $ | (403 | ) | ||||
Changes in fair value and/or sales |
21 | 114 | 88 | 591 | ||||||||||||
Tax and deferred acquisition costs |
| (39 | ) | 6 | (91 | ) | ||||||||||
Change in non-credit impairments recognized in OCI |
$ | 10 | $ | 44 | $ | 11 | $ | 97 | ||||||||
37
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Gross gains on sales |
$ | 197 | $ | 179 | $ | 519 | $ | 654 | ||||||||
Gross losses on sales |
(63 | ) | (88 | ) | (294 | ) | (293 | ) | ||||||||
Net OTTI losses recognized in earnings |
(60 | ) | (115 | ) | (138 | ) | (375 | ) | ||||||||
Valuation allowances on mortgage loans |
| (4 | ) | 23 | (156 | ) | ||||||||||
Japanese fixed annuity contract hedges, net [1] |
9 | 11 | (2 | ) | 22 | |||||||||||
Periodic net coupon settlements on credit derivatives/Japan |
1 | (4 | ) | (8 | ) | (15 | ) | |||||||||
Results of variable annuity hedge program |
||||||||||||||||
GMWB derivatives, net |
(372 | ) | 170 | (338 | ) | (127 | ) | |||||||||
Macro hedge program |
1,237 | (443 | ) | 915 | (210 | ) | ||||||||||
Total results of variable annuity hedge program |
865 | (273 | ) | 577 | (337 | ) | ||||||||||
Other, net [2] |
(374 | ) | 37 | (436 | ) | (22 | ) | |||||||||
Net realized capital gains (losses) |
$ | 575 | $ | (257 | ) | $ | 241 | $ | (522 | ) | ||||||
[1] | Relates to the Japanese fixed annuity product (adjustment of
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-qualifying
derivatives and fixed maturities, FVO, Japan 3Win related
foreign currency swaps, and other investment gains and losses. |
38
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Balance as of beginning of period |
$ | (1,933 | ) | $ | (2,281 | ) | $ | (2,072 | ) | $ | (2,200 | ) | ||||
Additions for credit impairments recognized on [1]: |
||||||||||||||||
Securities not previously impaired |
(4 | ) | (19 | ) | (40 | ) | (183 | ) | ||||||||
Securities previously impaired |
(38 | ) | (52 | ) | (63 | ) | (143 | ) | ||||||||
Reductions for credit impairments previously recognized on: |
||||||||||||||||
Securities that matured or were sold during the period |
157 | 224 | 349 | 378 | ||||||||||||
Securities due to an increase in expected cash flows |
4 | 10 | 12 | 30 | ||||||||||||
Balance as of end of period |
$ | (1,814 | ) | $ | (2,118 | ) | $ | (1,814 | ) | $ | (2,118 | ) | ||||
[1] | These additions are included in the net OTTI losses recognized in earnings in the Condensed
Consolidated Statements of Operations. |
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||
Cost or | Gross | Gross | Non- | Cost or | Gross | Gross | Non- | |||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Credit | Amortized | Unrealized | Unrealized | Fair | Credit | |||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | OTTI [1] | Cost | Gains | Losses | Value | OTTI [1] | |||||||||||||||||||||||||||||||
ABS |
$ | 3,743 | $ | 81 | $ | (320 | ) | $ | 3,504 | $ | (7 | ) | $ | 3,247 | $ | 38 | $ | (396 | ) | $ | 2,889 | $ | (2 | ) | ||||||||||||||||
CDOs |
2,851 | 1 | (387 | ) | 2,465 | (50 | ) | 3,088 | 1 | (478 | ) | 2,611 | (82 | ) | ||||||||||||||||||||||||||
CMBS |
7,252 | 242 | (534 | ) | 6,960 | (27 | ) | 8,297 | 235 | (615 | ) | 7,917 | (9 | ) | ||||||||||||||||||||||||||
Corporate [2] |
40,659 | 3,487 | (747 | ) | 43,316 | | 38,496 | 2,174 | (747 | ) | 39,884 | 7 | ||||||||||||||||||||||||||||
Foreign govt./govt. agencies |
1,836 | 121 | (13 | ) | 1,944 | | 1,627 | 73 | (17 | ) | 1,683 | | ||||||||||||||||||||||||||||
Municipal |
12,578 | 656 | (70 | ) | 13,164 | | 12,469 | 150 | (495 | ) | 12,124 | | ||||||||||||||||||||||||||||
RMBS |
5,566 | 222 | (452 | ) | 5,336 | (121 | ) | 6,036 | 109 | (462 | ) | 5,683 | (124 | ) | ||||||||||||||||||||||||||
U.S. Treasuries |
3,353 | 224 | (3 | ) | 3,574 | | 5,159 | 24 | (154 | ) | 5,029 | | ||||||||||||||||||||||||||||
Total fixed maturities, AFS |
77,838 | 5,034 | (2,526 | ) | 80,263 | (205 | ) | 78,419 | 2,804 | (3,364 | ) | 77,820 | (210 | ) | ||||||||||||||||||||||||||
Equity securities, AFS |
1,093 | 92 | (196 | ) | 989 | | 1,013 | 92 | (132 | ) | 973 | | ||||||||||||||||||||||||||||
Total AFS securities |
$ | 78,931 | $ | 5,126 | $ | (2,722 | ) | $ | 81,252 | $ | (205 | ) | $ | 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 September 30, 2011 and
December 31, 2010. |
|
[2] | Gross unrealized gains (losses) exclude the change in fair value of
bifurcated embedded derivative features of certain securities.
Subsequent changes in fair value are recorded in net realized capital
gains (losses). |
September 30, 2011 | ||||||||
Contractual Maturity | Amortized Cost | Fair Value | ||||||
One year or less |
$ | 2,623 | $ | 2,651 | ||||
Over one year through five years |
15,991 | 16,708 | ||||||
Over five years through ten years |
14,890 | 15,826 | ||||||
Over ten years |
24,922 | 26,813 | ||||||
Subtotal |
58,426 | 61,998 | ||||||
Mortgage-backed and asset-backed securities |
19,412 | 18,265 | ||||||
Total fixed maturities, AFS |
$ | 77,838 | $ | 80,263 | ||||
39
September 30, 2011 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS |
$ | 450 | $ | 441 | $ | (9 | ) | $ | 1,275 | $ | 964 | $ | (311 | ) | $ | 1,725 | $ | 1,405 | $ | (320 | ) | |||||||||||||||
CDOs |
340 | 313 | (27 | ) | 2,491 | 2,131 | (360 | ) | 2,831 | 2,444 | (387 | ) | ||||||||||||||||||||||||
CMBS |
1,340 | 1,220 | (120 | ) | 2,432 | 2,018 | (414 | ) | 3,772 | 3,238 | (534 | ) | ||||||||||||||||||||||||
Corporate [1] |
4,782 | 4,612 | (161 | ) | 3,352 | 2,692 | (586 | ) | 8,134 | 7,304 | (747 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies |
324 | 316 | (8 | ) | 58 | 53 | (5 | ) | 382 | 369 | (13 | ) | ||||||||||||||||||||||||
Municipal |
352 | 348 | (4 | ) | 914 | 848 | (66 | ) | 1,266 | 1,196 | (70 | ) | ||||||||||||||||||||||||
RMBS |
355 | 340 | (15 | ) | 1,389 | 952 | (437 | ) | 1,744 | 1,292 | (452 | ) | ||||||||||||||||||||||||
U.S. Treasuries |
534 | 532 | (2 | ) | 25 | 24 | (1 | ) | 559 | 556 | (3 | ) | ||||||||||||||||||||||||
Total fixed maturities |
8,477 | 8,122 | (346 | ) | 11,936 | 9,682 | (2,180 | ) | 20,413 | 17,804 | (2,526 | ) | ||||||||||||||||||||||||
Equity securities |
188 | 160 | (28 | ) | 494 | 326 | (168 | ) | 682 | 486 | (196 | ) | ||||||||||||||||||||||||
Total securities in an
unrealized loss |
$ | 8,665 | $ | 8,282 | $ | (374 | ) | $ | 12,430 | $ | 10,008 | $ | (2,348 | ) | $ | 21,095 | $ | 18,290 | $ | (2,722 | ) | |||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS |
$ | 302 | $ | 290 | $ | (12 | ) | $ | 1,410 | $ | 1,026 | $ | (384 | ) | $ | 1,712 | $ | 1,316 | $ | (396 | ) | |||||||||||||||
CDOs |
321 | 293 | (28 | ) | 2,724 | 2,274 | (450 | ) | 3,045 | 2,567 | (478 | ) | ||||||||||||||||||||||||
CMBS |
556 | 530 | (26 | ) | 3,962 | 3,373 | (589 | ) | 4,518 | 3,903 | (615 | ) | ||||||||||||||||||||||||
Corporate [1] |
5,533 | 5,329 | (199 | ) | 4,017 | 3,435 | (548 | ) | 9,550 | 8,764 | (747 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies |
356 | 349 | (7 | ) | 78 | 68 | (10 | ) | 434 | 417 | (17 | ) | ||||||||||||||||||||||||
Municipal |
7,485 | 7,173 | (312 | ) | 1,046 | 863 | (183 | ) | 8,531 | 8,036 | (495 | ) | ||||||||||||||||||||||||
RMBS |
1,744 | 1,702 | (42 | ) | 1,567 | 1,147 | (420 | ) | 3,311 | 2,849 | (462 | ) | ||||||||||||||||||||||||
U.S. Treasuries |
2,436 | 2,321 | (115 | ) | 158 | 119 | (39 | ) | 2,594 | 2,440 | (154 | ) | ||||||||||||||||||||||||
Total fixed maturities |
18,733 | 17,987 | (741 | ) | 14,962 | 12,305 | (2,623 | ) | 33,695 | 30,292 | (3,364 | ) | ||||||||||||||||||||||||
Equity securities |
53 | 52 | (1 | ) | 637 | 506 | (131 | ) | 690 | 558 | (132 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss |
$ | 18,786 | $ | 18,039 | $ | (742 | ) | $ | 15,599 | $ | 12,811 | $ | (2,754 | ) | $ | 34,385 | $ | 30,850 | $ | (3,496 | ) | |||||||||||||||
[1] | Unrealized losses exclude the change in fair value of bifurcated embedded derivative
features of certain securities. Subsequent changes in fair value are recorded in net realized
capital gains (losses). |
40
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Commercial |
$ | 5,601 | $ | (114 | ) | $ | 5,487 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
Residential |
136 | (33 | ) | 103 | 152 | (3 | ) | 149 | ||||||||||||||||
Total mortgage loans |
$ | 5,737 | $ | (147 | ) | $ | 5,590 | $ | 4,644 | $ | (155 | ) | $ | 4,489 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. |
2011 | 2010 | |||||||
Balance as of January 1 |
$ | (155 | ) | $ | (366 | ) | ||
Additions |
(27 | ) | (159 | ) | ||||
Deductions |
35 | 361 | ||||||
Balance as of September 30 |
$ | (147 | ) | $ | (164 | ) | ||
Commercial Mortgage Loans Credit Quality | ||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Avg. Debt-Service | Carrying | Avg. Debt-Service | |||||||||||||
Loan-to-value | Value | Coverage Ratio | Value | Coverage Ratio | ||||||||||||
Greater than 80% |
$ | 841 | 1.39 | x | $ | 1,358 | 1.49 | x | ||||||||
65% - 80% |
2,471 | 1.57 | x | 1,829 | 1.93 | x | ||||||||||
Less than 65% |
2,175 | 2.41 | x | 1,153 | 2.26 | x | ||||||||||
Total commercial mortgage loans |
$ | 5,487 | 1.88 | x | $ | 4,340 | 1.87 | x | ||||||||
41
Mortgage Loans by Region | ||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
East North Central |
$ | 73 | 1.3 | % | $ | 77 | 1.7 | % | ||||||||
Middle Atlantic |
509 | 9.1 | % | 428 | 9.5 | % | ||||||||||
Mountain |
126 | 2.3 | % | 109 | 2.4 | % | ||||||||||
New England |
295 | 5.3 | % | 259 | 5.8 | % | ||||||||||
Pacific |
1,537 | 27.4 | % | 1,147 | 25.6 | % | ||||||||||
South Atlantic |
1,180 | 21.1 | % | 1,177 | 26.3 | % | ||||||||||
West North Central |
31 | 0.6 | % | 36 | 0.8 | % | ||||||||||
West South Central |
224 | 4.0 | % | 231 | 5.1 | % | ||||||||||
Other [1] |
1,615 | 28.9 | % | 1,025 | 22.8 | % | ||||||||||
Total mortgage loans |
$ | 5,590 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
[1] | Primarily represents loans collateralized by multiple properties in various regions. |
Mortgage Loans by Property Type | ||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
Commercial |
||||||||||||||||
Agricultural |
$ | 254 | 4.5 | % | $ | 315 | 7.0 | % | ||||||||
Industrial |
1,704 | 30.5 | % | 1,141 | 25.4 | % | ||||||||||
Lodging |
93 | 1.7 | % | 132 | 2.9 | % | ||||||||||
Multifamily |
1,042 | 18.6 | % | 713 | 15.9 | % | ||||||||||
Office |
979 | 17.5 | % | 986 | 22.1 | % | ||||||||||
Retail |
1,127 | 20.2 | % | 669 | 14.9 | % | ||||||||||
Other |
288 | 5.2 | % | 384 | 8.5 | % | ||||||||||
Residential |
103 | 1.8 | % | 149 | 3.3 | % | ||||||||||
Total mortgage loans |
$ | 5,590 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
42
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Maximum | Maximum | |||||||||||||||||||||||
Total | Total | Exposure | Total | Total | Exposure | |||||||||||||||||||
Assets | Liabilities [1] | to Loss [2] | Assets | Liabilities [1] | to Loss [2] | |||||||||||||||||||
CDOs [3] |
$ | 492 | $ | 461 | $ | 39 | $ | 729 | $ | 393 | $ | 289 | ||||||||||||
Limited partnerships |
7 | | 7 | 14 | 1 | 13 | ||||||||||||||||||
Total |
$ | 499 | $ | 461 | $ | 46 | $ | 743 | $ | 394 | $ | 302 | ||||||||||||
[1] | Included in other liabilities in the Companys Condensed Consolidated Balance Sheets. |
|
[2] | The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment
income or as a realized capital loss and is the cost basis of the Companys investment. |
|
[3] | Total assets included in fixed maturities, AFS, and fixed maturities, FVO, in the Companys Condensed Consolidated Balance Sheets. |
43
44
45
Notional Amount | Fair Value | |||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Customized swaps |
$ | 8,225 | $ | 10,113 | $ | 433 | $ | 209 | ||||||||
Equity swaps, options, and futures |
5,026 | 4,943 | 627 | 391 | ||||||||||||
Interest rate swaps and futures |
2,730 | 2,800 | 1 | (133 | ) | |||||||||||
Total |
$ | 15,981 | $ | 17,856 | $ | 1,061 | $ | 467 | ||||||||
Notional Amount | Fair Value | |||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Currency forwards |
$ | 5,049 | $ | 3,232 | $ | 406 | $ | 93 | ||||||||
Currency options [1] |
7,153 | 5,296 | 151 | 62 | ||||||||||||
Equity futures |
4,195 | 1,168 | | | ||||||||||||
Equity options |
6,703 | 13,963 | 468 | 207 | ||||||||||||
Equity swaps |
402 | 369 | (45 | ) | 1 | |||||||||||
Interest rate futures |
695 | | | | ||||||||||||
Interest rate swaps |
5,579 | 2,182 | 95 | 21 | ||||||||||||
Total |
$ | 29,776 | $ | 26,210 | $ | 1,075 | $ | 384 | ||||||||
[1] | As of September 30, 2011, and December 31, 2010, notional amounts include $6.0 and $3.1
billion, respectively, related to long positions and $1.2 billion and $2.2 billion,
respectively, related to short positions. |
46
Net Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||||||
Notional Amount | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||||||||
Sept. 30, | Dec. 31, | Sept. 30, | Dec. 31, | Sept. 30, | Dec. 31, | Sept. 30, | Dec. 31, | |||||||||||||||||||||||||
Hedge Designation/ Derivative Type | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
Cash flow hedges |
||||||||||||||||||||||||||||||||
Interest rate swaps |
$ | 9,458 | $ | 10,290 | $ | 432 | $ | 115 | $ | 432 | $ | 188 | $ | | $ | (73 | ) | |||||||||||||||
Foreign currency swaps |
302 | 335 | 7 | 6 | 34 | 29 | (27 | ) | (23 | ) | ||||||||||||||||||||||
Total cash flow hedges |
9,760 | 10,625 | 439 | 121 | 466 | 217 | (27 | ) | (96 | ) | ||||||||||||||||||||||
Fair value hedges |
||||||||||||||||||||||||||||||||
Interest rate swaps |
944 | 1,120 | (86 | ) | (46 | ) | 2 | 5 | (88 | ) | (51 | ) | ||||||||||||||||||||
Foreign currency swaps |
677 | 677 | (23 | ) | (12 | ) | 74 | 71 | (97 | ) | (83 | ) | ||||||||||||||||||||
Total fair value hedges |
1,621 | 1,797 | (109 | ) | (58 | ) | 76 | 76 | (185 | ) | (134 | ) | ||||||||||||||||||||
Non-qualifying strategies |
||||||||||||||||||||||||||||||||
Interest rate contracts |
||||||||||||||||||||||||||||||||
Interest rate swaps, swaptions, caps, floors, and futures |
9,541 | 7,938 | (389 | ) | (441 | ) | 699 | 126 | (1,088 | ) | (567 | ) | ||||||||||||||||||||
Foreign exchange contracts |
||||||||||||||||||||||||||||||||
Foreign currency swaps and forwards |
358 | 368 | (8 | ) | (18 | ) | 2 | 1 | (10 | ) | (19 | ) | ||||||||||||||||||||
Japan 3Win foreign currency swaps |
2,285 | 2,285 | 191 | 177 | 191 | 177 | | | ||||||||||||||||||||||||
Japanese fixed annuity hedging instruments |
2,016 | 2,119 | 544 | 608 | 566 | 608 | (22 | ) | | |||||||||||||||||||||||
Japanese variable annuity hedging instruments |
2,977 | 1,720 | 1 | 73 | 66 | 74 | (65 | ) | (1 | ) | ||||||||||||||||||||||
Credit contracts |
||||||||||||||||||||||||||||||||
Credit derivatives that purchase credit protection |
1,581 | 2,559 | 50 | (9 | ) | 74 | 29 | (24 | ) | (38 | ) | |||||||||||||||||||||
Credit derivatives that assume credit risk [1] |
2,355 | 2,569 | (639 | ) | (434 | ) | 2 | 8 | (641 | ) | (442 | ) | ||||||||||||||||||||
Credit derivatives in offsetting positions |
8,318 | 8,367 | (63 | ) | (75 | ) | 216 | 98 | (279 | ) | (173 | ) | ||||||||||||||||||||
Equity contracts |
||||||||||||||||||||||||||||||||
Equity index swaps, options and futures |
1,329 | 189 | 27 | (10 | ) | 36 | 5 | (9 | ) | (15 | ) | |||||||||||||||||||||
Variable annuity hedge program |
||||||||||||||||||||||||||||||||
GMWB product derivatives [2] |
38,318 | 42,739 | (2,852 | ) | (1,647 | ) | | | (2,852 | ) | (1,647 | ) | ||||||||||||||||||||
GMWB reinsurance contracts |
7,519 | 8,767 | 485 | 280 | 485 | 280 | | | ||||||||||||||||||||||||
GMWB hedging instruments |
15,981 | 17,856 | 1,061 | 467 | 1,180 | 647 | (119 | ) | (180 | ) | ||||||||||||||||||||||
Macro hedge program |
29,776 | 26,210 | 1,075 | 384 | 1,152 | 394 | (77 | ) | (10 | ) | ||||||||||||||||||||||
Other |
||||||||||||||||||||||||||||||||
GMAB product derivatives [2] |
245 | 246 | (6 | ) | 3 | | 3 | (6 | ) | | ||||||||||||||||||||||
Contingent capital facility put option |
500 | 500 | 29 | 32 | 29 | 32 | | | ||||||||||||||||||||||||
Total non-qualifying strategies |
123,099 | 124,432 | (494 | ) | (610 | ) | 4,698 | 2,482 | (5,192 | ) | (3,092 | ) | ||||||||||||||||||||
Total cash flow hedges, fair value hedges, and non-qualifying strategies |
$ | 134,480 | $ | 136,854 | $ | (164 | ) | $ | (547 | ) | $ | 5,240 | $ | 2,775 | $ | (5,404 | ) | $ | (3,322 | ) | ||||||||||||
Balance Sheet Location |
||||||||||||||||||||||||||||||||
Fixed maturities, available-for-sale |
$ | 703 | $ | 728 | $ | (83 | ) | $ | (39 | ) | $ | | $ | | $ | (83 | ) | $ | (39 | ) | ||||||||||||
Other investments |
64,059 | 55,948 | 2,800 | 1,524 | 3,889 | 2,105 | (1,089 | ) | (581 | ) | ||||||||||||||||||||||
Other liabilities |
23,542 | 28,333 | (498 | ) | (654 | ) | 866 | 387 | (1,364 | ) | (1,041 | ) | ||||||||||||||||||||
Consumer notes |
39 | 39 | (4 | ) | (5 | ) | | | (4 | ) | (5 | ) | ||||||||||||||||||||
Reinsurance recoverables |
7,519 | 8,767 | 485 | 280 | 485 | 280 | | | ||||||||||||||||||||||||
Other policyholder funds and benefits payable |
38,618 | 43,039 | (2,864 | ) | (1,653 | ) | | 3 | (2,864 | ) | (1,656 | ) | ||||||||||||||||||||
Total derivatives |
$ | 134,480 | $ | 136,854 | $ | (164 | ) | $ | (547 | ) | $ | 5,240 | $ | 2,775 | $ | (5,404 | ) | $ | (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. |
47
| The GMWB product derivative notional decreased $4.4 billion primarily as a result of
policyholder lapses and withdrawals. |
| The GMWB hedging instruments notional decreased $1.9 billion primarily due to a decrease in
equity markets. |
| The macro hedge program notional increased $3.6 billion primarily due to an increase in the
hedging of Japan variable annuities. The Company increased the notional amount related to
currency forwards, currency options, equity futures, and Yen interest rate swaps. These
increases were partially offset by a decline in S&P index equity options primarily due to the
expiration of certain out of the money options in January of 2011. |
| The fair value related to the macro hedge program increased primarily due to lower equity
market valuation and the Japanese yen strengthening in comparison to the euro. |
| 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. |
| The fair value related to interest rate swaps that qualify for cash flow hedge accounting
increased primarily as a result of declining interest rates. |
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in | ||||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in OCI | Income on Derivative | |||||||||||||||||||||||||||||||||
on Derivative (Effective Portion) | (Ineffective Portion) | |||||||||||||||||||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||
Interest rate swaps |
Net realized capital gains (losses) | $ | 263 | $ | 182 | $ | 345 | $ | 542 | $ | (3 | ) | $ | | $ | (5 | ) | $ | 3 | |||||||||||||||
Foreign currency swaps |
Net realized capital gains | | (15 | ) | | | | | | | ||||||||||||||||||||||||
Total |
$ | 263 | $ | 167 | $ | 345 | $ | 542 | $ | (3 | ) | $ | | $ | (5 | ) | $ | 3 | ||||||||||||||||
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||
Gain (Loss) Reclassified from AOCI into Income | ||||||||||||||||||
(Effective Portion) | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest rate swaps |
Net realized capital gains | $ | 4 | $ | 7 | $ | 8 | $ | 11 | |||||||||
Interest rate swaps |
Net investment income | 33 | 27 | 96 | 61 | |||||||||||||
Foreign currency swaps |
Net realized capital gains (losses) | (9 | ) | 11 | (1 | ) | (5 | ) | ||||||||||
Total |
$ | 28 | $ | 45 | $ | 103 | $ | 67 | ||||||||||
48
Derivatives in Fair Value Hedging Relationships | ||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in Income [1] | ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
Hedge | Hedge | Hedge | Hedge | |||||||||||||||||||||||||||||
Derivative | Item | Derivative | Item | Derivative | Item | Derivative | Item | |||||||||||||||||||||||||
Interest rate swaps |
||||||||||||||||||||||||||||||||
Net realized capital gains (losses) |
$ | (54 | ) | $ | 54 | $ | (25 | ) | $ | 25 | $ | (71 | ) | $ | 71 | $ | (77 | ) | $ | 72 | ||||||||||||
Benefits, losses and loss adjustment expenses |
| | (1 | ) | 2 | | | (3 | ) | 5 | ||||||||||||||||||||||
Foreign currency swaps |
||||||||||||||||||||||||||||||||
Net realized capital gains (losses) |
(28 | ) | 28 | 44 | (44 | ) | 8 | (8 | ) | 4 | (4 | ) | ||||||||||||||||||||
Benefits, losses and loss adjustment expenses |
(5 | ) | 5 | (5 | ) | 5 | (14 | ) | 14 | (6 | ) | 6 | ||||||||||||||||||||
Total |
$ | (87 | ) | $ | 87 | $ | 13 | $ | (12 | ) | $ | (77 | ) | $ | 77 | $ | (82 | ) | $ | 79 | ||||||||||||
[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. |
49
Non-qualifying Strategies | ||||||||||||||||
Gain (Loss) Recognized within Net Realized Capital Gains (Losses) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest rate contracts |
||||||||||||||||
Interest rate swaps, swaptions, caps, floors, futures, and forwards |
$ | (25 | ) | $ | 50 | $ | (24 | ) | $ | 45 | ||||||
Foreign exchange contracts |
||||||||||||||||
Foreign currency swaps, forwards, and swaptions |
19 | (21 | ) | 7 | 8 | |||||||||||
Japan 3Win hedging derivatives [1] |
39 | 84 | 14 | 93 | ||||||||||||
Japanese fixed annuity hedging instruments [2] |
103 | 160 | 98 | 301 | ||||||||||||
Japanese variable annuity hedging instruments |
56 | 15 | | 60 | ||||||||||||
Credit contracts |
||||||||||||||||
Credit derivatives that purchase credit protection |
31 | (34 | ) | 11 | 4 | |||||||||||
Credit derivatives that assume credit risk |
(183 | ) | 113 | (178 | ) | 100 | ||||||||||
Equity contracts |
||||||||||||||||
Equity index swaps, options, and futures |
(56 | ) | 2 | (54 | ) | 7 | ||||||||||
Variable annuity hedge program |
||||||||||||||||
GMWB product derivatives |
(1,364 | ) | 655 | (1,085 | ) | (489 | ) | |||||||||
GMWB reinsurance contracts |
241 | (101 | ) | 180 | 84 | |||||||||||
GMWB hedging instruments |
751 | (384 | ) | 567 | 278 | |||||||||||
Macro hedge program |
1,237 | (443 | ) | 915 | (210 | ) | ||||||||||
Other |
||||||||||||||||
GMAB product derivatives |
(5 | ) | 3 | (6 | ) | 1 | ||||||||||
Contingent capital facility put option |
(1 | ) | (1 | ) | (4 | ) | (3 | ) | ||||||||
Total |
$ | 843 | $ | 98 | $ | 441 | $ | 279 | ||||||||
[1] | The associated liability is adjusted for changes in spot rates
through realized capital gains and was $(93) and $(114) for the
three months ended September 30, 2011 and 2010, respectively, and
$(100) and $(210) for the nine months ended September 30, 2011 and
2010, respectively. |
|
[2] | The associated liability is adjusted for changes in spot rates
through realized capital gains and was $(115) and $(140) for the
three months ended September 30, 2011 and 2010, respectively, and
$(125) and $(258) for the nine months ended September 30, 2011 and
2010, respectively. |
| The net gain associated with the macro hedge program was driven by a lower equity market
valuation and foreign currency movements, primarily the Japanese yen strengthening in
comparison to the euro. |
| 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 loss on credit derivatives that assume credit risk is primarily due to credit spread
widening. |
| The net gain related to the Japanese fixed annuity hedging instruments is primarily due to
the U.S. dollar weakening in comparison to the Japanese yen. |
50
| The net loss associated with the 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
U.S. dollar weakening in comparison to the Japanese yen and a decrease in Japanese interest
rates. |
| The gain for the three months ended September 30, 2010 related to the combined GMWB hedging
program which includes the GMWB product, reinsurance, and hedging derivatives was primarily
driven by liability model assumption updates and lower implied market volatility, partially
offset by losses due to a general decrease in long-term interest rates. The loss for the nine
months ended September 30, 2010 related to the combined GMWB hedging program which includes
the GMWB product, reinsurance, and hedging derivatives was primarily driven by a general
decrease in long-term interest rates, partially offset by gains on liability model assumption
updates. |
| The net gain associated with credit derivatives that assume credit risk was primarily due
to credit spreads tightening. |
| The net gain related to the Japan 3Win hedging derivatives was primarily due to the
strengthening of the Japanese yen in comparison to the U.S. dollar, partially offset by the
decrease in long-term interest rates. |
As of September 30, 2011 | ||||||||||||||||||||||||||
Underlying Referenced | ||||||||||||||||||||||||||
Weighted | Credit Obligation(s) [1] | |||||||||||||||||||||||||
Average | Average | Offsetting | ||||||||||||||||||||||||
Credit Derivative type by derivative | Notional | Fair | Years to | Credit | Notional | Offsetting | ||||||||||||||||||||
risk exposure | Amount [2] | Value | Maturity | Type | Rating | Amount [3] | Fair Value [3] | |||||||||||||||||||
Single name credit default swaps |
||||||||||||||||||||||||||
Investment grade risk exposure |
$ | 1,569 | $ | (42 | ) | 3 years | Corporate Credit/ Foreign Gov. | A+ | $ | 1,446 | $ | (10 | ) | |||||||||||||
Below investment grade risk exposure |
180 | (10 | ) | 2 years | Corporate Credit | BB- | 144 | (3 | ) | |||||||||||||||||
Basket credit default swaps [4] |
||||||||||||||||||||||||||
Investment grade risk exposure |
3,162 | (118 | ) | 3 years | Corporate Credit | BBB+ | 2,044 | 45 | ||||||||||||||||||
Investment grade risk exposure |
525 | (133 | ) | 5 years | CMBS Credit | BBB+ | 525 | 133 | ||||||||||||||||||
Below investment grade risk exposure |
553 | (481 | ) | 3 years | Corporate Credit | BBB+ | | | ||||||||||||||||||
Embedded credit derivatives |
||||||||||||||||||||||||||
Investment grade risk exposure |
25 | 23 | 3 years | Corporate Credit | BBB- | | | |||||||||||||||||||
Below investment grade risk exposure |
500 | 400 | 5 years | Corporate Credit | BB+ | | | |||||||||||||||||||
Total |
$ | 6,514 | $ | (361 | ) | $ | 4,159 | $ | 165 | |||||||||||||||||
51
As of December 31, 2010 | ||||||||||||||||||||||||||
Underlying Referenced | ||||||||||||||||||||||||||
Weighted | Credit Obligation(s) [1] | |||||||||||||||||||||||||
Average | Average | Offsetting | ||||||||||||||||||||||||
Credit Derivative type by derivative | Notional | Fair | Years to | Credit | Notional | Offsetting | ||||||||||||||||||||
risk exposure | Amount [2] | Value | Maturity | Type | Rating | Amount [3] | Fair Value [3] | |||||||||||||||||||
Single name credit default swaps |
||||||||||||||||||||||||||
Investment grade risk exposure |
$ | 1,562 | $ | (14 | ) | 3 years | Corporate Credit/ Foreign Gov. | A+ | $ | 1,447 | $ | (41 | ) | |||||||||||||
Below investment grade risk exposure |
204 | (6 | ) | 3 years | Corporate Credit | BB- | 168 | (13 | ) | |||||||||||||||||
Basket credit default swaps [4] |
||||||||||||||||||||||||||
Investment grade risk exposure |
3,145 | (1 | ) | 4 years | Corporate Credit | BBB+ | 2,019 | (14 | ) | |||||||||||||||||
Investment grade risk exposure |
525 | (50 | ) | 6 years | CMBS Credit | BBB+ | 525 | 50 | ||||||||||||||||||
Below investment grade risk exposure |
767 | (381 | ) | 4 years | Corporate Credit | BBB+ | 25 | | ||||||||||||||||||
Embedded credit derivatives |
||||||||||||||||||||||||||
Investment grade risk exposure |
25 | 25 | 4 years | Corporate Credit | BBB- | | | |||||||||||||||||||
Below investment grade risk exposure |
525 | 463 | 6 years | Corporate Credit | BB+ | | | |||||||||||||||||||
Total |
$ | 6,753 | $ | 36 | $ | 4,184 | $ | (18 | ) | |||||||||||||||||
[1] | The average credit ratings are based on availability and the
midpoint of the applicable ratings among Moodys, S&P, and Fitch.
