<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 1-12749
HARTFORD LIFE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1470915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06089
(Address of principal executive offices)
(860) 525-8555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
As of April 30, 1999, there were outstanding 25,937,537 shares of Class A Common
Stock, $0.01 par value per share, and 114,000,000 shares of Class B Common
Stock, $0.01 par value per share, of the registrant.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 1999 and 1998 3
Condensed Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 4
Condensed Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signature 18
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(In millions, except for per share data) (Unaudited) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Premiums and other considerations $ 934 $1,004
Net investment income 401 400
- --------------------------------------------------------------------------------
TOTAL REVENUES 1,335 1,404
- --------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 755 771
Amortization of deferred policy acquisition costs 124 97
Dividends to policyholders 17 107
Interest expense 17 13
Other expenses 265 287
- --------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,178 1,275
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 157 129
Income tax expense 51 45
- --------------------------------------------------------------------------------
NET INCOME $ 106 $ 84
================================================================================
Basic earnings per share $ 0.76 $ 0.60
Diluted earnings per share $ 0.76 $ 0.60
- --------------------------------------------------------------------------------
Weighted average common shares outstanding 139.9 140.0
Weighted average common shares outstanding and
dilutive potential common shares 140.3 140.1
- --------------------------------------------------------------------------------
Cash dividends declared per share $ 0.09 $ 0.09
================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
(In millions, except for share data) 1999 1998
- -------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$16,952 and $17,271) $ 17,153 $ 17,692
Equity securities, at fair value 146 140
Policy loans, at outstanding balance 4,701 6,687
Other investments 335 363
- -------------------------------------------------------------------------------------------------------
Total investments 22,335 24,882
Cash 57 36
Premiums receivable and agents' balances 230 166
Reinsurance recoverables 564 900
Deferred policy acquisition costs 3,938 3,842
Deferred income tax 501 456
Other assets 1,166 1,112
Separate account assets 93,725 90,628
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 122,516 $ 122,022
=======================================================================================================
LIABILITIES
Future policy benefits $ 5,841 $ 5,717
Other policyholder funds 17,121 19,767
Long-term debt 650 650
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely parent junior subordinated debentures 250 250
Other liabilities 2,477 2,517
Separate account liabilities 93,725 90,628
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 120,064 119,529
=======================================================================================================
STOCKHOLDERS' EQUITY
Class A common stock - 600,000,000 shares authorized;
26,093,427 and 26,077,320 shares issued, par value $0.01 -- --
Class B common stock - 600,000,000 shares authorized;
114,000,000 shares issued and outstanding, par value $0.01 1 1
Capital surplus 1,283 1,281
Treasury stock, at cost - 130,897 and 161,984 shares (7) (9)
Accumulated other comprehensive income
Net unrealized capital gains on securities, net of tax 132 263
Cumulative translation adjustments (15) (7)
-------- --------
Total accumulated other comprehensive income 117 256
-------- --------
Retained earnings 1,058 964
- -------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,452 2,493
=======================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 122,516 $ 122,022
=======================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
NET
UNREALIZED
CAPITAL
CLASS A CLASS B TREASURY GAINS ON CUMULATIVE TOTAL
COMMON COMMON CAPITAL STOCK, SECURITIES, TRANSLATION RETAINED STOCKHOLDERS'
(In millions)(Unaudited) STOCK STOCK SURPLUS AT COST NET OF TAX ADJUSTMENTS EARNINGS EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ -- $ 1 $ 1,281 $ (9) $ 263 $ (7) $ 964 $ 2,493
Comprehensive income
Net income 106 106
------
Other comprehensive income, net of
tax(1)
Net unrealized capital gains on
securities (2) (131) (131)
Cumulative translation adjustments (8) (8)
------
Total other comprehensive income (139)
------
Total comprehensive income (33)
------
Dividends declared (12) (12)
Issuance of shares under incentive and
stock purchase plans 2 4 6
Treasury stock acquired -- (2) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 $ -- $ 1 $ 1,283 $ (7) $ 132 $ (15) $ 1,058 $ 2,452
=================================================================================================================================
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
NET
UNREALIZED
CAPITAL
CLASS A CLASS B TREASURY GAINS ON CUMULATIVE TOTAL
COMMON COMMON CAPITAL STOCK, SECURITIES, TRANSLATION RETAINED STOCKHOLDERS'
(In millions)(Unaudited) STOCK STOCK SURPLUS AT COST NET OF TAX ADJUSTMENTS EARNINGS EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ -- $ 1 $ 1,283 $ (1) $ 237 $ (4) $ 628 $ 2,144
Comprehensive income
Net income 84 84
-------
Other comprehensive income, net of
tax(1)
Net unrealized capital gains on
securities(2) 1 1
Cumulative translation adjustments 1 1
-------
Total other comprehensive income 2
-------
Total comprehensive income 86
-------
Dividends declared (12) (12)
Issuance of shares under incentive and
stock purchase plans (1) 2 1
Treasury stock acquired (3) (3)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 $ -- $ 1 $ 1,282 $ (2) $ 238 $ (3) $ 700 $ 2,216
=================================================================================================================================
</TABLE>
(1) Net unrealized capital gains on securities is reflected net of tax of
($71) and $1 for the periods ended March 31, 1999 and 1998, respectively.
