<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 September 30, 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 October 29, 1999, there were outstanding 25,970,453 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
----
Consolidated Statements of Income - Third Quarter
and Nine Months Ended September 30, 1999 and 1998 3
Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 4
Consolidated Statements of Changes in Stockholders' Equity -
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
Signature 20
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
(In millions, except for per share data) (Unaudited) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums and other considerations $ 1,044 $ 894 $ 2,954 $ 2,661
Net investment income 381 393 1,163 1,185
Net realized capital losses (5) -- (5) --
------- ------- ------- -------
TOTAL REVENUES 1,420 1,287 4,112 3,846
------- ------- ------- -------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 745 679 2,282 2,108
Amortization of deferred policy acquisition costs 150 122 417 336
Dividends to policyholders 70 60 97 177
Interest expense 17 17 50 42
Other expenses 271 257 772 760
------- ------- ------- -------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,253 1,135 3,618 3,423
------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 167 152 494 423
Income tax expense 48 52 155 145
------- ------- ------- -------
NET INCOME $ 119 $ 100 $ 339 $ 278
------- ------- ------- -------
Basic earnings per share $ 0.85 $ 0.71 $ 2.42 $ 1.98
Diluted earnings per share $ 0.85 $ 0.71 $ 2.42 $ 1.98
------- ------- ------- -------
Weighted average common shares outstanding 140.0 140.0 139.9 140.0
Weighted average common shares outstanding and
dilutive potential common shares 140.3 140.2 140.3 140.2
------- ------- ------- -------
Cash dividends declared per share $ 0.09 $ 0.09 $ 0.27 $ 0.27
------- ------- ------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 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
$17,162 and $17,271) $ 16,802 $ 17,692
Equity securities, at fair value 153 140
Policy loans, at outstanding balance 4,283 6,687
Other investments 389 363
--------- ---------
Total investments 21,627 24,882
Cash 59 36
Premiums receivable and agents' balances 238 166
Reinsurance recoverables 461 900
Deferred policy acquisition costs 4,103 3,842
Deferred income tax 525 456
Other assets 1,191 1,112
Separate account assets 97,377 90,628
--------- ---------
TOTAL ASSETS $ 125,581 $ 122,022
--------- ---------
LIABILITIES
Future policy benefits $ 5,987 $ 5,717
Other policyholder funds 16,678 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 2,322 2,517
Separate account liabilities 97,377 90,628
--------- ---------
TOTAL LIABILITIES 123,264 119,529
--------- ---------
STOCKHOLDERS' EQUITY
Class A common stock - 600,000,000 shares authorized;
26,109,512 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 - 127,571 and 161,984 shares (7) (9)
Accumulated other comprehensive income (loss)
Net unrealized capital gains (losses) on securities, net of tax (215) 263
Cumulative translation adjustments (10) (7)
--------- ---------
Total accumulated other comprehensive income (loss) (225) 256
--------- ---------
Retained earnings 1,265 964
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 2,317 2,493
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 125,581 $ 122,022
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS)
------------------------
NET
UNREALIZED
CAPITAL
GAINS
(LOSSES)
CLASS A CLASS B TREASURY 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 (loss)
Net income 339 339
--------
Other comprehensive income (loss),
net of tax (1)
Net unrealized capital losses on
securities (2) (478) (478)
Cumulative translation adjustments (3) (3)
--------
Total other comprehensive income
(loss) (481)
--------
Total comprehensive income (loss) (142)
--------
Dividends declared (38) (38)
Issuance of shares under incentive
and stock purchase plans 2 7
9
Treasury stock acquired (5) (5)
---- ------ -------- ------ --------- ------- -------- --------
BALANCE, SEPTEMBER 30, 1999 $ - $ 1 $ 1,283 $ (7) $ (215) $ (10) $ 1,265 $ 2,317
---- ------ -------- ------ --------- ------- -------- --------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
------------------------
NET
UNREALIZED
CAPITAL
GAINS
CLASS A CLASS B TREASURY 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 278 278
-------
Other comprehensive income, net of
tax(1)
Net unrealized capital gains on 142 142
securities (2)
Cumulative translation adjustment (3)
(3)
-------
Total other comprehensive income 139
-------
Total comprehensive income 417
-------
Dividends declared (37) (37)
Issuance of shares under incentive and
stock purchase plans (2) 6 4
Treasury stock acquired (15) (15)
---- ------ -------- ------- ------ ------- ------- -------
BALANCE, SEPTEMBER 30, 1998 $ - $ 1 $ 1,281 $ (10) $ 379 $ (7) $ 869 $ 2,513
---- ------ -------- ------- ------ ------- ------- -------
</TABLE>
(1) Net unrealized capital gains (losses) on securities is reflected net of
tax (benefit) provision of $(257) and $76 for the nine months ended
September 30, 1999 and 1998, respectively. There is no tax effect on
cumulative translation adjustments.