If no rating is available from a rating agency, then an internally
developed rating is used. |
|
[2] | Notional amount is equal to the maximum potential future loss
amount. There is no specific collateral related to these
contracts or recourse provisions included in the contracts to
offset losses. |
|
[3] | The Company has entered into offsetting credit default swaps to
terminate certain existing credit default swaps, thereby
offsetting the future changes in value of, or losses paid related
to, the original swap. |
|
[4] | Includes $3.7 billion and $3.9 billion as of September 30, 2011
and December 31, 2010, respectively, of standard market indices of
diversified portfolios of corporate issuers referenced through
credit default swaps. These swaps are subsequently valued based
upon the observable standard market index. Also includes $553 and
$542 as of September 30, 2011 and December 31, 2010, respectively,
of customized diversified portfolios of corporate issuers
referenced through credit default swaps. |
2011 | 2010 | |||||||
Balance, January 1 |
$ | 9,857 | $ | 10,686 | ||||
Deferred Costs |
1,961 | 1,999 | ||||||
Amortization DAC |
(2,351 | ) | (2,043 | ) | ||||
Amortization DAC from discontinued operations |
| (14 | ) | |||||
Amortization Unlock charge, pre-tax |
(468 | ) | 30 | |||||
Adjustments to unrealized gains and losses on securities available-for-sale and other |
(352 | ) | (1,462 | ) | ||||
Effect of currency translation |
82 | 179 | ||||||
Effect of new accounting guidance |
| 11 | ||||||
Balance, September 30 |
$ | 8,729 | $ | 9,386 | ||||
52
International | UL Secondary | |||||||||||
U.S. GMDB | GMDB/GMIB | Guarantees | ||||||||||
Liability balance as of January 1, 2011 |
$ | 1,053 | $ | 696 | $ | 113 | ||||||
Incurred |
171 | 91 | 29 | |||||||||
Paid |
(156 | ) | (116 | ) | | |||||||
Unlock |
171 | 250 | 66 | |||||||||
Currency translation adjustment |
| 33 | | |||||||||
Liability balance as of September 30, 2011 |
$ | 1,239 | $ | 954 | $ | 208 | ||||||
Reinsurance recoverable asset, as of January 1, 2011 |
$ | 686 | $ | 36 | $ | 30 | ||||||
Incurred |
99 | 14 | (10 | ) | ||||||||
Paid |
(101 | ) | (21 | ) | | |||||||
Unlock |
113 | 11 | | |||||||||
Currency translation adjustment |
| 2 | | |||||||||
Reinsurance recoverable asset, as of September 30,
2011 |
$ | 797 | $ | 42 | $ | 20 | ||||||
International | UL Secondary | |||||||||||
U.S. GMDB | GMDB/GMIB | Guarantees | ||||||||||
Liability balance as of January 1, 2010 |
$ | 1,233 | $ | 599 | $ | 76 | ||||||
Incurred |
183 | 87 | 29 | |||||||||
Paid |
(233 | ) | (95 | ) | | |||||||
Unlock |
(24 | ) | (20 | ) | (2 | ) | ||||||
Currency translation adjustment |
| 70 | | |||||||||
Liability balance as of September 30, 2010 |
$ | 1,159 | $ | 641 | $ | 103 | ||||||
Reinsurance recoverable asset, as of January 1, 2010 |
$ | 787 | $ | 51 | $ | 22 | ||||||
Incurred |
107 | (7 | ) | 6 | ||||||||
Paid |
(138 | ) | | | ||||||||
Unlock |
(4 | ) | (5 | ) | | |||||||
Currency translation adjustment |
| 4 | | |||||||||
Reinsurance recoverable asset, as of September 30,
2010 |
$ | 752 | $ | 43 | $ | 28 | ||||||
53
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 |
$ | 20,113 | $ | 7,357 | $ | 2,009 | 68 | |||||||||
With 5% rollup [2] |
1,407 | 612 | 226 | 68 | ||||||||||||
With Earnings Protection Benefit Rider (EPB) [3] |
5,225 | 1,271 | 131 | 65 | ||||||||||||
With 5% rollup & EPB |
572 | 206 | 42 | 68 | ||||||||||||
Total MAV |
27,317 | 9,446 | 2,408 | |||||||||||||
Asset Protection Benefit (APB) [4] |
21,875 | 4,495 | 2,939 | 66 | ||||||||||||
Lifetime Income Benefit (LIB) Death Benefit [5] |
1,052 | 187 | 187 | 64 | ||||||||||||
Reset [6] (5-7 years) |
3,030 | 446 | 442 | 68 | ||||||||||||
Return of Premium (ROP) [7]/Other |
20,557 | 1,360 | 1,330 | 65 | ||||||||||||
Subtotal U.S. GMDB |
73,831 | 15,934 | 7,306 | 66 | ||||||||||||
Less: General Account Value with U.S. GMDB |
7,172 | |||||||||||||||
Subtotal Separate Account Liabilities with GMDB |
66,659 | |||||||||||||||
Separate Account Liabilities without U.S. GMDB |
77,264 | |||||||||||||||
Total Separate Account Liabilities |
$ | 143,923 | ||||||||||||||
Japan GMDB [9], [11] |
$ | 29,522 | $ | 11,035 | $ | 9,583 | 69 | |||||||||
Japan GMIB [9], [11] |
$ | 27,471 | $ | 7,662 | $ | 7,662 | 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 contracts growth. The
contracts 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 holders 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 $34.4 billion
and $33.9 billion as of September 30, 2011 and December 31, 2010, respectively. The GRB related to the Japan GMAB and
GMWB was $707 as of September 30, 2011 and 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
September 30, 2011, 56% of the GMDB RNAR and 66% 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
Japans 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 September 30, 2011 | As of December 31, 2010 | ||||||
Equity securities (including mutual funds) |
$ | 59,253 | $ | 75,601 | ||||
Cash and cash equivalents |
7,406 | 8,365 | ||||||
Total |
$ | 66,659 | $ | 83,966 | ||||
54
2011 | 2010 | |||||||
Balance, January 1 |
$ | 459 | $ | 438 | ||||
Sales inducements deferred |
15 | 20 | ||||||
Amortization |
(31 | ) | (10 | ) | ||||
Amortization Unlock charge, pre-tax |
(19 | ) | (6 | ) | ||||
Balance, September 30 |
$ | 424 | $ | 442 | ||||
55
56
57
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 24 | $ | 25 | $ | 2 | $ | 2 | ||||||||
Interest cost |
64 | 64 | 5 | 6 | ||||||||||||
Expected return on plan assets |
(74 | ) | (71 | ) | (3 | ) | (4 | ) | ||||||||
Amortization of prior service credit |
(2 | ) | (2 | ) | (1 | ) | (1 | ) | ||||||||
Amortization of actuarial loss |
40 | 26 | | | ||||||||||||
Net periodic benefit cost |
$ | 52 | $ | 42 | $ | 3 | $ | 3 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 76 | $ | 76 | $ | 4 | $ | 5 | ||||||||
Interest cost |
194 | 189 | 15 | 17 | ||||||||||||
Expected return on plan assets |
(223 | ) | (214 | ) | (10 | ) | (10 | ) | ||||||||
Settlement expense |
| 20 | | | ||||||||||||
Amortization of prior service credit |
(7 | ) | (7 | ) | (1 | ) | (1 | ) | ||||||||
Amortization of actuarial loss |
119 | 80 | | | ||||||||||||
Net periodic benefit cost |
$ | 159 | $ | 144 | $ | 8 | $ | 11 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock-based compensation plans (benefit)/expense |
$ | (16 | ) | $ | 16 | $ | 30 | $ | 57 | |||||||
Income tax expense/(benefit) |
6 | (6 | ) | (11 | ) | (20 | ) | |||||||||
Total stock-based compensation plans
(benefit)/expense, after-tax |
$ | (10 | ) | $ | 10 | $ | 19 | $ | 37 | |||||||
58
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
Fee income |
$ | (1 | ) | $ | 9 | $ | | $ | 27 | |||||||
Net investment income |
5 | 10 | 16 | 21 | ||||||||||||
Net realized capital gains (losses) |
| (4 | ) | (5 | ) | (4 | ) | |||||||||
Other revenues |
| 56 | 47 | 165 | ||||||||||||
Total revenues |
4 | 71 | 58 | 209 | ||||||||||||
Benefits, losses and expenses |
||||||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits |
| 7 | | 14 | ||||||||||||
Insurance operating costs and other expenses |
5 | 59 | 51 | 189 | ||||||||||||
Goodwill impairment |
| | | 153 | ||||||||||||
Total benefits, losses and expenses |
5 | 66 | 51 | 356 | ||||||||||||
Income (loss) before income taxes |
(1 | ) | 5 | 7 | (147 | ) | ||||||||||
Income tax expense (benefit) |
| 4 | 2 | (48 | ) | |||||||||||
Income (loss) from operations of discontinued operations, net of tax |
(1 | ) | 1 | 5 | (99 | ) | ||||||||||
Net realized capital gain on disposal, net of tax |
4 | | 80 | | ||||||||||||
Income (loss) from discontinued operations, net of tax |
$ | 3 | $ | 1 | $ | 85 | $ | (99 | ) | |||||||
59
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | |||||||||||||||||||||
Gross | Impairments | Value | Gross | Impairments | Value | |||||||||||||||||||
Commercial Markets |
||||||||||||||||||||||||
Property & Casualty Commercial |
$ | 30 | $ | | $ | 30 | $ | 30 | $ | | $ | 30 | ||||||||||||
Total Commercial Markets |
30 | | 30 | 30 | | 30 | ||||||||||||||||||
Consumer Markets |
119 | | 119 | 119 | | 119 | ||||||||||||||||||
Wealth Management |
||||||||||||||||||||||||
Global Annuity |
422 | (422 | ) | | 422 | (422 | ) | | ||||||||||||||||
Life Insurance |
224 | | 224 | 224 | | 224 | ||||||||||||||||||
Retirement Plans |
87 | | 87 | 87 | | 87 | ||||||||||||||||||
Mutual Funds |
159 | | 159 | 159 | | 159 | ||||||||||||||||||
Total Wealth Management |
892 | (422 | ) | 470 | 892 | (422 | ) | 470 | ||||||||||||||||
Corporate and Other |
940 | (523 | ) | 417 | 940 | (508 | ) | 432 | ||||||||||||||||
Total Goodwill |
$ | 1,981 | $ | (945 | ) | $ | 1,036 | $ | 1,981 | $ | (930 | ) | $ | 1,051 | ||||||||||
60
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66 | ||||
76 | ||||
76 | ||||
84 | ||||
86 | ||||
87 | ||||
90 | ||||
92 | ||||
93 | ||||
95 | ||||
96 | ||||
97 | ||||
97 | ||||
105 | ||||
114 | ||||
121 |
61
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Earned premiums |
$ | 3,518 | $ | 3,513 | | $ | 10,582 | $ | 10,546 | | ||||||||||||||
Fee income |
1,192 | 1,164 | 2 | % | 3,620 | 3,530 | 3 | % | ||||||||||||||||
Net investment income (loss): |
||||||||||||||||||||||||
Securities available-for-sale and other |
1,062 | 1,073 | (1 | %) | 3,274 | 3,275 | | |||||||||||||||||
Equity securities, trading [1] |
(1,890 | ) | 1,043 | NM | (1,684 | ) | (905 | ) | (86 | %) | ||||||||||||||
Total net investment income (loss) |
(828 | ) | 2,116 | NM | 1,590 | 2,370 | (33 | %) | ||||||||||||||||
Net realized capital gains (losses) |
575 | (257 | ) | NM | 241 | (522 | ) | NM | ||||||||||||||||
Other revenues |
63 | 66 | (5 | %) | 188 | 195 | (4 | %) | ||||||||||||||||
Total revenues |
4,520 | 6,602 | (32 | %) | 16,221 | 16,119 | 1 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
4,006 | 3,037 | 32 | % | 11,160 | 9,762 | 14 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses returns
credited on international variable annuities [1] |
(1,889 | ) | 1,043 | NM | (1,683 | ) | (905 | ) | (86 | %) | ||||||||||||||
Amortization of deferred policy acquisition costs and
present value of future profits (DAC) |
1,320 | 431 | NM | 2,819 | 2,013 | 40 | % | |||||||||||||||||
Insurance operating costs and other expenses |
1,059 | 1,046 | 1 | % | 3,403 | 3,272 | 4 | % | ||||||||||||||||
Interest expense |
128 | 128 | | 384 | 380 | 1 | % | |||||||||||||||||
Total benefits, losses and expenses |
4,624 | 5,685 | (19 | %) | 16,083 | 14,522 | 11 | % | ||||||||||||||||
Income (loss) from continuing operations before income taxes |
(104 | ) | 917 | NM | 138 | 1,597 | (91 | %) | ||||||||||||||||
Income tax expense (benefit) |
(101 | ) | 252 | NM | (312 | ) | 437 | NM | ||||||||||||||||
Income (loss) from continuing operations, net of tax |
(3 | ) | 665 | NM | 450 | 1,160 | (61 | %) | ||||||||||||||||
Income (loss) from discontinued operations, net of tax |
3 | 1 | NM | 85 | (99 | ) | NM | |||||||||||||||||
Net income |
$ | | $ | 666 | (100 | %) | $ | 535 | $ | 1,061 | (50 | %) | ||||||||||||
Supplemental Operating Data
|
||||||||||||||||||||||||
Income (loss) from continuing operations, net of tax, available to common
shareholders per diluted common share |
$ | (0.03 | ) | $ | 1.34 | $ | 0.87 | $ | 1.42 | |||||||||||||||
Net income (loss) available to common shareholders per diluted common share |
(0.02 | ) | 1.34 | 1.05 | 1.21 | |||||||||||||||||||
Total revenues, excluding net investment income on equity securities, trading |
6,410 | 5,559 | 17,905 | 17,024 |
September 30, | December 31, | |||||||
Summary of Financial Condition | 2011 | 2010 | ||||||
Total assets |
$ | 305,598 | $ | 318,346 | ||||
Total investments, excluding equity securities, trading |
105,408 | 98,175 | ||||||
Total stockholders equity |
22,781 | 20,311 |
[1] | Includes investment income and mark-to-market effects of equity securities, trading,
supporting the international variable annuity business, which are classified in net
investment income with corresponding amounts credited to policyholders within benefits,
losses and loss adjustment expenses. |
62
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Increase | Increase | |||||||||||||||||||||||
(Decrease) From | (Decrease) From | |||||||||||||||||||||||
Segment Results | 2011 | 2010 | 2011 to 2010 | 2011 | 2010 | 2011 to 2010 | ||||||||||||||||||
Property & Casualty Commercial |
$ | 52 | $ | 306 | $ | (254 | ) | $ | 500 | $ | 782 | $ | (282 | ) | ||||||||||
Group Benefits |
25 | 46 | (21 | ) | 77 | 145 | (68 | ) | ||||||||||||||||
Commercial Markets |
77 | 352 | (275 | ) | 577 | 927 | (350 | ) | ||||||||||||||||
Consumer Markets |
(16 | ) | 70 | (86 | ) | (80 | ) | 113 | (193 | ) | ||||||||||||||
Global Annuity |
49 | 175 | (126 | ) | 327 | 141 | 186 | |||||||||||||||||
Life Insurance |
(3 | ) | 97 | (100 | ) | 98 | 224 | (126 | ) | |||||||||||||||
Retirement Plans |
(32 | ) | 30 | (62 | ) | 13 | 38 | (25 | ) | |||||||||||||||
Mutual Funds |
24 | 18 | 6 | 79 | 67 | 12 | ||||||||||||||||||
Wealth Management |
38 | 320 | (282 | ) | 517 | 470 | 47 | |||||||||||||||||
Corporate and Other |
(99 | ) | (76 | ) | (23 | ) | (479 | ) | (449 | ) | (30 | ) | ||||||||||||
Net income |
$ | | $ | 666 | $ | (666 | ) | $ | 535 | $ | 1,061 | $ | (526 | ) | ||||||||||
| An Unlock charge $516, after-tax, in 2011 compared to an Unlock benefit of $193, after-tax,
in 2010. The charge in 2011 was primarily driven by declines in equity markets and assumption
changes, including additional costs associated with the implementation of the Japan hedging
strategy which reduces expected future gross profits. The benefit in 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 $134, after-tax, in 2011, primarily due to
Hurricane Irene in the Northeast and thunderstorms in the Midwest, compared to $36, after-tax,
in 2010, primarily due to severe windstorm events in the Midwest, Plains States and the
Southeast. |
| The Company recorded reserve releases of $10, after-tax, in 2011, compared to reserve
releases of $98, after-tax, in 2010, in its property and casualty insurance prior accident
years development, excluding environmental reserves. For additional information regarding
prior accident years development, see Critical Accounting Estimates within the MD&A. |
| Net realized capital gains increased primarily due the results of the variable annuity
hedge program. For further discussion, see Net Realized Capital Gains (Losses) within
Investment Results of Key Performance Measures and Ratios of this MD&A. |
| An environmental reserve strengthening of $12, after-tax, in 2011 compared to $40,
after-tax, in 2010, resulting from the companys annual review of its environmental
liabilities within the Other Operations operating segment. For further information see Other
Operations Claims within the Property and Casualty Insurance Product Reserves, Net of
Reinsurance section in Critical Accounting Estimates. |
63
| An Unlock charge of $531, after-tax, in 2011 compared to an Unlock benefit of $48,
after-tax, in 2010. The charge in 2011 was primarily driven by declines in equity markets and
assumption changes, including additional costs associated with the implementation of the Japan
hedging strategy which reduces expected future gross profits. The Unlock benefit for the nine
months ended September 30, 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 $475, after-tax, in 2011 compared to $236,
after-tax, in 2010. The losses in 2011 primarily relate to Hurricane Irene in the Northeast,
thunderstorms in the Midwest and tornadoes in the Midwest, Plains States and the Southwest.
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. |
| An asbestos reserve strengthening of $189, after-tax, in 2011, compared to $110, after-tax,
in 2010 resulting from the Companys annual review of its asbestos liabilities within the
Other Operations operating segment. 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 Other Operations
Claims within the Property and Casualty Insurance Product Reserves, Net of Reinsurance section
in Critical Accounting Estimates. |
| A $73, after-tax, charge in the second quarter of 2011 related to the write-off of
capitalized costs associated with a policy administration software project that was
discontinued. |
| The Company recorded reserve releases of $27, after-tax, in 2011, compared to reserve
releases of $254, 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. |
| 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. |
| Net realized capital gains increased primarily due the results of the variable annuity
hedge program. For further discussion, see Net Realized Capital Gains (Losses) within
Investment Results of Key Performance Measures and Ratios of this MD&A. |
| The first quarter of 2010 includes an accrual for a litigation settlement of $73,
before-tax, for further information see Structured Settlement Class Action in Note 12 of the
Notes to Consolidated Financial Statements in The Hartfords 2010 Form 10-K Annual Report. |
| Income tax expense (benefit) in 2010 includes a valuation allowance expense of $86 compared
to a benefit of $83 in 2011. See Note 1 of the Notes to Condensed Consolidated Financial
Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the
provision for income taxes. |
| 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
for years 1998, 2000 and 2001. For additional information see Note 1 of the Notes to
Condensed Consolidated Financial Statements. |
64
65
| property and casualty insurance product reserves, net of reinsurance; |
| estimated gross profits used in the valuation and amortization of assets and liabilities
associated with variable annuity and other universal life-type contracts; |
| evaluation of other-than-temporary impairments on available-for-sale securities and
valuation allowances on investments; |
| living benefits required to be fair valued (in other policyholder funds and benefits
payable); |
| goodwill impairment; |
| valuation of investments and derivative instruments; |
| pension and other postretirement benefit obligations; |
| valuation allowance on deferred tax assets; and |
| contingencies relating to corporate litigation and regulatory matters. |
66
Nine Months Ended September 30, 2011 | ||||||||||||||||
Total | ||||||||||||||||
Property & | Property and | |||||||||||||||
Casualty | Consumer | Corporate and | Casualty | |||||||||||||
Commercial | Markets | Other | Insurance | |||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses,
gross |
$ | 14,727 | $ | 2,177 | $ | 4,121 | $ | 21,025 | ||||||||
Reinsurance and other recoverables |
2,361 | 17 | 699 | 3,077 | ||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net |
12,366 | 2,160 | 3,422 | 17,948 | ||||||||||||
Provision for unpaid losses and loss adjustment expenses |
||||||||||||||||
Current accident year before catastrophes |
2,997 | 1,902 | | 4,899 | ||||||||||||
Current accident year catastrophes |
305 | 426 | | 731 | ||||||||||||
Prior accident years |
16 | (58 | ) | 311 | 269 | |||||||||||
Total provision for unpaid losses and loss adjustment expenses |
3,318 | 2,270 | 311 | 5,899 | ||||||||||||
Payments |
(2,826 | ) | (2,287 | ) | (284 | ) | (5,397 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net |
12,858 | 2,143 | 3,449 | 18,450 | ||||||||||||
Reinsurance and other recoverables |
2,428 | 9 | 730 | 3,167 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross |
$ | 15,286 | $ | 2,152 | $ | 4,179 | $ | 21,617 | ||||||||
Earned premiums |
$ | 4,568 | $ | 2,825 | ||||||||||||
Loss and loss expense paid ratio [1] |
61.9 | 81.0 | ||||||||||||||
Loss and loss expense incurred ratio |
72.6 | 80.4 | ||||||||||||||
Prior accident years development (pts) [2] |
0.4 | (2.1 | ) |
[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. |
67
Three Months Ended September 30, 2011 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability |
$ | (4 | ) | $ | (19 | ) | $ | | $ | (23 | ) | |||||
Homeowners |
| 14 | | 14 | ||||||||||||
Professional liability |
29 | | | 29 | ||||||||||||
Package business |
(42 | ) | | | (42 | ) | ||||||||||
Workers compensation |
7 | | | 7 | ||||||||||||
General liability |
(8 | ) | | | (8 | ) | ||||||||||
Fidelity and surety |
(7 | ) | | | (7 | ) | ||||||||||
Commercial property |
1 | | | 1 | ||||||||||||
Net environmental reserves |
| | 19 | 19 | ||||||||||||
Change in workers compensation
discount, including accretion |
15 | | | 15 | ||||||||||||
Catastrophes |
2 | | | 2 | ||||||||||||
Other reserve re-estimates, net |
(2 | ) | (4 | ) | 2 | (4 | ) | |||||||||
Total prior accident years development |
$ | (9 | ) | $ | (9 | ) | $ | 21 | $ | 3 | ||||||
Nine Months Ended September 30, 2011 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability |
$ | (5 | ) | $ | (83 | ) | $ | | $ | (88 | ) | |||||
Homeowners |
| 1 | | 1 | ||||||||||||
Professional liability |
22 | | | 22 | ||||||||||||
Package business |
(46 | ) | | | (46 | ) | ||||||||||
Workers compensation |
10 | | | 10 | ||||||||||||
General liability |
4 | | | 4 | ||||||||||||
Fidelity and surety |
(9 | ) | | | (9 | ) | ||||||||||
Commercial property |
(4 | ) | | | (4 | ) | ||||||||||
Net asbestos reserves |
| | 290 | 290 | ||||||||||||
Net environmental reserves |
| | 21 | 21 | ||||||||||||
Change in workers compensation
discount, including accretion |
32 | | | 32 | ||||||||||||
Catastrophes |
7 | 28 | | 35 | ||||||||||||
Other reserve re-estimates, net |
5 | (4 | ) | | 1 | |||||||||||
Total prior accident years development |
$ | 16 | $ | (58 | ) | $ | 311 | $ | 269 | |||||||
| Released reserves for personal auto liability claims for both the three month and nine
month periods, 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 homeowners reserves for the three months ended September 30, 2011, for
accident years 2008 through 2010, primarily due to increased frequency of sinkhole claims in
Florida and increased severity on slower reporting homeowner casualty claims. |
| Strengthened reserves in professional liability for accident years 2007 through 2009,
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 case development. |
| Released reserves in package business liability coverages and general liability in accident
years 2005 through 2009 as a result of lower than expected claim severity emergence. |
| Strengthened reserves in workers compensation for the 2010 accident year as a result of
higher than expected claim frequency emergence. This is offset by releases in accident years
2007 and prior. Reserve indications in these years have been stable, giving greater
confidence in the adequacy of estimates. |
| Prior year catastrophe strengthening, for the nine month period, primarily related to a
severe wind and hail storm event in Arizona during the fourth quarter of 2010. |
| Refer to the Other Operations Claims section for further discussion on strengthening of net
asbestos reserves and net environmental reserves. |
68
Nine Months Ended September 30, 2010 | ||||||||||||||||
Total | ||||||||||||||||
Property & | Property and | |||||||||||||||
Casualty | Consumer | Corporate and | Casualty | |||||||||||||
Commercial | Markets | Other | 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 |
2,634 | 2,034 | | 4,668 | ||||||||||||
Current accident year catastrophes |
134 | 229 | | 363 | ||||||||||||
Prior accident years |
(339 | ) | (51 | ) | 236 | (154 | ) | |||||||||
Total provision for unpaid losses and loss adjustment expenses |
2,429 | 2,212 | 236 | 4,877 | ||||||||||||
Payments |
(2,568 | ) | (2,146 | ) | (306 | ) | (5,020 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net |
12,342 | 2,164 | 3,561 | 18,067 | ||||||||||||
Reinsurance and other recoverables |
2,438 | 11 | 701 | 3,150 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross |
$ | 14,780 | $ | 2,175 | $ | 4,262 | $ | 21,217 | ||||||||
Earned premiums |
$ | 4,278 | $ | 2,976 | ||||||||||||
Loss and loss expense paid ratio [1] |
60.0 | 72.1 | ||||||||||||||
Loss and loss expense incurred ratio |
56.8 | 74.3 | ||||||||||||||
Prior accident years development (pts) [2] |
(7.9 | ) | (1.9 | ) |
[1] | The loss and loss expense paid ratio represents the ratio of paid losses and loss adjustment expenses to earned premiums. |
|
[2] | Prior accident years development (pts) represents the ratio of prior accident years development to earned premiums. |
Three Months Ended September 30, 2010 | ||||||||||||||||
Property & | ||||||||||||||||
Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability |
$ | (26 | ) | $ | (41 | ) | $ | | $ | (67 | ) | |||||
Professional liability |
(8 | ) | | | (8 | ) | ||||||||||
General liability |
(47 | ) | | | (47 | ) | ||||||||||
Commercial property |
1 | | | 1 | ||||||||||||
Package business |
(11 | ) | | | (11 | ) | ||||||||||
Workers compensation |
(34 | ) | | | (34 | ) | ||||||||||
Net environmental reserves |
| | 62 | 62 | ||||||||||||
Homeowners |
| 3 | | 3 | ||||||||||||
Change in workers compensation
discount, including accretion |
7 | | | 7 | ||||||||||||
Catastrophes |
1 | 8 | | 9 | ||||||||||||
Other reserve re-estimates, net |
(1 | ) | (4 | ) | 2 | (3 | ) | |||||||||
Total prior accident years development |
$ | (118 | ) | (34 | ) | 64 | (88 | ) | ||||||||
69
Nine Months Ended September 30, 2010 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability |
$ | (51 | ) | $ | (82 | ) | $ | | $ | (133 | ) | |||||
Professional liability |
(87 | ) | | | (87 | ) | ||||||||||
General liability |
(94 | ) | | | (94 | ) | ||||||||||
Commercial property |
(13 | ) | | | (13 | ) | ||||||||||
Package business |
(20 | ) | | | (20 | ) | ||||||||||
Workers compensation |
(53 | ) | | | (53 | ) | ||||||||||
Fidelity and surety |
(9 | ) | | | (9 | ) | ||||||||||
Net asbestos reserves |
| | 172 | 172 | ||||||||||||
Net environmental reserves |
| | 64 | 64 | ||||||||||||
Homeowners |
| 27 | | 27 | ||||||||||||
Change in workers compensation
discount, including accretion |
20 | | | 20 | ||||||||||||
Catastrophes |
1 | 11 | | 12 | ||||||||||||
Uncollectible reinsurance |
(30 | ) | | | (30 | ) | ||||||||||
Other reserve re-estimates, net |
(3 | ) | (7 | ) | | (10 | ) | |||||||||
Total prior accident years development |
$ | (339 | ) | $ | (51 | ) | $ | 236 | $ | (154 | ) | |||||
| Released reserves for commercial auto claims in the three and nine months ended September
30, 2010 as the Company lowered its reserve estimate to recognize a lower severity trend
during 2009 and 2010 on larger claims in accident years 2002 to 2009. |
| Released reserves for personal auto liability claims in the three and nine months ended
September 30, 2010. During 2009, the Company recognized that favorable development in
reported severity, due in part to changes made to claim handling procedures in 2007, was a
sustained trend for accident years 2005 through 2008 and, accordingly, management reduced its
reserve estimate. The reserve releases are in response to a continuation of these same
favorable trends, primarily affecting accident years 2005 through 2009. |
| Released reserves for package business claims for the three and nine months ended September
30, 2010, primarily related to accident years 2005 through 2009. Claim emergence within the
liability portion of the package coverage for these accident years continues to be lower than
anticipated. Management now believes this lower level of claim activity will continue into
the future and has reduced its reserve estimate in response to these favorable trends. |
| Released reserves for workers compensation business in the three and nine months ended
September 30, 2010, 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. Accordingly, management reduced reserve estimates for
these years. |
| Released reserves for general liability claims for the three and nine months ending
September 30, 2010, primarily related to accident years 2005 through 2008. Claim emergence
for these accident years continues to be lower than anticipated. Management now believes this
lower level of claim activity will continue into the future and has reduced its reserve
estimate in response to these favorable trends. Partially offsetting this reserve release is
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 professional liability claims for the three and nine months ended
September 30, 2010 primarily related to directors and officers (D&O) claims in accident
years 2008 and prior. For these accident years, reported losses for claims under D&O policies
have been emerging favorably to initial expectations due to lower than expected claim
severity. |
| Strengthened reserves for property in personal homeowners claims for the three and nine
months ended September 30, 2010. During 2010, the Company observed a lengthening of the claim
reporting period for homeowners claims for prior accident years which resulted in increasing
managements estimate of the ultimate cost to settle these claims. |
| 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 Other Operations Claims section for further discussion on strengthening of net
environmental and net asbestos reserves. |
70
For the Three Months Ended September 30, 2011 | Asbestos | Environmental | All Other [1] | Total | ||||||||||||
Beginning liability net [2][3] |
$ | 1,977 | $ | 315 | $ | 1,224 | $ | 3,516 | ||||||||
Losses and loss adjustment expenses incurred |
| 19 | 2 | 21 | ||||||||||||
Losses and loss adjustment expenses paid |
(42 | ) | (6 | ) | (39 | ) | (87 | ) | ||||||||
Ending liability net [2][3] |
$ | 1,935 [4] | $ | 328 | $ | 1,187 | $ | 3,450 | ||||||||
For the Nine Months Ended September 30, 2011 | Asbestos | Environmental | All Other [1] | Total | ||||||||||||
Beginning liability net [2][3] |
$ | 1,787 | $ | 334 | $ | 1,302 | $ | 3,423 | ||||||||
Losses and loss adjustment expenses incurred |
290 | 21 | | 311 | ||||||||||||
Losses and loss adjustment expenses paid |
(142 | ) | (27 | ) | (115 | ) | (284 | ) | ||||||||
Ending liability net [2][3] |
$ | 1,935 [4] | $ | 328 | $ | 1,187 | $ | 3,450 | ||||||||
[1] | All Other includes unallocated loss adjustment expense
reserves. All Other also includes The Companys allowance for
uncollectible reinsurance. When the Company commutes a ceded
reinsurance contract or settles a ceded reinsurance dispute, the
portion of the allowance for uncollectible reinsurance
attributable to that commutation or settlement, if any, is
reclassified to the appropriate cause of loss. |
|
[2] | Excludes amounts reported in Property & Casualty Commercial and
Consumer Markets reporting segments (collectively Ongoing
Operations) for asbestos and environmental net liabilities of
$10 and $5, respectively, as of September 30, 2011, $10 and $10
respectively, as of June 30, 2011 and $11 and $5, respectively,
as of December 31, 2010; total net losses and loss adjustment
expenses incurred for the three and nine months ended September
30, 2011 includes $3 and $15, respectively, related to asbestos
and environmental claims; and total net losses and loss
adjustment expenses paid for the three and nine months ended
September 30, 2011 includes $8 and $16, respectively, related to
asbestos and environmental claims. |
|
[3] | Gross of reinsurance, asbestos and environmental reserves,
including liabilities in Ongoing Operations, were $2,502 and
$375, respectively, as of September 30, 2011, $2,558 and $368,
respectively, as of June 30, 2011, and $2,308 and $378,
respectively, as of December 31, 2010. |
|
[4] | The one year and average three year net paid amounts for asbestos
claims, including Ongoing Operations, are $269 and $235,
respectively, resulting in a one year net survival ratio of 7.2
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. |
Total | ||||
Reserves | ||||
Gross |
||||
Direct |
$ | 275 | ||
Assumed Reinsurance |
41 | |||
London Market |
59 | |||
Total [1] [2] |
375 | |||
Ceded |
(42 | ) | ||
Net |
$ | 333 | ||
[1] | The one-year gross paid amount
for total environmental claims is $58, resulting in a one-year gross
survival ratio of 6.5. |
|
[2] | The three-year average
annual gross paid amount for total environmental claims is $56,
resulting in a three-year gross survival ratio of 6.7. |
71
Asbestos [1] | Environmental [1] | |||||||||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Three Months Ended September 30, 2011 | Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | ||||||||||||
Gross |
||||||||||||||||
Direct |
$ | 42 | $ | | $ | 5 | $ | 18 | ||||||||
Assumed Reinsurance |
11 | | 3 | | ||||||||||||
London Market |
5 | | 1 | 4 | ||||||||||||
Total |
58 | | 9 | 22 | ||||||||||||
Ceded |
(16 | ) | | (3 | ) | (3 | ) | |||||||||
Net |
$ | 42 | $ | | $ | 6 | $ | 19 | ||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Nine Months Ended September 30, 2011 | Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | ||||||||||||
Gross |
||||||||||||||||
Direct |
$ | 129 | $ | 350 | $ | 17 | $ | 20 | ||||||||
Assumed Reinsurance |
35 | 12 | 6 | | ||||||||||||
London Market |
19 | 16 | 4 | 4 | ||||||||||||
Total |
183 | 378 | 27 | 24 | ||||||||||||
Ceded |
(41 | ) | (88 | ) | | (3 | ) | |||||||||
Net |
$ | 142 | $ | 290 | $ | 27 | $ | 21 | ||||||||
[1] | Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing
Operations. Total gross losses and LAE incurred in Ongoing Operations for the three and nine
months ended September 30, 2011 includes $4 and $17, respectively, related to asbestos and
environmental claims. Total gross losses and LAE paid in Ongoing Operations for the three and
nine months ended September 30, 2011 includes $9 and $18, respectively, related to asbestos
and environmental claims. |
72
73
Global Annuity | Life Insurance | Retirement Plans | ||||||||||||||||||||||
Sep. 30, | Dec. 31, | Sep. 30, | Dec. 31, | Sep. 30, | Dec. 31, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
DAC |
$ | 4,055 | $ | 4,868 | $ | 2,725 | $ | 2,667 | $ | 796 | $ | 820 | ||||||||||||
SIA |
336 | 370 | 46 | 45 | 22 | 23 | ||||||||||||||||||
URR |
117 | 142 | 1,534 | 1,383 | | | ||||||||||||||||||
Death and Other
Insurance Benefit
Reserves, net of
reinsurance |
1,352 | 1,026 | 188 | 83 | 1 | 1 |
Global Annuity | Life Insurance | Retirement Plans | Total | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
DAC |
$ | (188 | ) | $ | 58 | $ | (34 | ) | $ | 31 | $ | (42 | ) | $ | 19 | $ | (264 | ) | $ | 108 | ||||||||||||
SIA |
(6 | ) | 5 | | (1 | ) | (1 | ) | | (7 | ) | 4 | ||||||||||||||||||||
URR |
3 | 5 | 11 | (2 | ) | | | 14 | 3 | |||||||||||||||||||||||
Death and Other
Insurance Benefit
Reserves |
(216 | ) | 77 | (43 | ) | 1 | | | (259 | ) | 78 | |||||||||||||||||||||
Total |
$ | (407 | ) | $ | 145 | $ | (66 | ) | $ | 29 | $ | (43 | ) | $ | 19 | $ | (516 | ) | $ | 193 | ||||||||||||
Global Annuity | Life Insurance | Retirement Plans | Total | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
DAC |
$ | (223 | ) | $ | (22 | ) | $ | (38 | ) | $ | 26 | $ | (43 | ) | $ | 15 | $ | (304 | ) | $ | 19 | |||||||||||
SIA |
(11 | ) | (5 | ) | (1 | ) | (1 | ) | | (12 | ) | (6 | ) | |||||||||||||||||||
URR |
5 | 8 | 12 | 3 | | | 17 | 11 | ||||||||||||||||||||||||
Death and Other
Insurance Benefit
Reserves |
(189 | ) | 23 | (43 | ) | 1 | | | (232 | ) | 24 | |||||||||||||||||||||
Total |
$ | (418 | ) | $ | 4 | $ | (69 | ) | $ | 29 | $ | (44 | ) | $ | 15 | $ | (531 | ) | $ | 48 | ||||||||||||
74
Segment | Goodwill in | |||||||||||
Goodwill | Corporate and Other | Total | ||||||||||
Hartford
Financial Products within Property & Casualty Commercial |
$ | 30 | $ | | $ | 30 | ||||||
Group Benefits |
| 138 | 138 | |||||||||
Consumer Markets |
119 | | 119 | |||||||||
Individual Life within Life Insurance |
224 | 118 | 342 | |||||||||
Retirement Plans |
87 | 69 | 156 | |||||||||
Mutual Funds |
159 | 92 | 251 | |||||||||
Total |
$ | 619 | $ | 417 | $ | 1,036 | ||||||
Segment | Goodwill in | |||||||||||
Goodwill | Corporate and Other | Total | ||||||||||
Hartford
Financial Products within Property & Casualty Commercial |
$ | 30 | $ | | $ | 30 | ||||||
Group Benefits |
| 138 | 138 | |||||||||
Consumer Markets |
119 | | 119 | |||||||||
Individual Life within Life Insurance |
224 | 118 | 342 | |||||||||
Retirement Plans |
87 | 69 | 156 | |||||||||
Mutual Funds |
159 | 92 | 251 | |||||||||
Federal Trust Corporation within Corporate and Other |
| 15 | 15 | |||||||||
Total |
$ | 619 | $ | 432 | $ | 1,051 | ||||||
75
76
77
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Property & Casualty Commercial |
||||||||||||||||
Combined ratio |
104.8 | 84.9 | 102.8 | 88.0 | ||||||||||||
Catastrophe ratio |
6.1 | 0.9 | 6.8 | 3.1 | ||||||||||||
Non-catastrophe prior year development |
(0.7 | ) | (8.2 | ) | 0.2 | (7.9 | ) | |||||||||
Combined ratio before catastrophes and prior year development |
99.4 | 92.2 | 95.8 | 92.8 | ||||||||||||
Consumer Markets |
||||||||||||||||
Combined ratio |
106.8 | 94.1 | 105.0 | 98.5 | ||||||||||||
Catastrophe ratio |
12.2 | 5.1 | 16.1 | 8.0 | ||||||||||||
Non-catastrophe prior year development |
(1.0 | ) | (4.3 | ) | (3.0 | ) | (2.1 | ) | ||||||||
Combined ratio before catastrophes and prior year development |
95.6 | 93.3 | 91.9 | 92.6 | ||||||||||||
| Property & Casualty Commercials combined ratio before catastrophes and prior year
development deteriorated for the three and nine month periods primarily due to an increase in
current accident year losses and loss adjustment expenses before catastrophes, largely due to
loss costs outpacing earned pricing increases. Increased loss costs include current accident
year reserve strengthening in the third quarter of 2011 of $47 which had a 3.0 point increase
in the three months ended September 30, 2011, predominantly related to workers compensation
business. |
| The changes in Consumer Markets combined ratio before catastrophes and prior year
development for three and nine-month periods primarily relate to changes in the current
accident year loss and loss adjustment expenses ratio before catastrophes. For the
three-month period, the ratio deteriorated primarily for home, and for the nine-month period
the ratio improved, as a decrease for auto was partially offset by an increase for home. The
increase in both periods 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.