There is no tax effect on cumulative translation adjustments.
(2) There was no reclassification adjustment for after-tax gains (losses)
realized in net income for the three months ended March 31, 1999 and 1998,
respectively.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
(In millions) (Unaudited) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 106 $ 84
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES
Depreciation and amortization 2 --
Increase in premiums receivable and agents' balances (64) (27)
(Decrease) increase in other liabilities (122) 64
Change in receivables, payables and accruals 60 (43)
(Decrease) increase in accrued tax (55) 35
Decrease (increase) in deferred income tax 25 (88)
Increase in deferred policy acquisition costs (96) (121)
Increase in future policy benefits 124 157
(Increase) decrease in reinsurance recoverables and other assets (17) 88
- ------------------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (37) 149
==================================================================================================================
INVESTING ACTIVITIES
Purchases of investments (1,803) (2,619)
Sales of investments 3,618 1,709
Maturities and principal paydowns of fixed maturity investments 559 521
Other (7) (5)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 2,367 (394)
==================================================================================================================
FINANCING ACTIVITIES
Dividends paid (12) (12)
Net (disbursements for) receipts from investment and universal life-type contracts
(charged against) credited to policyholder accounts (2,300) 220
Net issuance (purchase) of common stock 3 (1)
- ------------------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (2,309) 207
==================================================================================================================
Net increase (decrease) in cash 21 (38)
Cash - beginning of period 36 88
- ------------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 57 $ 50
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID DURING THE PERIOD FOR
Income taxes $ 25 $ 56
Interest $ 5 $ 1
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Hartford Life, Inc. and subsidiaries ("Hartford Life" or the "Company") have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures which are normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, these statements include all adjustments which were normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. For a description of
significant accounting policies, see Note 2 of Notes to Consolidated Financial
Statements in Hartford Life's 1998 Form 10-K Annual Report.
Certain reclassifications have been made to prior year financial information to
conform to the current year classification of transactions and accounts.
(b) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1999, Hartford Life adopted Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use". This SOP provides guidance on accounting for costs of
internal use software and in determining whether software is for internal use.
The SOP defines internal use software as software that is acquired, internally
developed, or modified solely to meet internal needs and identifies stages of
software development and accounting for the related costs incurred during the
stages. Adoption of this SOP did not have a material impact on the Company's
financial condition or results of operations.
Effective January 1, 1999, Hartford Life adopted SOP No. 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". This SOP
addresses accounting by insurance and other enterprises for assessments related
to insurance activities including recognition, measurement and disclosure of
guaranty fund or other assessments. Adoption of this SOP did not have a material
impact on the Company's financial condition or results of operations.
2. EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average number of
shares outstanding during the respective periods. Diluted earnings per share
include the dilutive effect of outstanding options, using the treasury stock
method, and also contingently issuable shares. Under the treasury stock method,
it is assumed that options are exercised and the proceeds will be assumed to be
used to purchase common stock at the average market price for the period. The
difference between the number of shares assumed issued and number of shares
assumed purchased represents the dilutive shares. Contingently issuable shares
are included upon satisfaction of certain conditions related to contingency.
7
<PAGE> 8
The following tables present a reconciliation of income and shares used in
calculating basic earnings per share to those used in calculating diluted
earnings per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
PER SHARE
MARCH 31, 1999 INCOME SHARES AMOUNT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Amounts available to common shareholders $ 106 139.9 $ 0.76
------
DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- 0.4
----------------
Amounts available to common shareholders
plus assumed conversions $ 106 140.3 $ 0.76
====================================================================================
MARCH 31, 1998
- ------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Amounts available to common shareholders $ 84 140.0 $ 0.60
------
DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares 0.1
----------------
Amounts available to common shareholders
plus assumed conversions $ 84 140.1 $ 0.60
====================================================================================
</TABLE>
3. SEGMENT INFORMATION
Hartford Life adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", during the fourth quarter of 1998. This statement
replaces SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", and establishes new standards for reporting information about
operating segments in annual financial statements and in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that the reportable operating segments be based on the
Company's internal operations. On this basis, Hartford Life's segments represent
strategic operations which offer different products and services as well as
serve different markets.
Hartford Life is organized into four reportable operating segments which include
Investment Products, Individual Life, Employee Benefits and Corporate Owned Life
Insurance (COLI). Investment Products offers individual variable annuities,
fixed market value adjusted (MVA) annuities and fixed and variable immediate
annuities, mutual funds, deferred compensation and retirement plan services,
structured settlement contracts and other special purpose annuity contracts.
Individual Life sells a variety of life insurance products, including variable
life, universal life, interest-sensitive whole life and term life insurance.
