SEC Questions $1.5B Loss in Hartford Filing

In newly disclosed correspondence with the U.S. Securities and Exchange Commission, Hartford Life Insurance Co. was questioned about an unrealized loss of $1.5 billion in securities on its books.

The unrealized loss -- initially described in the company's 10-K filing for the end of 2009 -- stemmed from securities that cost $2.1 billion but are currently worth $1.5 billion less. That represents a 71% long-term unrealized loss -- "an unrealized loss position of more than 50% for more than 12 months," as SEC Senior Assistant Chief Accountant Jim B. Rosenberg described in correspondence with Glenn D. Lammey, executive vice president and chief financial officer at Hartford (NYSE: HIG).

"Please revise your disclosure to indicate the nature of these securities and to explain why these unrealized losses, which appear to be significantly greater than credit spreads in the market place, are apparently not indicative of credit losses and/or other-than-temporary impairment," Rosenberg requested on April 13.

Hartford said in an e-mail the SEC requested additional disclosure regarding the company's accounting practices related to other-than-temporary impairments. "The company promptly responded, providing proposed additional disclosures in a letter dated April 27."

In that response from Ernest M. McNeill Jr., Hartford senior vice president and chief accounting officer, he wrote that the company had "reviewed these securities as part of its impairment evaluation process" and would provide further information on the nature of the securities.

Most of the depressed securities, his response explained, "are supported by real estate-related and financial services sector assets" and the performance is "largely due to the continued effects of the recession and the economic and market uncertainties regarding future performance of commercial and residential real estate." The letter said "for these securities in an unrealized loss position where a credit impairment has not been recorded, the company's best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security."

In a later note on June 9, the SEC sent a Hartford official its customary language when questioning is complete: "We have completed our review of your filing and do not have any further comments at this time."

Hartford had been one of two insurance companies, besides American International Group Inc., to accept substantial financial help from the Troubled Asset Relief Program. Hartford took $3.4 billion in cash at the time. In March, Hartford completed more than $3 billion in equity and debt offerings and repaid the U.S. Department of the Treasury (BestWire, March 31, 2010).

John Heine, a spokesman with the SEC, explained the just-released correspondence is a routine part of their financial filing process. "When the staff reviews a filing, they go through the filing and take notes about areas where they have questions or concerns. They draft up what's called a comment letter," he said. The filing company response, "sometimes with amendments to the filing, sometimes with letter responding to the questions asked," Heine said. There is a 45-day waiting period before such correspondence is posted publicly.

Rated members of the Hartford Insurance Group currently have a Best's Financial Strength Rating of A (Excellent).

In morning trading on July 28, Hartford shares were at $22.86, down 1.85% from the previous close.

(Jesse A. Hamilton, Washington bureau manager: [email protected])