The decrease for auto in the nine-month period 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. |
78
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Ratios | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Global Annuity |
||||||||||||||||
ROA |
14.0 | bps | 47.4 | bps | 30.7 | bps | 12.2 | bps | ||||||||
Effect of net realized losses, net of tax and DAC on ROA |
7.7 | bps | (23.2 | ) bps | (12.3 | ) bps | (27.7 | ) bps | ||||||||
Effect of discontinued operations on ROA |
| bps | (0.5 | ) bps | | bps | (0.2 | ) bps | ||||||||
Effect of Unlock on ROA |
(35.4 | ) bps | 31.6 | bps | (7.5 | ) bps | 2.9 | bps | ||||||||
ROA, excluding realized losses and Unlock |
41.7 | bps | 39.5 | bps | 50.5 | bps | 37.2 | bps | ||||||||
Retirement Plans |
||||||||||||||||
ROA |
(24.3 | ) bps | 25.4 | bps | 3.4 | bps | 10.8 | bps | ||||||||
Effect of net realized gains (losses), net of tax and DAC on ROA |
(4.5 | ) bps | (4.3 | ) bps | 0.5 | bps | (5.2 | ) bps | ||||||||
Effect of Unlock on ROA |
(28.9 | ) bps | 21.2 | bps | (9.9 | ) bps | 6.6 | bps | ||||||||
ROA, excluding realized losses and Unlock |
9.1 | bps | 8.5 | bps | 12.8 | bps | 9.4 | bps | ||||||||
Mutual Funds |
||||||||||||||||
ROA |
10.5 | bps | 7.9 | bps | 11.5 | bps | 9.5 | bps | ||||||||
Effect of discontinued operations on ROA |
| bps | (0.5 | ) bps | | bps | (0.6 | ) bps | ||||||||
Effect of net realized gains (losses), net of tax and DAC on ROA |
| bps | (0.5 | ) bps | 0.2 | bps | | bps | ||||||||
ROA, excluding realized gains (losses ) and Unlock |
10.5 | bps | 8.9 | bps | 11.3 | bps | 10.1 | bps | ||||||||
| Global Annuitys ROA, excluding realized losses and Unlock, improved primarily due to flat
earnings and a decrease in AUM driven by a decline in equity markets and net outflows. |
| Retirement Plans ROA, excluding realized gains (losses) and Unlock, increased due to
improvements in the equity markets as compared to prior year, which led to increased fee
income from higher account values. |
| Mutual Funds ROA, excluding realized gains (losses) and Unlock, increase was primarily
driven by increased net income over prior year due to a decline in expenses largely due to a
one-time capital infusion to the Money Market Funds in the third quarter of 2010. |
| Global Annuitys ROA, excluding realized losses and Unlock, increased primarily due to a
lower DAC amortization rate, as earnings increased in 2011 as compared to 2010, a DRD tax
settlement benefit, and a release of a reserve related to a product in Japan. |
| Retirement Plans ROA, excluding realized gains (losses) and Unlock, increased primarily
due to a DRD tax settlement benefit and improvements in the equity markets, which led to
increased fee income from higher account values. |
| Mutual Funds ROA, excluding realized gains (losses) and Unlock, increase was primarily
driven by increased fee income as a result of increased average account values attributed to
improved equity markets partially offset by net outflows. |
79
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Life Insurance |
||||||||||||||||
After-tax margin |
(0.7 | %) | 25.0 | % | 8.0 | % | 18.7 | % | ||||||||
Effect of net realized gains (losses), net of tax and DAC |
1.4 | % | 2.5 | % | (0.5 | %) | 2.0 | % | ||||||||
Effect of Unlock |
(15.8 | %) | 7.5 | % | (5.8 | %) | 2.0 | % | ||||||||
After-tax margin, excluding realized losses and Unlock |
13.7 | % | 15.0 | % | 14.3 | % | 14.7 | % | ||||||||
Group Benefits |
||||||||||||||||
After-tax margin (excluding buyouts) |
2.2 | % | 4.0 | % | 2.3 | % | 4.1 | % | ||||||||
Effect of net realized gains, net of tax |
0.4 | % | 0.2 | % | 0.3 | % | 0.5 | % | ||||||||
After-tax margin (excluding buyouts), excluding realized
gains (losses) |
1.8 | % | 3.8 | % | 2.0 | % | 3.6 | % | ||||||||
| The decrease in Life Insurances after-tax margin, excluding realized losses and Unlock,
for the three-month and nine-month periods ended September 30, 2011 were primarily due to an
increase in benefits, losses, and loss adjustment expenses, as a result of favorable mortality
in the prior year. |
| The decrease in Group Benefits after-tax margin (excluding buyouts), excluding realized
gains (losses), in both periods was primarily due to higher mortality in both the three and
nine months ended September 30, 2011, 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. |
80
September 30, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, AFS, at fair value |
$ | 80,263 | 76.1 | % | $ | 77,820 | 79.2 | % | ||||||||
Fixed maturities, at fair value using the fair value option |
1,323 | 1.3 | % | 649 | 0.7 | % | ||||||||||
Equity securities, AFS, at fair value |
989 | 0.9 | % | 973 | 1.0 | % | ||||||||||
Mortgage loans |
5,590 | 5.3 | % | 4,489 | 4.6 | % | ||||||||||
Policy loans, at outstanding balance |
2,176 | 2.1 | % | 2,181 | 2.2 | % | ||||||||||
Limited partnerships and other alternative investments |
2,506 | 2.4 | % | 1,918 | 2.0 | % | ||||||||||
Other investments [1] |
2,857 | 2.7 | % | 1,617 | 1.6 | % | ||||||||||
Short-term investments |
9,704 | 9.2 | % | 8,528 | 8.7 | % | ||||||||||
Total investments excluding equity securities, trading |
105,408 | 100.0 | % | 98,175 | 100.0 | % | ||||||||||
Equity securities, trading, at fair value [2] [3] |
30,770 | 32,820 | ||||||||||||||
Total investments |
$ | 136,178 | $ | 130,995 | ||||||||||||
[1] | Primarily relates to derivative instruments. |
|
[2] | These assets primarily support the Global Annuity-International
variable annuity business. Changes in these balances are also
reflected in the respective liabilities. |
|
[3] | As of September 30, 2011 and December 31, 2010, approximately
$28.8 billion and $30.5 billion, respectively, of equity
securities, trading, support Japan variable annuities. Those
equity securities, trading, were invested in mutual funds, which,
in turn, invested in the following asset classes, Japan equity
21%, Japan fixed income (primarily government securities) 15%,
global equity 21%, global government bonds 42%, and cash and
other 1% for both periods presented. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
(Before-tax) | Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | ||||||||||||||||||||||||
Fixed maturities [2] |
$ | 836 | 4.1 | % | $ | 867 | 4.3 | % | $ | 2,552 | 4.2 | % | $ | 2,628 | 4.4 | % | ||||||||||||||||
Equity securities, AFS |
8 | 3.0 | % | 12 | 3.9 | % | 27 | 3.5 | % | 39 | 4.2 | % | ||||||||||||||||||||
Mortgage loans |
75 | 5.6 | % | 64 | 5.5 | % | 205 | 5.4 | % | 193 | 5.0 | % | ||||||||||||||||||||
Policy loans |
32 | 5.9 | % | 33 | 6.1 | % | 99 | 6.1 | % | 101 | 6.2 | % | ||||||||||||||||||||
Limited partnerships and
other alternative investments |
67 | 12.8 | % | 49 | 11.5 | % | 245 | 16.8 | % | 141 | 10.9 | % | ||||||||||||||||||||
Other [3] |
73 | 77 | 231 | 251 | ||||||||||||||||||||||||||||
Investment expense |
(29 | ) | (29 | ) | (85 | ) | (78 | ) | ||||||||||||||||||||||||
Total securities AFS and other |
1,062 | 4.3 | % | 1,073 | 4.4 | % | 3,274 | 4.5 | % | 3,275 | 4.5 | % | ||||||||||||||||||||
Equity securities, trading |
(1,890 | ) | 1,043 | (1,684 | ) | (905 | ) | |||||||||||||||||||||||||
Total net investment income
(loss) |
$ | (828 | ) | $ | 2,116 | $ | 1,590 | $ | 2,370 | |||||||||||||||||||||||
Total securities, AFS and
other excluding limited
partnerships and other
alternative investments |
$ | 995 | 4.1 | % | $ | 1,024 | 4.3 | % | $ | 3,029 | 4.2 | % | $ | 3,134 | 4.4 | % | ||||||||||||||||
[1] | Yields calculated using annualized investment income before investment expenses divided by the monthly average
invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding consolidated variable
interest entity noncontrolling interests. Included in the fixed maturity yield is Other, which primarily relates to
derivatives (see footnote [3] below). Included in the total net investment income yield is investment expense. |
|
[2] | Includes net investment income on short-term investments. |
|
[3] | Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities. |
81
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Gross gains on sales |
$ | 197 | $ | 179 | $ | 519 | $ | 654 | ||||||||
Gross losses on sales |
(63 | ) | (88 | ) | (294 | ) | (293 | ) | ||||||||
Net OTTI losses recognized in earnings |
(60 | ) | (115 | ) | (138 | ) | (375 | ) | ||||||||
Valuation allowances on mortgage loans |
| (4 | ) | 23 | (156 | ) | ||||||||||
Japanese fixed annuity contract hedges, net [1] |
9 | 11 | (2 | ) | 22 | |||||||||||
Periodic net coupon settlements on credit derivatives/Japan |
1 | (4 | ) | (8 | ) | (15 | ) | |||||||||
Results of variable annuity hedge program |
||||||||||||||||
GMWB derivatives, net |
(372 | ) | 170 | (338 | ) | (127 | ) | |||||||||
Macro hedge program |
1,237 | (443 | ) | 915 | (210 | ) | ||||||||||
Total results of variable annuity hedge program |
865 | (273 | ) | 577 | (337 | ) | ||||||||||
Other, net [2] |
(374 | ) | 37 | (436 | ) | (22 | ) | |||||||||
Net realized capital gains (losses) |
$ | 575 | $ | (257 | ) | $ | 241 | $ | (522 | ) | ||||||
[1] | Relates to the Japanese fixed annuity product (adjustment of
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-qualifying
derivatives 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 three and nine months ended September 30, 2011 were predominately from investment grade corporate securities, U.S. Treasuries and commercial real estate related securities. |
|
Gross gains and losses on sales for the three and nine months ended September 30, 2010 were predominantly from sales of investment grade corporate securities, U.S. Treasuries and previously reserved mortgage loans in order to take advantage of attractive market
opportunities. |
||
Net OTTI losses
|
For further information, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. |
|
Valuation allowances on mortgage loans
|
For further information, see Valuation Allowances on Mortgage Loans within the Investment Credit Risk section of the MD&A. |
|
Variable annuity hedge program
|
The loss on GMWB related derivatives, net, for the three and nine months ended September 30, 2011 was primarily due to a decrease in long-term interest rates that resulted in a charge of $(247) and $(261), respectively, and a higher interest rate volatility that resulted in
a charge of $(72) and $(76), respectively. The gain on the macro hedge program for the three and nine months ended September 30, 2011 is driven by a lower equity market valuation and foreign currency movements, primarily the Japanese yen strengthening in comparison to the euro. |
|
The gain on GMWB derivatives, net, for the three months ended September 30, 2010 was primarily due to gains on liability model assumption updates of $164 and gains driven by lower implied market volatility of $117, partially offset by losses due to a general decrease in
long-term rates of $(94). The loss on GMWB derivatives, net, for the nine months ended September 30, 2010 was primarily due to a general decrease in long-term interest rates that resulted in a charge of $(309), partially offset by gains on liability model assumption updates of
$164. The net loss on the macro hedge program was primarily the result of higher equity market valuation. |
82
Other, net
|
Other, net loss for the three and nine months ended
September 30, 2011 was primarily due to losses of ($178) and
($148), respectively, on credit derivatives and fair value
option securities driven by credit spread widening and losses
of ($135) and ($126), respectively, on transactional foreign
currency re-valuation associated with the internal reinsurance
of the Japan variable annuity business, which is offset in
AOCI, due to an increase in value of the Japanese yen versus
the U.S. dollar. Also included were losses of ($54) and ($86),
respectively, on Japan 3Win foreign currency swaps primarily
driven by a decrease in long-term U.S. interest rates. In
addition, losses of ($58) for the three and nine months ended
September 30, 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. |
|
Other, net gain for the three months ended September
30, 2010 was primarily due to gains of $109 on credit
derivatives that assume credit risk driven by credit spreads
tightening, and gains of $58 on interest rate derivatives used
to manage portfolio duration driven by a decline in long-term
interest rates, partially offset by losses of ($123) on
transactional foreign currency re-valuation associated with the
internal reinsurance of the Japan variable annuity business,
which is offset in AOCI, due to an increase in value of the
Japanese yen versus the U.S. dollar. |
||
Other, net loss for the nine months ended September 30,
2010 was primarily due to losses of ($240) on transactional
foreign currency re-valuation associated with the internal
reinsurance of the Japan variable annuity business, which is
offset in AOCI, due to an increase in value of the Japanese yen
versus the U.S. dollar, and losses of ($117) related to the
Japan 3Win foreign currency swaps driven by a decrease in U.S.
interest rates. These losses are partially offset by gains of
$140 on credit derivatives, gains of $60 related to Japan
variable annuity hedges due to the appreciation of the Japanese
yen, gains of $55 on interest rate derivatives used to manage
portfolio duration driven by a decline in long-term interest
rates and $35 of other foreign currency related gains. |
83
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Underwriting Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Written premiums |
$ | 1,551 | $ | 1,447 | 7 | % | $ | 4,694 | $ | 4,347 | 8 | % | ||||||||||||
Change in unearned premium reserve |
(2 | ) | 8 | NM | 126 | 69 | 83 | % | ||||||||||||||||
Earned premiums |
1,553 | 1,439 | 8 | % | 4,568 | 4,278 | 7 | % | ||||||||||||||||
Losses and loss adjustment expenses |
||||||||||||||||||||||||
Current accident year before catastrophes |
1,085 | 888 | 22 | % | 2,997 | 2,634 | 14 | % | ||||||||||||||||
Current accident year catastrophes |
93 | 13 | NM | 305 | 134 | 128 | % | |||||||||||||||||
Prior accident years |
(9 | ) | (118 | ) | 92 | % | 16 | (339 | ) | NM | ||||||||||||||
Total losses and loss adjustment expenses |
1,169 | 783 | 49 | % | 3,318 | 2,429 | 37 | % | ||||||||||||||||
Amortization of deferred policy acquisition costs |
340 | 338 | 1 | % | 1,015 | 1,018 | | |||||||||||||||||
Insurance operating costs and expenses |
119 | 100 | 19 | % | 362 | 318 | 14 | % | ||||||||||||||||
Underwriting results |
(75 | ) | 218 | NM | (127 | ) | 513 | NM | ||||||||||||||||
Net servicing income |
2 | 5 | (60 | %) | 6 | 8 | (25 | %) | ||||||||||||||||
Net investment income |
217 | 226 | (4 | %) | 698 | 693 | 1 | % | ||||||||||||||||
Net realized capital gains (losses) |
(51 | ) | 5 | NM | (61 | ) | (11 | ) | NM | |||||||||||||||
Other expenses |
(38 | ) | (31 | ) | (23 | %) | (116 | ) | (101 | ) | (15 | %) | ||||||||||||
Income from continuing operations before income
taxes |
55 | 423 | (87 | %) | 400 | 1,102 | (64 | %) | ||||||||||||||||
Income tax expense |
1 | 124 | (99 | %) | 55 | 331 | (83 | %) | ||||||||||||||||
Income from continuing operations, net of tax |
54 | 299 | (82 | %) | 345 | 771 | (55 | %) | ||||||||||||||||
Income (loss) from discontinued operations, net of
tax [1] |
(2 | ) | 7 | NM | 155 | 11 | NM | |||||||||||||||||
Net income |
$ | 52 | $ | 306 | (83 | %) | $ | 500 | $ | 782 | (36 | %) | ||||||||||||
[1] | Represents the income from operations and sale of Specialty Risk Services (SRS). For
additional information, see Note 12 of the Notes to Condensed Consolidated Financial
Statements. |
Three Months Ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Premium Measures [1] | 2011 | 2010 | 2011 | 2010 | ||||||||||||
New business premium |
$ | 271 | $ | 279 | $ | 860 | $ | 852 | ||||||||
Standard commercial lines policy count retention |
82 | % | 83 | % | 82 | % | 84 | % | ||||||||
Standard commercial lines renewal written pricing increase |
4 | % | 1 | % | 3 | % | 1 | % | ||||||||
Standard commercial lines renewal earned pricing increase |
2 | % | | 2 | % | | ||||||||||
Standard commercial lines policies in-force as of end of period |
1,256,229 | 1,201,862 |
[1] | Standard commercial lines represents the Companys small commercial and middle market
property and casualty lines. |
Three Months Ended | Nine months ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Ratios | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Loss and loss adjustment expense ratio |
||||||||||||||||||||||||
Current accident year before catastrophes |
69.9 | 61.8 | (8.1 | ) | 65.6 | 61.6 | (4.0 | ) | ||||||||||||||||
Current accident year catastrophes |
6.0 | 0.9 | (5.1 | ) | 6.7 | 3.1 | (3.6 | ) | ||||||||||||||||
Prior accident years |
(0.6 | ) | (8.2 | ) | (7.6 | ) | 0.4 | (7.9 | ) | (8.3 | ) | |||||||||||||
Total loss and loss adjustment expense ratio |
75.3 | 54.5 | (20.8 | ) | 72.6 | 56.8 | (15.8 | ) | ||||||||||||||||
Expense ratio |
29.2 | 30.1 | 0.9 | 29.9 | 31.2 | 1.3 | ||||||||||||||||||
Policyholder dividend ratio |
0.3 | 0.3 | | 0.3 | | (0.3 | ) | |||||||||||||||||
Combined ratio |
104.8 | 84.9 | (19.9 | ) | 102.8 | 88.0 | (14.8 | ) | ||||||||||||||||
Catastrophe ratio |
||||||||||||||||||||||||
Current accident year |
6.0 | 0.9 | (5.1 | ) | 6.7 | 3.1 | (3.6 | ) | ||||||||||||||||
Prior accident years |
0.1 | | (0.1 | ) | 0.2 | | (0.2 | ) | ||||||||||||||||
Total catastrophe ratio |
6.1 | 0.9 | (5.2 | ) | 6.8 | 3.1 | (3.7 | ) | ||||||||||||||||
Combined ratio before catastrophes |
98.7 | 84.0 | (14.7 | ) | 96.0 | 84.9 | (11.1 | ) | ||||||||||||||||
Combined ratio before catastrophes and prior
accident year development |
99.4 | 92.2 | (7.2 | ) | 95.8 | 92.8 | (3.0 | ) | ||||||||||||||||
Other revenues [1] |
$ | 28 | $ | 26 | 8 | % | $ | 77 | $ | 72 | 7 | % | ||||||||||||
[1] | Represents servicing revenues. |
84
85
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Premiums and other considerations |
$ | 1,016 | $ | 1,058 | (4 | %) | $ | 3,136 | $ | 3,234 | (3 | %) | ||||||||||||
Net investment income |
102 | 107 | (5 | %) | 312 | 324 | (4 | %) | ||||||||||||||||
Net realized capital gains (losses) |
6 | (1 | ) | NM | 2 | 31 | (94 | %) | ||||||||||||||||
Total revenues |
1,124 | 1,164 | (3 | %) | 3,450 | 3,589 | (4 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
814 | 816 | | 2,492 | 2,505 | (1 | %) | |||||||||||||||||
Amortization of deferred policy acquisition costs |
14 | 15 | (7 | %) | 42 | 46 | (9 | %) | ||||||||||||||||
Insurance operating costs and other expenses |
268 | 275 | (3 | %) | 835 | 839 | | |||||||||||||||||
Total benefits, losses and expenses |
1,096 | 1,106 | (1 | %) | 3,369 | 3,390 | (1 | %) | ||||||||||||||||
Income before income taxes |
28 | 58 | (52 | %) | 81 | 199 | (59 | %) | ||||||||||||||||
Income tax expense |
3 | 12 | (75 | %) | 4 | 54 | (93 | %) | ||||||||||||||||
Net income |
$ | 25 | $ | 46 | (46 | %) | $ | 77 | $ | 145 | (47 | %) | ||||||||||||
Premiums and other considerations
|
||||||||||||||||||||||||
Fully insured ongoing premiums |
$ | 1,000 | $ | 1,043 | (4 | %) | $ | 3,041 | $ | 3,136 | (3 | %) | ||||||||||||
Buyout premiums |
| | | 49 | 58 | (16 | %) | |||||||||||||||||
Other |
16 | 15 | 7 | % | 46 | 40 | 15 | % | ||||||||||||||||
Total premiums and other considerations |
$ | 1,016 | $ | 1,058 | (4 | %) | $ | 3,136 | $ | 3,234 | (3 | %) | ||||||||||||
Fully insured ongoing sales, excluding buyouts |
$ | 91 | $ | 100 | (9 | %) | $ | 427 | $ | 497 | (14 | %) | ||||||||||||
Ratios, excluding buyouts
|
||||||||||||||||||||||||
Loss ratio |
80.1 | % | 77.1 | % | 79.1 | % | 77.0 | % | ||||||||||||||||
Loss ratio, excluding financial institutions |
84.7 | % | 82.4 | % | 84.2 | % | 82.5 | % | ||||||||||||||||
Expense ratio |
27.8 | % | 27.4 | % | 28.4 | % | 27.9 | % | ||||||||||||||||
Expense ratio, excluding financial institutions |
23.8 | % | 22.8 | % | 23.8 | % | 23.1 | % |
86
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Written premiums |
$ | 964 | $ | 1,014 | (5 | %) | $ | 2,817 | $ | 2,990 | (6 | %) | ||||||||||||
Change in unearned premium reserve |
34 | 29 | 17 | % | (8 | ) | 14 | NM | ||||||||||||||||
Earned premiums |
930 | 985 | (6 | %) | 2,825 | 2,976 | (5 | %) | ||||||||||||||||
Losses and loss adjustment expenses |
||||||||||||||||||||||||
Current accident year before catastrophes |
663 | 681 | (3 | %) | 1,902 | 2,034 | (6 | %) | ||||||||||||||||
Current accident year catastrophes |
113 | 42 | 169 | % | 426 | 229 | 86 | % | ||||||||||||||||
Prior accident years |
(9 | ) | (34 | ) | 74 | % | (58 | ) | (51 | ) | (14 | %) | ||||||||||||
Total losses and loss adjustment expenses |
767 | 689 | 11 | % | 2,270 | 2,212 | 3 | % | ||||||||||||||||
Amortization of deferred policy acquisition costs |
159 | 167 | (5 | %) | 480 | 503 | (5 | %) | ||||||||||||||||
Insurance operating costs and expenses |
67 | 71 | (6 | %) | 215 | 217 | (1 | %) | ||||||||||||||||
Underwriting results |
(63 | ) | 58 | NM | (140 | ) | 44 | NM | ||||||||||||||||
Net servicing income |
4 | 7 | (43 | %) | 13 | 22 | (41 | %) | ||||||||||||||||
Net investment income |
46 | 46 | | 145 | 139 | 4 | % | |||||||||||||||||
Net realized capital gains (losses) |
(10 | ) | 1 | NM | (12 | ) | (2 | ) | NM | |||||||||||||||
Other expenses |
(8 | ) | (14 | ) | 43 | % | (153 | ) | (47 | ) | NM | |||||||||||||
Income (loss) before income taxes |
(31 | ) | 98 | NM | (147 | ) | 156 | NM | ||||||||||||||||
Income tax expense (benefit) |
(15 | ) | 28 | NM | (67 | ) | 43 | NM | ||||||||||||||||
Net income (loss) |
$ | (16 | ) | $ | 70 | NM | $ | (80 | ) | $ | 113 | NM | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Written Premiums | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Product Line |
||||||||||||||||||||||||
Automobile |
$ | 657 | $ | 700 | (6 | %) | $ | 1,963 | $ | 2,115 | (7 | %) | ||||||||||||
Homeowners |
307 | 314 | (2 | %) | 854 | 875 | (2 | %) | ||||||||||||||||
Total |
$ | 964 | $ | 1,014 | (5 | %) | $ | 2,817 | $ | 2,990 | (6 | %) | ||||||||||||
Earned Premiums |
||||||||||||||||||||||||
Product Line |
||||||||||||||||||||||||
Automobile |
$ | 649 | $ | 698 | (7 | %) | $ | 1,978 | $ | 2,122 | (7 | %) | ||||||||||||
Homeowners |
281 | 287 | (2 | %) | 847 | 854 | (1 | %) | ||||||||||||||||
Total |
$ | 930 | $ | 985 | (6 | %) | $ | 2,825 | $ | 2,976 | (5 | %) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Premium Measures | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Policies in-force end of period |
||||||||||||||||
Automobile |
2,106,385 | 2,287,845 | ||||||||||||||
Homeowners |
1,358,162 | 1,455,921 | ||||||||||||||
Total policies in-force end of period |
3,464,547 | 3,743,766 | ||||||||||||||
New business written premium |
||||||||||||||||
Automobile |
$ | 80 | $ | 74 | $ | 221 | $ | 249 | ||||||||
Homeowners |
$ | 26 | $ | 26 | $ | 68 | $ | 86 | ||||||||
Policy count retention |
||||||||||||||||
Automobile |
83 | % | 82 | % | 82 | % | 83 | % | ||||||||
Homeowners |
84 | % | 84 | % | 83 | % | 85 | % | ||||||||
Renewal written pricing increase |
||||||||||||||||
Automobile |
4 | % | 8 | % | 5 | % | 6 | % | ||||||||
Homeowners |
8 | % | 11 | % | 8 | % | 9 | % | ||||||||
Renewal earned pricing increase |
||||||||||||||||
Automobile |
6 | % | 5 | % | 6 | % | 4 | % | ||||||||
Homeowners |
9 | % | 8 | % | 9 | % | 7 | % |
87
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Ratios and Supplemental Data | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Loss and loss adjustment expense ratio |
||||||||||||||||||||||||
Current accident year before catastrophes |
71.3 | 69.2 | (2.1 | ) | 67.3 | 68.4 | 1.1 | |||||||||||||||||
Current accident year catastrophes |
12.2 | 4.3 | (7.9 | ) | 15.1 | 7.7 | (7.4 | ) | ||||||||||||||||
Prior accident years |
(1.0 | ) | (3.5 | ) | (2.5 | ) | (2.1 | ) | (1.7 | ) | 0.4 | |||||||||||||
Total loss and loss adjustment expense ratio |
82.5 | 70.0 | (12.5 | ) | 80.4 | 74.4 | (6.0 | ) | ||||||||||||||||
Expense ratio |
24.3 | 24.1 | (0.2 | ) | 24.6 | 24.2 | (0.4 | ) | ||||||||||||||||
Combined ratio |
106.8 | 94.1 | (12.7 | ) | 105.0 | 98.5 | (6.5 | ) | ||||||||||||||||
Catastrophe ratio |
||||||||||||||||||||||||
Current year |
12.2 | 4.3 | (7.9 | ) | 15.1 | 7.7 | (7.4 | ) | ||||||||||||||||
Prior years |
| 0.7 | 0.7 | 1.0 | 0.4 | (0.6 | ) | |||||||||||||||||
Total catastrophe ratio |
12.2 | 5.1 | (7.1 | ) | 16.1 | 8.0 | (8.1 | ) | ||||||||||||||||
Combined ratio before catastrophes |
94.6 | 89.1 | (5.5 | ) | 88.9 | 90.5 | 1.6 | |||||||||||||||||
Combined ratio before catastrophes and prior
accident years development |
95.6 | 93.3 | (2.3 | ) | 91.9 | 92.6 | 0.7 | |||||||||||||||||
Other revenues [1] |
$ | 35 | $ | 40 | (13 | %) | $ | 111 | $ | 123 | (10 | %) | ||||||||||||
[1] | Represents servicing revenues. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Product Line Combined Ratios | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Automobile |
100.3 | 93.3 | (7.0 | ) | 95.1 | 95.2 | 0.1 | |||||||||||||||||
Homeowners |
122.1 | 96.3 | (25.8 | ) | 127.9 | 107.4 | (20.5 | ) | ||||||||||||||||
Total |
106.8 | 94.1 | (12.7 | ) | 105.0 | 98.5 | (6.5 | ) | ||||||||||||||||
88
89
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other |
$ | 565 | $ | 588 | (4 | %) | $ | 1,752 | $ | 1,762 | (1 | %) | ||||||||||||
Earned premiums |
59 | 69 | (14 | %) | 167 | 163 | 2 | % | ||||||||||||||||
Net investment income: |
||||||||||||||||||||||||
Securities available-for sale and other |
412 | 426 | (3 | %) | 1,243 | 1,277 | (3 | %) | ||||||||||||||||
Equity securities, trading [1] |
(1,889 | ) | 1,043 | NM | (1,683 | ) | (905 | ) | (86 | %) | ||||||||||||||
Total net investment income (loss) |
(1,477 | ) | 1,469 | NM | (440 | ) | 372 | NM | ||||||||||||||||
Net realized capital gains (losses) |
668 | (321 | ) | NM | 374 | (626 | ) | NM | ||||||||||||||||
Total revenues |
(185 | ) | 1,805 | NM | 1,853 | 1,671 | 11 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
850 | 388 | 119 | % | 1,762 | 1,531 | 15 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses returns credited on international variable annuities [1] |
(1,889 | ) | 1,043 | NM | (1,683 | ) | (905 | ) | (86 | %) | ||||||||||||||
Amortization of DAC |
607 | (70 | ) | NM | 945 | 323 | 193 | % | ||||||||||||||||
Insurance operating costs and other expenses |
196 | 198 | (1 | %) | 581 | 568 | 2 | % | ||||||||||||||||
Total benefits, losses and expenses |
(236 | ) | 1,559 | NM | 1,605 | 1,517 | 6 | % | ||||||||||||||||
Income before income taxes |
51 | 246 | (79 | %) | 248 | 154 | 61 | % | ||||||||||||||||
Income tax expense (benefit) |
2 | 69 | (97 | %) | (79 | ) | 11 | NM | ||||||||||||||||
Income from continuing operations, net of tax |
49 | 177 | (72 | %) | 327 | 143 | 129 | % | ||||||||||||||||
Loss from discontinued operations, net of tax |
| (2 | ) | 100 | % | | (2 | ) | 100 | % | ||||||||||||||
Net income |
$ | 49 | $ | 175 | (72 | %) | $ | 327 | $ | 141 | 132 | % | ||||||||||||
Assets Under Management |
||||||||||||||||||||||||
Variable annuity account values |
$ | 98,154 | $ | 113,912 | ||||||||||||||||||||
Fixed MVA annuity and other account values [2] |
16,740 | 17,100 | ||||||||||||||||||||||
Institutional investment products account values |
18,003 | 20,086 | ||||||||||||||||||||||
Total assets under management |
$ | 132,897 | $ | 151,098 | ||||||||||||||||||||
Account Value Roll Forward |
||||||||||||||||||||||||