(2) There were no reclassification adjustments for after-tax gains (losses)
realized in net income for the nine months ended September 30, 1999 and
1998, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
(In millions) (Unaudited) 1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 339 $ 278
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 9 18
Net realized capital losses 5 --
Increase in premiums receivable and agents' balances (72) (5)
(Decrease) increase in other liabilities (95) 47
Change in receivables, payables and accruals 174 (15)
Decrease in accrued tax (208) (60)
Decrease (increase) in deferred income tax 188 (83)
Increase in deferred policy acquisition costs (261) (362)
Increase in future policy benefits 270 521
Decrease (increase) in reinsurance recoverables and other assets 3 (19)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 352 320
------- -------
INVESTING ACTIVITIES
Purchases of investments (6,151) (6,058)
Sales of investments 7,208 4,415
Maturities and principal paydowns of fixed maturity investments 1,431 1,498
Purchase of affiliates and other (12) (198)
------- -------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 2,476 (343)
------- -------
FINANCING ACTIVITIES
Decrease in short-term debt -- (50)
Proceeds from issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely parent junior
subordinated debentures -- 250
Dividends paid (38) (25)
Net disbursements for investment and universal life-type contracts charged against
policyholder accounts (2,769) (142)
Net issuance (purchase) of common stock 2 (8)
------- -------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (2,805) 25
------- -------
Net increase in cash 23 2
Impact of Foreign Exchange -- (3)
------- -------
Cash - beginning of period 36 88
------- -------
CASH - END OF PERIOD $ 59 $ 87
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID DURING THE PERIOD FOR
Income taxes $ 114 $ 238
Interest $ 37 $ 26
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
NOTES TO 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 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
In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This statement amends SFAS No. 133 to defer its effective
date for one year, to fiscal years beginning after June 15, 2000. Initial
application for Hartford Life will begin for the first quarter of 2001.
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 are 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>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------------- ----------------------------------
PER SHARE PER SHARE
SEPTEMBER 30, 1999 INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Amounts available to common shareholders $119 140.0 $ 0.85 $339 139.9 $ 2.42
-------- --------
DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- 0.3 -- 0.4
------------------- -------------------
Amounts available to common shareholders
plus assumed conversions $119 140.3 $ 0.85 $339 140.3 $ 2.42
---- ------- -------- ---- ------- --------
SEPTEMBER 30, 1998
BASIC EARNINGS PER SHARE
Amounts available to common shareholders $100 140.0 $ 0.71 $278 140.0 $ 1.98
-------- --------
DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- 0.2 -- 0.2
------------------- -------------------
Amounts available to common shareholders
plus assumed conversions $100 140.2 $ 0.71 $278 140.2 $ 1.98
---- ------- -------- ---- ------- --------
</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: 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 allocation of net realized capital gains and
losses through net investment income utilizing the duration of the segment's
investment portfolios. The following tables present summarized financial
information concerning the Company's segments.