Employee Benefits sells group insurance products, including group life and group
disability insurance as well as other products, including stop loss and
supplementary medical coverage to employers and employer sponsored plans,
accidental death and dismemberment, travel accident, long-term care insurance
and other special risk coverages to employers and associations. COLI primarily
offers variable products used by employers to fund non-qualified benefits or
other post-employment benefit obligations as well as leveraged COLI. The Company
includes in "Other" corporate items not directly allocable to any of its
reportable operating segments, principally interest expense, as well as its
international operations.
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2 of
Notes to Consolidated Financial Statements in Hartford Life's 1998 Form 10-K
Annual Report. Hartford Life evaluates performance of its segments based on
revenues, net income and the segment's return on allocated capital. The Company
charges direct operating expenses to the appropriate segment and allocates the
majority of indirect expenses to the segments based on an intercompany expense
arrangement. Intersegment revenues are not significant and primarily occur
between corporate and the operating segments. These amounts include interest
income on allocated surplus and the amortization of net realized capital gains
and losses through net investment income utilizing the duration of the segment's
investment portfolios. The following tables outline summarized financial
information concerning the Company's segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED Investment Individual Employee
MARCH 31, 1999 Products Life Benefits COLI Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 483 $ 133 $ 475 $ 224 $ 20 $1,335
Net income (loss) 78 15 17 6 (10) 106
- -------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED Investment Individual Employee
MARCH 31, 1998 Products Life Benefits COLI Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 434 $ 134 $ 489 $ 341 $ 6 $1,404
Net income (loss) 61 13 15 6 (11) 84
- -------------------------------------------------------------------------------------------
</TABLE>
4. COMMITMENTS AND CONTINGENT LIABILITIES
(a) LITIGATION
Hartford Life is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
(b) INVESTMENTS
As of March 31, 1999, Hartford Life held $81 of asset backed securities
securitized and serviced by Commercial Financial Services, Inc. (CFS) of which
$60 were included in the Company's general account and $21 in the Company's
guaranteed separate account. In October 1998, the Company became aware of
allegations of improper activities at CFS. On December 11, 1998, CFS filed for
protection under Chapter 11 of the Bankruptcy Code. In March 1999, CFS announced
that it is in active negotiations with several potential purchasers. CFS
continues to service the asset backed securities, which remain current on
payments of principal and interest, however, the Company does not expect to
recover all of its principal investment. Based upon available information, the
Company recognized a $29, after-tax, writedown related to its holdings in CFS in
the fourth quarter of 1998, of which $21 was related to the Company's general
account assets. The ultimate realizable amount depends on the outcome of the
bankruptcy of CFS and these estimates are therefore subject to material change
as new information becomes available. The Company is presently unable to
determine the amount of further potential loss, if any, related to the
securities.
(c) TAX MATTERS
Hartford Life's federal income tax returns are routinely audited by the Internal
Revenue Service. Management believes that adequate provision has been made in
the financial statements for items that may result from tax examinations and
other tax related matters.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) addresses the financial condition of the Company as of March
31, 1999, compared with December 31, 1998, and its results of operations for the
three months ended March 31, 1999 compared with the equivalent period in 1998.
This discussion should be read in conjunction with the MD&A included in the
Company's 1998 Form 10-K Annual Report.
Certain statements contained in this discussion, other than statements of
historical fact, are forward-looking statements. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking statements are
subject to change and uncertainty which are, in many instances, beyond the
Company's control and have been made based upon management's expectations and
beliefs concerning future developments and their potential effect on Hartford
Life, Inc. and subsidiaries ("Hartford Life" or the "Company"). There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on Hartford Life will be
those anticipated by management. Actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including those described in the forward-looking statements.
INDEX
Consolidated Results of Operations 10
Investment Products 10
Individual Life 11
Employee Benefits 11
Corporate Owned Life Insurance (COLI) 12
Investments 12
Capital Markets Risk Management 13
Capital Resources and Liquidity 14
Regulatory Initiatives and Contingencies 15
9
<PAGE> 10
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING SUMMARY THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $1,335 $1,404
Expenses 1,229 1,320
- --------------------------------------------------------------------------------
NET INCOME $ 106 $ 84
================================================================================
</TABLE>
Hartford Life has the following reportable segments: Investment Products,
Individual Life, Employee Benefits and Corporate Owned Life Insurance (COLI).
The Company reports corporate items not directly allocable to any of its
segments, principally interest expense, as well as its international operations
in "Other".
Revenues decreased $69, or 5%, for the three months ended March 31, 1999 as
compared to the equivalent 1998 period, primarily due to the declining block of
leveraged COLI business. Excluding COLI, revenues increased $48, or 5%. This
increase was primarily driven by the Investment Products segment, which
experienced increased fee income in the individual annuity and mutual fund
operations. The increased fees are directly attributable to higher account
values, which was driven by strong net cash flow (new sales less surrenders) and
equity market appreciation.