Variable Annuities |
||||||||||||||||||||||||
Account value, beginning of period |
$ | 112,328 | $ | 107,295 | $ | 116,520 | $ | 119,387 | ||||||||||||||||
Transfers affecting beginning of period [3] |
| | | (1,355 | ) | |||||||||||||||||||
Account Value, beginning of period, as adjusted |
112,328 | 107,295 | 116,520 | 118,032 | ||||||||||||||||||||
Net flows |
(3,103 | ) | (2,848 | ) | (10,564 | ) | (8,597 | ) | ||||||||||||||||
Change in market value and other |
(12,466 | ) | 7,631 | (9,397 | ) | 1,349 | ||||||||||||||||||
Effect of currency translation |
1,395 | 1,834 | 1,595 | 3,128 | ||||||||||||||||||||
Account value, end of period |
$ | 98,154 | $ | 113,912 | $ | 98,154 | $ | 113,912 | ||||||||||||||||
Net Investment Spread |
27 | bps | 11 | bps | 29 | bps | 13 | bps | ||||||||||||||||
Expense Ratios |
||||||||||||||||||||||||
General insurance expense ratio |
6.2 | bps | 5.6 | bps | 18.4 | bps | 16.1 | bps | ||||||||||||||||
DAC amortization ratio |
92.2 | % | (39.8 | %) | 79.2 | % | 67.7 | % | ||||||||||||||||
Effect of realized gains (losses) on DAC amortization |
1892.2 | % | (62.9 | %) | 38.2 | % | 20.8 | % | ||||||||||||||||
Effect of Unlock on DAC amortization |
(1848.5 | %) | (22.9 | %) | (4.4 | %) | (3.4 | %) | ||||||||||||||||
DAC amortization ratio, excluding realized losses and Unlocks |
48.5 | % | 46.0 | % | 45.4 | % | 50.3 | % | ||||||||||||||||
[1] | Includes investment income and mark-to-market effects of equity securities, trading, supporting the international
variable annuity business, which are classified in net investment income with corresponding amounts credited to
policyholders within benefits, losses and loss adjustment expenses. |
|
[2] | Fixed MVA annuity and other account values includes approximately $2.7 billion related to the triggering of the
guaranteed minimum income benefit for the 3Win product as of September 30, 2011 and $2.0 billion as of September 30,
2010. This account value is not expected to generate material future profit or loss to the Company. |
|
[3] | Canadian mutual funds were transferred from Global Annuity to Mutual Funds effective January 1, 2010. |
90
91
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other |
$ | 311 | $ | 268 | 16 | % | $ | 870 | $ | 832 | 5 | % | ||||||||||||
Earned premiums |
(25 | ) | (25 | ) | | (74 | ) | (70 | ) | (6 | %) | |||||||||||||
Net investment income |
146 | 132 | 11 | % | 435 | 391 | 11 | % | ||||||||||||||||
Net realized capital gains (losses) |
20 | 13 | 54 | % | (3 | ) | 45 | NM | ||||||||||||||||
Total revenues |
452 | 388 | 16 | % | 1,228 | 1,198 | 3 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
310 | 227 | 37 | % | 783 | 646 | 21 | % | ||||||||||||||||
Amortization of DAC |
107 | (20 | ) | NM | 181 | 71 | 155 | % | ||||||||||||||||
Insurance operating costs and other expenses |
51 | 44 | 16 | % | 156 | 154 | 1 | % | ||||||||||||||||
Total benefits, losses and expenses |
468 | 251 | 86 | % | 1,120 | 871 | 29 | % | ||||||||||||||||
Income (loss) before income taxes |
(16 | ) | 137 | NM | 108 | 327 | (67 | %) | ||||||||||||||||
Income tax expense (benefit) |
(13 | ) | 40 | NM | 10 | 103 | (90 | %) | ||||||||||||||||
Net income (loss) |
$ | (3 | ) | $ | 97 | NM | $ | 98 | $ | 224 | (56 | %) | ||||||||||||
Account Values |
||||||||||||||||||||||||
Individual variable universal life insurance |
$ | 5,259 | $ | 5,757 | ||||||||||||||||||||
Universal life, interest sensitive whole life, modified guaranteed life insurance and other |
6,549 | 5,995 | ||||||||||||||||||||||
PPLI |
35,989 | 35,558 | ||||||||||||||||||||||
Total account values |
$ | 47,797 | $ | 47,310 | ||||||||||||||||||||
Individual Life Insurance In-Force |
||||||||||||||||||||||||
Variable universal life insurance |
$ | 70,926 | $ | 75,399 | ||||||||||||||||||||
Universal life, interest sensitive whole life, modified guaranteed life insurance |
62,052 | 57,734 | ||||||||||||||||||||||
Term life |
80,249 | 73,959 | ||||||||||||||||||||||
Total individual life insurance in-force |
$ | 213,227 | $ | 207,092 | ||||||||||||||||||||
Individual Life Net Investment Spread |
157 | bps | 142 | bps | 159 | bps | 148 | bps | ||||||||||||||||
Death Benefits |
$ | 130 | $ | 134 | (3 | %) | $ | 393 | $ | 348 | 13 | % | ||||||||||||
92
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other |
$ | 92 | $ | 88 | 5 | % | $ | 285 | $ | 260 | 10 | % | ||||||||||||
Earned premiums |
1 | 1 | | 6 | 5 | 20 | % | |||||||||||||||||
Net investment income |
100 | 93 | 8 | % | 299 | 267 | 12 | % | ||||||||||||||||
Net realized capital losses |
(2 | ) | | | | (10 | ) | 100 | % | |||||||||||||||
Total revenues |
191 | 182 | 5 | % | 590 | 522 | 13 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
81 | 71 | 14 | % | 228 | 204 | 12 | % | ||||||||||||||||
Insurance operating costs and other expenses |
88 | 84 | 5 | % | 268 | 250 | 7 | % | ||||||||||||||||
Amortization of DAC |
81 | (12 | ) | NM | 120 | 14 | NM | |||||||||||||||||
Total benefits, losses and expenses |
250 | 143 | 75 | % | 616 | 468 | 32 | % | ||||||||||||||||
Income (loss) before income taxes |
(59 | ) | 39 | NM | (26 | ) | 54 | NM | ||||||||||||||||
Income tax expense (benefit) |
(27 | ) | 9 | NM | (39 | ) | 16 | NM | ||||||||||||||||
Net income (loss) |
$ | (32 | ) | $ | 30 | NM | $ | 13 | $ | 38 | (66 | %) | ||||||||||||
Assets Under Management |
||||||||||||||||||||||||
401(k) account values |
$ | 19,769 | $ | 18,764 | ||||||||||||||||||||
403(b)/457 account values |
12,072 | 11,874 | ||||||||||||||||||||||
401(k)/403(b) mutual funds |
17,844 | 18,602 | ||||||||||||||||||||||
Total assets under management |
$ | 49,685 | $ | 49,240 | ||||||||||||||||||||
Assets Under Management Roll Forward |
||||||||||||||||||||||||
Assets under management, beginning of period |
$ | 55,555 | $ | 43,791 | $ | 52,518 | $ | 43,962 | ||||||||||||||||
Transfers affecting the beginning of the period [1] |
| 1,294 | 267 | 1,488 | ||||||||||||||||||||
Assets under management, beginning of period, as adjusted |
55,555 | 45,085 | 52,785 | 45,450 | ||||||||||||||||||||
Net flows |
760 | 508 | 1,247 | 1,442 | ||||||||||||||||||||
Change in market value and other |
(6,630 | ) | 3,647 | (4,347 | ) | 2,348 | ||||||||||||||||||
Assets under management, end of period |
$ | 49,685 | $ | 49,240 | $ | 49,685 | $ | 49,240 | ||||||||||||||||
Net Investment Spread |
84 | bps | 100 | bps | 110 | bps | 96 | bps | ||||||||||||||||
[1] | Lifetime Income and Maturity Funding business of $194 was transferred from Global Annuity
to Retirement Plans effective January 1, 2010. |
93
94
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other |
$ | 153 | $ | 159 | (4 | %) | $ | 506 | $ | 493 | 3 | % | ||||||||||||
Net investment loss |
| (2 | ) | 100 | % | (2 | ) | (6 | ) | 67 | % | |||||||||||||
Net realized capital gains (losses) |
| (1 | ) | 100 | % | 1 | | | ||||||||||||||||
Total revenues |
153 | 156 | (2 | %) | 505 | 487 | 4 | % | ||||||||||||||||
Insurance operating costs and other expenses |
105 | 115 | (9 | %) | 348 | 342 | 2 | % | ||||||||||||||||
Amortization of DAC |
12 | 13 | (8 | %) | 36 | 38 | (5 | %) | ||||||||||||||||
Total benefits, losses and expenses |
117 | 128 | (9 | %) | 384 | 380 | 1 | % | ||||||||||||||||
Income from continuing operations, before income taxes |
36 | 28 | 29 | % | 121 | 107 | 13 | % | ||||||||||||||||
Income tax expense |
12 | 9 | 33 | % | 42 | 37 | 14 | % | ||||||||||||||||
Income from continuing operations |
24 | 19 | 26 | % | 79 | 70 | 13 | % | ||||||||||||||||
Loss from discontinued operations, net of tax [1] |
| (1 | ) | 100 | % | | (3 | ) | 100 | % | ||||||||||||||
Net income |
$ | 24 | $ | 18 | 33 | % | $ | 79 | $ | 67 | 18 | % | ||||||||||||
Assets Under Management |
||||||||||||||||||||||||
Retail mutual fund assets |
$ | 39,258 | $ | 44,788 | ||||||||||||||||||||
Investment Only mutual fund assets |
6,625 | 5,570 | ||||||||||||||||||||||
529 College Savings Plan and Canadian mutual fund (CMF) assets [2] |
1,424 | 3,026 | ||||||||||||||||||||||
Total non-proprietary and Canadian mutual fund assets |
47,307 | 53,384 | ||||||||||||||||||||||
Proprietary mutual fund assets |
35,494 | 41,779 | ||||||||||||||||||||||
Total mutual fund assets under management |
$ | 82,801 | $ | 95,163 | ||||||||||||||||||||
Non-Proprietary and CMF AUM Roll Forward [2] |
||||||||||||||||||||||||
Non-Proprietary and CMF AUM, beginning of period |
58,150 | 48,759 | $ | 56,884 | $ | 44,031 | ||||||||||||||||||
Transfers affecting the beginning of the period [3] |
| | | 5,617 | ||||||||||||||||||||
Non-Proprietary and CMF AUM, beginning of period, as adjusted |
58,150 | 48,759 | 56,884 | 49,648 | ||||||||||||||||||||
Net flows |
(2,396 | ) | (163 | ) | (2,584 | ) | 2,199 | |||||||||||||||||
Change in market value and other |
(8,447 | ) | 4,788 | (6,993 | ) | 1,537 | ||||||||||||||||||
Non-Proprietary and CMF AUM, end of period |
$ | 47,307 | $ | 53,384 | $ | 47,307 | $ | 53,384 | ||||||||||||||||
Proprietary Mutual Fund AUM Roll Forward |
||||||||||||||||||||||||
Proprietary Mutual Fund AUM, beginning of period |
$ | 42,204 | $ | 39,402 | $ | 43,602 | $ | | ||||||||||||||||
Transfers affecting the beginning of the period [4] |
| | | 43,890 | ||||||||||||||||||||
Proprietary Mutual Fund AUM, beginning of period, as adjusted |
42,204 | 39,402 | 43,602 | 43,890 | ||||||||||||||||||||
Net flows |
(1,244 | ) | (1,299 | ) | (4,355 | ) | (3,763 | ) | ||||||||||||||||
Change in market value |
(5,466 | ) | 3,676 | (3,753 | ) | 1,652 | ||||||||||||||||||
Proprietary Mutual Fund AUM, end of period |
$ | 35,494 | $ | 41,779 | $ | 35,494 | $ | 41,779 | ||||||||||||||||
[1] | Represents the loss from operations of Hartford Investments Canada Corporation. (HICC). For additional information, see Note 12 of
the Notes to Condensed Consolidated Financial Statements. |
|
[2] | Canadian mutual funds representing approximately $1.8 billion in AUM were sold in December 2010, therefore are not included in the 2011
beginning balance. |
|
[3] | In 2010, Investment Only and Canadian mutual fund assets were transferred to Mutual Funds from Global Annuity effective January 1, 2010. |
|
[4] | Proprietary mutual fund assets under management are included in the Mutual Fund reporting segment effective January 1, 2010. |
95
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Earned premiums |
$ | | $ | 1 | (100 | %) | $ | | $ | | | |||||||||||||
Fee income |
55 | 46 | 20 | % | 161 | 143 | 13 | % | ||||||||||||||||
Net investment income |
38 | 45 | (16 | %) | 143 | 190 | (25 | %) | ||||||||||||||||
Net realized capital gains (losses) |
(56 | ) | 47 | NM | (60 | ) | 51 | NM | ||||||||||||||||
Total revenues |
37 | 139 | (73 | %) | 244 | 384 | (36 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses |
15 | 64 | (77 | %) | 307 | 236 | 30 | % | ||||||||||||||||
Insurance operating costs and other expenses |
62 | 59 | 5 | % | 200 | 270 | (26 | %) | ||||||||||||||||
Interest expense |
128 | 128 | | 384 | 380 | 1 | % | |||||||||||||||||
Total benefits, losses and expenses |
205 | 251 | (18 | %) | 891 | 886 | 1 | % | ||||||||||||||||
Loss from continuing operations before income taxes |
(168 | ) | (112 | ) | (50 | %) | (647 | ) | (502 | ) | (29 | %) | ||||||||||||
Income tax benefit |
(64 | ) | (39 | ) | (64 | %) | (238 | ) | (158 | ) | (51 | %) | ||||||||||||
Loss from continuing operations, net of tax |
(104 | ) | (73 | ) | (42 | %) | (409 | ) | (344 | ) | (19 | %) | ||||||||||||
Income (loss) from discontinued operations, net of tax |
5 | (3 | ) | NM | (70 | ) | (105 | ) | 33 | % | ||||||||||||||
Net loss |
$ | (99 | ) | $ | (76 | ) | (30 | %) | $ | (479 | ) | $ | (449 | ) | (7 | %) | ||||||||
96
% of layer(s) | |||||||||||||||||
Coverage | Treaty term | reinsured | Per occurrence limit | Retention | |||||||||||||
Principal property
catastrophe program
covering property
catastrophe losses
from a single event |
1/1/2011 to 1/1/2012 | 90 | % | $ | 750 | $ | 350 | ||||||||||
Reinsurance with
the Florida
Hurricane
Catastrophe Fund
(FHCF) covering
Florida Personal
Lines property
catastrophe losses
from a single event |
6/1/2011 to 6/1/2012 | 90 | % | $ | 141 | [1] | $ | 55 | |||||||||
Workers
compensation losses
arising from a
single catastrophe
event |
7/1/2011 to 7/1/2012 | 95 | % | $ | 350 | [2] | $ | 100 |
[1] | The estimated per occurrence limit on the FHCF treaty is $141 for
the 6/1/2011 to 6/1/2012 treaty year based on the Companys
election to purchase the required coverage from the FHCF.
Coverage is estimated based upon the best available information
until the FHCF releases actual results at the end of October. |
|
[2] | In addition to the limit shown above, the workers compensation
reinsurance treaty includes a non-catastrophe, industrial accident
layer of $30 excess of a $20 retention. |
97
Fixed Maturities by Credit Quality | ||||||||||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
United States Government/Government agencies |
$ | 7,955 | $ | 8,423 | 10.5 | % | $ | 9,961 | $ | 9,918 | 12.7 | % | ||||||||||||
AAA |
10,085 | 10,497 | 13.1 | % | 10,080 | 10,174 | 13.1 | % | ||||||||||||||||
AA |
15,651 | 15,921 | 19.8 | % | 15,933 | 15,554 | 20.0 | % | ||||||||||||||||
A |
20,217 | 21,584 | 26.9 | % | 19,265 | 19,460 | 25.0 | % | ||||||||||||||||
BBB |
19,884 | 20,626 | 25.7 | % | 18,849 | 19,153 | 24.6 | % | ||||||||||||||||
BB & below |
4,046 | 3,212 | 4.0 | % | 4,331 | 3,561 | 4.6 | % | ||||||||||||||||
Total fixed maturities |
$ | 77,838 | $ | 80,263 | 100.0 | % | $ | 78,419 | 77,820 | 100.0 | % | |||||||||||||
98
Securities by Type | ||||||||||||||||||||||||||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||||||||||||||||||
Cost or | Gross | Gross | of Total | Cost or | Gross | Gross | of Total | |||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Fair | Amortized | Unrealized | Unrealized | Fair | Fair | |||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | Value | Cost | Gains | Losses | Value | Value | |||||||||||||||||||||||||||||||
Asset-backed securities (ABS) |
||||||||||||||||||||||||||||||||||||||||
Consumer loans |
$ | 2,939 | $ | 39 | $ | (191 | ) | $ | 2,787 | 3.5 | % | $ | 2,496 | $ | 23 | $ | (221 | ) | $ | 2,298 | 2.9 | % | ||||||||||||||||||
Small business |
433 | | (126 | ) | 307 | 0.4 | % | 453 | | (141 | ) | 312 | 0.4 | % | ||||||||||||||||||||||||||
Other |
371 | 42 | (3 | ) | 410 | 0.5 | % | 298 | 15 | (34 | ) | 279 | 0.4 | % | ||||||||||||||||||||||||||
CDOs |
||||||||||||||||||||||||||||||||||||||||
Collateralized loan obligations (CLOs) |
2,343 | 1 | (199 | ) | 2,145 | 2.7 | % | 2,429 | 1 | (212 | ) | 2,218 | 2.9 | % | ||||||||||||||||||||||||||
CREs |
502 | | (188 | ) | 314 | 0.4 | % | 653 | | (266 | ) | 387 | 0.5 | % | ||||||||||||||||||||||||||
Other |
6 | | | 6 | | 6 | | | 6 | | ||||||||||||||||||||||||||||||
CMBS |
||||||||||||||||||||||||||||||||||||||||
Agency backed [1] |
610 | 32 | | 642 | 0.8 | % | 519 | 9 | (4 | ) | 524 | 0.7 | % | |||||||||||||||||||||||||||
Bonds |
6,034 | 141 | (511 | ) | 5,664 | 7.1 | % | 6,985 | 147 | (583 | ) | 6,549 | 8.4 | % | ||||||||||||||||||||||||||
Interest only (IOs) |
608 | 69 | (23 | ) | 654 | 0.8 | % | 793 | 79 | (28 | ) | 844 | 1.1 | % | ||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||||||||||||||
Basic industry [2] |
3,385 | 281 | (31 | ) | 3,634 | 4.5 | % | 2,993 | 190 | (24 | ) | 3,159 | 4.1 | % | ||||||||||||||||||||||||||
Capital goods |
3,317 | 333 | (20 | ) | 3,630 | 4.5 | % | 3,179 | 223 | (23 | ) | 3,379 | 4.3 | % | ||||||||||||||||||||||||||
Consumer cyclical |
2,111 | 179 | (13 | ) | 2,277 | 2.8 | % | 1,883 | 115 | (12 | ) | 1,986 | 2.6 | % | ||||||||||||||||||||||||||
Consumer non-cyclical |
6,053 | 681 | (11 | ) | 6,723 | 8.4 | % | 6,126 | 444 | (29 | ) | 6,541 | 8.4 | % | ||||||||||||||||||||||||||
Energy |
3,624 | 377 | (9 | ) | 3,992 | 5.0 | % | 3,377 | 212 | (23 | ) | 3,566 | 4.6 | % | ||||||||||||||||||||||||||
Financial services |
7,752 | 329 | (538 | ) | 7,543 | 9.4 | % | 7,545 | 253 | (470 | ) | 7,328 | 9.4 | % | ||||||||||||||||||||||||||
Tech./comm. |
4,289 | 399 | (57 | ) | 4,631 | 5.8 | % | 4,268 | 269 | (68 | ) | 4,469 | 5.7 | % | ||||||||||||||||||||||||||
Transportation |
1,103 | 105 | (4 | ) | 1,204 | 1.5 | % | 1,141 | 69 | (13 | ) | 1,197 | 1.5 | % | ||||||||||||||||||||||||||
Utilities |
8,266 | 795 | (42 | ) | 9,019 | 11.2 | % | 7,099 | 386 | (58 | ) | 7,427 | 9.5 | % | ||||||||||||||||||||||||||
Other [2] |
759 | 8 | (22 | ) | 663 | 0.8 | % | 885 | 13 | (27 | ) | 832 | 1.1 | % | ||||||||||||||||||||||||||
Foreign govt./govt. agencies |
1,836 | 121 | (13 | ) | 1,944 | 2.4 | % | 1,627 | 73 | (17 | ) | 1,683 | 2.2 | % | ||||||||||||||||||||||||||
Municipal |
||||||||||||||||||||||||||||||||||||||||
Taxable |
1,562 | 127 | (40 | ) | 1,649 | 2.1 | % | 1,319 | 9 | (129 | ) | 1,199 | 1.5 | % | ||||||||||||||||||||||||||
Tax-exempt |
11,016 | 529 | (30 | ) | 11,515 | 14.3 | % | 11,150 | 141 | (366 | ) | 10,925 | 14.0 | % | ||||||||||||||||||||||||||
Residential mortgage-backed securities (RMBS) |
||||||||||||||||||||||||||||||||||||||||
Agency |
3,992 | 216 | (1 | ) | 4,207 | 5.2 | % | 4,283 | 109 | (27 | ) | 4,365 | 5.6 | % | ||||||||||||||||||||||||||
Non-agency |
64 | | (1 | ) | 63 | 0.1 | % | 78 | | (3 | ) | 75 | 0.1 | % | ||||||||||||||||||||||||||
Alt-A |
119 | | (18 | ) | 101 | 0.1 | % | 168 | | (19 | ) | 149 | 0.2 | % | ||||||||||||||||||||||||||
Sub-prime |
1,391 | 6 | (432 | ) | 965 | 1.2 | % | 1,507 | | (413 | ) | 1,094 | 1.4 | % | ||||||||||||||||||||||||||
U.S. Treasuries |
3,353 | 224 | (3 | ) | 3,574 | 4.5 | % | 5,159 | 24 | (154 | ) | 5,029 | 6.5 | % | ||||||||||||||||||||||||||
Fixed maturities, AFS |
77,838 | 5,034 | (2,526 | ) | 80,263 | 100.0 | % | 78,419 | 2,804 | (3,364 | ) | 77,820 | 100.0 | % | ||||||||||||||||||||||||||
Equity securities |
||||||||||||||||||||||||||||||||||||||||
Financial services |
510 | 11 | (167 | ) | 354 | 569 | 4 | (127 | ) | 446 | ||||||||||||||||||||||||||||||
Other |
583 | 81 | (29 | ) | 635 | 444 | 88 | (5 | ) | 527 | ||||||||||||||||||||||||||||||
Equity securities, AFS |
1,093 | 92 | (196 | ) | 989 | 1,013 | 92 | (132 | ) | 973 | ||||||||||||||||||||||||||||||
Total AFS securities |
$ | 78,931 | $ | 5,126 | $ | (2,722 | ) | $ | 81,252 | $ | 79,432 | $ | 2,896 | $ | (3,496 | ) | $ | 78,793 | ||||||||||||||||||||||
Fixed maturities, FVO |
$ | 1,323 | $ | 649 | ||||||||||||||||||||||||||||||||||||
[1] | Represents securities with pools of loans issued by the Small
Business Administration which are backed by the full faith and
credit of the U.S. government. |
|
[2] | Gross unrealized gains (losses) exclude the change in fair value
of bifurcated embedded derivative features of certain securities.
Subsequent changes in fair value are recorded in net realized
capital gains (losses). |
99
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Net | Amortized | Net | |||||||||||||||||||||
Cost | Fair Value | Unrealized | Cost | Fair Value | Unrealized | |||||||||||||||||||
AAA |
$ | 282 | $ | 296 | $ | 14 | $ | 302 | $ | 309 | $ | 7 | ||||||||||||
AA |
1,983 | 1,997 | 14 | 2,085 | 2,095 | 10 | ||||||||||||||||||
A |
3,896 | 3,740 | (156 | ) | 3,760 | 3,599 | (161 | ) | ||||||||||||||||
BBB |
1,774 | 1,612 | (162 | ) | 1,677 | 1,518 | (159 | ) | ||||||||||||||||
BB & below |
327 | 252 | (75 | ) | 290 | 253 | (37 | ) | ||||||||||||||||
Total |
$ | 8,262 | $ | 7,897 | $ | (365 | ) | $ | 8,114 | $ | 7,774 | $ | (340 | ) | ||||||||||
September 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior |
$ | 441 | $ | 448 | $ | 159 | $ | 155 | $ | 84 | $ | 82 | $ | 16 | $ | 13 | $ | 33 | $ | 30 | $ | 733 | $ | 728 | ||||||||||||||||||||||||
2004 |
345 | 360 | 71 | 76 | 54 | 49 | 42 | 39 | 12 | 9 | 524 | 533 | ||||||||||||||||||||||||||||||||||||
2005 |
557 | 585 | 126 | 114 | 170 | 144 | 198 | 156 | 76 | 64 | 1,127 | 1,063 | ||||||||||||||||||||||||||||||||||||
2006 |
736 | 771 | 618 | 551 | 77 | 70 | 383 | 310 | 433 | 345 | 2,247 | 2,047 | ||||||||||||||||||||||||||||||||||||
2007 |
261 | 272 | 249 | 215 | 122 | 98 | 202 | 152 | 166 | 135 | 1,000 | 872 | ||||||||||||||||||||||||||||||||||||
2008 |
55 | 59 | | | | | | | | | 55 | 59 | ||||||||||||||||||||||||||||||||||||
2010 |
29 | 30 | | | | | | | | | 29 | 30 | ||||||||||||||||||||||||||||||||||||
2011 |
319 | 332 | | | | | | | | | 319 | 332 | ||||||||||||||||||||||||||||||||||||
Total |
$ | 2,743 | $ | 2,857 | $ | 1,223 | $ | 1,111 | $ | 507 | $ | 443 | $ | 841 | $ | 670 | $ | 720 | $ | 583 | $ | 6,034 | $ | 5,664 | ||||||||||||||||||||||||
Credit protection |
27.5 | % | 22.4 | % | 18.7 | % | 13.4 | % | 8.8 | % | 21.5 | % | ||||||||||||||||||||||||||||||||||||
100
December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior |
$ | 782 | $ | 803 | $ | 146 | $ | 142 | $ | 107 | $ | 103 | $ | 24 | $ | 21 | $ | 26 | $ | 22 | $ | 1,085 | $ | 1,091 | ||||||||||||||||||||||||
2004 |
489 | 511 | 35 | 35 | 68 | 61 | 33 | 27 | 6 | 5 | 631 | 639 | ||||||||||||||||||||||||||||||||||||
2005 |
610 | 632 | 131 | 121 | 213 | 177 | 182 | 147 | 123 | 96 | 1,259 | 1,173 | ||||||||||||||||||||||||||||||||||||
2006 |
1,016 | 1,050 | 566 | 536 | 256 | 224 | 496 | 416 | 436 | 339 | 2,770 | 2,565 | ||||||||||||||||||||||||||||||||||||
2007 |
305 | 320 | 278 | 250 | 71 | 55 | 253 | 200 | 278 | 198 | 1,185 | 1,023 | ||||||||||||||||||||||||||||||||||||
2008 |
55 | 58 | | | | | | | | | 55 | 58 | ||||||||||||||||||||||||||||||||||||
Total |
$ | 3,257 | $ | 3,374 | $ | 1,156 | $ | 1,084 | $ | 715 | $ | 620 | $ | 988 | $ | 811 | $ | 869 | $ | 660 | $ | 6,985 | $ | 6,549 | ||||||||||||||||||||||||
Credit protection |
28.8 | % | 22.5 | % | 13.3 | % | 13.8 | % | 8.0 | % | 21.5 | % | ||||||||||||||||||||||||||||||||||||
[1] | The vintage year represents the year the pool of loans was originated. |
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Agricultural |
$ | 273 | $ | (19 | ) | $ | 254 | $ | 339 | $ | (23 | ) | $ | 316 | ||||||||||
Whole loans |
4,653 | (29 | ) | 4,624 | 3,326 | (23 | ) | 3,303 | ||||||||||||||||
A-Note participations |
266 | | 266 | 319 | | 319 | ||||||||||||||||||
B-Note participations |
300 | (66 | ) | 234 | 327 | (70 | ) | 257 | ||||||||||||||||
Mezzanine loans |
109 | | 109 | 181 | (36 | ) | 145 | |||||||||||||||||
Total [2] |
$ | 5,601 | $ | (114 | ) | $ | 5,487 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. |
|
[2] | Includes commercial whole loans and excludes residential mortgage loans related to Federal Trust Corporation. For
further information on the total mortgage loan portfolio, see Note 5 of the Notes to Condensed Consolidated Financial
Statements. |
101
September 30, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Hedge funds |
$ | 824 | 32.9 | % | $ | 439 | 22.8 | % | ||||||||
Mortgage and real estate funds |
501 | 20.0 | % | 406 | 21.2 | % | ||||||||||
Mezzanine debt funds |
122 | 4.9 | % | 132 | 6.9 | % | ||||||||||
Private equity and other funds |
1,059 | 42.2 | % | 941 | 49.1 | % | ||||||||||
Total |
$ | 2,506 | 100.0 | % | $ | 1,918 | 100.0 | % | ||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Items | Cost | Value | Loss [1] | Items | Cost | Value | Loss [1] | |||||||||||||||||||||||||
Three months or less |
1,090 | $ | 6,170 | $ | 6,013 | $ | (157 | ) | 1,503 | $ | 17,431 | $ | 16,783 | $ | (643 | ) | ||||||||||||||||
Greater than three to six months |
299 | 1,371 | 1,241 | (130 | ) | 115 | 732 | 690 | (42 | ) | ||||||||||||||||||||||
Greater than six to nine months |
76 | 267 | 250 | (17 | ) | 91 | 438 | 397 | (41 | ) | ||||||||||||||||||||||
Greater than nine to eleven months |
113 | 857 | 778 | (70 | ) | 42 | 185 | 169 | (16 | ) | ||||||||||||||||||||||
Twelve months or more |
1,020 | 12,430 | 10,008 | (2,348 | ) | 1,231 | 15,599 | 12,811 | (2,754 | ) | ||||||||||||||||||||||
Total |
2,598 | $ | 21,095 | $ | 18,290 | $ | (2,722 | ) | 2,982 | $ | 34,385 | $ | 30,850 | $ | (3,496 | ) | ||||||||||||||||
[1] | Unrealized losses exclude the fair value of bifurcated embedded derivative features of
certain securities. Subsequent changes in fair value are recorded in net realized capital
gains (losses). |
102
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
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 |
321 | $ | 2,506 | $ | 1,779 | $ | (670 | ) | 99 | $ | 771 | $ | 582 | $ | (189 | ) | ||||||||||||||||
Greater than three to six months |
53 | 479 | 324 | (155 | ) | 22 | 136 | 104 | (32 | ) | ||||||||||||||||||||||
Greater than six to nine months |
15 | 2 | 1 | (1 | ) | 28 | 234 | 169 | (65 | ) | ||||||||||||||||||||||
Greater than nine to eleven months |
19 | 43 | 27 | (16 | ) | 13 | 43 | 32 | (11 | ) | ||||||||||||||||||||||
Twelve months or more |
256 | 2,179 | 1,283 | (896 | ) | 390 | 4,361 | 2,766 | (1,595 | ) | ||||||||||||||||||||||
Total |
664 | $ | 5,209 | $ | 3,414 | $ | (1,738 | ) | 552 | $ | 5,545 | $ | 3,653 | $ | (1,892 | ) | ||||||||||||||||
[1] | Unrealized 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). |
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less |
40 | $ | 173 | $ | 77 | $ | (96 | ) | 20 | $ | 27 | $ | 12 | $ | (15 | ) | ||||||||||||||||
Greater than three to six months |
9 | 34 | 12 | (22 | ) | 1 | 2 | 1 | (1 | ) | ||||||||||||||||||||||
Greater than six to nine months |
7 | 9 | 2 | (7 | ) | 12 | 65 | 29 | (36 | ) | ||||||||||||||||||||||
Greater than nine to eleven months |
7 | 14 | 5 | (9 | ) | | | | | |||||||||||||||||||||||
Twelve months or more |
58 | 304 | 92 | (212 | ) | 94 | 722 | 260 | (462 | ) | ||||||||||||||||||||||
Total |
121 | $ | 534 | $ | 188 | $ | (346 | ) | 127 | $ | 816 | $ | 302 | $ | (514 | ) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
ABS |
$ | 13 | $ | | $ | 23 | $ | 5 | ||||||||
CRE CDOs |
26 | 49 | 41 | 142 | ||||||||||||
CMBS |
||||||||||||||||
Bonds |
2 | 44 | 16 | 155 | ||||||||||||
IOs |
| 1 | 3 | 2 | ||||||||||||
Corporate |
19 | 15 | 40 | 21 | ||||||||||||
Equity |
| | 10 | 5 | ||||||||||||
RMBS |
||||||||||||||||
Non-agency |
| 1 | | 2 | ||||||||||||
Alt-A |
| 1 | | 10 | ||||||||||||
Sub-prime |
| 3 | 3 | 32 | ||||||||||||
Other |
| 1 | 2 | 1 | ||||||||||||
Total |
$ | 60 | $ | 115 | $ | 138 | $ | 375 | ||||||||
103
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Credit-related concerns |
$ | | $ | (4 | ) | $ | 26 | $ | (72 | ) | ||||||
Held for sale |
||||||||||||||||
Agricultural loans |
| | (3 | ) | (10 | ) | ||||||||||
B-note participations |
| | | (22 | ) | |||||||||||
Mezzanine loans |
| | | (52 | ) | |||||||||||
Total |
$ | | $ | (4 | ) | $ | 23 | $ | (156 | ) | ||||||
104
105
| 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 Companys net amount at risk for GMDB and GMIB benefits; |
| decrease the Companys 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 Companys 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. |
106
GMIB [1] | ||||||||
($ in billions) | Account Value | Net Amount at Risk | ||||||
2013 |
$ | 0.3 | $ | | ||||
2014 |
4.6 | 0.9 | ||||||
2015 |
7.4 | 2.0 | ||||||
2016 |
2.5 | 0.8 | ||||||
2017 |
2.8 | 1.0 | ||||||
2018 & beyond [2] |
6.8 | 2.1 | ||||||
Total |
$ | 24.4 | $ | 6.8 | ||||
[1] | Excludes certain non-GMIB living benefits of $3.0 billion of account value and $0.9 billion of net amount at risk. |
|
[2] | In 2018 & beyond, $2.6 billion of the $6.8 billion is primarily associated with account value that is eligible in 2021. |
107
Variable Annuity Guarantee [1] | U.S. GAAP Treatment [1] | Primary Market Risk Exposures [1] | |||
U.S.
