The Hartford 2008 Annual Report Download - page 430

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Separate Accounts, Death Benefits and Other Insurance Benefit Features
The Company records the variable portion of individual variable annuities, 401(k), institutional, 403(b)/457, private
placement life and variable life insurance products within separate account assets and liabilities. Separate account assets are
reported at fair value. Separate account liabilities are set equal to separate account assets. Separate account assets are
segregated from other investments. Investment income and gains and losses from those separate account assets, which
accrue directly to, and whereby investment risk is borne by the policyholder, are offset by the related liability changes within
the same line item in the consolidated statements of operations. The fees earned for administrative and contract holder
maintenance services performed for these separate accounts are included in fee income. During 2008, 2007 and 2006, there
were no gains or losses on transfers of assets from the general account to the separate account.
Many of the variable annuity and universal life (“UL”) contracts issued by the Company offer various guaranteed minimum
death, withdrawal, income, accumulation, and UL secondary guarantee benefits. UL secondary guarantee benefits ensure
that the policy will not terminate, and will continue to provide a death benefit, even if there is insufficient policy value to
cover the monthly deductions and charges. Guaranteed minimum death and income benefits are offered in various forms as
described in further detail throughout this Note 9. The Company currently reinsures a portion of the death benefit guarantees
associated with its in-force block of business. Changes in the gross U.S. guaranteed minimum death benefit (“GMDB”),
Japan GMDB/guaranteed minimum income benefits (“GMIB”), and UL secondary guarantee benefits sold with annuity
and/or UL products accounted for and collectively known as “SOP 03-1 reserve liabilities” are as follows:
UL Secondary
U.S. GMDB [1] Japan GMDB/GMIB [1] Guarantees [1]
Liability balance as of January 1, 2008 $ 529 $ 42 $ 19
Incurred 221 26 21
Paid (269) (42) —
Unlock 389 164 —
Currency translation adjustment — 39 —
Liability balance as of December 31, 2008 $ 870 $ 229 $ 40
[1] The reinsurance recoverable asset related to the U.S. GMDB was $595 as of December 31, 2008. The reinsurance
recoverable asset related to the Japan GMDB was $31 as of December 31, 2008. The reinsurance recoverable asset
related to the UL Secondary Guarantees was $16 as of December 31, 2008.
UL Secondary
U.S. GMDB [1] Japan GMDB/GMIB [1] Guarantees [1]
Liability balance as of January 1, 2007 $ 475 $ 35 $ 7
Incurred 142 16 12
Paid (84) (3) —
Unlock (4) (9) —
Currency translation adjustment — 3 —
Liability balance as of December 31, 2007 $ 529 $ 42 $ 19
[1] The reinsurance recoverable asset related to the U.S. GMDB was $327 as of December 31, 2007. The reinsurance
recoverable asset related to the Japan GMDB was $8 as of December 31, 2007. The reinsurance recoverable asset
related to the UL Secondary Guarantees was $10 as of December 31, 2007.
The net SOP 03-1 reserve liabilities are established by estimating the expected value of net reinsurance costs and death and
income benefits in excess of the projected account balance. The excess death and income benefits and net reinsurance costs
are recognized ratably over the accumulation period based on total expected assessments. The SOP 03-1 reserve liabilities
are recorded in reserve for future policy benefits in the Company’s consolidated balance sheets. Changes in the SOP 03-1
reserve liabilities are recorded in benefits, losses and loss adjustment expenses in the Company’s consolidated statements of
operations. In a manner consistent with the Company’s accounting policy for deferred acquisition costs, the Company
regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit
expense if actual experience or other evidence suggests that earlier assumptions should be revised. As described within the
Unlock and Sensitivity Analysis in Note 1, the Company Unlocked its assumptions related to its SOP 03-1 reserves during
the third quarter of 2008 and 2007.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009