8
<PAGE> 9
<TABLE>
<CAPTION>
Investment Individual Employee
SEPTEMBER 30, 1999 Products Life Benefits COLI Other Total
---------- ---------- -------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
THIRD QUARTER ENDED
Total revenues $ 517 $ 148 $ 529 $ 220 $ 6 $1,420
Net income (loss) 83 19 21 8 (12) 119
------ ------ ------ ------ ------ ------
NINE MONTHS ENDED
Total revenues $1,499 $ 421 $1,493 $ 659 $ 40 $4,112
Net income (loss) 242 51 57 22 (33) 339
------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
Investment Individual Employee
SEPTEMBER 30, 1998 Products Life Benefits COLI Other Total
---------- ---------- -------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
THIRD QUARTER ENDED
Total revenues $ 447 $ 145 $ 446 $ 218 $ 31 $1,287
Net income (loss) 67 17 19 6 (9) 100
------ ------ ------ ------ ------ ------
NINE MONTHS ENDED
Total revenues $1,337 $ 421 $1,354 $ 691 $ 43 $3,846
Net income (loss) 194 45 51 18 (30) 278
------ ------ ------ ------ ------ ------
</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
In October 1998, the Company became aware of allegations of improper activities
at Commercial Financial Services Inc. ("CFS"), a securitizer and servicer of
asset backed securities, and in December 1998, CFS filed for protection
under Chapter 11 of the Bankruptcy Code. As a result, the Company recognized
$29, after-tax, writedown related to the asset backed securities during the
fourth quarter of 1998. In June 1999, CFS ceased operations at which time the
Company recognized an additional $32, after-tax, writedown. In August 1999, the
Company sold all of its CFS holdings at a nominal gain, recovering its June 30,
1999 amortized cost of $27.
(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.
9
<PAGE> 10
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
September 30, 1999, compared with December 31, 1998, and its results of
operations for the third quarter and nine months ended September 30, 1999
compared with the equivalent periods 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 11
Individual Life 12
Employee Benefits 12
Corporate Owned Life Insurance (COLI) 13
Investments 13
Capital Markets Risk Management 14
Capital Resources and Liquidity 15
Regulatory Initiatives and Contingencies 17
Accounting Standards 19
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,420 $1,287 $4,112 $3,846
Expenses 1,301 1,187 3,773 3,568
------ ------ ------ ------
NET INCOME $ 119 $ 100 $ 339 $ 278
------ ------ ------ ------
</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 increased $133, or 10%, and $266, or 7%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
1998 periods. This increase was driven primarily by the Investment Products and
Employee Benefits segments. Investment Products experienced higher fee income in
the individual annuity and mutual fund operations as a result of higher assets
under management which increased due to strong net cash flow (new sales less
surrenders) and equity market appreciation. Employee Benefits experienced higher
premium revenue in the segment due to strong sales and persistency.
Expenses increased $114, or 10%, and $205, or 6%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
1998 periods, consistent with the revenue growth described above. Net income
increased $19, or 19%, and $61, or 22%, for the third quarter and nine months
ended September 30, 1999, respectively, as compared to the equivalent 1998
periods. This earnings growth was primarily driven by the Company's increased
revenues associated with higher assets under management in the Investment
Products segment, as well as continued growth across its other operating
segments.
10
<PAGE> 11
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Products $ 83 $ 67 $ 242 $ 194
Individual Life 19 17 51 45
Employee Benefits 21 19 57 51
Corporate Owned Life Insurance (COLI) 8 6 22 18
Other (12) (9) (33) (30)
----- ----- ----- -----
NET INCOME $ 119 $ 100 $ 339 $ 278
----- ----- ----- -----
</TABLE>
The sections that follow analyze each segment's results. Investment results are
discussed separately following the segment overviews.
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 517 $ 447 $1,499 $1,337
Expenses 434 380 1,257 1,143
------ ------ ------ ------
NET INCOME $ 83 $ 67 $ 242 $ 194
------ ------ ------ ------
</TABLE>
Revenues in the Investment Products segment increased $70, or 16%, and $162, or
12%, for the third quarter and nine months ended September 30, 1999,
respectively, as compared to the equivalent prior year periods. This increase
was primarily driven by higher fee income in the individual annuity and retail
mutual fund operations. Fees generated by individual variable annuities
increased $61, or 31%, and $169, or 30%, for the respective third quarter and
nine month periods, while related average account values grew $15.3 billion, or
28%, to $69.8 billion for the third quarter 1999 and $15.8 billion, or 32%, to
$65.5 billion for the nine months ended September 30, 1999, as compared to the
same periods in 1998. The growth in average account values was due, in part, to
strong individual variable annuity sales of $7.9 billion for the first nine
months of 1999, as well as strong persistency and equity market appreciation
from the applicable 1998 periods. In addition, fee income from other investment
products increased $15, or 48%, and $47, or 55%, for the respective third
quarter and nine month periods, primarily driven by the Company's retail mutual
funds where average assets under management increased $2.6 billion or 144%, to
$4.4 billion for the third quarter 1999 and $2.1 billion, or 150%, to $3.5
billion for the nine months ended September 30, 1999, as compared to the
comparable 1998 periods. The substantial growth in mutual fund assets under
management was primarily due to strong net sales (sales less redemptions) of
$1.9 billion for the nine months ended September 30, 1999
Due to continued growth in assets under management, expenses increased $54, or
14%, and $114, or 10%, for the third quarter and nine months ended September 30,
1999, respectively, compared to the equivalent prior year periods. This increase
was driven by amortization of deferred policy acquisition costs, which grew $22,
or 25%, and $71, or 29%, for the respective third quarter and nine month
periods, and operating expenses, which increased $8, or 13%, and $29, or 17%,
over respective prior year levels. However, operating expenses as a percentage
of average assets under management for this segment improved to 30 and 29 basis
points for the third quarter and nine months ended September 30, 1999,
respectively, from 32 and 31 basis points for the respective prior year periods.