Variable Guarantees |
|||||
GMDB
|
Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid | Equity Market Levels | |||
GMWB
|
Fair Value | Equity Market Levels / Implied Volatility / Interest Rates |
|||
For Life Component of 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. |
Variable Annuity Guarantee | Reinsurance | Customized Derivative | Dynamic Hedging | Macro Hedging | ||||
GMDB |
ü | ü | ü | |||||
GMWB |
ü | ü | ü | ü | ||||
For Life Component of GMWB |
ü | |||||||
GMIB |
ü | ü | ||||||
GMAB |
ü | ü |
108
109
Net Realized Capital Gain (Loss), Pre-Tax and DAC | ||||||||||||||||
GMWB | Japan | Macro | GMWB | Japan | Macro | |||||||||||
Hedge | Hedge | Hedge | Total Net | Hedge | Hedge | Hedge | Total Net | |||||||||
Program | Program [6] | Program [6] | Impact | Program | Program [6] | Program [6] | Impact | |||||||||
Capital Market | Expected for third quarter 2011 based on | Expected for fourth quarter 2011 based on | ||||||||||||||
Factor | June 30, 2011 | September 30, 2011 | ||||||||||||||
Equity markets
increase / decrease
1% [1] [2] |
$(1) / $1 | $(23) / $23 | $(10) / $10 | $(34) / $34 | $(1) / $1 | $(47) / $47 | $(12) / $12 | $(60) / $60 | ||||||||
Volatility
increases /
decreases 1% [3] |
$(23) / $23 | / | $8 / $(8) | $(15) / $15 | $(31) / $31 | $5 / $(5) | $(2) / $2 | $(28) / $28 | ||||||||
Interest rates
increase / decrease
1 basis point [4] |
$2 / $(2) | $(2) / $2 | $(1) / $1 | $(1) / $1 | $3 / $(3) | $(6) / $6 | $(1) / $1 | $(4) / $4 | ||||||||
Yen strengthens /
weakens by 1% [5] |
N/A | $53 / $(53) | N/A | $53 / $(53) | N/A | $90 / $(90) | N/A | $90 /$(90) |
[1] | Represents the aggregate net impact of a 1% increase or decrease in broadly traded global equity indices. |
|
[2] | The increase in equity sensitivity was primarily
due to changes in market conditions, the structure of the Japan and macro hedging programs
and additional purchase of macro hedges during the third quarter of 2011. |
|
[3] | Represents the aggregate net impact of a 1% increase or decrease in blended implied volatility that is generally skewed
towards longer durations for broadly traded global equity indices. The increase in volatility sensitivity was
primarily due to higher equity implied volatility during the third quarter 2011. |
|
[4] | Represents the aggregate net impact of a 1 basis point parallel shift on the global LIBOR yield curve. The increase in
interest rate sensitivity was primarily due to additional purchases of interest rate hedges during the third quarter of
2011. |
|
[5] | Represents the aggregate net impact of a 1% strengthening or weakening in the yen compared to all other currencies. The
increase in currency sensitivity was primarily due to additional currency positions added and a strengthening Yen
during the third quarter 2011. |
|
[6] | The sensitivities associated with the Japan Hedge Program and the Macro Hedge Program have no offsetting mark-to-market
liabilities as the liabilities are not carried at fair value. Prior to the third quarter of 2011, the Japan hedge
program was part of the macro hedge program. |
Three Months Ended | ||||
Summary of Hedging Net Realized Capital Gain (Loss), Pre-Tax | September 30, 2011 | |||
GMWB Hedge Program |
$ | (372 | ) | |
Japan Hedge Program [1] |
1,088 | |||
Macro Hedge Program [1] |
205 | |||
Total net realized capital gain, pre-tax |
$ | 921 | ||
[1] | The actual Japan Hedge Program and Macro Hedge Program results have been reported in our
investment results in Note 5 of the Notes to Condensed Consolidated Financial Statements and
within the Investment Results section of Key Performance Measures and Ratios in the MD&A as
$1,237 of Macro Hedge results and $56 of Japan variable annuity foreign exchange hedging
instruments which is included in Other, net. |
| A net realized capital gain, pre-tax of $1.1 billion associated with the Japan VA
Hedge Program primarily due to a decrease in global equity levels and a strengthened
Yen. |
| A net realized capital loss, pre-tax of ($372) related to the net of GMWB
derivatives primarily as a result of a general decrease in long-term interest rates. |
110
Predicted Earnings Impact | ||||
Three Months Ended | ||||
September 30, 2011 | ||||
GMWB Net Liability, Japan, and Macro Programs | Total | |||
Equity markets |
$ | 492 | ||
Volatility |
83 | |||
Interest rates |
(93 | ) | ||
Yen |
426 | |||
Total implied net realized capital gain (loss), pre-tax [1] |
$ | 908 | ||
Actual reported net realized capital gain (loss), pre-tax [1] |
$ | 921 | ||
[1] | For the three months ended September 30, 2011, the major factors to the variance in
the actual reported result and the implied sensitivities calculation pre-tax net realized
gain/(loss) were attributed to the following: (i) the impact of elapsed time on short
duration hedge assets, (ii) hedging activities including timing of rebalancing, trading,
and changes in the composition of the underlying hedging instruments, and (iii)
partially offset by favorable policyholder behavior. |
|
Additional factors attributed to the variance include non-parallel shifts in capital market
factors, specific market index and interest rate movements, interest rate and currency
volatilities, variation in the underlying fund performance relative to the hedged indices,
changes in The Hartfords own credit, and changes in Non-U.S. GMWB fair value liabilities.
This difference may vary materially from quarter-to-quarter. |
111
Market Risk on Statutory Capital |
| 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. |
112
113
114
Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||
Description | Date | Date | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Commercial Paper |
||||||||||||||||||||||||
The Hartford |
11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | | $ | | ||||||||||||||
Revolving Credit Facility |
||||||||||||||||||||||||
5-year revolving credit facility |
8/9/07 | 8/9/12 | 1,900 | 1,900 | | | ||||||||||||||||||
Total Commercial Paper and
Revolving Credit Facility |
$ | 3,900 | $ | 3,900 | $ | | $ | | ||||||||||||||||
115
116
Fixed maturities |
$ | 25,942 | ||
Short-term investments |
792 | |||
Cash |
188 | |||
Less: Derivative collateral |
(233 | ) | ||
Total |
$ | 26,689 | ||
Fixed maturities |
$ | 55,643 | ||
Short-term investments |
6,619 | |||
Cash |
2,394 | |||
Less: Derivative collateral |
(3,329 | ) | ||
Cash associated with Japan variable annuities |
(691 | ) | ||
Total |
$ | 60,636 | ||
117
As of | ||||
September 30, | ||||
Contractholder Obligations | 2011 | |||
Total Life contractholder obligations |
$ | 240,291 | ||
Less: Separate account assets [1] |
(143,923 | ) | ||
International statutory separate accounts [1] |
(30,734 | ) | ||
General account contractholder obligations |
$ | 65,634 | ||
Composition of General Account Contractholder Obligations |
||||
Contracts without a surrender provision and/or fixed payout dates [2] |
$ | 30,868 | ||
Fixed MVA annuities [3] |
9,872 | |||
International fixed MVA annuities |
2,704 | |||
Guaranteed investment contracts (GIC) [4] |
675 | |||
Other [5] |
21,515 | |||
General account contractholder obligations |
$ | 65,634 | ||
[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
Companys credit risk. In the statutory separate account, Life
Operations is required to maintain invested assets with a fair
value equal to the MVA surrender value of the Fixed MVA contract.
In the event assets decline in value at a greater rate than the
MVA surrender value of the Fixed MVA contract, Life Operations is
required to contribute additional capital to the statutory
separate account. Life Operations will fund these required
contributions with operating cash flows or short-term
investments. In the event that operating cash flows or
short-term investments are not sufficient to fund required
contributions, the Company may have to sell other invested assets
at a loss, potentially resulting in a decrease in statutory
surplus. As the fair value of invested assets in the statutory
separate account are generally equal to the MVA surrender value
of the Fixed MVA contract, surrender of Fixed MVA annuities will
have an insignificant impact on the liquidity requirements of
Life Operations. |
|
[4] | GICs are subject to discontinuance provisions which allow the
policyholders to terminate their contracts prior to scheduled
maturity at the lesser of the book value or market value.
Generally, the market value adjustment reflects changes in
interest rates and credit spreads. As a result, the market value
adjustment feature in the GIC serves to protect the Company from
interest rate risks and limit Life Operations liquidity
requirements in the event of a surrender. |
|
[5] | Surrenders of, or policy loans taken from, as applicable, these
general account liabilities, which include the general account
option for Global Annuitys individual variable annuities and
Life Insurances variable life contracts, the general account
option for Retirement Plans annuities and universal life
contracts sold by Life Insurance may be funded through operating
cash flows of Life Operations, available short-term investments,
or Life Operations may be required to sell fixed maturity
investments to fund the surrender payment. Sales of fixed
maturity investments could result in the recognition of
significant realized losses and insufficient proceeds to fully
fund the surrender amount. In this circumstance, Life Operations
may need to take other actions, including enforcing certain
contract provisions which could restrict surrenders and/or slow
or defer payouts. |
118
September 30, | December 31, | |||||||||||
2011 | 2010 | Change | ||||||||||
Short-term debt (includes current maturities of long-term debt) |
$ | 400 | $ | 400 | | |||||||
Long-term debt |
6,217 | 6,207 | | |||||||||
Total debt [1] |
6,617 | 6,607 | | |||||||||
Stockholders equity excluding accumulated other comprehensive
loss, net of tax (AOCI) |
21,716 | 21,312 | 2 | % | ||||||||
AOCI, net of tax |
1,065 | (1,001 | ) | NM | ||||||||
Total stockholders equity |
$ | 22,781 | $ | 20,311 | 12 | % | ||||||
Total capitalization including AOCI |
$ | 29,398 | $ | 26,918 | 9 | % | ||||||
Debt to stockholders equity |
29 | % | 33 | % | ||||||||
Debt to capitalization |
23 | % | 25 | % |
[1] | Total debt of the Company excludes $349 and $382 of consumer notes as of September 30,
2011 and December 31, 2010, respectively, and $25 of Federal Home Loan Bank advances recorded
in other liabilities as of September 30, 2011 and December 31, 2010. |
Nine Months Ended | ||||||||
September 30, | ||||||||
Cash Flows | 2011 | 2010 | ||||||
Net cash provided by operating activities |
$ | 1,624 | $ | 2,245 | ||||
Net cash used for investing activities |
$ | (896 | ) | $ | (286 | ) | ||
Net cash used for financing activities |
$ | (239 | ) | $ | (2,395 | ) | ||
Cash end of period |
$ | 2,589 | $ | 1,707 |
119
A.M. Best | Fitch | Standard & Poors | Moodys | |||||
Insurance Financial Strength Ratings: |
||||||||
Hartford Fire Insurance Company |
A | A+ | A | A2 | ||||
Hartford Life Insurance Company |
A | A- | A | A3 | ||||
Hartford Life and Accident Insurance Company |
A | A- | A | A3 | ||||
Hartford Life and Annuity Insurance Company |
A | A- | A | A3 | ||||
Other Ratings: |
||||||||
The Hartford Financial Services Group, Inc.: |
||||||||
Senior debt |
bbb+ | BBB- | BBB | Baa3 | ||||
Commercial paper |
AMB-2 | F2 | A-2 | P-3 |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
U.S. life insurance subsidiaries, includes domestic captive insurance subsidiaries |
$ | 7,414 | $ | 7,731 | ||||
Property and casualty insurance subsidiaries |
7,392 | 7,721 | ||||||
Total |
$ | 14,806 | $ | 15,452 | ||||
120
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 4. | CONTROLS AND PROCEDURES |
121
Item 1. | LEGAL PROCEEDINGS |
122
123
Item 1A. | RISK FACTORS |
Total Number of | ||||||||||||||||
Shares Purchased as | Approximate Dollar Value | |||||||||||||||
Total Number | Average Price | Part of Publicly | of Shares that May Yet Be | |||||||||||||
of Shares | Paid Per | Announced Plans or | Purchased Under | |||||||||||||
Period | Purchased [1] | Share | Programs | the Plans or Programs [2] | ||||||||||||
(in millions) | ||||||||||||||||
July 1, 2011 July 31, 2011 |
| $ | | | $ | | ||||||||||
August 1, 2011 August 31, 2011 |
2,253 | $ | 21.73 | | $ | 500 | ||||||||||
September 1, 2011 September
30, 2011 |
2,125 | $ | 17.23 | | $ | 500 | ||||||||||
Total |
4,378 | $ | 19.55 | | N/A | |||||||||||
[1] | Primarily represents shares acquired from employees of the
Company for tax withholding purposes in connection with the
Companys stock compensation plans. |
|
[2] | On July 27, 2011 the Companys Board of Directors authorized a
$500 stock repurchase program. The Companys repurchase
authorization, which expires on August 5, 2014, permits purchases
of common stock, as well as warrants or other derivative
securities. Repurchases may be made in the open market, through
derivative, accelerated share repurchase and other privately
negotiated transactions, and through plans designed to comply
with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as
amended. The timing of any future repurchases will be dependent
upon several factors, including the market price of the Companys
securities, the Companys capital position, consideration of the
effect of any repurchases on the Companys financial strength or
credit ratings, and other corporate considerations. The
repurchase program may be modified, extended or terminated by the
Board of Directors at any time. |
Item 6. | EXHIBITS |
124
The Hartford Financial Services Group, Inc. |
||||
(Registrant) | ||||
Date: November 2, 2011
|
/s/ Beth A. Bombara
|
|||
Senior Vice President and Controller | ||||
(Chief accounting officer and duly | ||||
authorized signatory) |
125
Exhibit No. | Description | |||
15.01 | Deloitte & Touche LLP Letter of Awareness. |
|||
31.01 | Certification of Liam E. McGee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
31.02 | Certification of Christopher J. Swift pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
32.01 | Certification of Liam E. McGee pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.02 | Certification of Christopher J. Swift pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
101.INS | XBRL Instance Document. |
|||
101.SCH | XBRL Taxonomy Extension Schema. |
|||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. |
|||
101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
|||
101.LAB | XBRL Taxonomy Extension Label Linkbase. |
|||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
126
Form S-3 Registration No. | Form S-8 Registration Nos. | |
333-168532 | 333-12563 | |
333-49170 | ||
333-34092 | ||
033-80665 | ||
333-105706 | ||
333-105707 | ||
333-125489 | ||
333-157372 | ||
333-160173 | ||
333-168537 |
1. | I have reviewed this Quarterly Report on Form 10-Q of The Hartford Financial Services Group,
Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
d. | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Date: November 2, 2011
|
/s/ Liam E. McGee
|
|||
Chairman, President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of The Hartford Financial Services Group,
Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
d. | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Date: November 2, 2011
|
/s/ Christopher J. Swift
|
|||
Executive Vice President and | ||||
Chief Financial Officer |
1) | The Report fully complies with the requirements of section 13(a) or section 15(d) of
the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: November 2, 2011
|
/s/ Liam E. McGee
|
|||
Chairman, President and Chief Executive Officer |
1) | The Report fully complies with the requirements of section 13(a) or section 15(d) of the
Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: November 2, 2011
|
/s/ Christopher J. Swift
|
|||
Executive Vice President and Chief Financial Officer |
Stock Compensation Plans (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Stock based Compensation Plans | ||||
Stock-based compensation plans expense | $ (16) | $ 16 | $ 30 | $ 57 |
Income tax benefit | 6 | (6) | (11) | (20) |
Total stock-based compensation plans expense, after-tax | $ (10) | $ 10 | $ 19 | $ 37 |
Investments and Derivative Instruments (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Change in non-credit impairments of debt securities recognized in OCI | ||||
OTTI losses recognized in OCI | $ (11) | $ (31) | $ (83) | $ (403) |
Changes in fair value and/or sales | 21 | 114 | 88 | 591 |
Tax and deferred acquisition costs | (39) | 6 | (91) | |
Change in non-credit impairments recognized in OCI | $ 10 | $ 44 | $ 11 | $ 97 |
Investments and Derivative Instruments (Details Textual 1) (USD $) In Millions | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | Dec. 31, 2010 | Sep. 30, 2011
Currency Options [Member]
Macro Hedge Program [Member] | Dec. 31, 2010
Currency Options [Member]
Macro Hedge Program [Member] | Sep. 30, 2011
Currency Options [Member]
Macro Hedge Program [Member]
Long Hedge Position [Member] | Dec. 31, 2010
Currency Options [Member]
Macro Hedge Program [Member]
Long Hedge Position [Member] | Sep. 30, 2011
Currency Options [Member]
Macro Hedge Program [Member]
Short Hedge Position [Member] | Dec. 31, 2010
Currency Options [Member]
Macro Hedge Program [Member]
Short Hedge Position [Member] | Sep. 30, 2011
JAPAN [Member]
3Win Related Foreign Currency Swaps [Member] | Sep. 30, 2010
JAPAN [Member]
3Win Related Foreign Currency Swaps [Member] | Sep. 30, 2011
JAPAN [Member]
3Win Related Foreign Currency Swaps [Member] | Sep. 30, 2010
JAPAN [Member]
3Win Related Foreign Currency Swaps [Member] | Sep. 30, 2011
JAPAN [Member]
Fixed annuity hedging instruments [Member] | Sep. 30, 2010
JAPAN [Member]
Fixed annuity hedging instruments [Member] | Sep. 30, 2011
JAPAN [Member]
Fixed annuity hedging instruments [Member] | Sep. 30, 2010
JAPAN [Member]
Fixed annuity hedging instruments [Member] | Dec. 31, 2010
JAPAN [Member]
Variable Annuity Hedging Instruments [Member] | Sep. 30, 2011
JAPAN [Member]
Variable Annuity Hedging Instruments [Member]
Long Hedge Position [Member] | Dec. 31, 2010
JAPAN [Member]
Variable Annuity Hedging Instruments [Member]
Long Hedge Position [Member] | Sep. 30, 2011
JAPAN [Member]
Variable Annuity Hedging Instruments [Member]
Short Hedge Position [Member] | Sep. 30, 2011
Macro Hedge Program [Member] | Dec. 31, 2010
Macro Hedge Program [Member] | Sep. 30, 2011
Contingent Capital Facility Put Option [Member] | Dec. 31, 2010
Contingent Capital Facility Put Option [Member] | |
Derivative [Line Items] | ||||||||||||||||||||||||
Maximum aggregate principal amount of junior subordinated notes | $ 500 | |||||||||||||||||||||||
Associated liability adjusted for changes in spot rates through realized capital gain | (93) | (114) | (100) | (210) | (115) | (140) | (125) | (258) | ||||||||||||||||
Notional Amount | $ 134,480 | $ 136,854 | $ 7,153 | $ 5,296 | $ 6,000 | $ 3,100 | $ 1,200 | $ 2,200 | $ 1,800 | $ 2,400 | $ 1,700 | $ 582 | $ 29,776 | $ 26,210 | $ 500 | $ 500 |
Discontinued Operations (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenue | ||||
Fee income | $ (1) | $ 9 | $ 27 | |
Net investment income | 5 | 10 | 16 | 21 |
Net realized capital gains (losses) | (4) | (5) | (4) | |
Other revenues | 56 | 47 | 165 | |
Total revenues | 4 | 71 | 58 | 209 |
Benefits, losses and expenses | ||||
Amortization of deferred policy acquisition costs and present value of future profits | 7 | 14 | ||
Insurance operating and other expenses | 5 | 59 | 51 | 189 |
Goodwill impairment | 153 | |||
Total benefits, losses and expenses | 5 | 66 | 51 | 356 |
Income (loss) before income taxes | (1) | 5 | 7 | (147) |
Income tax expense (benefit) | 4 | 2 | (48) | |
Income (loss) from operations of discontinued operations, net of tax | (1) | 1 | 5 | (99) |
Net realized capital gain on disposal, net of tax | 4 | 80 | ||
Income (loss) from discontinued operations, net of tax | $ 3 | $ 1 | $ 85 | $ (99) |
Earnings (Loss) Per Common Share (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings (Loss) Per Common Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Common Share |
|
Commitments and Contingencies (Details) (USD $) In Millions | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies (Textual) [Abstract] | |
Amount paid in connection with Fair Credit Reporting Act class action lawsuit | $ 84.3 |
Company's self insured retention | 10 |
Award payment to the company resulted from the excess insurers arbitration | 30.1 |
Reduced value of insurance recoverable | 45.5 |
Award for fair credit reporting act settlement | 50 |
Interest received on fair credit reporting act settlement | 3 |
Fair value of all derivative instruments with credit-risk-related contingent features | 638 |
Collateral posted by insurance operating entities | 619 |
Single Notch Downgrade [Member] | |
Guarantor Obligations [Line Items] | |
Additional assets to be posted as collateral | 22 |
Double Notch Downgrade [Member] | |
Guarantor Obligations [Line Items] | |
Additional assets to be posted as collateral | $ 33 |
Document and Entity Information (USD $) In Billions, except Share data | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Oct. 27, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | HARTFORD FINANCIAL SERVICES GROUP INC/DE | ||
Entity Central Index Key | 0000874766 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 9.8 | ||
Entity Common Stock, Shares Outstanding | 445,739,799 |
Investments and Derivative Instruments (Tables) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments and Derivative Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in non-credit impairments of debt securities recognized in OCI |
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Net Realized Capital Gains (Losses) |
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Other Than Temporary Impairment Losses |
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Available For Sale Securities |
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Contractual Maturity |
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Securities Unrealized Loss Aging |
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Mortgage Loans |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Valuation Allowance For Mortgage Loans |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial Mortgage Loans Credit Quality |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Loans By Region |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Loans By Property Type |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entities Primary Beneficiary |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GMWB reinsurance contracts |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Macro hedge program |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Classification by Balance Sheet Location |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives In Cash Flow Hedging Relationships |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives In Fair Value Hedging Relationships |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain or loss recognized in income on non-qualifying |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Derivatives Description |
|
Separate Accounts, Death Benefits and Other Insurance Benefit Features (Details 2) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Variable separate accounts | $ 66,659 | $ 83,966 |
Equity securities (including mutual funds) [Member] | ||
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Variable separate accounts | 59,253 | 75,601 |
Cash and cash equivalents [Member] | ||
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Variable separate accounts | $ 7,406 | $ 8,365 |
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'+ "\n"+' | '+ "\n"+' '+ "\n"+'
Investments and Derivative Instruments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments and Derivative Instruments |
5. Investments and Derivative Instruments
Significant Investment Accounting Policies
Recognition and Presentation of Other-Than-Temporary Impairments
The Company deems debt securities and certain equity securities with debt-like characteristics
(collectively “debt securities”) to be other-than-temporarily impaired (“impaired”) if a security
meets the following conditions: a) the Company intends to sell or it is more likely than not the
Company will be required to sell the security before a recovery in value, or b) the Company does
not expect to recover the entire amortized cost basis of the security. If the Company intends to
sell or it is more likely than not the Company will be required to sell the security before a
recovery in value, a charge is recorded in net realized capital losses equal to the difference
between the fair value and amortized cost basis of the security. For those impaired debt
securities which do not meet the first condition and for which the Company does not expect to
recover the entire amortized cost basis, the difference between the security’s amortized cost basis
and the fair value is separated into the portion representing a credit other-than-temporary
impairment (“impairment”), which is recorded in net realized capital losses, and the remaining
impairment, which is recorded in OCI. Generally, the Company determines a security’s credit
impairment as the difference between its amortized cost basis and its best estimate of expected
future cash flows discounted at the security’s effective yield prior to impairment. The remaining
non-credit impairment, which is recorded in OCI, is the difference between the security’s fair
value and the Company’s best estimate of expected future cash flows discounted at the security’s
effective yield prior to the impairment, which typically represents current market liquidity and
risk premiums. The previous amortized cost basis less the impairment recognized in net realized
capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to
the estimated future cash flows over the expected remaining life of the security by prospectively
adjusting the security’s yield, if necessary. The following table presents the change in
non-credit impairments recognized in OCI as disclosed in the Company’s Condensed Consolidated
Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010,
respectively.
The Company’s evaluation of whether a credit impairment exists for debt securities includes but is
not limited to, the following factors: (a) changes in the financial condition of the security’s
underlying collateral, (b) whether the issuer is current on contractually obligated interest and
principal payments, (c) changes in the financial condition, credit rating and near-term prospects
of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the
security and (e) the payment structure of the security. The Company’s best estimate of expected
future cash flows used to determine the credit loss amount is a quantitative and qualitative
process that incorporates information received from third-party sources along with certain internal
assumptions and judgments regarding the future performance of the security. The Company’s best
estimate of future cash flows involves assumptions including, but not limited to, various
performance indicators, such as historical and projected default and recovery rates, credit
ratings, current and projected delinquency rates, and loan-to-value (“LTV”) ratios. In addition,
for structured securities, the Company considers factors including, but not limited to, average
cumulative collateral loss rates that vary by vintage year, commercial and residential property
value declines that vary by property type and location and commercial real estate delinquency
levels. These assumptions require the use of significant management judgment and include the
probability of issuer default and estimates regarding timing and amount of expected recoveries
which may include estimating the underlying collateral value. In addition, projections of expected
future debt security cash flows may change based upon new information regarding the performance of
the issuer and/or underlying collateral such as changes in the projections of the underlying
property value estimates.
For equity securities where the decline in the fair value is deemed to be other-than-temporary, a
charge is recorded in net realized capital losses equal to the difference between the fair value
and cost basis of the security. The previous cost basis less the impairment becomes the security’s
new cost basis. The Company asserts its intent and ability to retain those equity securities
deemed to be temporarily impaired until the price recovers. Once identified, these securities are
systematically restricted from trading unless approved by a committee of investment and accounting
professionals (“Committee”). The Committee will only authorize the sale of these securities based
on predefined criteria that relate to events that could not have been reasonably foreseen.
Examples of the criteria include, but are not limited to, the deterioration in the issuer’s
financial condition, security price declines, a change in regulatory requirements or a major
business combination or major disposition.
The primary factors considered in evaluating whether an impairment exists for an equity security
include, but are not limited to: (a) the length of time and extent to which the fair value has been
less than the cost of the security, (b) changes in the financial condition, credit rating and
near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated
payments and (d) the intent and ability of the Company to retain the investment for a period of
time sufficient to allow for recovery.
Mortgage Loan Valuation Allowances
The Company’s security monitoring process reviews mortgage loans on a quarterly basis to identify
potential credit losses. Commercial mortgage loans are considered to be impaired when management
estimates that, based upon current information and events, it is probable that the Company will be
unable to collect amounts due according to the contractual terms of the loan agreement. Criteria
used to determine if an impairment exists include, but are not limited to: current and projected
macroeconomic factors, such as unemployment rates, and property-specific factors such as rental
rates, occupancy levels, LTV ratios and debt service coverage ratios (“DSCR”). In addition, the
Company considers historic, current and projected delinquency rates and property values. For
residential mortgage loans, impairments are evaluated based on pools of loans with similar
characteristics including, but not limited to, similar property types and loan performance status.
These assumptions require the use of significant management judgment and include the probability
and timing of borrower default and loss severity estimates. In addition, projections of expected
future cash flows may change based upon new information regarding the performance of the borrower
and/or underlying collateral such as changes in the projections of the underlying property value
estimates.
For mortgage loans that are deemed impaired, a valuation allowance is established for the
difference between the carrying amount and the Company’s share of either (a) the present value of
the expected future cash flows discounted at the loan’s effective interest rate, (b) the loan’s
observable market price or, most frequently, (c) the fair value of the collateral. Additionally, a
loss contingency valuation allowance is established for estimated probable credit losses on certain
homogenous groups of residential loans. For commercial loans, a valuation allowance has been
established for either individual loans or as a projected loss contingency for loans with an LTV
ratio of 90% or greater and consideration of other credit quality factors, including DSCR. Changes
in valuation allowances are recorded in net realized capital gains and losses. Interest income on
impaired loans is accrued to the extent it is deemed collectible and the loans continue to perform
under the original or restructured terms. Interest income ceases to accrue for loans when it is
probable that the Company will not receive interest and principal payments according to the
contractual terms of the loan agreement, or if a loan is more than 60 days past due. Loans may
resume accrual status when it is determined that sufficient collateral exists to satisfy the full
amount of the loan and interest payments, as well as when it is probable cash will be received in
the foreseeable future. Interest income on defaulted loans is recognized when received.
Net Realized Capital Gains (Losses)
Net realized capital gains and losses from investment sales, after deducting the life and
pension policyholders’ share for certain products, are reported as a component of revenues and are
determined on a specific identification basis. Gross gains on sales, gross losses on sales, and
impairments previously reported as unrealized losses in AOCI were $74 and $87 for the three and
nine months ended September 30, 2011, respectively, and ($24) and ($14) for the three and nine
months ended September 30, 2010, respectively. Proceeds from sales of AFS securities totaled $8.7
billion and $26.3 billion for the three and nine months ended September 30, 2011, respectively, and
$13.7 billion and $35.8 billion, respectively, for the three and nine months ended September 30,
2010.
Other-Than-Temporary Impairment Losses
The following table presents a roll-forward of the Company’s cumulative credit impairments on debt
securities held.
Available-for-Sale Securities
The following table presents the Company’s AFS securities by type.
The following table presents the Company’s fixed maturities, AFS, by contractual maturity
year.
Estimated maturities may differ from contractual maturities due to security call or prepayment
provisions. Due to the potential for variability in payment speeds (i.e. prepayments or
extensions), mortgage-backed and asset-backed securities are not categorized by contractual
maturity.
Securities Unrealized Loss Aging
The following tables present the Company’s unrealized loss aging for AFS securities by type and
length of time the security was in a continuous unrealized loss position.
As of September 30, 2011, AFS securities in an unrealized loss position, comprised of 2,598
securities, largely related to commercial real estate, corporate securities primarily within the
financial services sector and RMBS which have experienced price deterioration. As of September 30,
2011, 74% of securities in a gross unrealized loss position were depressed less than 20% of cost or
amortized cost. The improvement in unrealized losses during 2011 was primarily attributable to
declining interest rates, partially offset by credit spread widening.
Most of the securities depressed for twelve months or more relate to structured securities
primarily within commercial and residential real estate, including structured securities that have
a floating-rate coupon referenced to a market index such as LIBOR. Also included are financial
services securities that have a floating-rate coupon and/or long-dated maturities. Current market
spreads continue to be significantly wider for these securities as compared to spreads at the
security’s respective purchase date, largely due to the economic and market uncertainties regarding
future performance of commercial and residential real estate. Deteriorations in valuation are also
the result of substantial declines in certain market indices. The Company reviewed these
securities as part of its impairment analysis and where a credit impairment has not been recorded,
the Company’s best estimate is that expected future cash flows are sufficient to recover the
amortized cost basis of the security. Furthermore, the Company neither has an intention to sell
nor does it expect to be required to sell these securities.
Mortgage Loans
As of September 30, 2011, the carrying value of mortgage loans associated with the valuation
allowance was $781. Included in the table above, are mortgage loans held-for-sale with a carrying
value and valuation allowance of $202 and $48, respectively, as of September 30, 2011, and $87 and
$7, respectively, as of December 31, 2010. Mortgage loans held-for-sale include those related to
the divestiture of Federal Trust Corporation with a carrying value and valuation allowance of $128
and $44, respectively, as of September 30, 2011, and $68 and $3, respectively as of December 31,
2010 (see Note 12). The carrying value of these loans is included in mortgage loans in the
Company’s Condensed Consolidated Balance Sheets. As of September 30, 2011, loans within the
Company’s mortgage loan portfolio that have had extensions or restructurings other than what is
allowable under the original terms of the contract are immaterial.
The following table presents the activity within the Company’s valuation allowance for mortgage
loans. These loans have been evaluated both individually and collectively for impairment. Loans
evaluated collectively for impairment are immaterial.
The current weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 70%
as of September 30, 2011, while the weighted-average LTV ratio at origination of these loans was
64%. LTV ratios compare the loan amount to the value of the underlying property collateralizing
the loan. The loan values are updated no less than annually through property level reviews of the
portfolio. Factors considered in the property valuation include, but are not limited to, actual
and expected property cash flows, geographic market data and capitalization rates. DSCRs compare a
property’s net operating income to the borrower’s principal and interest payments. The current
weighted average DSCR of the Company’s commercial mortgage loan portfolio was 1.88x as of September
30, 2011. The Company held only two delinquent commercial mortgage loans past due by 90 days or
more. The total carrying value and valuation allowance of these loans totaled $15 and $60,
respectively, as of September 30, 2011, and are not accruing income.
The following table presents the carrying value of the Company’s commercial mortgage loans by LTV
and DSCR.
The following tables present the carrying value of the Company’s mortgage loans by region and
property type.
Variable Interest Entities
The Company is involved with various special purpose entities and other entities that are deemed to
be VIEs primarily as a collateral manager and as an investor through normal investment activities,
as well as a means of accessing capital. A VIE is an entity that either has investors that lack
certain essential characteristics of a controlling financial interest or lacks sufficient funds to
finance its own activities without financial support provided by other entities.
The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company
has a controlling financial interest in the VIE and therefore is the primary beneficiary. The
Company is deemed to have a controlling financial interest when it has both the ability to direct
the activities that most significantly impact the economic performance of the VIE and the
obligation to absorb losses or right to receive benefits from the VIE that could potentially be
significant to the VIE. Based on the Company’s assessment, if it determines it is the primary
beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial
Statements.
Consolidated VIEs
The following table presents the carrying value of assets and liabilities, and the maximum
exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors
have no recourse against the Company in the event of default by these VIEs nor does the Company
have any implied or unfunded commitments to these VIEs. The Company’s financial or other support
provided to these VIEs is limited to its investment management services and original investment.
CDOs represent structured investment vehicles for which the Company has a controlling
financial interest as it provides collateral management services, earns a fee for those services
and also holds investments in the securities issued by these vehicles. Limited partnerships
represent one hedge fund for which the Company holds a majority interest in the fund as an
investment.
Non-Consolidated VIEs
The Company holds a significant variable interest for one VIE for which it is not the primary
beneficiary and, therefore, was not consolidated on the Company’s Condensed Consolidated Balance
Sheets. This VIE represents a contingent capital facility (“facility”) that has been held by the
Company since February 2007 for which the Company has no implied or unfunded commitments. Assets
and liabilities recorded for the facility were $29 and $27, respectively, as of September 30, 2011
and $32 and $32, respectively, as of December 31, 2010. Additionally, the Company has a maximum
exposure to loss of $3 as of September 30, 2011 and $4 as of December 31, 2010, which represents
the issuance costs that were incurred to establish the facility. The Company does not have a
controlling financial interest as it does not manage the assets of the facility nor does it have
the obligation to absorb losses or the right to receive benefits that could potentially be
significant to the facility, as the asset manager has significant variable interest in the vehicle.
The Company’s financial or other support provided to the facility is limited to providing ongoing
support to cover the facility’s operating expenses. For further information on the facility, see
Note 14 of the Notes to Consolidated Financial Statements included in The Hartford’s 2010 Form 10-K
Annual Report.