Expenses decreased $91, or 7%, for the three months ended March 31, 1999 as
compared to the equivalent 1998 period, primarily due to significantly reduced
dividends to policyholders in the declining block of leveraged COLI business.
Excluding COLI, expenses increased $26, or 3%, primarily due to increased
amortization of deferred policy acquisition costs and increased operating
expenses directly related to the growth in the Investment Products segment,
particularly the individual annuity and mutual fund operations. However,
operating expenses as a percentage of average assets under management as of
March 31, 1999 were consistent with the equivalent period in 1998.
Net income increased $22, or 26%, for the three months ended March 31, 1999 as
compared to the same period in 1998. This improvement in earnings was primarily
driven by both asset growth and an improvement in profit margin within the
Investment Products segment. The Individual Life and Employee Benefits segments
also contributed to the improvement in earnings.
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Products $ 78 $ 61
Individual Life 15 13
Employee Benefits 17 15
Corporate Owned Life Insurance (COLI) 6 6
Other (10) (11)
- --------------------------------------------------------------------------------
NET INCOME $ 106 $ 84
================================================================================
</TABLE>
The sections that follow analyze each segment's results. Investment results are
discussed separately following the segment overviews.
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $483 $434
Expenses 405 373
- --------------------------------------------------------------------------------
NET INCOME $ 78 $ 61
================================================================================
</TABLE>
Revenues in the Investment Products segment increased $49, or 11%, to $483 for
the three months ended March 31, 1999 from $434 in the comparable 1998 period.
This improvement was primarily driven by the individual annuity and retail
mutual fund operations. Fee income generated by individual variable annuities
increased $61 as related average account values grew $13.6 billion, or 27%, to
$63.9 billion for the three months ended March 31, 1999 as compared to $50.3
billion for the three months ended March 31, 1998. This growth was due, in part,
to strong individual variable annuity sales of $2.6 billion in the first quarter
of 1999, a 9% increase over the comparable prior year level, as well as strong
persistency and equity market appreciation. In addition, fee income from other
investment products increased $18, primarily driven by the Company's retail
mutual funds where assets under management more than doubled to $3.2 billion
10
<PAGE> 11
as of March 31, 1999 from $1.4 billion as of March 31, 1998. This substantial
growth was due, in part, to strong first quarter sales of $701, almost double
the comparable prior year level, and equity market appreciation. Partially
offsetting this increase was a decline in net investment income of $23,
primarily due to lower levels of general account assets in the guaranteed
investment contract (GIC) business.
Due to strong sales and continued growth in assets under management, expenses
increased $32, or 9%, to $405 for the three months ended March 31, 1999 from
$373 in the comparable 1998 period. This increase was driven by amortization of
deferred policy acquisition costs which grew $27 and other expenses which
increased $20 over prior year levels. Partially offsetting this was a decrease
in benefits, claims and claim adjustment expenses of $23 related to the
Company's GIC business.
Net income increased $17, or 28%, to $78 for the three months ended March 31,
1999 from $61 for the same period in 1998. This increase was driven by an
overall 21% growth in total investment products average account values over
comparable prior year levels, coupled with an improvement in profit margin as
net income as a percentage of average assets under management increased to 35
basis points for the three months ended March 31, 1999 from 33 basis points for
the comparable period in 1998.
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $133 $134
Expenses 118 121
- --------------------------------------------------------------------------------
NET INCOME $ 15 $ 13
================================================================================
</TABLE>
Revenues and expenses in the Individual Life segment were relatively consistent
for the three months ended March 31, 1999 and March 31, 1998. Net income,
however, grew by 15% for the three months ended March 31, 1999 to $15 from $13
for the same period in 1998. This increase was driven by a 46% increase in
variable life account values which grew to $1.9 billion as of March 31, 1999
from $1.3 billion as of March 31, 1998. Total individual life insurance in-force
reached $62.0 billion as of March 31, 1999, a 10% increase over the same period
in 1998.
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $475 $489
Expenses 458 474
- --------------------------------------------------------------------------------
NET INCOME $ 17 $ 15
================================================================================
</TABLE>
Revenues in the Employee Benefits segment decreased $14, or 3%, to $475 for the
three months March 31, 1999 as compared to $489 for the same period in 1998,
primarily due to decreased revenues associated with buyouts. Revenues, excluding
buyouts of $14 and $39 for the three months ended March 31, 1999 and March 31,
1998, respectively, increased $11, or 2%, for the three months ended March 31,
1999 compared to the equivalent period in 1998. Expenses decreased $16, or 3%,
to $458 for the three months ended March 31, 1999 as compared to $474 in 1998,
primarily due to the impact of buyouts and a reduction in income tax expense
associated with the segment's increased investments in tax-exempt debt
securities. Excluding buyouts, expenses increased $9, or 2%, to $444 from $435
and, as a percentage of revenues, were consistent for the three months ended
March 31, 1999 as compared to the same period in 1998. Net income increased $2,
or 13%, to $17 for the three months ended March 31, 1999 as compared to $15 for
the same period in 1998 which was primarily related to increased after-tax net
investment income and increased revenues.
