The Hartford 2010 Annual Report Download - page 120

120
Contingencies
Legal Proceedings – For a discussion regarding contingencies related to The Hartford’ s legal proceedings, please see the information
contained under “Litigation” and “Asbestos and Environmental Claims,” in Note 12 of the Notes to Consolidated Financial Statements,
which is incorporated herein by reference.
For a discussion of terrorism reinsurance legislation and how it affects The Hartford, see “Terrorism” under the Property and Casualty
Underwriting Risk Management section of the MD&A.
Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the United States Treasury
Department could have a material effect on the insurance business. These proposals and initiatives include, or could include, new taxes
or assessments on large financial institutions, changes pertaining to the income tax treatment of insurance companies and life insurance
products and annuities, repeal or reform of the estate tax and comprehensive federal tax reform, and changes to the regulatory structure
for financial institutions. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear.
Legislative Developments
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted on July 21, 2010,
mandating changes to the regulation of the financial services industry. The Dodd-Frank Act may affect our operations and governance in
ways that could adversely affect our financial condition and results of operations.
In particular, the Dodd-Frank Act vests a newly created Financial Services Oversight Council with the power to designate “systemically
important” institutions, which will be subject to special regulatory supervision and other provisions intended to prevent, or mitigate the
impact of, future disruptions in the U.S. financial system. Systemically important institutions are limited to nonbank financial companies
that are so important that their potential failure could “pose a threat to the financial stability of the United States.” If we are designated
as a systemically important institution, we could be subject to higher capital requirements and additional regulatory oversight imposed
by The Federal Reserve, as well as to post-event assessments imposed by the Federal Deposit Insurance Corporation (“FDIC”) to recoup
the costs associated with the orderly resolution of other systemically important institutions in the event one or more such institutions
fails. Further, the FDIC is authorized to petition a state court to commence an insolvency proceeding to liquidate an insurance company
that fails in the event the insurer’ s state regulator fails to act. Other provisions will require central clearing of, and/or impose new
margin and capital requirements on, derivatives transactions, which we expect will increase the costs of our hedging program.
A number of provisions of the Dodd-Frank Act affect us solely due to our status as a savings & loan holding company. For example,
under the Dodd-Frank Act, the OTS will be dissolved. The Federal Reserve will regulate us as a holding company, and the OCC will
regulate our thrift subsidiary, Federal Trust Bank. Because of our status as a savings and loan holding company or if we are designated
a systemically important institution, the Dodd-Frank Act may also restrict us from sponsoring and investing in private equity and hedge
funds, which would limit our discretion in managing our general account. The Dodd-Frank Act will also impose new minimum capital
standards on a consolidated basis for holding companies that, like us, control insured depository institutions.
Other provisions in the Dodd-Frank Act that may impact us, irrespective of whether or not we are a savings and loan holding company
include: the possibility that regulators could break up firms that are considered “too big to fail;” a new “Federal Insurance Office” within
Treasury to, among other things, conduct a study of how to improve insurance regulation in the United States; new means for regulators
to limit the activities of financial firms; discretionary authority for the SEC to impose a harmonized standard of care for investment
advisers and broker-dealers who provide personalized advice about securities to retail customers; additional regulation of compensation
in the financial services industry; and enhancements to corporate governance, especially regarding risk management.
The changes resulting from the Dodd-Frank Act could adversely affect our results of operation and financial condition.
FY 2012, Budget of the United States Government
On February 15, 2011, the Obama Administration released its “FY 2012, Budget of the United States Government” (the “Budget”).
Although the Administration has not released proposed statutory language, the Budget includes proposals which if enacted, would affect
the taxation of life insurance companies and certain life insurance products. In particular, the proposals would affect the treatment of
corporate owned life insurance (“COLI”) policies by limiting the availability of certain interest deductions for companies that purchase
those policies. The proposals would also change the method used to determine the amount of dividend income received by a life
insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity
contracts, that are eligible for the dividends received deduction (“DRD”). The DRD reduces the amount of dividend income subject to
tax and is a significant component of the difference between the Company’ s actual tax expense and expected amount determined using
the federal statutory tax rate of 35%. If proposals of this type were enacted, the Company’ s sale of COLI, variable annuities, and
variable life products could be adversely affected and the Company’ s actual tax expense could increase, reducing earnings. The Budget
also included a proposal to levy a $30 billion “Financial Crisis Responsibility Fee,” in the aggregate, on large financial institutions,
including The Hartford.
Guaranty Fund and Other Insurance-related Assessments
For a discussion regarding Guaranty Fund and Other Insurance-related Assessments, see Note 12 of the Notes to Consolidated Financial
Statements.