In addition, the Company, through normal investment activities, makes passive investments in
structured securities issued by VIEs for which the Company is not the manager which are included in
ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table and fixed maturities, FVO, in
the Company’s Condensed Consolidated Balance Sheets. The Company has not provided financial or
other support with respect to these investments other than its original investment. For these
investments, the Company determined it is not the primary beneficiary due to the relative size of
the Company’s investment in comparison to the principal amount of the structured securities issued
by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb
losses or right to receive benefits and the Company’s inability to direct the activities that most
significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss
on these investments is limited to the amount of the Company’s investment.
Derivative Instruments
The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a
part of its overall risk management strategy, as well as to enter into replication transactions.
Derivative instruments are used to manage risk associated with interest rate, equity market, credit
spread, issuer default, price, and currency exchange rate risk or volatility. Replication
transactions are used as an economical means to synthetically replicate the characteristics and
performance of assets that would otherwise be permissible investments under the Company’s
investment policies. The Company also purchases and issues financial instruments and products that
either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or
may contain features that are deemed to be embedded derivative instruments, such as the GMWB rider
included with certain variable annuity products.
Cash flow hedges
Interest rate swaps
Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed maturity
securities or interest payments on floating-rate guaranteed investment contracts to fixed rates.
These derivatives are predominantly used to better match cash receipts from assets with cash
disbursements required to fund liabilities.
The Company also enters into forward starting swap agreements to hedge the interest rate exposure
related to the purchase of fixed-rate securities. These derivatives are primarily structured to
hedge interest rate risk inherent in the assumptions used to price certain liabilities.
Foreign currency swaps
Foreign currency swaps are used to convert foreign currency-denominated cash flows related to
certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow
fluctuations due to changes in currency rates.
Fair value hedges
Interest rate swaps
Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities
and fixed maturity securities due to fluctuations in interest rates.
Foreign currency swaps
Foreign currency swaps are used to hedge the changes in fair value of certain foreign
currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping
the fixed foreign payments to floating rate U.S. dollar denominated payments.
Non-qualifying strategies
Interest rate swaps, swaptions, caps, floors, and futures
The Company uses interest rate swaps, swaptions, caps, floors, and futures to manage duration
between assets and liabilities in certain investment portfolios. In addition, the Company enters
into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of
the original swap. As of September 30, 2011 and December 31, 2010, the notional amount of interest
rate swaps in offsetting relationships was $7.7 and $7.1 billion, respectively.
Foreign currency swaps and forwards
The Company enters into foreign currency swaps and forwards to convert the foreign currency
exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.
Japan 3Win foreign currency swaps
Prior to the second quarter of 2009, The Company offered certain variable annuity products with a
GMIB rider through a wholly-owned Japanese subsidiary. The GMIB rider is reinsured to a
wholly-owned U.S. subsidiary, which invests in U.S. dollar denominated assets to support the
liability. The U.S. subsidiary entered into pay U.S. dollar, receive yen swap contracts to hedge
the currency and interest rate exposure between the U.S. dollar denominated assets and the yen
denominated fixed liability reinsurance payments.
Japanese fixed annuity hedging instruments
Prior to the second quarter of 2009, The Company offered a yen denominated fixed annuity product
through a wholly-owned Japanese subsidiary and reinsured to a wholly-owned U.S. subsidiary. The
U.S. subsidiary invests in U.S. dollar denominated securities to support the yen denominated fixed
liability payments and entered into currency rate swaps to hedge the foreign currency exchange rate
and yen interest rate exposures that exist as a result of U.S. dollar assets backing the yen
denominated liability.
Japanese variable annuity hedging instruments
The Company enters into foreign currency forward and option contracts to hedge the foreign currency
risk associated with certain Japanese variable annuity liabilities reinsured from a wholly-owned
Japanese subsidiary. Foreign currency risk may arise for some segments of the business where
assets backing the liabilities are denominated in U.S. dollars while the liabilities are
denominated in yen. Foreign currency risk may also arise when certain variable annuity
policyholder accounts are invested in various currencies while the related guaranteed minimum death
benefit (“GMDB”) and GMIB guarantees are effectively yen-denominated.
The Company’s net notional amount relating to Japanese variable annuity hedging instruments as of
September 30, 2011 was $1.8 billion, which consisted of $2.4 billion of long positions offset by
short positions of $582. The Company’s net notional amount relating to Japanese variable annuity
hedging instruments as of December 31, 2010 was $1.7 billion which consisted of long positions
only.
Credit derivatives that purchase credit protection
Credit default swaps are used to purchase credit protection on an individual entity or referenced
index to economically hedge against default risk and credit-related changes in value on fixed
maturity securities. These contracts require the Company to pay a periodic fee in exchange for
compensation from the counterparty should the referenced security issuers experience a credit
event, as defined in the contract.
Credit derivatives that assume credit risk
Credit default swaps are used to assume credit risk related to an individual entity, referenced
index, or asset pool, as a part of replication transactions. These contracts entitle the Company
to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty
should the referenced security issuers experience a credit event, as defined in the contract. The
Company is also exposed to credit risk due to credit derivatives embedded within certain fixed
maturity securities. These securities are primarily comprised of structured securities that
contain credit derivatives that reference a standard index of corporate securities or particular
securities.
Credit derivatives in offsetting positions
The Company enters into credit default swaps to terminate existing credit default swaps, thereby
offsetting the changes in value of the original swap going forward.
Equity index swaps, options and futures
The Company offers certain equity indexed products, which may contain an embedded derivative that
requires bifurcation. The Company enters into S&P index swaps and options to economically hedge
the equity volatility risk associated with these embedded derivatives. During third quarter of
2011 the Company entered into equity index options and futures with the purpose of hedging equity
market risk in the investment portfolio in an adverse equity market environment.
GMWB product derivatives
The Company offers certain variable annuity products with a GMWB rider in the U.S. and formerly in
the U.K. and Japan. The GMWB is a bifurcated embedded derivative that provides the policyholder
with a guaranteed remaining balance (“GRB”) if the account value is reduced to zero through a
combination of market declines and withdrawals. The GRB is generally equal to premiums less
withdrawals. Certain contract provisions can increase the GRB at contractholder election or after
the passage of time. The notional value of the embedded derivative is the GRB.
GMWB reinsurance contracts
The Company has entered into reinsurance arrangements to offset a portion of its risk exposure to
the GMWB for the remaining lives of covered variable annuity contracts. Reinsurance contracts
covering GMWB are accounted for as free-standing derivatives. The notional amount of the
reinsurance contracts is the GRB amount.
GMWB hedging instruments
The Company enters into derivative contracts to partially hedge exposure associated with a portion
of the GMWB liabilities that are not reinsured. These derivative contracts include customized
swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices
including the S&P 500 index, EAFE index, and NASDAQ index.
The following table represents notional and fair value for GMWB hedging instruments.
Macro hedge program
The Company utilizes equity options, swaps, equity futures contracts, currency forwards, and
currency options to partially hedge against a decline in the equity markets or changes in foreign
currency exchange rates and the resulting statutory surplus and capital impact primarily arising
from GMDB, GMIB and GMWB obligations. The Company also enters into foreign currency denominated
interest rate swaps to hedge the interest rate exposure related to the potential annuitization of
certain benefit obligations issued in Japan.
The following table represents notional and fair value for the macro hedge program.
The Company’s notional amount relating to the macro hedge program increased since December 31,
2010 primarily due to an increase in the hedging of Japan variable annuities. The Company
increased the notional amount related to currency forwards, currency options, equity futures, and
Yen interest rate swaps. These increases were partially offset by a decline in S&P index equity
options primarily due to the expiration of certain out of the money options in January of 2011.
GMAB product derivatives
The GMAB rider associated with certain of the Company’s Japanese variable annuity products is
accounted for as a bifurcated embedded derivative. The GMAB provides the policyholder with their
initial deposit in a lump sum after a specified waiting period. The notional amount of the
embedded derivative is the yen denominated GRB converted to U.S. dollars at the current foreign
spot exchange rate as of the reporting period date.
Contingent capital facility put option
The Company entered into a put option agreement that provides the Company the right to require a
third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum
aggregate principal amount of $500. Under the put option agreement, The Hartford will pay premiums
on a periodic basis and will reimburse the trust for certain fees and ordinary expenses.
Derivative Balance Sheet Classification
The table below summarizes the balance sheet classification of the Company’s derivative related
fair value amounts, as well as the gross asset and liability fair value amounts. The fair value
amounts presented do not include income accruals or cash collateral held amounts, which are netted
with derivative fair value amounts to determine balance sheet presentation. Derivatives in the
Company’s separate accounts are not included because the associated gains and losses accrue
directly to policyholders. The Company’s derivative instruments are held for risk management
purposes, unless otherwise noted in the table below. The notional amount of derivative contracts
represents the basis upon which pay or receive amounts are calculated and is presented in the table
to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily
reflective of credit risk.
Change in Notional Amount
The net decrease in notional amount of derivatives since December 31, 2010, was primarily due to
the following:
Change in Fair Value
The change in the total fair value of derivative instruments since December 31, 2010, was primarily
related to the following:
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective
portion of the gain or loss on the derivative is reported as a component of OCI and reclassified
into earnings in the same period or periods during which the hedged transaction affects earnings.
Gains and losses on the derivative representing hedge ineffectiveness are recognized in current
period earnings. No components of each derivative’s gain or loss were excluded from the assessment
of hedge effectiveness.
The following table presents the components of the gain or loss on derivatives that qualify as cash
flow hedges:
As of September 30, 2011, the before-tax deferred net gains on derivative instruments recorded
in AOCI that are expected to be reclassified to earnings during the next twelve months are $104.
This expectation is based on the anticipated interest payments on hedged investments in fixed
maturity securities that will occur over the next twelve months, at which time the Company will
recognize the deferred net gains (losses) as an adjustment to interest income over the term of the
investment cash flows. The maximum term over which the Company is hedging its exposure to the
variability of future cash flows (for forecasted transactions, excluding interest payments on
existing variable-rate financial instruments) is approximately two years.
During the three and nine months ended September 30, 2011, the Company had no net reclassifications
from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted
transactions that were no longer probable of occurring. During the three and nine months ended
September 30, 2010, the Company had no net reclassifications and less than $1 of net
reclassifications, respectively, from AOCI to earnings resulting from the discontinuance of
cash-flow hedges due to forecasted transactions that were no longer probable of occurring.
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss
on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings. The Company includes the gain or loss on the
derivative in the same line item as the offsetting loss or gain on the hedged item. No components
of each derivative’s gain or loss were excluded from the assessment of hedge effectiveness.
The Company recognized in income gains (losses) representing the ineffective portion of fair value
hedges as follows:
Non-qualifying Strategies
For non-qualifying strategies, including embedded derivatives that are required to be bifurcated
from their host contracts and accounted for as derivatives, the gain or loss on the derivative is
recognized currently in earnings within net realized capital gains or losses. The following table
presents the gain or loss recognized in income on non-qualifying strategies:
For the three and nine months ended September 30, 2011, the net realized capital gain (loss)
related to derivatives used in non-qualifying strategies was primarily comprised of the following:
For the three and nine months ended September 30, 2010, the net realized capital gain (loss)
related to derivatives used in non-qualifying strategies was primarily comprised of the following:
Refer to Note 9 for additional disclosures regarding contingent credit related features in
derivative agreements.
Credit Risk Assumed through Credit Derivatives
The Company enters into credit default swaps that assume credit risk of a single entity, referenced
index, or asset pool in order to synthetically replicate investment transactions. The Company will
receive periodic payments based on an agreed upon rate and notional amount and will only make a
payment if there is a credit event. A credit event payment will typically be equal to the notional
value of the swap contract less the value of the referenced security issuer’s debt obligation after
the occurrence of the credit event. A credit event is generally defined as a default on
contractually obligated interest or principal payments or bankruptcy of the referenced entity. The
credit default swaps in which the Company assumes credit risk primarily reference investment grade
single corporate issuers and baskets, which include trades ranging from baskets of up to five
corporate issuers to standard and customized diversified portfolios of corporate issuers. The
diversified portfolios of corporate issuers are established within sector concentration limits and
are typically divided into tranches that possess different credit ratings.
The following tables present the notional amount, fair value, weighted average years to maturity,
underlying referenced credit obligation type and average credit ratings, and offsetting notional
amounts and fair value for credit derivatives in which the Company is assuming credit risk as of
September 30, 2011 and December 31, 2010.
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Deferred Policy Acquisition Costs and Present Value of Future Profits (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs and Present Value of Future Profits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in deferred policy acquisition costs and present value of future profits |
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Earnings (Loss) Per Common Share (Details) (Textual) (USD $) In Millions, except Per Share data | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | Jun. 30, 2011 | Mar. 31, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011
Warrants Issued to the US Treasury [Member] | Jun. 30, 2011
Warrants Issued to the US Treasury [Member] | Mar. 31, 2011
Warrants Issued to the US Treasury [Member] | Dec. 31, 2010
Warrants Issued to the US Treasury [Member] | Sep. 30, 2011
Convertible Preferred Securities [Member] | Sep. 30, 2011
Convertible Preferred Securities [Member] | Sep. 30, 2010
Convertible Preferred Securities [Member] | Sep. 30, 2011
Stock Compensation Plan [Member] | Sep. 30, 2011
Warrants [Member] | |
Class of Warrant or Right [Line Items] | |||||||||||||||
Warrants exercise price | $ 9.729 | $ 9.754 | $ 9.773 | $ 9.790 | |||||||||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||||||||||||
Weighted average common shares outstanding and dilutive potential common shares in absence of loss | 494.1 | 501.8 | 476.0 | 20.7 | 20.8 | 14.9 | 0.7 | 27.4 | |||||||
Dividends declared | $ 0.10 | $ 0.10 | $ 0.10 | $ 0.05 | $ 0.30 | $ 0.15 |
Fair Value Measurements - Financial Instruments Excluding Guaranteed Living Benefits (Tables) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Measurements - Financial Instruments Excluding Guaranteed Living Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and (liabilities) carried at fair value by hierarchy level, excluding Company's living benefits and associated hedging programs |
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Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) |
For the nine months ended September 30, 2011
For the three months ended September 30, 2010
For the nine months ended September 30, 2010
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Fair value of assets and liabilities accounted for using the fair value option |
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Fair value of assets and liabilities accounted for using the fair value option |
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Financial Instruments Not Carried at Fair Value |
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Fair Value Measurements Guaranteed Living Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and (liabilities) related to the guaranteed living benefits program carried at fair value |
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Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis |
For the three months ended September 30, 2011
For the nine months ended September 30, 2011
For the three months ended September 30, 2010
For the nine months ended September 30, 2010
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Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans |
10. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans
Components of Net Periodic Benefit Cost
Total net periodic benefit cost for the three months ended September 30, 2011 and 2010 includes the
following components:
Total net periodic benefit cost for the nine months ended September 30, 2011 and 2010 includes the
following components:
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Basis of Presentation and Accounting Policies | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Basis of Presentation and Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Accounting Policies |
1. Basis of Presentation and Accounting Policies
Basis of Presentation
The Hartford Financial Services Group, Inc. is a holding company for insurance and financial
services subsidiaries that provide investment products and life and property and casualty insurance
to both individual and business customers in the United States (collectively, “The Hartford” or the
“Company”). Also, The Hartford continues to administer business previously sold in Japan and the
U.K.
The Condensed Consolidated Financial Statements have been prepared on the basis of accounting
principles generally accepted in the United States of America (“U.S. GAAP”), which differ
materially from the accounting practices prescribed by various insurance regulatory authorities.
The accompanying Condensed Consolidated Financial Statements and Notes as of September 30, 2011,
and for the three and nine months ended September 30, 2011 and 2010 are unaudited. These financial
statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion
of management, necessary for the fair presentation of the financial position, results of operations
and cash flows for the interim periods. These Condensed Consolidated Financial Statements and
Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto
included in The Hartford’s 2010 Form 10-K Annual Report. The results of operations for the interim
periods should not be considered indicative of the results to be expected for the full year.
Consolidation
The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial
Services Group, Inc., companies in which the Company directly or indirectly has a controlling
financial interest and those variable interest entities (“VIEs”) in which the Company is required
to consolidate. Entities in which the Company has significant influence over the operating and
financing decisions but are not required to consolidate are reported using the equity method.
Material intercompany transactions and balances between The Hartford and its subsidiaries and
affiliates have been eliminated. For further discussions on variable interest entities see Note 5
of the Notes to Condensed Consolidated Financial Statements.
Discontinued Operations
The Company is presenting the operations of certain businesses that meet the criteria for reporting
as discontinued operations. Amounts for prior periods have been retrospectively reclassified. See
Note 12 of the Notes to Condensed Consolidated Financial Statements for information on the specific
subsidiaries and related impacts.
Use of Estimates
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The most significant estimates include those used in determining property and casualty insurance
product reserves, net of reinsurance; estimated gross profits used in the valuation and
amortization of assets and liabilities associated with variable annuity and other universal
life-type contracts; evaluation of other-than-temporary impairments on available-for-sale
securities and valuation allowances on investments; living benefits required to be fair valued;
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. Certain of these estimates are
particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide
debt or equity markets could have a material impact on the Condensed Consolidated Financial
Statements.
Significant Accounting Policies
For a description of significant accounting policies, see Note 1 of the Notes to Consolidated
Financial Statements included in The Hartford’s 2010 Form 10-K Annual Report, which should be read
in conjunction with these accompanying Condensed Consolidated Financial Statements.
Future Adoption of New Accounting Standards
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
In October 2010, the FASB issued guidance clarifying the definition of acquisition costs that are
eligible for deferral. Acquisition costs are to include only those costs that are directly related
to the successful acquisition or renewal of insurance contracts; incremental direct costs of
contract acquisition that are incurred in transactions with either independent third parties or
employees; and advertising costs meeting the capitalization criteria for direct-response
advertising.
This guidance will be effective for fiscal years beginning after December 15, 2011, and interim
periods within those years. This guidance may be applied prospectively upon the date of adoption,
with retrospective application permitted, but not required. Early adoption as of the beginning of
a fiscal year is permitted.
The Company intends to adopt this guidance retrospectively on January 1, 2012, resulting in a write
down of the Company’s deferred acquisition costs relating to those costs which no longer meet the
revised guidance as summarized above. The Company estimates the cumulative effect of the
retrospective adoption of this guidance will reduce stockholders’ equity as of December 31, 2010
between $1.4 billion and $1.7 billion after-tax. The actual impact may be different.
Income Taxes
A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for
income taxes is as follows:
The separate account dividends-received deduction (“DRD”) is estimated for the current year
using information from the prior year-end, adjusted for current year equity market performance and
other appropriate factors, including estimated levels of corporate dividend payments and level of
policy owner equity account balances. The actual current year DRD can vary from estimates based
on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of
distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level
and the Company’s taxable income before the DRD. The Company evaluates its DRD computations on a
quarterly basis.
The Company’s unrecognized tax benefits were unchanged during the nine months ended September 30,
2011, remaining at $48 as of September 30, 2011. This entire amount, if it were recognized, would
affect the effective tax rate in the period it is released.
The Company’s federal income tax returns are routinely audited by the Internal Revenue Service
(“IRS”). Audits have been concluded for all years through 2006. The audit of the years 2007 -
2009 commenced during 2010 and is expected to conclude by the end of 2012. In addition, in the
second quarter of 2011 the Company recorded a tax benefit of $52 as a result of a resolution of a
tax matter with the IRS for the computation of DRD for years 1998, 2000 and 2001.
The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce
the total deferred tax asset to an amount that will more likely than not be realized. The deferred
tax asset valuation allowance was $90, relating mostly to foreign net operating losses, as of
September 30, 2011 and was $173 as of December 31, 2010. In assessing the need for a valuation
allowance, management considered future taxable temporary difference reversals, future taxable
income exclusive of reversing temporary differences and carryforwards, taxable income in open carry
back years, as well as other tax planning strategies. These tax planning strategies include holding
a portion of debt securities with market value losses until recovery, selling appreciated
securities to offset capital losses, business considerations such as asset-liability matching, and
sales of certain corporate assets. Management views such tax planning strategies as prudent and
feasible, and would implement them, if necessary, to realize the deferred tax asset. Based on the
availability of additional tax planning strategies identified in the second quarter of 2011, the
Company released $86, or 100% of the valuation allowance associated with investment realized
capital losses. Future economic conditions and debt market volatility, including increases in
interest rates, can adversely impact the Company’s tax planning strategies and in particular the
Company’s ability to utilize tax benefits on previously recognized realized capital losses.
Included in the Company’s September 30, 2011 $1.6 billion net deferred tax asset is $1.8 billion
relating to items treated as ordinary for federal income tax purposes, and a $187 net deferred tax
liability for items classified as capital in nature. The $187 capital items are comprised of $577
of gross deferred tax assets related to realized capital losses and $764 of gross deferred tax
liabilities related to net unrealized capital gains.
Also, for the nine months ended September 30, 2010, the Company incurred a $19 charge related to a
decrease in deferred tax assets as a result of federal legislation that will reduce the tax
deduction available to the Company related to retiree health care costs beginning in 2013.
|
Basis of Presentation and Accounting Policies (Details) (Textual) (Stockholders' Equity [Member], USD $) In Billions | 12 Months Ended |
---|---|
Dec. 31, 2010 | |
Maximum [Member] | |
New disclosure approximating the impact of new accounting guidance | $ 1.7 |
Minimum [Member] | |
New disclosure approximating the impact of new accounting guidance | $ 1.4 |
Separate Accounts, Death Benefits and Other Insurance Benefit Features | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Separate Accounts, Death Benefits and Other Insurance Benefit Features [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Separate Accounts, Death Benefits and Other Insurance Benefit Features |
7. Separate Accounts, Death Benefits and Other Insurance Benefit Features
U.S. GMDB, International GMDB/GMIB, and UL Secondary Guarantee Benefits
Changes in the gross U.S. GMDB, International GMDB/GMIB, and UL secondary guarantee benefits are as
follows:
The following table provides details concerning GMDB and GMIB exposure as of September 30,
2011:
In the U.S., account balances of contracts with guarantees were invested in variable separate
accounts as follows:
As of September 30, 2011 and December 31, 2010, approximately 18% and 15%, respectively, of the
equity securities above were invested in fixed income securities through these funds and
approximately 82% and 85%, respectively, were invested in equity securities.
See Note 4a for further information on guaranteed living benefits that are accounted for at fair
value, such as GMWB.
|
Discontinued Operations | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations |
12. Discontinued Operations
On May 22, 2011, the Company announced a definitive merger agreement with CenterState Banks,
Inc. (“CBI”), pursuant to which Federal Trust Corporation (“FTC”), a wholly owned subsidiary of the
Company, will be merged with and into CBI, and Federal Trust Bank (“FTB”), a federally chartered,
FDIC-insured thrift and wholly owned subsidiary of FTC, will be merged with and into CenterState
Bank of Florida, N.A. (“CenterState Bank”), a wholly owned subsidiary of CBI. These mergers closed
on November 1, 2011. At the time of the mergers, FTC and FTB held net assets including cash,
certain mortgage loans, property and other assets equivalent to liabilities assumed including
deposits and other liabilities, totaling approximately $200. The Company recorded an after-tax
charge of $74 in the second quarter of 2011 related to the divestiture, including the write off of
remaining goodwill of $10, after-tax, and losses on certain FTC and FTB assets and liabilities
which will not be transferred to CenterState. The Company simultaneously engaged in activities to
purchase certain assets and assume certain liabilities from FTC and FTB that were not part of the
transactions with CBI and CenterState Bank. The Company anticipates disposing of these assets and
liabilities within twelve months after closing, and thus any income or expense related to these
assets and liabilities will be temporary in nature. FTC is included in the Corporate and Other
category for segment reporting.
In the first quarter of 2011, the Company completed the sale of its wholly-owned subsidiary
Specialty Risk Services (“SRS”). SRS is a third-party claims administration business that provides
self-insured, insured, and alternative market clients with customized claims services. The Company
is required to provide certain services to SRS for up to 24 months under a Transition Services
Agreement. For the six months ended June 30, 2011, the Company recorded a net realized capital
gain of $150, after-tax. SRS is included in the Property & Casualty Commercial reporting segment.
In addition, during the fourth quarter of 2010, the Company completed the sales of its indirect
wholly-owned subsidiaries Hartford Investments Canada Corporation (“HICC”) and Hartford Advantage
Investment, Ltd. (“HAIL”). HICC is included in the Mutual Funds reporting segment and HAIL is
included in the Global Annuity reporting segment.
The following table summarizes the amounts related to discontinued operations in the Condensed
Consolidated Statements of Operations.
|
Sales Inducements | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales Inducements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales Inducements |
8. Sales Inducements
Changes in deferred sales inducement activity were as follows for the nine months ended
September 30:
|
Discontinued Operations (Details Textual) (USD $) In Millions | 3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2011 | Nov. 01, 2011 | |
Additional Discontinued Operations (Textual) [Abstract] | |||
Net Assets Liabilities held at Time of Merger | $ 200 | ||
Discontinued Operations (Textual) [Abstract] | |||
Net realized capital gain (loss) on disposal of discontinued operations, net of tax | 4 | 80 | |
Goodwill [Member] | Federal Trust Corporation [Member] | |||
Discontinued Operations (Textual) [Abstract] | |||
Net realized capital gain (loss) on disposal of discontinued operations, net of tax | 10 | ||
Federal Trust Corporation [Member] | |||
Discontinued Operations (Textual) [Abstract] | |||
Net realized capital gain (loss) on disposal of discontinued operations, net of tax | 74 | ||
Maximum transition service period | 12 months | ||
Specialty Risk Services [Member] | |||
Discontinued Operations (Textual) [Abstract] | |||
Net realized capital gain (loss) on disposal of discontinued operations, net of tax | $ 150 | ||
Maximum transition service period | 24 months |
Discontinued Operations (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations in Condensed Consolidated Statements of Operations |
|
Deferred Policy Acquisition Costs and Present Value of Future Profits | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs and Present Value of Future Profits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs and Present Value of Future Profits |
6. Deferred Policy Acquisition Costs and Present Value of Future Profits
Changes in the DAC balance are as follows:
The Unlock charge, pre-tax, for the nine months ended September 30, 2011 was driven by declines in
equity markets and assumption changes, including additional costs associated with the
implementation of the Japan hedging strategy which reduces expected future gross profits. The
Unlock benefit, pre-tax, for the nine months ended September 30, 2010 was primarily driven by
actual separate account returns being above our aggregated estimated return and the impacts of
assumption updates made during the third quarter of 2010.
|
Investments and Derivative Instruments (Details 2) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Other-Than-Temporary Impairment Losses | ||||
Beginning Balance | $ (1,933) | $ (2,281) | $ (2,072) | $ (2,200) |
Additions for credit impairments recognized on securities not previously impaired | (4) | (19) | (40) | (183) |
Additions for credit impairments recognized on securities previously impaired | (38) | (52) | (63) | (143) |
Securities that matured or were sold during the period | 157 | 224 | 349 | 378 |
Securities due to an increase in expected cash flows | 4 | 10 | 12 | 30 |
Ending Balance | $ (1,814) | $ (2,118) | $ (1,814) | $ (2,118) |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Comprehensive Income | ||||
Net income | $ 0 | $ 666 | $ 535 | $ 1,061 |
Other comprehensive income (loss) | ||||
Change in net unrealized gain / loss on securities | 871 | 1,064 | 1,717 | 2,642 |
Change in OTTI losses recognized in other comprehensive income | 10 | 44 | 11 | 97 |
Change in net gain / loss on cash-flow hedging instruments | 154 | 79 | 157 | 308 |
Change in foreign currency translation adjustments | 83 | 164 | 109 | 205 |
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs | 24 | 28 | 72 | 60 |
Total other comprehensive income | 1,142 | 1,379 | 2,066 | 3,312 |
Total comprehensive income | $ 1,142 | $ 2,045 | $ 2,601 | $ 4,373 |
Stock Compensation Plans (Details Textual) (USD $) In Millions, unless otherwise specified | 9 Months Ended |
---|---|
Sep. 30, 2011
Year
Security | |
Stock Compensation Plans (Textual) [Abstract] | |
Total compensation cost related to non-vested awards not yet recognized | $ 79 |
Weighted average period of compensation cost recognized (in years) | 1.5 |
Earnings (Loss) Per Common Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Common Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Common Share |
2. Earnings (Loss) Per Common Share
The following table presents a reconciliation of net income and shares used in calculating
basic earnings (loss) per common share to those used in calculating diluted earnings (loss) per
common share.
The declaration of a quarterly common stock dividend of $0.10 during the first, second and
third quarters of 2011 triggered a provision in The Hartford’s Warrant Agreement with The Bank of
New York Mellon, relating to warrants to purchase common stock issued in connection with the
Company’s participation in the Capital Purchase Program, resulting in an adjustment to the warrant
exercise price. The warrant exercise price at September 30, 2011, June 30, 2011, March 31, 2011
and December 31, 2010 was $9.729, $9.754, $9.773 and $9.790, respectively.
As a result of the losses available to common shareholders in the three months ended September 30,
2011, the Company is required to use basic weighted average common shares outstanding in the
calculation of the three months ended September 30, 2011 diluted loss per share, since the
inclusion of 27.4 million shares for warrants, 0.7 million shares for stock compensation plans and
20.7 million shares for mandatory convertible preferred shares, along with the related dividend
adjustment, would have been antidilutive to the earnings per share calculation. In the absence of
the net loss, weighted average common shares outstanding and dilutive potential common shares would
have totaled 494.1 million.
For the nine months ended September 30, 2011, 20.8 million shares for mandatory convertible
preferred shares, along with the related dividend adjustment, would have been antidilutive to the
earnings per share calculations. Assuming the impact of the mandatory convertible preferred shares
was not antidilutive, weighted average common shares outstanding and dilutive potential common
shares would have totaled 501.8 million.
For the nine months ended September 30, 2010, 14.9 million shares for mandatory convertible
preferred shares, along with the related dividend adjustment, would have been antidilutive to the
earnings per share calculation. Assuming the impact of the mandatory convertible preferred shares
was not antidilutive, weighted average common shares outstanding and dilutive potential common
shares would have totaled 476.0 million.
|
Stock Compensation Plans (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation Plans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based Compensation Plans |
|
Investments and Derivative Instruments (Details 8) (USD $) In Millions, unless otherwise specified | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Commercial Mortgage Loans Credit Quality | ||
Avg. Debt-Service Coverage Ratio | 1.880 | |
Greater than 80% [Member] | Commercial [Member] | ||
Commercial Mortgage Loans Credit Quality | ||
Carrying Value | $ 841 | $ 1,358 |
Avg. Debt-Service Coverage Ratio | 1.390 | 1.490 |
65% - 80% [Member] | Commercial [Member] | ||
Commercial Mortgage Loans Credit Quality | ||
Carrying Value | 2,471 | 1,829 |
Avg. Debt-Service Coverage Ratio | 1.570 | 1.930 |
Less than 65% [Member] | Commercial [Member] | ||
Commercial Mortgage Loans Credit Quality | ||
Carrying Value | 2,175 | 1,153 |
Avg. Debt-Service Coverage Ratio | 2.410 | 2.260 |
Commercial [Member] | ||
Commercial Mortgage Loans Credit Quality | ||
Carrying Value | $ 5,487 | $ 4,340 |
Avg. Debt-Service Coverage Ratio | 1.880 | 1.870 |
Investments and Derivative Instruments (Details 1) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net Realized Capital Gains (Losses) | ||||
Gross gains on sales | $ 197 | $ 179 | $ 519 | $ 654 |
Gross losses on sales | (63) | (88) | (294) | (293) |
Net OTTI losses recognized in earnings | (60) | (115) | (138) | (375) |
Valuation allowances on mortgage loans | (4) | 23 | (156) | |
Japanese fixed annuity contract hedges, net | 9 | 11 | (2) | 22 |
Periodic net coupon settlements on credit derivatives/Japan | 1 | (4) | (8) | (15) |
Results of variable annuity hedge program [Line Items] | ||||
Total results of variable annuity hedge program | 865 | (273) | 577 | (337) |
Other, net | (374) | 37 | (436) | (22) |
Total net realized capital gains (losses) | 575 | (257) | 241 | (522) |
GMWB derivatives, net [Member] | ||||
Results of variable annuity hedge program [Line Items] | ||||
Results of variable annuity hedge program | (372) | 170 | (338) | (127) |
Macro Hedge Program [Member] | ||||
Results of variable annuity hedge program [Line Items] | ||||
Results of variable annuity hedge program | $ 1,237 | $ (443) | $ 915 | $ (210) |
Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
3. Segment Information
The Hartford is organized into three customer-oriented divisions, Commercial Markets, Consumer
Markets and Wealth Management, conducting business principally in seven reporting segments. The
Company’s seven reporting segments, as well as the Corporate and Other category, are as follows:
Commercial Markets
Property & Casualty Commercial
Property & Casualty Commercial provides workers’ compensation, property, automobile, marine,
livestock, liability and umbrella coverages primarily throughout the United States (“U.S.”), along
with a variety of customized insurance products and risk management services including professional
liability, fidelity, surety and specialty casualty coverages.
Group Benefits
Group Benefits provides employers, associations, affinity groups and financial institutions with
group life, accident and disability coverage, along with other products and services, including
voluntary benefits and group retiree health.
Consumer Markets
Consumer Markets provides standard automobile, homeowners and home-based business coverages to
individuals across the U.S., including a special program designed exclusively for members of AARP.
Consumer Markets also operates a member contact center for health insurance products offered
through the AARP Health program.
Wealth Management
Global Annuity
Global Annuity offers individual variable, fixed market value adjusted (“fixed MVA”) and single
premium immediate annuities in the U.S., a range of products to institutional investors, including
but not limited to, stable value contracts, and administers investments, retirement savings and
other insurance and savings products to individuals and groups outside the U.S., primarily in Japan
and Europe.
Life Insurance
Life Insurance sells a variety of life insurance products, including variable universal life,
universal life, and term life, as well as private placement life insurance (“PPLI”) owned by
corporations and high net worth individuals.
Retirement Plans
Retirement Plans provides products and services to corporations pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended (the “Code”), and products and services to municipalities
and not-for-profit organizations under Sections 457 and 403(b) of the Code, collectively referred
to as government plans.
Mutual Funds
Mutual Funds offers retail mutual funds, investment-only mutual funds and college savings plans
under Section 529 of the Code (collectively referred to as non-proprietary) and proprietary mutual
funds supporting insurance products issued by The Hartford.
Corporate and Other
The Hartford includes in Corporate and Other the Company’s debt financing and related interest
expense, as well as other capital raising activities; banking operations; certain fee income and
commission expenses associated with sales of non-proprietary products by broker-dealer
subsidiaries; and certain purchase accounting adjustments and other charges not allocated to the
segments. Also included in Corporate and Other is the Company’s management of certain property and
casualty operations that have discontinued writing new business and substantially all of the
Company’s asbestos and environmental exposures, collectively referred to as Other Operations.
Financial Measures and Other Segment Information
The following table presents net income (loss) for each reporting segment, as well as the Corporate
and Other category.