11
<PAGE> 12
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $224 $341
Expenses 218 335
- --------------------------------------------------------------------------------
NET INCOME $ 6 $ 6
================================================================================
</TABLE>
COLI revenues decreased $117, or 34%, to $224 for the three months ended March
31, 1999 from $341 in the comparable 1998 period. Expenses decreased $117, or
35%, to $218 for the three months ended March 31, 1999 compared to $335 in the
comparable 1998 period. Net income was consistent with the prior year.
The decline in revenues and expenses are both attributable to the fact that
policyholder premium payments for leveraged COLI have been virtually eliminated
due to the Health Insurance Portability and Accountability Act of 1996, which
phased out the deductibility of interest expense on policy loans through the end
of 1998.
The decrease in net income related to leveraged COLI was offset by increased net
income associated with the MBL Recapture in 1998 and higher average account
values related to variable COLI business. (For a discussion of the MBL
Recapture, see "Purchase of Affiliates and Other" under the Capital Resources
and Liquidity section in Hartford Life's 1998 Form 10-K Annual Report.) Average
account values for variable COLI increased $4.5 billion, or 64%, to $11.5
billion for the three months ended March 31, 1999 as compared to $7.0 billion
for the three months ended March 31, 1998.
INVESTMENTS
Invested assets, excluding separate accounts, totaled $22.3 billion as of March
31, 1999 and were comprised of $17.2 billion of fixed maturities, $4.7 billion
of policy loans, equity securities of $146 and other investments of $335. As of
December 31, 1998, general account invested assets totaled $24.9 billion and
were comprised of $17.7 billion of fixed maturities, $6.7 billion of policy
loans, equity securities of $140 and other investments of $363. Policy loans are
secured by the cash value of the underlying life insurance policies and do not
mature in a conventional sense, but expire in conjunction with the related
policy liabilities. The decrease in policy loans relates to the declining block
of leveraged COLI business discussed above.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
----------------------------------------------
FIXED MATURITIES BY TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate $ 8,013 46.7% $ 7,898 44.6%
Asset backed securities 2,335 13.6% 2,465 13.9%
Commercial mortgage backed securities 2,070 12.1% 2,036 11.5%
Short-term 1,422 8.3% 2,119 12.0%
Municipal - tax-exempt 983 5.7% 916 5.2%
Collateralized mortgage obligations 719 4.2% 831 4.7%
Mortgage backed securities - agency 705 4.1% 503 2.9%
Government/Government agencies - Foreign 482 2.8% 530 3.0%
Municipal - taxable 192 1.1% 223 1.3%
Government/Government agencies - U.S. 184 1.1% 166 0.9%
Redeemable preferred stock 48 0.3% 5 --
- ------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $17,153 100.0% $17,692 100.0%
- ------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT RESULTS
The table below summarizes Hartford Life's investment results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(Before-tax) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net investment income - excluding policy loan income $ 290 $ 296
Policy loan income 111 104
- --------------------------------------------------------------------------------
Net investment income - total $ 401 $ 400
- --------------------------------------------------------------------------------
Yield on average invested assets (1) 6.9% 7.6%
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents annualized net investment income (excluding net realized
capital gains or losses) divided by average invested assets at cost (fixed
maturities at amortized cost).
Net investment income for the three months ended March 31, 1999 was consistent
with the prior year. Yield on average invested assets declined to 6.9% for the
three months ended March 31, 1999 from 7.6% in the prior period as a result of a
decrease in policy loan
12
<PAGE> 13
weighted-average interest rates, which declined to 8.0% as of March 31, 1999
from 11.1% as of March 31, 1998, combined with an increase in average policy
loan balances as of March 31, 1999 as compared to the same period in 1998.
CAPITAL MARKETS RISK MANAGEMENT
Hartford Life has a disciplined approach to managing risks associated with its
capital markets and asset/liability management activities. Investment portfolio
management is organized to focus investment management expertise on specific
classes of investments, while asset/liability management is the responsibility
of separate and distinct risk management units supporting the Company's
operations. Derivative instruments are utilized in accordance with established
Company policy and are monitored internally and reviewed by senior management.
The Company is exposed to two primary sources of investment and asset/liability
management risk: credit risk, relating to the uncertainty associated with the
ability of an obligor or counterparty to make timely payments of principal
and/or interest, and market risk, relating to the market price and/or cash flow
variability associated with changes in interest rates, securities prices, market
indices, yield curves or currency exchange rates. The Company does not hold any
financial instruments entered into for trading purposes.
Please refer to Hartford Life's 1998 Form 10-K Annual Report for a description
of the Company's objectives, policies and strategies.
