The Hartford 2010 Annual Report Download - page 199

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-71
12. Commitments and Contingencies (continued)
Lease Commitments
The total rental expense on operating leases was $132, $154, and $172 in 2010, 2009, and 2008, respectively, which excludes sublease
rental income of $4, $2, and $1 in 2010, 2009 and 2008, respectively. Future minimum lease commitments are as follows:
Years ending December 31, Operating Leases
2011 $ 114
2012 71
2013 47
2014 26
2015 16
Thereafter 33
Total minimum lease payments [1] $ 307
[1] Excludes expected future minimum sublease rental income of approximately $9 and $2 in 2011 and 2012, respectively.
The Company’ s lease commitments consist primarily of lease agreements on office space, data processing, furniture and fixtures, office
equipment, and transportation equipment that expire at various dates. Capital lease assets are included in property and equipment.
Unfunded Commitments
As of December 31, 2010, the Company has outstanding commitments totaling approximately $1.5 billion, of which $729 is committed
to fund mortgage loans, largely commercial whole loans expected to fund in the first half of 2011. Additionally, $693 is committed to
fund limited partnership and other alternative investments, which may be called by the partnership during the commitment period (on
average two to five years) to fund the purchase of new investments and partnership expenses. Once the commitment period expires, the
Company is under no obligation to fund the remaining unfunded commitment but may elect to do so. The remaining outstanding
commitments are primarily related to various funding obligations associated with private placement securities. These have a
commitment period of one month to three years.
Guaranty Fund and Other Insurance-related Assessments
In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. In most states,
in the event of the insolvency of an insurer writing any such class of insurance in the state, members of the funds are assessed to pay
certain claims of the insolvent insurer. A particular state’ s fund assesses its members based on their respective written premiums in the
state for the classes of insurance in which the insolvent insurer was engaged. Assessments are generally limited for any year to one or
two percent of the premiums written per year depending on the state. The amount and timing of assessments related to past insolvencies
is unpredictable.
Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be
reasonably estimated, and when the event obligating the Company to pay an imposed or probable assessment has occurred. Liabilities
for guaranty funds and other insurance-related assessments are not discounted and are included as part of other liabilities in the
Consolidated Balance Sheets. As of December 31, 2010 and 2009, the liability balance was $118 and $111, respectively. As of
December 31, 2010 and 2009, $14 and $18, respectively, related to premium tax offsets were included in other assets.
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 December 31, 2010,
is $557. Of this $557 the legal entities have posted collateral of $530 in the normal course of business. Based on derivative market
values as of December 31, 2010, a downgrade of one level below the current financial strength ratings by either Moody’ s or S&P could
require approximately an additional $29 to be posted as collateral. Based on derivative market values as of December 31, 2010, 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 $56 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 may be required to post is primarily in the form of U.S. Treasury bills and U.S. Treasury notes.