The following table presents revenues by product line for each reporting segment, as well as
the Corporate and Other category.
|
Separate Accounts, Death Benefits and Other Insurance Benefit Features (Details 1) (USD $) In Millions, unless otherwise specified | 9 Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | Dec. 31, 2010 | Sep. 30, 2011
Maximum Anniversary Value [Member] | Sep. 30, 2011
MAV Only [Member]
Age
Year | Sep. 30, 2011
With Five Percent Rollup [Member]
Age | Sep. 30, 2011
With Earnings Protection Benefit Rider (EPB) [Member]
Age | Sep. 30, 2011
With Five Percent Rollup and EPB [Member]
Age | Sep. 30, 2011
Asset Protection Benefit ("APB") [Member]
Age | Sep. 30, 2011
Lifetime Income Benefit ("LIB") - Death Benefit [Member]
Age | Sep. 30, 2011
Reset [Member]
Age
Year | Sep. 30, 2011
Return of Premium ("ROP")/Other [Member]
Age | Sep. 30, 2011
U.S. [Member]
Guaranteed Minimum Death Benefit [Member]
Age | Sep. 30, 2011
JAPAN
Guaranteed Minimum Death Benefit [Member]
Age | Sep. 30, 2011
JAPAN
Guaranteed Minimum Income Benefit [Member]
Age | |
Individual Variable and Group Annuity Account Value by GMDB/GMIB Type | ||||||||||||||
Account Value ("AV") | $ 27,317 | $ 20,113 | $ 1,407 | $ 5,225 | $ 572 | $ 21,875 | $ 1,052 | $ 3,030 | $ 20,557 | $ 73,831 | $ 29,522 | $ 27,471 | ||
Net Amount at Risk ("NAR") | 9,446 | 7,357 | 612 | 1,271 | 206 | 4,495 | 187 | 446 | 1,360 | 15,934 | 11,035 | 7,662 | ||
Retained Net Amount at Risk ("RNAR") | 2,408 | 2,009 | 226 | 131 | 42 | 2,939 | 187 | 442 | 1,330 | 7,306 | 9,583 | 7,662 | ||
Weighted Average Attained Age of Annuitant | 68 | 68 | 65 | 68 | 66 | 64 | 68 | 65 | 66 | 69 | 69 | |||
Less: General Account Value Subject to U.S. GMDB | 7,172 | |||||||||||||
Subtotal Separate Account Liabilities with U.S. GMDB | 66,659 | |||||||||||||
Separate Account Liabilities without U.S. GMDB | 77,264 | |||||||||||||
Total Separate Account Liabilities | $ 143,923 | $ 159,742 |
Fair Value Measurements - Financial Instruments Excluding Guaranteed Living Benefits (Details) (USD $) In Millions, unless otherwise specified | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Assets, Fair Value Disclosure [Abstract] | ||
Total fixed maturities, AFS | $ 80,263 | $ 77,820 |
Short-term investments | 9,704 | 8,528 |
Equity securities, AFS | 989 | 973 |
Fixed maturities, FVO | 1,323 | 649 |
Equity securities, AFS [Member] | Available-for-sale Securities [Member] | Fair Value, Measurements, Recurring [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, AFS | 989 | 973 |
Equity securities, AFS [Member] | Available-for-sale Securities [Member] | Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, AFS | 346 | 298 |
Equity securities, AFS [Member] | Available-for-sale Securities [Member] | Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, AFS | 550 | 521 |
Equity securities, AFS [Member] | Available-for-sale Securities [Member] | Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, AFS | 93 | 154 |
Equity securities, AFS [Member] | Fair Value, Measurements, Recurring [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, trading | 30,770 | 32,820 |
Equity securities, AFS [Member] | Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, trading | 1,953 | 2,279 |
Equity securities, AFS [Member] | Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, trading | 28,817 | 30,541 |
Equity securities, AFS [Member] | Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Equity securities, trading | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 1,029 | 799 |
Separate account assets | 136,113 | 153,727 |
Total assets by type accounted for at fair value on a recurring basis | 260,191 | 275,316 |
Percentage of level to total | 100.00% | 100.00% |
Fixed maturities, FVO | 1,323 | 649 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (863) | (780) |
Other liabilities | (13) | (37) |
Consumer notes | (4) | (5) |
Total liabilities accounted for at fair value on a recurring basis | (886) | (831) |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 541 | |
Derivative Assets | 0 | 0 |
Separate account assets | 97,722 | 116,717 |
Total assets by type accounted for at fair value on a recurring basis | 100,932 | 120,269 |
Percentage of level to total | 39.00% | 44.00% |
Fixed maturities, FVO | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Other liabilities | 0 | 0 |
Consumer notes | 0 | 0 |
Total liabilities accounted for at fair value on a recurring basis | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Short-term Investments [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 337 | |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Equity linked notes [Member] | ||
Liabilities, Fair Value Disclosure [Abstract] | ||
Total other policyholder funds and benefits payable | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Fixed maturities AFS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Total fixed maturities, AFS | 574 | 434 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | ABS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | CDOs [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | CMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Corporate [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Foreign govt./govt. agencies [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Municipal [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | RMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | U.S. Treasuries [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 574 | 434 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Credit derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Equity derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Foreign exchange derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Interest rate derivatives [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Other Derivatives Contracts Assets [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 7,987 | |
Derivative Assets | 928 | 780 |
Separate account assets | 37,207 | 35,763 |
Total assets by type accounted for at fair value on a recurring basis | 149,986 | 145,616 |
Percentage of level to total | 57.00% | 53.00% |
Fixed maturities, FVO | 831 | 127 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (275) | (354) |
Other liabilities | 0 | 0 |
Consumer notes | 0 | 0 |
Total liabilities accounted for at fair value on a recurring basis | (275) | (354) |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Short-term Investments [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 9,367 | |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Equity linked notes [Member] | ||
Liabilities, Fair Value Disclosure [Abstract] | ||
Total other policyholder funds and benefits payable | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Fixed maturities AFS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Total fixed maturities, AFS | 72,286 | 69,897 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | ABS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 3,034 | 2,412 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | CDOs [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 30 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | CMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 6,306 | 7,228 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Corporate [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 41,097 | 37,755 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Foreign govt./govt. agencies [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 1,867 | 1,627 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Municipal [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 12,753 | 11,852 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | RMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 4,229 | 4,398 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | U.S. Treasuries [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 3,000 | 4,595 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Credit derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | (24) | (18) |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (1) | (71) |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Equity derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Foreign exchange derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 724 | 868 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (12) | (34) |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Interest rate derivatives [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 228 | (70) |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (262) | (249) |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Other Derivatives Contracts Assets [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 0 | |
Derivative Assets | 101 | 19 |
Separate account assets | 1,184 | 1,247 |
Total assets by type accounted for at fair value on a recurring basis | 9,273 | 9,431 |
Percentage of level to total | 4.00% | 3.00% |
Fixed maturities, FVO | 492 | 522 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (588) | (426) |
Other liabilities | (13) | (37) |
Consumer notes | (4) | (5) |
Total liabilities accounted for at fair value on a recurring basis | (611) | (477) |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Short-term Investments [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 0 | |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Equity linked notes [Member] | ||
Liabilities, Fair Value Disclosure [Abstract] | ||
Total other policyholder funds and benefits payable | (6) | (9) |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Fixed maturities AFS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Total fixed maturities, AFS | 7,403 | 7,489 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | ABS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 470 | 477 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | CDOs [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 2,465 | 2,581 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | CMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 654 | 689 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Corporate [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 2,219 | 2,129 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Foreign govt./govt. agencies [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 77 | 56 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Municipal [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 411 | 272 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | RMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 1,107 | 1,285 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | U.S. Treasuries [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Credit derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | (2) | 21 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (541) | (411) |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Equity derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 35 | 2 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 1 | 2 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Foreign exchange derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 0 | 0 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 0 | 0 |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Interest rate derivatives [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 39 | (36) |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (48) | (17) |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Other Derivatives Contracts Assets [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 29 | 32 |
Fair Value, Measurements, Recurring [Member] | Short-term Investments [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Short-term investments | 9,704 | 8,528 |
Fair Value, Measurements, Recurring [Member] | Equity linked notes [Member] | ||
Liabilities, Fair Value Disclosure [Abstract] | ||
Total other policyholder funds and benefits payable | (6) | (9) |
Fair Value, Measurements, Recurring [Member] | Fixed maturities AFS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Total fixed maturities, AFS | 80,263 | 77,820 |
Fair Value, Measurements, Recurring [Member] | ABS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 3,504 | 2,889 |
Fair Value, Measurements, Recurring [Member] | CDOs [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 2,465 | 2,611 |
Fair Value, Measurements, Recurring [Member] | CMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 6,960 | 7,917 |
Fair Value, Measurements, Recurring [Member] | Corporate [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 43,316 | 39,884 |
Fair Value, Measurements, Recurring [Member] | Foreign govt./govt. agencies [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 1,944 | 1,683 |
Fair Value, Measurements, Recurring [Member] | Municipal [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 13,164 | 12,124 |
Fair Value, Measurements, Recurring [Member] | RMBS [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 5,336 | 5,683 |
Fair Value, Measurements, Recurring [Member] | U.S. Treasuries [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Fixed maturities | 3,574 | 5,029 |
Fair Value, Measurements, Recurring [Member] | Credit derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | (26) | 3 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (542) | (482) |
Fair Value, Measurements, Recurring [Member] | Equity derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 35 | 2 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | 1 | 2 |
Fair Value, Measurements, Recurring [Member] | Foreign exchange derivative [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 724 | 868 |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (12) | (34) |
Fair Value, Measurements, Recurring [Member] | Interest rate derivatives [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | 267 | (106) |
Liabilities, Fair Value Disclosure [Abstract] | ||
Total derivative liabilities | (310) | (266) |
Fair Value, Measurements, Recurring [Member] | Other Derivatives Contracts Assets [Member] | ||
Assets, Fair Value Disclosure [Abstract] | ||
Derivative Assets | $ 29 | $ 32 |
Separate Accounts, Death Benefits and Other Insurance Benefit Features (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Separate Accounts, Death Benefits and Other Insurance Benefit Features [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in the gross U.S. GMDB, Japan GMDB/GMIB, and UL secondary guarantee benefits |
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Individual Variable and Group Annuity Account Value By GMDB GMIB Type |
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Account balances of contracts with guarantees |
|
Goodwill (Details Textual) (USD $) In Millions | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | Dec. 31, 2010 | Sep. 30, 2011
Goodwill [Member]
Federal Trust Corporation [Member] | Jun. 30, 2011
Individual Life reporting unit within Life Insurance [Member] | Sep. 30, 2011
Corporate and Other [Member] | Dec. 31, 2010
Corporate and Other [Member] | Sep. 30, 2011
Wealth Management [Member] | Dec. 31, 2010
Wealth Management [Member] | |
Goodwill [Line Items] | ||||||||
Goodwill | $ 1,036 | $ 1,051 | $ 342 | $ 417 | $ 432 | $ 470 | $ 470 | |
Annual impairment tests margin, in percentage | less than 10% | |||||||
Remaining goodwill being charge off associated with FTC | $ 15 |
Separate Accounts, Death Benefits and Other Insurance Benefit Features (Details) (Textual) (USD $) In Millions, unless otherwise specified | 9 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011
Year
Security | Dec. 31, 2010 | Sep. 30, 2011
MAV Only [Member]
Age
Year | Sep. 30, 2011
With Five Percent Rollup [Member] | Sep. 30, 2011
With Earnings Protection Benefit Rider (EPB) [Member] | Sep. 30, 2011
Asset Protection Benefit ("APB") [Member] | Sep. 30, 2011
Asset Protection Benefit ("APB") [Member] | Sep. 30, 2011
Reset [Member]
Age
Year | Sep. 30, 2011
JAPAN
Guaranteed Minimum Income Benefit [Member] | Dec. 31, 2010
JAPAN
Guaranteed Minimum Income Benefit [Member] | Sep. 30, 2011
Guaranteed Minimum Withdrawal Benefit [Member]
JAPAN | Dec. 31, 2010
Guaranteed Minimum Withdrawal Benefit [Member]
JAPAN | |
Separate Accounts, Death Benefits and Other Insurance Benefit Features (Textual) [Abstract] | ||||||||||||
Age of insurer up to adjusted for withdrawals | 80 | 80 | ||||||||||
Simple interest up to the earlier of age 80 | 5.00% | |||||||||||
Adjusted premiums | 100.00% | |||||||||||
Premiums net of withdrawals | 200.00% | |||||||||||
Greater of net premiums and MAV | 25.00% | |||||||||||
Number of past months adjusted for premiums | P12M | |||||||||||
Guaranteed Remaining Balance | $ 34,400 | $ 33,900 | $ 707 | $ 707 | ||||||||
Minimum deferral period for return initial investment of income benefit | P10Y | |||||||||||
Minimum deferral period for earnings liquidity of income benefit | P15Y | |||||||||||
Minimum deferral period for fixed annuity of income benefit | P20Y | |||||||||||
Percentage of GMDB retained net amount of risk reinsured to a Hartford affiliate | 56.00% | |||||||||||
Percentage of GMIB net amount of risk reinsured to Hartford affiliate | 66.00% | |||||||||||
Age of insurer up to return of premium and MAV | 80 | |||||||||||
Invested in fixed income securities | 18.00% | 15.00% | ||||||||||
Invested in equity securities | 82.00% | 85.00% |
Investments and Derivative Instruments (Details 12) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Derivative [Line Items] | ||
Notional Amount | $ 134,480 | $ 136,854 |
Fair Value | (164) | (547) |
Customized swaps [Member] | GMWB hedging instruments [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 8,225 | 10,113 |
Fair Value | 433 | 209 |
Equity swaps, options and futures [Member] | GMWB hedging instruments [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 5,026 | 4,943 |
Fair Value | 627 | 391 |
Interest rate swaps and futures [Member] | GMWB hedging instruments [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 2,730 | 2,800 |
Fair Value | 1 | (133) |
GMWB hedging instruments [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 15,981 | 17,856 |
Fair Value | $ 1,061 | $ 467 |
Goodwill (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying amount of goodwill allocated to reporting segment |
|
Segment Information (Details) (Textual) (Personal Lines [Member], USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Personal Lines [Member] | ||||
Supplementary Insurance Information, by Segment [Line Items] | ||||
AARP earned premiums | $ 687 | $ 712 | $ 2,100 | $ 2,100 |
Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Benefit Cost |
Total net periodic benefit cost for the three months ended September 30, 2011 and 2010 includes the
following components:
Total net periodic benefit cost for the nine months ended September 30, 2011 and 2010 includes the
following components:
|
Stock Compensation Plans | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation Plans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation Plans |
11. Stock Compensation Plans
The Company’s stock-based compensation plans include The Hartford 2010 Incentive Stock Plan,
The Hartford Employee Stock Purchase Plan and The Hartford Deferred Stock Unit Plan. For a
description of these plans, see Note 18 of the Notes to Consolidated Financial Statements included
in The Hartford’s 2010 Form 10-K Annual Report.
Shares issued in satisfaction of stock-based compensation may be made available from authorized but
unissued shares, shares held by the Company in treasury or from shares purchased in the open
market. The Company typically issues shares from treasury in satisfaction of stock-based
compensation.
In 2010 and 2009, the Company issued awards that will ultimately be settled in cash. As a result,
these awards are re-measured at the end of each reporting period until settlement. The net
stock-based compensation plans benefit recognized during the three months ended September 30, 2011
was a result of a decrease in the Company’s share price during the reporting period.
The Company did not capitalize any cost of stock-based compensation. As of September 30, 2011, the
total compensation cost related to non-vested awards not yet recognized was $79, which is expected
to be recognized over a weighted average period of 1.5 years.
|
Investments and Derivative Instruments (Details 6) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 | Sep. 30, 2010 | Dec. 31, 2009 |
---|---|---|---|---|
Schedule of Available-for-sale Securities Mortgage Loans [Line Items] | ||||
Amortized Cost | $ 5,737 | $ 4,644 | ||
Valuation Allowance | (147) | (155) | (164) | (366) |
Mortgage Loans | 5,590 | 4,489 | ||
Commercial [Member] | ||||
Schedule of Available-for-sale Securities Mortgage Loans [Line Items] | ||||
Amortized Cost | 5,601 | 4,492 | ||
Valuation Allowance | (114) | (152) | ||
Mortgage Loans | 5,487 | 4,340 | ||
Residential [Member] | ||||
Schedule of Available-for-sale Securities Mortgage Loans [Line Items] | ||||
Amortized Cost | 136 | 152 | ||
Valuation Allowance | (33) | (3) | ||
Mortgage Loans | $ 103 | $ 149 |
Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Pension Benefits [Member] | ||||
Total net periodic benefit cost | ||||
Service cost | $ 24 | $ 25 | $ 76 | $ 76 |
Interest cost | 64 | 64 | 194 | 189 |
Expected return on plan assets | (74) | (71) | (223) | (214) |
Settlement expense | 20 | |||
Amortization of prior service credit | (2) | (2) | (7) | (7) |
Amortization of actuarial loss | 40 | 26 | 119 | 80 |
Net periodic benefit cost | 52 | 42 | 159 | 144 |
Other Postretirement Benefits [Member] | ||||
Total net periodic benefit cost | ||||
Service cost | 2 | 2 | 4 | 5 |
Interest cost | 5 | 6 | 15 | 17 |
Expected return on plan assets | (3) | (4) | (10) | (10) |
Amortization of prior service credit | (1) | (1) | (1) | (1) |
Net periodic benefit cost | $ 3 | $ 3 | $ 8 | $ 11 |
Deferred Policy Acquisition Costs and Present Value of Future Profits (Details) (USD $) In Millions | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | |
Changes in deferred policy acquisition costs and present value of future profits | ||
Balance, January 1 | $ 9,857 | $ 10,686 |
Deferred Costs | 1,961 | 1,999 |
Amortization - DAC | (2,351) | (2,043) |
Amortization - DAC from discontinued operations | 0 | (14) |
Amortization - Unlock charge, pre-tax | (468) | 30 |
Adjustments to unrealized gains and losses on securities available-for-sale and other | (352) | (1,462) |
Effect of currency translation | 82 | 179 |
Effect of new accounting guidance | 0 | 11 |
Balance, September 30 | $ 8,729 | $ 9,386 |
Investments and Derivative Instruments (Details 11) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Variable Interest Entity [Line Items] | ||
Total Assets | $ 499 | $ 743 |
Total Liabilities | 461 | 394 |
Maximum Exposure to Loss | 46 | 302 |
CDOs [Member] | ||
Variable Interest Entity [Line Items] | ||
Total Assets | 492 | 729 |
Total Liabilities | 461 | 393 |
Maximum Exposure to Loss | 39 | 289 |
Limited partnerships [Member] | ||
Variable Interest Entity [Line Items] | ||
Total Assets | 7 | 14 |
Total Liabilities | 0 | 1 |
Maximum Exposure to Loss | $ 7 | $ 13 |
Fair Value Measurements - Financial Instruments Excluding Guaranteed Living Benefits | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Measurements-Financial Instruments Excluding Guaranteed Living Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements -Financial Instruments Excluding Guaranteed Living Benefits |
4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits
The following financial instruments are carried at fair value in the Company’s Condensed
Consolidated Financial Statements: fixed maturity and equity securities, available-for-sale
(“AFS”); fixed maturities at fair value using fair value option (“FVO”); equity securities,
trading; short-term investments; freestanding and embedded derivatives; separate account assets;
and certain other liabilities.
The following section and Note 4a apply the fair value hierarchy and disclosure requirements for
the Company’s financial instruments that are carried at fair value. The fair value hierarchy
prioritizes the inputs in the valuation techniques used to measure fair value into three broad
Levels (Level 1, 2 or 3).
In many situations, inputs used to measure the fair value of an asset or liability position may
fall into different levels of the fair value hierarchy. In these situations, the Company will
determine the level in which the fair value falls based upon the lowest level input that is
significant to the determination of the fair value. Transfers of securities among the levels occur
at the beginning of the reporting period. Transfers between Level 1 and Level 2 were not material
for the three and nine months ended September 30, 2011 and 2010. In most cases, both observable
(e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are
used in the determination of fair values that the Company has classified within Level 3.
Consequently, these values and the related gains and losses are based upon both observable and
unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such as
they are primarily priced by independent brokers and/or within illiquid markets.
These disclosures provide information as to the extent to which the Company uses fair value to
measure financial instruments and information about the inputs used to value those financial
instruments to allow users to assess the relative reliability of the measurements. The following
tables present assets and (liabilities) carried at fair value by hierarchy level, excluding those
related to the Company’s living benefits and associated hedging programs, which are reported in
Note 4a.
Determination of Fair Values
The valuation methodologies used to determine the fair values of assets and liabilities under the
“exit price” notion reflect market-participant objectives and are based on the application of the
fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs.
The Company determines the fair values of certain financial assets and financial liabilities based
on quoted market prices where available and where prices represent a reasonable estimate of fair
value. The Company also determines fair value based on future cash flows discounted at the
appropriate current market rate. Fair values reflect adjustments for counterparty credit quality,
the Company’s default spreads, liquidity and, where appropriate, risk margins on unobservable
parameters. The following is a discussion of the methodologies used to determine fair values for
the financial instruments listed in the above tables.
Available-for-Sale Securities, Fixed Maturities, FVO, Equity Securities, Trading, and Short-term
Investments
The fair value of AFS securities, fixed maturities, FVO, equity securities, trading, and short-term
investments in an active and orderly market (e.g. not distressed or forced liquidation) are
determined by management after considering one of three primary sources of information: third-party
pricing services, independent broker quotations or pricing matrices. Security pricing is applied
using a “waterfall” approach whereby publicly available prices are first sought from third-party
pricing services, the remaining unpriced securities are submitted to independent brokers for
prices, or lastly, securities are priced using a pricing matrix. Based on the typical trading
volumes and the lack of quoted market prices for fixed maturities, third-party pricing services
will normally derive the security prices from recent reported trades for identical or similar
securities making adjustments through the reporting date based upon available market observable
information as outlined above. If there are no recently reported trades, the third-party pricing
services and independent brokers may use matrix or model processes to develop a security price
where future cash flow expectations are developed based upon collateral performance and discounted
at an estimated market rate. Included in the pricing of ABS and RMBS are estimates of the rate of
future prepayments of principal over the remaining life of the securities. Such estimates are
derived based on the characteristics of the underlying structure and prepayment speeds previously
experienced at the interest rate levels projected for the underlying collateral. Actual prepayment
experience may vary from these estimates.
Prices from third-party pricing services are often unavailable for securities that are rarely
traded or are traded only in privately negotiated transactions. As a result, certain securities
are priced via independent broker quotations which utilize inputs that may be difficult to
corroborate with observable market based data. Additionally, the majority of these independent
broker quotations are non-binding.
A pricing matrix is used to price private placement securities for which the Company is unable to
obtain a price from a third-party pricing service by discounting the expected future cash flows
from the security by a developed market discount rate utilizing current credit spreads. Credit
spreads are developed each month using market based data for public securities adjusted for credit
spread differentials between public and private securities which are obtained from a survey of
multiple private placement brokers. The appropriate credit spreads determined through this survey
approach are based upon the issuer’s financial strength and term to maturity, utilizing an
independent public security index and trade information and adjusting for the non-public nature of
the securities.
The Company performs a monthly analysis of the prices and credit spreads received from third
parties to ensure that the prices represent a reasonable estimate of the fair value. As a part of
this analysis, the Company considers trading volume and other factors to determine whether the
decline in market activity is significant when compared to normal activity in an active market, and
if so, whether transactions may not be orderly considering the weight of available evidence. If
the available evidence indicates that pricing is based upon transactions that are stale or not
orderly, the Company places little, if any, weight on the transaction price and will estimate fair
value utilizing an internal pricing model. This process involves quantitative and qualitative
analysis and is overseen by investment and accounting professionals. Examples of procedures
performed include, but are not limited to, initial and on-going review of third-party pricing
services’ methodologies, review of pricing statistics and trends, back testing recent trades, and
monitoring of trading volumes, new issuance activity and other market activities. In addition, the
Company ensures that prices received from independent brokers represent a reasonable estimate of
fair value through the use of internal and external cash flow models developed based on spreads,
and when available, market indices. As a result of this analysis, if the Company determines that
there is a more appropriate fair value based upon the available market data, the price received
from the third party is adjusted accordingly. The Company’s internal pricing model utilizes the
Company’s best estimate of expected future cash flows discounted at a rate of return that a market
participant would require. The significant inputs to the model include, but are not limited to,
current market inputs, such as credit loss assumptions, estimated prepayment speeds and market risk
premiums.
The Company has analyzed the third-party pricing services’ valuation methodologies and related
inputs, and has also evaluated the various types of securities in its investment portfolio to
determine an appropriate fair value hierarchy level based upon trading activity and the
observability of market inputs. Most prices provided by third-party pricing services are
classified into Level 2 because the inputs used in pricing the securities are market observable.
Due to a general lack of transparency in the process that brokers use to develop prices, most
valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be
classified as Level 2 if the price can be corroborated with observable market data.
Derivative Instruments, including embedded derivatives within investments
Derivative instruments are fair valued using pricing valuation models that utilize independent
market data inputs, quoted market prices for exchange-traded derivatives, or independent broker
quotations. Excluding embedded and reinsurance related derivatives, as of September 30, 2011 and
December 31, 2010, 99% and 97%, respectively, of derivatives, based upon notional values, were
priced by valuation models or quoted market prices. The remaining derivatives were priced by
broker quotations. The Company performs a monthly analysis on derivative valuations which includes
both quantitative and qualitative analysis. Examples of procedures performed include, but are not
limited to, review of pricing statistics and trends, back testing recent trades, analyzing the
impacts of changes in the market environment, and review of changes in market value for each
derivative including those derivatives priced by brokers.
The Company utilizes derivative instruments to manage the risk associated with certain assets and
liabilities. However, the derivative instrument may not be classified with the same fair value
hierarchy level as the associated assets and liabilities. Therefore the realized and unrealized
gains and losses on derivatives reported in Level 3 may not reflect the offsetting impact of the
realized and unrealized gains and losses of the associated assets and liabilities.
Valuation Techniques and Inputs for Investments
Generally, the Company determines the estimated fair value of its AFS securities, fixed maturities,
FVO, equity securities, trading, and short-term investments using the market approach. The income
approach is used for securities priced using a pricing matrix, as well as for derivative
instruments. For Level 1 investments, which are comprised of on-the-run U.S. Treasuries,
exchange-traded equity securities, short-term investments, and exchange traded futures and option
contracts, valuations are based on observable inputs that reflect quoted prices for identical
assets in active markets that the Company has the ability to access at the measurement date.
For most of the Company’s debt securities, the following inputs are typically used in the Company’s
pricing methods: reported trades, benchmark yields, bids and/or estimated cash flows. For
securities, except U.S. Treasuries, inputs also include issuer spreads, which may consider credit
default swap curves. Derivative instruments are valued using mid-market inputs that are
predominantly observable in the market.
A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:
Separate Account Assets
Separate account assets are primarily invested in mutual funds but also have investments in fixed
maturity and equity securities. The separate account investments are valued in the same manner,
and using the same pricing sources and inputs, as the fixed maturity, equity security, and
short-term investments of the Company.
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant
Unobservable Inputs (Level 3)
The tables below provide fair value roll forwards for the three and nine months ending September
30, 2011 and 2010, for the financial instruments classified as Level 3, excluding those related to
the Company’s living benefits and associated hedging programs, which are reported in Note 4a.
For the three months ended September 30, 2011
For the nine months ended September 30, 2011
For the three months ended September 30, 2010
For the nine months ended September 30, 2010
Fair Value Option
The Company elected the fair value option for its investments containing an embedded credit
derivative which were not bifurcated as a result of new accounting guidance effective July 1, 2010.
The underlying credit risk of these securities is primarily corporate bonds and commercial real
estate. The Company elected the fair value option given the complexity of bifurcating the economic
components associated with the embedded credit derivative. Additionally, the Company elected the
fair value option for purchases of foreign government securities to align with the accounting for
yen-based fixed annuity liabilities, which are adjusted for changes in spot rates through realized
gains and losses. Similar to other fixed maturities, income earned from these securities is
recorded in net investment income. Changes in the fair value of these securities are recorded in
net realized capital gains and losses.
The Company previously elected the fair value option for one of its consolidated VIEs in order to
apply a consistent accounting model for the VIE’s assets and liabilities. The VIE is an investment
vehicle that holds high quality investments, derivative instruments that reference third-party
corporate credit and issues notes to investors that reflect the credit characteristics of the high
quality investments and derivative instruments. The risks and rewards associated with the assets
of the VIE inure to the investors. The investors have no recourse against the Company. As a
result, there has been no adjustment to the market value of the notes for the Company’s own credit
risk.
The following table presents the changes in fair value of those assets and liabilities accounted
for using the fair value option reported in net realized capital gains and losses in the Company’s
Condensed Consolidated Statements of Operations.
The following table presents the fair value of assets and liabilities accounted for using the fair
value option included in the Company’s Condensed Consolidated Balance Sheets.
Financial Instruments Not Carried at Fair Value
The following table presents carrying amounts and fair values of The Hartford’s financial
instruments not carried at fair value and not included in the above fair value discussion as of
September 30, 2011 and December 31, 2010.
As of September 30, 2011 and December 31, 2010, included in other liabilities in the Condensed
Consolidated Balance Sheets are carrying amounts of $202 and $233 for deposits, respectively, and
$25, for Federal Home Loan Bank advances, related to Federal Trust Corporation. These liabilities
are held for sale and the carrying amounts approximate fair value.
The Company has not made any changes in its valuation methodologies for the following assets and
liabilities since December 31, 2010.
4a. Fair Value Measurements — Guaranteed Living Benefits
These disclosures provide information as to the extent to which the Company uses fair value to
measure financial instruments related to variable annuity product guaranteed living benefits and
the related variable annuity hedging program and information about the inputs used to value those
financial instruments to allow users to assess the relative reliability of the measurements. The
following tables present assets and (liabilities) related to the guaranteed living benefits program
carried at fair value by hierarchy level.
Product Derivatives
The Company currently offers certain variable annuity products with GMWB riders in the U.S., and
formerly offered such products in the U.K. and Japan. The GMWB represents an embedded derivative
in the variable annuity contract. When it is determined that (1) the embedded derivative possesses
economic characteristics that are not clearly and closely related to the economic characteristics
of the host contract, and (2) a separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is bifurcated from the host for measurement
purposes. The embedded derivative is carried at fair value, with changes in fair value reported in
net realized capital gains and losses. The Company’s GMWB liability is reported in other
policyholder funds and benefits payable in the Consolidated Balance Sheets.
In valuing the embedded derivative, the Company attributes to the derivative a portion of the
expected fees to be collected over the expected life of the contract from the contract holder equal
to the present value of future GMWB claims (the “Attributed Fees”). The excess of fees collected
from the contract holder in the current period over the current period’s Attributed Fees are
associated with the host variable annuity contract and reported in fee income.
U.S. GMWB Reinsurance Derivative
The Company has reinsurance arrangements in place to transfer a portion of its risk of loss due to
GMWB. These arrangements are recognized as derivatives and carried at fair value in reinsurance
recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized
capital gains and losses.
The fair value of the U.S. GMWB reinsurance derivative is calculated as an aggregation of the
components described in the Living Benefits Required to be Fair Valued discussion below and is
modeled using significant unobservable policyholder behavior inputs, identical to those used in
calculating the underlying liability, such as lapses, fund selection, resets and withdrawal
utilization and risk margins.
Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)
Fair values for GMWB and guaranteed minimum accumulation benefit (“GMAB”) contracts are calculated
using the income approach based upon internally developed models because active, observable markets
do not exist for those items. The fair value of the Company’s guaranteed benefit liabilities,
classified as embedded derivatives, and the related reinsurance and customized freestanding
derivatives is calculated as an aggregation of the following components: Best Estimate Claim
Payments; Credit Standing Adjustment; and Margins. The resulting aggregation is reconciled or
calibrated, if necessary, to market information that is, or may be, available to the Company, but
may not be observable by other market participants, including reinsurance discussions and
transactions. The Company believes the aggregation of these components, as necessary and as
reconciled or calibrated to the market information available to the Company, results in an amount
that the Company would be required to transfer or receive, for an asset, to or from market
participants in an active liquid market, if one existed, for those market participants to assume
the risks associated with the guaranteed minimum benefits and the related reinsurance and
customized derivatives. The fair value is likely to materially diverge from the ultimate
settlement of the liability as the Company believes settlement will be based on our best estimate
assumptions rather than those best estimate assumptions plus risk margins. In the absence of any
transfer of the guaranteed benefit liability to a third party, the release of risk margins is
likely to be reflected as realized gains in future periods’ net income. Each component described
below is unobservable in the marketplace and require subjectivity by the Company in determining
their value.
Best Estimate
Claim Payments
The Best Estimate Claim Payments is calculated based on actuarial and capital market assumptions
related to projected cash flows, including the present value of benefits and related contract
charges, over the lives of the contracts, incorporating expectations concerning policyholder
behavior such as lapses, fund selection, resets and withdrawal utilization. For the customized
derivatives, policyholder behavior is prescribed in the derivative contract. Because of the
dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo
stochastic process is used in valuation. The Monte Carlo stochastic process involves the
generation of thousands of scenarios that assume risk neutral returns consistent with swap rates
and a blend of observable implied index volatility levels. Estimating these cash flows involves
numerous estimates and subjective judgments regarding a number of variables —including expected
market rates of return, market volatility, correlations of market index returns to funds, fund
performance, discount rates and assumptions about policyholder behavior which emerge over time.
At each valuation date, the Company assumes expected returns based on:
As many guaranteed benefit obligations are relatively new in the marketplace, actual
policyholder behavior experience is limited. As a result, estimates of future policyholder behavior
are subjective and based on analogous internal and external data. As markets change, mature and
evolve and actual policyholder behavior emerges, management continually evaluates the
appropriateness of its assumptions for this component of the fair value model.
On a daily basis, the Company updates capital market assumptions used in the GMWB liability model
such as interest rates and equity indices. On a weekly basis, the blend of implied equity index
volatilities is updated. The Company continually monitors various aspects of policyholder behavior
and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if
credible emerging data indicates that changes are warranted. At a minimum, all policyholder
behavior assumptions are reviewed and updated, as appropriate, in conjunction with the completion
of the Company’s comprehensive study to refine its estimate of future gross profits during the
third quarter of each year.
Credit Standing Adjustment
This assumption makes an adjustment that market participants would make, in determining fair value,
to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will
not be fulfilled (“nonperformance risk”). The Company’s estimate of the Credit Standing Adjustment
incorporates a blend of observable Company and reinsurer credit default spreads from capital
markets, adjusted for market recoverability. The credit standing adjustment assumption, net of
reinsurance, and exclusive of the impact of the credit standing adjustment on other market inputs,
resulted in pre-tax realized gains (losses) of $75 and $(23) for the three months ended September
30, 2011 and 2010, respectively and $75 and $32 for the nine months ended September 30, 2011 and
2010, respectively. As of September 30, 2011 and December 31, 2010 the credit standing adjustment
was $101 and $26, respectively.