CREDIT RISK
The Company invests primarily in securities rated investment grade and has
established exposure limits, diversification standards and review procedures for
all credit risks whether borrower, issuer or counterparty. Creditworthiness of
specific obligors is determined by an internal credit evaluation supplemented by
consideration of external determinants of creditworthiness, typically ratings
assigned by nationally recognized ratings agencies. Obligor, geographic, asset
sector and industry concentrations are subject to established limits and
monitored on a regular interval. Hartford Life is not exposed to any significant
credit concentration risk of a single issuer. For a discussion of investment
contingencies see Note 4 (b) of Notes to Condensed Consolidated Financial
Statements.
The following table identifies fixed maturity securities for the general account
and guaranteed separate accounts by credit quality. The ratings referenced in
the table are based on the ratings of a nationally recognized rating
organization or, if not rated, assigned based on the Company's internal analysis
of such securities.
As of March 31, 1999 and December 31, 1998, over 97% of the fixed maturity
portfolio was invested in investment-grade securities.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
---------------------------------------------
FIXED MATURITIES BY CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government/Government agencies $ 2,638 9.9% $ 2,596 9.5%
AAA 3,452 13.0% 3,542 12.9%
AA 2,615 9.8% 2,674 9.7%
A 8,825 33.1% 8,878 32.3%
BBB 6,908 25.9% 7,019 25.6%
BB and below 624 2.3% 492 1.8%
Short-term 1,593 6.0% 2,265 8.2%
- -------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $26,655 100.0% $27,466 100.0%
- -------------------------------------------------------------------------------------
</TABLE>
MARKET RISK
Hartford Life has material exposure to both interest rate and equity market
risk. The Company employs several risk management tools to quantify and manage
market risk arising from its investments and interest sensitive liabilities. For
certain portfolios, management monitors the changes in present value between
assets and liabilities resulting from various interest rate scenarios using
integrated asset/liability measurement systems and a proprietary system that
simulates the impacts of parallel and non-parallel yield curve shifts. Based on
this current and prospective information, management implements risk reducing
techniques to improve the match between assets and liabilities. There have been
no material changes in market risk exposures from December 31, 1998.
DERIVATIVE INSTRUMENTS
Hartford Life utilizes a variety of derivative instruments, including swaps,
caps, floors, forwards and exchange traded futures and options, in accordance
with Company policy in order to achieve one of three Company approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; or to control transaction costs. The
Company does not make a market or trade derivatives for the express purpose of
earning trading profits.
13
<PAGE> 14
The Company uses derivative instruments in its management of market risk
consistent with four risk management strategies: hedging anticipated
transactions, hedging liability instruments, hedging invested assets and hedging
portfolios of assets and/or liabilities.
Derivative activities are monitored by an internal compliance unit, reviewed
frequently by senior management and reported to the Finance Committee of
Hartford Financial Services Group, Inc, the Company's indirect parent. The
notional amounts of derivative contracts represent the basis upon which pay or
receive amounts are calculated and are not reflective of credit risk. Notional
amounts pertaining to derivative instruments for both general and guaranteed
separate accounts totaled $11.2 billion at March 31, 1999 and December 31, 1998.
For a further discussion of market risk exposure including derivative
instruments, please refer to Hartford Life's 1998 Form 10-K Annual Report.
CAPITAL RESOURCES AND LIQUIDITY
Capital resources and liquidity represent the overall financial strength of
Hartford Life and its ability to generate cash flows from each of the business
segments and borrow funds at competitive rates to meet operating and growth
needs. The Company maintained cash and short-term investments totaling $1.5
billion and $2.2 billion as of March 31, 1999 and December 31, 1998,
respectively. The capital structure of the Company consists of debt and equity,
and is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt 650 650
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely parent junior subordinated debentures (TruPS) 250 250
- ----------------------------------------------------------------------------------------------------------------
TOTAL DEBT $ 900 $ 900
- ----------------------------------------------------------------------------------------------------------------
Equity excluding net unrealized capital gains on securities, net of tax $ 2,320 $ 2,230
Net unrealized capital gains on securities, net of tax 132 263
- ----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,452 $ 2,493
- ----------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION (1) $ 3,220 $ 3,130
- ----------------------------------------------------------------------------------------------------------------
Debt to equity (1) 39% 40%
Debt to capitalization (1) 28% 29%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes net unrealized capital gains on securities, net of tax.
CAPITALIZATION
The Company's total capitalization, excluding net unrealized capital gains on
securities, net of tax, increased $90, or 3%, as of March 31, 1999, as compared
to December 31, 1998. This increase was primarily the result of net income of
$106 partially offset by dividends declared of $12. As a result, both the debt
to equity and debt to capitalization ratios (both excluding net unrealized
capital gains on securities, net of tax) decreased to 39% and 28% as of March
31, 1999, respectively, from 40% and 29% as of December 31, 1998, respectively.
DIVIDENDS
Hartford Life declared $12 in dividends for the three month period ended March
31, 1999 to holders of Class A and Class B Common Stock.
The Company's direct regulated life insurance subsidiary, Hartford Life and
Accident Insurance Company, declared dividends of $32 for the three months ended
March 31, 1999, of which $17 had been received by the Company as of March 31,
1999.
TREASURY STOCK
During the first three months of 1999, to make shares available to employees
pursuant to stock-based benefit plans, the Company repurchased 40,000 shares of
its Class A Common Stock in the open market at a total cost of $2. Shares
repurchased in the open market are carried at cost and reflected as a reduction
to stockholders' equity. Treasury shares subsequently reissued are reduced from
treasury stock on a weighted average cost basis. The Company currently intends
to purchase additional shares of its Class A Common Stock to make shares
available for its various employee stock-based benefit plans.
14
<PAGE> 15
CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash (used for) provided by operating activities $ (37) $ 149
Cash provided by (used for) investing activities 2,367 (394)
Cash (used for) provided by financing activities (2,309) 207
Cash - end of period 57 50
- --------------------------------------------------------------------------------
</TABLE>
The decrease in cash (used for) provided by operating activities was primarily
the result of timing in the settlement of receivables and payables in the first
three months of 1999. The increase in cash provided by (used for) investing
activities and the decrease in cash (used for) provided by financing activities
primarily relate to the significant downsizing of the leveraged COLI block of
business, as well as the decrease in the GIC business. Operating cash flows in
both periods have been more than adequate to meet liquidity requirements.
REGULATORY INITIATIVES AND CONTINGENCIES
NAIC PROPOSALS
The NAIC has been developing several model laws and regulations, including a
Model Investment Law and amendments to the Model Holding Company System
Regulatory Act (the "Holding Act Amendments"). The Model Investment Law defines
the investments which are permissible for life insurers to hold, and the Holding
Act Amendments address the types of activities in which subsidiaries and
affiliates may engage. The NAIC adopted these models in 1997 and 1996, but the
laws have not been enacted for insurance companies domiciled in the State of
Connecticut, such as Hartford Life. Even if enacted in Connecticut or other
states in which Hartford Life's subsidiaries are domiciled, it is expected that
these laws will neither significantly change Hartford Life's investment
strategies nor have any material adverse effect on Hartford Life's liquidity or
financial position.
The NAIC adopted the Codification of Statutory Accounting Principles (SAP) in
March 1998. The proposed effective date for the statutory accounting guidance is
January 1, 2001. It is expected that Hartford Life's domiciliary state will
adopt the SAP and the Company will make the necessary changes required for
implementation. These changes are not anticipated to have a material impact on
the statutory financial statements of Hartford Life.
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Hartford Life distributes its annuity and life insurance products through a
variety of distribution channels, including broker-dealers, banks, wholesalers,
its own internal sales force and other third party marketing organizations. The
Company periodically negotiates provisions and renewals of these relationships
and there can be no assurance that such terms will remain acceptable to the
Company or such service providers. An interruption in the Company's continuing
relationship with certain of these third parties could materially affect the
Company's ability to market its products. During the first quarter of 1999, the
Company modified its contract with Putnam Mutual Funds Corp. (Putnam), to
eliminate the exclusivity provision which will allow both parties to pursue new
market opportunities. Putnam is contractually obligated to support and service
the related annuity inforce block of business and to market, support and service
new business. However, there can be no assurance that this contract modification
will not adversely impact the Company's ability to distribute Putnam-related
products.
YEAR 2000
In General
The Year 2000 issue relates to the ability or inability of computer hardware,
software and other information technology (IT) systems, as well as non-IT
systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford Life's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford Life's
business. Hartford Life issues insurance policies, annuities, mutual funds and
other financial products to individual and business customers, nearly all of
which contain date sensitive data, such as policy expiration dates, birth dates
and premium payment dates. In
15
<PAGE> 16
addition, various IT systems support communications and other systems that
integrate Hartford Life's various business segments and field offices, including
Hartford Life's foreign operations. Hartford Life also has business
relationships with numerous third parties that affect virtually all aspects of
Hartford Life's business, including, without limitation, suppliers, computer
hardware and software vendors, insurance agents and brokers, securities
broker-dealers and other distributors of financial products, many of which
provide date sensitive data to Hartford Life, and whose operations are important
to Hartford Life's business.
Internal Year 2000 Efforts and Timetable
Beginning in 1990, Hartford Life began working on making its IT systems Year
2000 ready, either through installing new programs or replacing systems. Since
January 1998, Hartford Life's Year 2000 efforts have focused on the remaining
Year 2000 issues related to IT and non-IT systems in all of Hartford Life's
business segments. These Year 2000 efforts include the following five main
initiatives: (1) identifying and assessing Year 2000 issues; (2) taking actions
to remediate IT and non-IT systems so that they are Year 2000 ready; (3) testing
IT and non-IT systems for Year 2000 readiness; (4) deploying such remediated and
tested systems back into their respective production environments; and (5)
conducting internal and external integrated testing of such systems. As of
December 31, 1998, Hartford Life substantially completed initiatives (1) through
(4) of its internal Year 2000 efforts. Hartford Life is currently performing
initiative (5) testing and management currently anticipates that such activity
will continue into the fourth quarter of 1999.