Margins
The behavior risk margin adds a margin that market participants would require, in determining fair
value, for the risk that the Company’s assumptions about policyholder behavior could differ from
actual experience. The behavior risk margin is calculated by taking the difference between adverse
policyholder behavior assumptions and best estimate assumptions.
Assumption updates, including policyholder behavior assumptions, affected best estimates and
margins for total pre-tax realized gains (losses) of $51 and $163 for the three months ended
September 30, 2011 and 2010, respectively and $51 and $163 for the nine months ended September 30,
2011 and 2010, respectively. Assumption updates for the three months ended September 30, 2011,
primarily related to decreasing withdrawal and lapse rates.
In addition to the non-market-based updates described above, the Company recognized
non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed
funds as compared to their respective indices resulting in pre-tax realized gains (losses) of
approximately $(131) and $28, for the three months ended September 30, 2011 and 2010, respectively,
and $(102) and $70 for the nine months ended September 30, 2011 and 2010, respectively.
The tables below provide fair value roll forwards for the three and nine months ended
September 30, 2011 and 2010, for the financial instruments related to the Guaranteed Living
Benefits Program classified as Levels 1, 2 and 3.
For the three months ended September 30, 2011
For the nine months ended September 30, 2011
For the three months ended September 30, 2010
For the nine months ended September 30, 2010
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Basis of Presentation and Accounting Policies (Policies) | 9 Months Ended | ||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||
Basis of Presentation and Accounting Policies [Abstract] | |||||||||||||||||||
Basis of Presentation |
The Hartford Financial Services Group, Inc. is a holding company for insurance and financial
services subsidiaries that provide investment products and life and property and casualty insurance
to both individual and business customers in the United States (collectively, “The Hartford” or the
“Company”). Also, The Hartford continues to administer business previously sold in Japan and the
U.K.
The Condensed Consolidated Financial Statements have been prepared on the basis of accounting
principles generally accepted in the United States of America (“U.S. GAAP”), which differ
materially from the accounting practices prescribed by various insurance regulatory authorities.
The accompanying Condensed Consolidated Financial Statements and Notes as of September 30, 2011,
and for the three and nine months ended September 30, 2011 and 2010 are unaudited. These financial
statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion
of management, necessary for the fair presentation of the financial position, results of operations
and cash flows for the interim periods. These Condensed Consolidated Financial Statements and
Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto
included in The Hartford’s 2010 Form 10-K Annual Report. The results of operations for the interim
periods should not be considered indicative of the results to be expected for the full year.
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Consolidation |
The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial
Services Group, Inc., companies in which the Company directly or indirectly has a controlling
financial interest and those variable interest entities (“VIEs”) in which the Company is required
to consolidate. Entities in which the Company has significant influence over the operating and
financing decisions but are not required to consolidate are reported using the equity method.
Material intercompany transactions and balances between The Hartford and its subsidiaries and
affiliates have been eliminated. For further discussions on variable interest entities see Note 5
of the Notes to Condensed Consolidated Financial Statements.
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Discontinued Operations |
The Company is presenting the operations of certain businesses that meet the criteria for reporting
as discontinued operations. Amounts for prior periods have been retrospectively reclassified. See
Note 12 of the Notes to Condensed Consolidated Financial Statements for information on the specific
subsidiaries and related impacts.
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Use of Estimates |
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The most significant estimates include those used in determining property and casualty insurance
product reserves, net of reinsurance; estimated gross profits used in the valuation and
amortization of assets and liabilities associated with variable annuity and other universal
life-type contracts; evaluation of other-than-temporary impairments on available-for-sale
securities and valuation allowances on investments; living benefits required to be fair valued;
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. Certain of these estimates are
particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide
debt or equity markets could have a material impact on the Condensed Consolidated Financial
Statements.
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Significant Accounting Policies |
For a description of significant accounting policies, see Note 1 of the Notes to Consolidated
Financial Statements included in The Hartford’s 2010 Form 10-K Annual Report, which should be read
in conjunction with these accompanying Condensed Consolidated Financial Statements.
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Future Adoption of New Accounting Standards |
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
In October 2010, the FASB issued guidance clarifying the definition of acquisition costs that are
eligible for deferral. Acquisition costs are to include only those costs that are directly related
to the successful acquisition or renewal of insurance contracts; incremental direct costs of
contract acquisition that are incurred in transactions with either independent third parties or
employees; and advertising costs meeting the capitalization criteria for direct-response
advertising.
This guidance will be effective for fiscal years beginning after December 15, 2011, and interim
periods within those years. This guidance may be applied prospectively upon the date of adoption,
with retrospective application permitted, but not required. Early adoption as of the beginning of
a fiscal year is permitted.
The Company intends to adopt this guidance retrospectively on January 1, 2012, resulting in a write
down of the Company’s deferred acquisition costs relating to those costs which no longer meet the
revised guidance as summarized above. The Company estimates the cumulative effect of the
retrospective adoption of this guidance will reduce stockholders’ equity as of December 31, 2010
between $1.4 billion and $1.7 billion after-tax. The actual impact may be different.
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Fair Value |
The following financial instruments are carried at fair value in the Company’s Condensed
Consolidated Financial Statements: fixed maturity and equity securities, available-for-sale
(“AFS”); fixed maturities at fair value using fair value option (“FVO”); equity securities,
trading; short-term investments; freestanding and embedded derivatives; separate account assets;
and certain other liabilities.
The following section and Note 4a apply the fair value hierarchy and disclosure requirements for
the Company’s financial instruments that are carried at fair value. The fair value hierarchy
prioritizes the inputs in the valuation techniques used to measure fair value into three broad
Levels (Level 1, 2 or 3).
In many situations, inputs used to measure the fair value of an asset or liability position may
fall into different levels of the fair value hierarchy. In these situations, the Company will
determine the level in which the fair value falls based upon the lowest level input that is
significant to the determination of the fair value. Transfers of securities among the levels occur
at the beginning of the reporting period. Transfers between Level 1 and Level 2 were not material
for the three and nine months ended September 30, 2011 and 2010. In most cases, both observable
(e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are
used in the determination of fair values that the Company has classified within Level 3.
Consequently, these values and the related gains and losses are based upon both observable and
unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such as
they are primarily priced by independent brokers and/or within illiquid markets.
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Investment Instruments |
Recognition and Presentation of Other-Than-Temporary Impairments
The Company deems debt securities and certain equity securities with debt-like characteristics
(collectively “debt securities”) to be other-than-temporarily impaired (“impaired”) if a security
meets the following conditions: a) the Company intends to sell or it is more likely than not the
Company will be required to sell the security before a recovery in value, or b) the Company does
not expect to recover the entire amortized cost basis of the security. If the Company intends to
sell or it is more likely than not the Company will be required to sell the security before a
recovery in value, a charge is recorded in net realized capital losses equal to the difference
between the fair value and amortized cost basis of the security. For those impaired debt
securities which do not meet the first condition and for which the Company does not expect to
recover the entire amortized cost basis, the difference between the security’s amortized cost basis
and the fair value is separated into the portion representing a credit other-than-temporary
impairment (“impairment”), which is recorded in net realized capital losses, and the remaining
impairment, which is recorded in OCI. Generally, the Company determines a security’s credit
impairment as the difference between its amortized cost basis and its best estimate of expected
future cash flows discounted at the security’s effective yield prior to impairment. The remaining
non-credit impairment, which is recorded in OCI, is the difference between the security’s fair
value and the Company’s best estimate of expected future cash flows discounted at the security’s
effective yield prior to the impairment, which typically represents current market liquidity and
risk premiums. The previous amortized cost basis less the impairment recognized in net realized
capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to
the estimated future cash flows over the expected remaining life of the security by prospectively
adjusting the security’s yield, if necessary. The following table presents the change in
non-credit impairments recognized in OCI as disclosed in the Company’s Condensed Consolidated
Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010,
respectively.
The Company’s evaluation of whether a credit impairment exists for debt securities includes but is
not limited to, the following factors: (a) changes in the financial condition of the security’s
underlying collateral, (b) whether the issuer is current on contractually obligated interest and
principal payments, (c) changes in the financial condition, credit rating and near-term prospects
of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the
security and (e) the payment structure of the security. The Company’s best estimate of expected
future cash flows used to determine the credit loss amount is a quantitative and qualitative
process that incorporates information received from third-party sources along with certain internal
assumptions and judgments regarding the future performance of the security. The Company’s best
estimate of future cash flows involves assumptions including, but not limited to, various
performance indicators, such as historical and projected default and recovery rates, credit
ratings, current and projected delinquency rates, and loan-to-value (“LTV”) ratios. In addition,
for structured securities, the Company considers factors including, but not limited to, average
cumulative collateral loss rates that vary by vintage year, commercial and residential property
value declines that vary by property type and location and commercial real estate delinquency
levels. These assumptions require the use of significant management judgment and include the
probability of issuer default and estimates regarding timing and amount of expected recoveries
which may include estimating the underlying collateral value. In addition, projections of expected
future debt security cash flows may change based upon new information regarding the performance of
the issuer and/or underlying collateral such as changes in the projections of the underlying
property value estimates.
For equity securities where the decline in the fair value is deemed to be other-than-temporary, a
charge is recorded in net realized capital losses equal to the difference between the fair value
and cost basis of the security. The previous cost basis less the impairment becomes the security’s
new cost basis. The Company asserts its intent and ability to retain those equity securities
deemed to be temporarily impaired until the price recovers. Once identified, these securities are
systematically restricted from trading unless approved by a committee of investment and accounting
professionals (“Committee”). The Committee will only authorize the sale of these securities based
on predefined criteria that relate to events that could not have been reasonably foreseen.
Examples of the criteria include, but are not limited to, the deterioration in the issuer’s
financial condition, security price declines, a change in regulatory requirements or a major
business combination or major disposition.
The primary factors considered in evaluating whether an impairment exists for an equity security
include, but are not limited to: (a) the length of time and extent to which the fair value has been
less than the cost of the security, (b) changes in the financial condition, credit rating and
near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated
payments and (d) the intent and ability of the Company to retain the investment for a period of
time sufficient to allow for recovery.
Mortgage Loan Valuation Allowances
The Company’s security monitoring process reviews mortgage loans on a quarterly basis to identify
potential credit losses. Commercial mortgage loans are considered to be impaired when management
estimates that, based upon current information and events, it is probable that the Company will be
unable to collect amounts due according to the contractual terms of the loan agreement. Criteria
used to determine if an impairment exists include, but are not limited to: current and projected
macroeconomic factors, such as unemployment rates, and property-specific factors such as rental
rates, occupancy levels, LTV ratios and debt service coverage ratios (“DSCR”). In addition, the
Company considers historic, current and projected delinquency rates and property values. For
residential mortgage loans, impairments are evaluated based on pools of loans with similar
characteristics including, but not limited to, similar property types and loan performance status.
These assumptions require the use of significant management judgment and include the probability
and timing of borrower default and loss severity estimates. In addition, projections of expected
future cash flows may change based upon new information regarding the performance of the borrower
and/or underlying collateral such as changes in the projections of the underlying property value
estimates.
For mortgage loans that are deemed impaired, a valuation allowance is established for the
difference between the carrying amount and the Company’s share of either (a) the present value of
the expected future cash flows discounted at the loan’s effective interest rate, (b) the loan’s
observable market price or, most frequently, (c) the fair value of the collateral. Additionally, a
loss contingency valuation allowance is established for estimated probable credit losses on certain
homogenous groups of residential loans. For commercial loans, a valuation allowance has been
established for either individual loans or as a projected loss contingency for loans with an LTV
ratio of 90% or greater and consideration of other credit quality factors, including DSCR. Changes
in valuation allowances are recorded in net realized capital gains and losses. Interest income on
impaired loans is accrued to the extent it is deemed collectible and the loans continue to perform
under the original or restructured terms. Interest income ceases to accrue for loans when it is
probable that the Company will not receive interest and principal payments according to the
contractual terms of the loan agreement, or if a loan is more than 60 days past due. Loans may
resume accrual status when it is determined that sufficient collateral exists to satisfy the full
amount of the loan and interest payments, as well as when it is probable cash will be received in
the foreseeable future. Interest income on defaulted loans is recognized when received.
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Derivatives Instruments |
The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a
part of its overall risk management strategy, as well as to enter into replication transactions.
Derivative instruments are used to manage risk associated with interest rate, equity market, credit
spread, issuer default, price, and currency exchange rate risk or volatility. Replication
transactions are used as an economical means to synthetically replicate the characteristics and
performance of assets that would otherwise be permissible investments under the Company’s
investment policies. The Company also purchases and issues financial instruments and products that
either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or
may contain features that are deemed to be embedded derivative instruments, such as the GMWB rider
included with certain variable annuity products.
|
Investments and Derivative Instruments (Details 13) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Derivative [Line Items] | ||
Notional Amount | $ 134,480 | $ 136,854 |
Fair Value | (164) | (547) |
Currency forwards [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 5,049 | 3,232 |
Fair Value | 406 | 93 |
Currency Options [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 7,153 | 5,296 |
Fair Value | 151 | 62 |
Equity Futures [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 4,195 | 1,168 |
Fair Value | 0 | 0 |
Equity options [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 6,703 | 13,963 |
Fair Value | 468 | 207 |
Equity swaps [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 402 | 369 |
Fair Value | (45) | 1 |
Interest Rate Futures [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 695 | 0 |
Fair Value | 0 | 0 |
Interest rate swaps [Member] | Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 5,579 | 2,182 |
Fair Value | 95 | 21 |
Macro Hedge Program [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 29,776 | 26,210 |
Fair Value | $ 1,075 | $ 384 |
Investments and Derivative Instruments (Details Textual) (USD $) In Millions, unless otherwise specified | 9 Months Ended | ||||
---|---|---|---|---|---|
Sep. 30, 2011 | Dec. 31, 2010 | Sep. 30, 2011
Assets Held-for-sale [Member]
Federal Trust Corporation [Member] | Dec. 31, 2010
Assets Held-for-sale [Member]
Federal Trust Corporation [Member] | Sep. 30, 2011
Commercial [Member]
Security | |
Property Subject to or Available for Operating Lease [Line Items] | |||||
Valuation allowances on mortgage loans held for sale | $ 48 | $ 7 | $ 44 | $ 3 | |
Mortgage loans held for sale, carrying value | 202 | 87 | 128 | 68 | |
Financing Receivable, Recorded Investment, Past Due [Line Items] | |||||
Carrying value of two delinquent commercial mortgage loans, both past due by 90 days or more | 15 | ||||
Valuation allowance of loans of two delinquent commercial mortgage loans, both past due by 90 days or more | $ 60 | ||||
Number of delinquent commercial mortgage loans, both past due by 90 days or more | 2 | ||||
Delinquency period commercial mortgage loans | 90 days or more |
Sales Inducements (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sales Inducements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes In Deferred Sales Inducements |
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Basis of Presentation and Accounting Policies (Tables) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) |
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Financial Measures and Other Segment Information |
|
Investments And Derivative Instruments (Details Textual 2) (USD $) In Millions | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Variable Interest Entity [Line Items] | ||
Assets | $ 499 | $ 743 |
Other liabilities, variable interest entity liabilities | 461 | 394 |
Company's maximum exposure to the loss of the contingent capital facility | 46 | 302 |
Non-Consolidated VIEs [Member] | ||
Variable Interest Entity [Line Items] | ||
Assets | 29 | 32 |
Other liabilities, variable interest entity liabilities | 27 | 32 |
Company's maximum exposure to the loss of the contingent capital facility | $ 3 | $ 4 |
Investments and Derivative Instruments (Details 18) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Interest rate swaps, swap options , caps, floors and forwards [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | $ (25) | $ 50 | $ (24) | $ 45 |
Foreign currency swaps, forwards and swaptions [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 19 | (21) | 7 | 8 |
JAPAN [Member] | 3Win Related Foreign Currency Swaps [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 39 | 84 | 14 | 93 |
JAPAN [Member] | Fixed annuity hedging instruments [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 103 | 160 | 98 | 301 |
JAPAN [Member] | Variable Annuity Hedging Instruments [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 56 | 15 | 0 | 60 |
Credit Derivatives that Purchase Credit Protection [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 31 | (34) | 11 | 4 |
Credit Derivatives that Assume Credit Risk [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | (183) | 113 | (178) | 100 |
Equity index swaps, options, and futures [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | (56) | 2 | (54) | 7 |
GMWB product derivatives [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | (1,364) | 655 | (1,085) | (489) |
GMWB Reinsurance [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 241 | (101) | 180 | 84 |
GMWB hedging instruments [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 751 | (384) | 567 | 278 |
Macro Hedge Program [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | 1,237 | (443) | 915 | (210) |
GMAB product derivatives [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | (5) | 3 | (6) | 1 |
Contingent Capital Facility Put Option [Member] | Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | (1) | (1) | (4) | (3) |
Net Realized Capital Gains (losses) [Member] | ||||
Derivative Instruments Gain (Loss) [Line Items] | ||||
Total | $ 843 | $ 98 | $ 441 | $ 279 |
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies |
9. Commitments and Contingencies
Litigation
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a
liability insurer defending or providing indemnity for third-party claims brought against insureds
and as an insurer defending coverage claims brought against it. The Hartford accounts for such
activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to
the uncertainties discussed below under the caption “Asbestos and Environmental Claims,” management
expects that the ultimate liability, if any, with respect to such ordinary-course claims
litigation, after consideration of provisions made for potential losses and costs of defense, will
not be material to the consolidated financial condition, results of operations or cash flows of The
Hartford.
The Hartford is also involved in other kinds of legal actions, some of which assert claims for
substantial amounts. These actions include, among others, putative state and federal class actions
seeking certification of a state or national class. Such putative class actions have alleged, for
example, underpayment of claims or improper underwriting practices in connection with various kinds
of insurance policies, such as personal and commercial automobile, property, life and inland
marine; improper sales practices in connection with the sale of life insurance and other investment
products; and improper fee arrangements in connection with investment products. The Hartford also
is involved in individual actions in which punitive damages are sought, such as claims alleging bad
faith in the handling of insurance claims. Like many other insurers, The Hartford also has been
joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to
protect the public from the dangers of asbestos and that insurers committed unfair trade practices
by asserting defenses on behalf of their policyholders in the underlying asbestos cases.
Management expects that the ultimate liability, if any, with respect to such lawsuits, after
consideration of provisions made for estimated losses, will not be material to the consolidated
financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought
in certain of these actions, and the inherent unpredictability of litigation, the outcome in
certain matters could, from time to time, have a material adverse effect on the Company’s
consolidated financial condition, results of operations or cash flows in particular quarterly or
annual periods.
Apart from the inherent difficulty of predicting litigation outcomes, particularly those that will
be decided by a jury, many of the matters specifically identified below purport to seek substantial
damages for unsubstantiated conduct spanning a multi-year period based on novel and complex legal
theories and damages models. The alleged damages typically are not quantified or factually
supported in the complaint, and, in any event, the Company’s experience shows that demands for
damages often bear little relation to a reasonable estimate of potential loss. Most are in the
earliest stages of litigation, with few or no substantive legal decisions by the court defining the
scope of the claims, the class (if any), or the potentially available damages. In many, the
Company has not yet answered the complaint or asserted its defenses, and fact discovery is still in
progress or has not yet begun. Accordingly, unless otherwise specified below, management cannot
reasonably estimate the possible loss or range of loss, if any, or predict the timing of the
eventual resolution of these matters.
Broker Compensation Litigation — Following the New York Attorney General’s filing of a civil
complaint against Marsh & McLennan Companies, Inc., and Marsh, Inc. (collectively, “Marsh”) in
October 2004 alleging that certain insurance companies, including The Hartford, participated with
Marsh in arrangements to submit inflated bids for business insurance and paid contingent
commissions to ensure that Marsh would direct business to them, private plaintiffs brought several
lawsuits against the Company predicated on the allegations in the Marsh complaint, to which the
Company was not party. Among these is a multidistrict litigation in the United States District
Court for the District of New Jersey. Two consolidated amended complaints were filed in the
multidistrict litigation, one related to conduct in connection with the sale of property-casualty
insurance and the other related to alleged conduct in connection with the sale of group benefits
products. The Company and various of its subsidiaries are named in both complaints. The complaints
assert, on behalf of a putative class of persons who purchased insurance through broker defendants,
claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”),
state law, and in the case of the group benefits complaint, claims under the Employee Retirement
Income Security Act of 1974 (“ERISA”). The claims are predicated upon allegedly undisclosed or
otherwise improper payments of contingent commissions to the broker defendants to steer business to
the insurance company defendants. The district court dismissed the Sherman Act and RICO claims in
both complaints for failure to state a claim and has granted the defendants’ motions for summary
judgment on the ERISA claims in the group-benefits products complaint. The district court further
declined to exercise supplemental jurisdiction over the state law claims and dismissed those claims
without prejudice. The plaintiffs appealed the dismissal of the claims in both consolidated amended
complaints, except the ERISA claims. In August 2010, the United States Court of Appeals for the
Third Circuit affirmed the dismissal of the Sherman Act and RICO claims against the Company. The
Third Circuit vacated the dismissal of the Sherman Act and RICO claims against some defendants in
the property casualty insurance case and vacated the dismissal of the state-law claims as to all
defendants in light of the reinstatement of the federal claims. In September 2010, the district
court entered final judgment for the defendants in the group benefits case. In March 2011, the
Company reached an agreement in principle to settle on a class basis the property casualty
insurance case for an immaterial amount. The settlement was preliminarily approved in June 2011
and is contingent upon final court approval.
Investment and Savings Plan ERISA and Shareholder Securities Class Action Litigation — In November
and December 2008, following a decline in the share price of the Company’s common stock, seven
putative class action lawsuits were filed in the United States District Court for the District of
Connecticut on behalf of certain participants in the Company’s Investment and Savings Plan (the
“Plan”), which offers the Company’s common stock as one of many investment options. These lawsuits
have been consolidated, and a consolidated amended class-action complaint was filed on March 23,
2009, alleging that the Company and certain of its officers and employees violated ERISA by
allowing the Plan’s participants to invest in the Company’s common stock and by failing to disclose
to the Plan’s participants information about the Company’s financial condition. The lawsuit seeks
restitution or damages for losses arising from the investment of the Plan’s assets in the Company’s
common stock during the period from December 10, 2007 to the present. In January 2010, the
district court denied the Company’s motion to dismiss the consolidated amended complaint. In
February 2011, the parties reached an agreement in principle to settle on a class basis for an
immaterial amount. The settlement is contingent upon the execution of a final settlement agreement
and preliminary and final court approval.
The Company and certain of its present or former officers are defendants in a putative securities
class action lawsuit filed in the United States District Court for the Southern District of New
York in March 2010. The operative complaint, filed in October 2010, is brought on behalf of
persons who acquired Hartford common stock during the period of July 28, 2008 through February 5,
2009, and alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5, by making false or misleading statements during the alleged class period about the
Company’s valuation of certain asset-backed securities and its effect on the Company’s capital
position. In September 2011, the district court dismissed the lawsuit with prejudice. The
plaintiffs did not appeal.
Fair Credit Reporting Act Class Action — In February 2007, the United States District Court for
the District of Oregon gave final approval of the Company’s settlement of a lawsuit brought on
behalf of a class of homeowners and automobile policy holders alleging that the Company willfully
violated the Fair Credit Reporting Act by failing to send appropriate notices to new customers
whose initial rates were higher than they would have been had the customer had a more favorable
credit report. The Company paid approximately $84.3 to eligible claimants and their counsel in
connection with the settlement, sought reimbursement from the Company’s Excess Professional
Liability Insurance Program for the portion of the settlement in excess of the Company’s $10
self-insured retention, and booked an insurance recoverable for the amount paid under the
settlement plus the cost of settlement administration, less the self-insured retention. Certain
insurance carriers participating in that program disputed coverage for the settlement, and one of
the excess insurers commenced an arbitration that resulted in an award in the Company’s favor and
payments to the Company of approximately $30.1, thereby exhausting the primary and first-layer
excess policies. As a result, the Company’s insurance recoverable was reduced to $45.5. In June
2009, the second-layer excess carriers commenced an arbitration to resolve the dispute over
coverage for the remainder of the amounts paid by the Company. The Company counterclaimed for
coverage. In September 2011, the arbitrators ruled in the Company’s favor and awarded
approximately $50 with interest of $3 from July 2009.
Mutual Funds Litigation — In October 2010, a derivative action was brought on behalf of six
Hartford retail mutual funds in the United States District Court for the District of Delaware,
alleging that Hartford Investment Financial Services, LLC received excessive advisory and
distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the
Investment Company Act of 1940. In February 2011, a nearly identical derivative action was brought
against Hartford Investment Financial Services, LLC in the United States District Court for the
District of New Jersey on behalf of six additional Hartford retail mutual funds. Both actions are
assigned to the Honorable Renee Marie Bumb, a judge in the District of New Jersey who is sitting by
designation with respect to the Delaware action. Plaintiffs in each action seek to rescind the
investment management agreements and distribution plans between Hartford Investment Financial
Services, LLC and the six mutual funds and to recover the total fees charged thereunder or, in the
alternative, to recover any improper compensation Hartford Investment Financial Services, LLC
received. In addition, plaintiff in the New Jersey action seeks recovery of lost earnings. The
Company disputes the allegations and moved to dismiss both actions. In September 2011, the motions
to dismiss were granted in part and denied in part. The district court gave the plaintiffs leave
to amend their complaints by November 14, 2011 and ordered Hartford Investment Financial Services,
LLC to respond by January 16, 2012.
Asbestos and Environmental Claims — As discussed in Note 12, Commitments and Contingencies, of the
Notes to Consolidated Financial Statements under the caption “Asbestos and Environmental Claims”,
included in the Company’s 2010 Form 10-K Annual Report, The Hartford continues to receive asbestos
and environmental claims that involve significant uncertainty regarding policy coverage issues.
Regarding these claims, The Hartford continually reviews its overall reserve levels and reinsurance
coverages, as well as the methodologies it uses to estimate its exposures. Because of the
significant uncertainties that limit the ability of insurers and reinsurers to estimate the
ultimate reserves necessary for unpaid losses and related expenses, particularly those related to
asbestos, the ultimate liabilities may exceed the currently recorded reserves. Any such additional
liability cannot be reasonably estimated now but could be material to The Hartford’s consolidated
operating results, financial condition and liquidity.
Derivative Commitments
Certain of the Company’s derivative agreements contain provisions that are tied to the financial
strength ratings of the individual legal entity that entered into the derivative agreement as set
by nationally recognized statistical rating agencies. If the legal entity’s financial strength
were to fall below certain ratings, the counterparties to the derivative agreements could demand
immediate and ongoing full collateralization and in certain instances demand immediate settlement
of all outstanding derivative positions traded under each impacted bilateral agreement. The
settlement amount is determined by netting the derivative positions transacted under each
agreement. If the termination rights were to be exercised by the counterparties, it could impact
the legal entity’s ability to conduct hedging activities by increasing the associated costs and
decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair
value of all derivative instruments with credit-risk-related contingent features that are in a net
liability position as of September 30, 2011, is $638. Of this $638 the legal entities have posted
collateral of $619 in the normal course of business. Based on derivative market values as of
September 30, 2011, a downgrade of one level below the current financial strength ratings by either
Moody’s or S&P could require approximately an additional $22 to be posted as collateral. Based on
derivative market values as of September 30, 2011, a downgrade by either Moody’s or S&P of two
levels below the legal entities’ current financial strength ratings could require approximately an
additional $33 of assets to be posted as collateral. These collateral amounts could change as
derivative market values change, as a result of changes in our hedging activities or to the extent
changes in contractual terms are negotiated. The nature of the collateral that we would post, if
required, would be primarily in the form of U.S. Treasury bills and U.S. Treasury notes.
|
Investments and Derivative Instruments (Details 19) (USD $) In Millions | 9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2011 | Dec. 31, 2010 | |
Derivative [Line Items] | ||
Notional Amount | $ 134,480 | $ 136,854 |
Fair Value | (164) | (547) |
Corporate Credit/Foreign Gov. [Member] | Single Name Credit Default Swaps [Member] | Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 1,569 | 1,562 |
Fair Value | (42) | (14) |
Weighted Average Years to Maturity | 3 years | 3 years |
Underlying Referenced Credit Obligation Type | Corporate Credit/ Foreign Gov. | Corporate Credit/ Foreign Gov. |
Average Credit Rating | A+ | A+ |
Offsetting Notional Amount | 1,446 | 1,447 |
Offsetting Fair Value | (10) | (41) |
Corporate Credit [Member] | Single Name Credit Default Swaps [Member] | Below Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 180 | 204 |
Fair Value | (10) | (6) |
Weighted Average Years to Maturity | 2 years | 3 years |
Underlying Referenced Credit Obligation Type | Corporate Credit | Corporate Credit |
Average Credit Rating | BB- | BB- |
Offsetting Notional Amount | 144 | 168 |
Offsetting Fair Value | (3) | (13) |
Corporate Credit [Member] | Basket Credit Default Swaps [Member] | Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 3,162 | 3,145 |
Fair Value | (118) | (1) |
Weighted Average Years to Maturity | 3 years | 4 years |
Underlying Referenced Credit Obligation Type | Corporate Credit | Corporate Credit |
Average Credit Rating | BBB+ | BBB+ |
Offsetting Notional Amount | 2,044 | 2,019 |
Offsetting Fair Value | 45 | (14) |
Corporate Credit [Member] | Basket Credit Default Swaps [Member] | Below Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 553 | 767 |
Fair Value | (481) | (381) |
Weighted Average Years to Maturity | 3 years | 4 years |
Underlying Referenced Credit Obligation Type | Corporate Credit | Corporate Credit |
Average Credit Rating | BBB+ | BBB+ |
Offsetting Notional Amount | 0 | 25 |
Offsetting Fair Value | 0 | |
Corporate Credit [Member] | Embedded Credit Derivatives [Member] | Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 25 | 25 |
Fair Value | 23 | 25 |
Weighted Average Years to Maturity | 3 years | 4 years |
Underlying Referenced Credit Obligation Type | Corporate Credit | Corporate Credit |
Average Credit Rating | BBB- | BBB- |
Offsetting Notional Amount | 0 | 0 |
Offsetting Fair Value | 0 | 0 |
Corporate Credit [Member] | Embedded Credit Derivatives [Member] | Below Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 500 | 525 |
Fair Value | 400 | 463 |
Weighted Average Years to Maturity | 5 years | 6 years |
Underlying Referenced Credit Obligation Type | Corporate Credit | Corporate Credit |
Average Credit Rating | BB+ | BB+ |
Offsetting Notional Amount | 0 | 0 |
Offsetting Fair Value | 0 | 0 |
CMBS Credit [Member] | Basket Credit Default Swaps [Member] | Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 525 | 525 |
Fair Value | (133) | (50) |
Weighted Average Years to Maturity | 5 years | 6 years |
Underlying Referenced Credit Obligation Type | CMBS Credit | CMBS Credit |
Average Credit Rating | BBB+ | BBB+ |
Offsetting Notional Amount | 525 | 525 |
Offsetting Fair Value | 133 | 50 |
Basket Credit Default Swaps [Member] | Below Investment Grade Risk Exposure [Member] | Credit [Member] | ||
Derivative [Line Items] | ||
Offsetting Fair Value | 0 | |
Credit [Member] | ||
Derivative [Line Items] | ||
Notional Amount | 6,514 | 6,753 |
Fair Value | (361) | 36 |
Offsetting Notional Amount | 4,159 | 4,184 |
Offsetting Fair Value | $ 165 | $ (18) |
Basis of Presentation and Accounting Policies (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes | ||||
Tax expense (benefit) at U.S. Federal statutory rate | $ (36) | $ 321 | $ 48 | $ 559 |
Tax-exempt interest | (37) | (38) | (112) | (116) |
Dividends received deduction | (42) | (34) | (169) | (115) |
Valuation allowance | 6 | (83) | 86 | |
Other | 8 | 3 | 4 | 23 |
Income tax expense (benefit) | $ (101) | $ 252 | $ (312) | $ 437 |
Goodwill | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Goodwill |
13. Goodwill
The carrying amount of goodwill allocated to reporting segments as of September 30, 2011 and
December 31, 2010 is shown below.
During the second quarter, the Company charged off the remaining $15 of goodwill associated
with the Federal Trust Corporation (“FTC”) reporting unit within Corporate and Other due to the
announced divestiture of FTC. The write-off of the FTC reporting unit goodwill was recorded as a
loss on disposal within discontinued operations, see Note 12 of the Notes to Condensed Consolidated
Financial Statements.
The Company completed its annual goodwill assessment for the individual reporting units within
Wealth Management and Corporate and Other, except for the FTC reporting unit, as of January 1,
2011, which resulted in no write-downs of goodwill in 2011. The reporting units passed the first
step of their annual impairment tests with a significant margin with the exception of the
Individual Life reporting unit within Life Insurance. The Individual Life reporting unit has a
goodwill balance of $342 and had a margin of less than 10%.
The fair value of the Individual Life reporting unit within Life Insurance is based on discounted
cash flows using earnings projections on in force business and future business growth. There could
be a positive or negative impact on the result of step one in future periods if actual earnings or
business growth assumptions emerge differently than those used in determining fair value for the
first step of the annual goodwill impairment test.
During the fourth quarter of 2011, the Company will change the date of its annual impairment test
to October 31st to be consistent across the organization. All business units will perform an
impairment test in the fourth quarter even if previously performed during the fiscal year. The
change is being made to more closely align the impairment testing date with the long-range planning
and forecasting process.
|
Basis of Presentation and Accounting Policies (Details) (Textual 1) (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011 | Sep. 30, 2011 | Sep. 30, 2010 | Dec. 31, 2010 | |
Basis of Presentation and Accounting Policies (Textual) [Abstract] | ||||
Unrecognized tax benefits | $ 48,000,000 | |||
Tax benefit as result of settlement with income tax authority | 52,000,000 | |||
Valuation Allowance | 90,000,000 | 173,000,000 | ||
Charge related to a decrease in deferred tax assets | 19,000,000 | |||
Valuation allowance | (86,000,000) | |||
Percentage of valuation allowance released associated with investment realized capital | 100.00% | |||
Deferred tax asset | 1,611,000,000 | 3,725,000,000 | ||
Ordinary deferred tax assets | 1,800,000,000 | |||
Capital deferred tax assets | 187,000,000 | |||
Gross deferred tax assets realized capital losses | 577,000,000 | |||
Gross deferred tax liabilities unrealized capital gains | $ 764,000,000 |
Sales Inducements (Details) (USD $) In Millions | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | |
Changes in deferred sales inducement | ||
Balance, January 1 | $ 459 | $ 438 |
Sales inducements deferred | 15 | 20 |
Amortization | (31) | (10) |
Amortization - Unlock charge, pre-tax | (19) | (6) |
Balance, September 30 | $ 424 | $ 442 |