THIRD PARTY YEAR 2000 EFFORTS AND TIMETABLE
Hartford Life's Year 2000 efforts include assessing the potential impact on
Hartford Life of third parties' Year 2000 readiness. Hartford Life's third party
Year 2000 efforts include the following three main initiatives: (1) identifying
third parties which have significant business relationships with Hartford Life,
including, without limitation, insurance agents, brokers, third party
administrators, banks and other distributors and servicers of financial
products, and inquiring of such third parties regarding their Year 2000
readiness; (2) evaluating such third parties' responses to Hartford Life's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in each case. These activities may include conducting additional
inquiries, more in-depth evaluations of Year 2000 readiness and plans, and
integrated IT systems testing. Hartford Life has substantially completed third
party initiatives (1) and (2). Hartford Life is currently conducting the
additional activities described in initiative (3) and management currently
anticipates that it will continue to do so through the end of 1999. However,
notwithstanding these third party Year 2000 efforts, Hartford Life does not have
control over these third parties and, as a result, Hartford Life cannot
currently determine to what extent future operating results may be adversely
affected by the failure of these third parties to adequately address their Year
2000 issues.
Year 2000 Costs
The after-tax costs of Hartford Life's Year 2000 efforts that were incurred
prior to the year ended December 31, 1998 were not material to Hartford Life's
financial condition or results of operations. For the year ended December 31,
1998, the after-tax costs were approximately $4. Management currently estimates
that after-tax costs related to the Year 2000 program to be incurred in 1999
will be approximately $5 to $10, of which approximately $1 was incurred in the
quarter ended March 31, 1999. These costs are being expensed as incurred.
Risks and Contingency Plans
If significant Year 2000 problems arise, including problems arising with third
parties, failures of IT and non-IT systems could occur, which in turn could
result in substantial interruptions in Hartford Life's business. In addition,
Hartford Life's investing activities are an important aspect of its business and
Hartford Life may be exposed to the risk that issuers of investments held by it
will be adversely impacted by Year 2000 issues. Given the uncertain nature of
Year 2000 problems that may arise, especially those related to the readiness of
third parties discussed above, management cannot determine at this time whether
the consequences of Year 2000 related problems that could arise will have a
material impact on Hartford Life's financial condition or results of operations.
Hartford Life is in the process of developing certain contingency plans so that
if, despite its Year 2000 efforts, Year 2000 problems ultimately arise, the
impact of such problems may be avoided or minimized. The contingency planning
process involves identifying reasonably likely business disruption scenarios
that, if they were to occur, could create significant problems in critical
functions of the Company. The Company is developing plans to respond to such
problems so that critical business functions may continue to operate with
minimal disruption. Contingency planning also includes assessing the dependency
of business functions on critical third parties and their Year 2000 readiness.
Hartford Life currently anticipates that internal and external contingency
plans will be substantially complete by the end of the second quarter of 1999.
These plans will then be reviewed and tested on an integrated basis for the
remainder of the year. Furthermore, in many contexts, Year 2000 issues are
dynamic, and ongoing assessments of business functions, vulnerabilities and
risks must be made. As such, new contingency plans may be needed in the future
and/or existing plans may need to be modified as circumstances warrant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
16
<PAGE> 17
Reference is made to the Capital Markets Risk Management section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hartford Life is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibits Index.
(b) Reports on Form 8-K - None.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARTFORD LIFE, INC.
/s/ Mary Jane B. Fortin
----------------------------------------
Mary Jane B. Fortin
Chief Accounting Officer and
Assistant Vice President
MAY 14, 1999
18
<PAGE> 19
HARTFORD LIFE, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
EXHIBIT # DESCRIPTION
--------- -----------
27 Financial Data Schedule is filed herewith.
19
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 17,153
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 146
<MORTGAGE> 204
<REAL-ESTATE> 0
<TOTAL-INVEST> 22,335
<CASH> 57
<RECOVER-REINSURE> 564
<DEFERRED-ACQUISITION> 3,938
<TOTAL-ASSETS> 122,516
<POLICY-LOSSES> 5,841
<UNEARNED-PREMIUMS> 43
<POLICY-OTHER> 17,121
<POLICY-HOLDER-FUNDS> 93,725
<NOTES-PAYABLE> 650
250<F1>
0
<COMMON> 1
<OTHER-SE> 2,451
<TOTAL-LIABILITY-AND-EQUITY> 122,516
934
<INVESTMENT-INCOME> 401
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 755
<UNDERWRITING-AMORTIZATION> 124
<UNDERWRITING-OTHER> 273
<INCOME-PRETAX> 157
<INCOME-TAX> 51
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>REPRESENTS COMPANY OBLIGATION MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES.
</FN>
</TABLE>