Net income increased $16, or 24%, and $48, or 25%, for the third quarter and
nine months ended September 30, 1999, respectively, as compared to the
equivalent prior year periods. These increases were primarily driven by the
segment's growth in fee income as a result of the increase in average assets
under management.
11
<PAGE> 12
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $148 $145 $421 $421
Expenses 129 128 370 376
---- ---- ---- ----
NET INCOME $ 19 $ 17 $ 51 $ 45
---- ---- ---- ----
</TABLE>
Revenues in the Individual Life segment were relatively consistent for the third
quarter and nine months ended September 30, 1999, as compared to the equivalent
prior year periods. However, fee income increased $16, or 19%, and $35, or 14%,
for the respective third quarter and nine month periods. This increase was
primarily a result of an increase in life insurance in force of 10% to $64.7
billion from September 30, 1998 to September 30, 1999, as well as higher
variable life average account values which increased $700, or 50%, to $2.1
billion for the third quarter ended September 30, 1999 and $700, or 58%, to $1.9
billion for the nine months ended September 30, 1999 as compared to the
comparable 1998 periods. The higher fee income was offset by a decrease in
premium revenue resulting from the segment's shift from traditional life
insurance products to investment oriented life insurance products.
Expenses were relatively consistent for the third quarter and nine months ended
September 30, 1999, as compared to the equivalent prior year periods. The
segment experienced favorable mortality which was partially offset by higher
amortization of deferred policy acquisition costs.
Net income increased $2, or 12%, and $6, or 13%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
1998 periods. These increases were driven by increased insurance in force and
higher average variable life account values, as well as favorable mortality as
described above.
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 529 $ 446 $1,493 $1,354
Expenses 508 427 1,436 1,303
------ ------ ------ ------
NET INCOME $ 21 $ 19 $ 57 $ 51
------ ------ ------ ------
</TABLE>
Revenues in the Employee Benefits segment increased $83, or 19%, and $139, or
10%, for the third quarter and nine months ended September 30, 1999,
respectively, as compared to the equivalent prior year periods. Revenues,
excluding buyouts, increased $52, or 12%, and $122, or 9%, for the respective
third quarter and nine month periods, as a result of increased premiums due to
strong sales and persistency, as well as higher net investment income.
Expenses increased $81, or 19%, and $133, or 10%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
prior year periods, primarily due to higher benefits, claims and claim
adjustment expenses and increased operating expenses due to the growth in this
segment. Excluding buyouts, expenses increased $50, or 12%, and $116, or 9%, and
as a percentage of revenues were consistent for the third quarter and nine
months ended September 30, 1999 as compared to the same periods in 1998. The
increased revenues resulted in increases in net income of $2, or 11%, and $6, or
12%, for the respective third quarter and nine month periods.
12
<PAGE> 13
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $220 $218 $659 $691
Expenses 212 212 637 673
---- ---- ---- ----
NET INCOME $ 8 $ 6 $ 22 $ 18
---- ---- ---- ----
</TABLE>
COLI revenues were consistent for the third quarter ended September 30, 1999 and
decreased $32 or 5%, for the nine months ended September 30, 1999, as compared
to the equivalent 1998 periods. Leveraged COLI revenues increased $58 and $29
for the third quarter and nine months ended September 30, 1999, respectively, as
compared to the equivalent prior year periods due to increases related to the
MBL business recaptured in November 1998 which were partially offset by
decreases in revenues associated with the downsizing of the overall leveraged
COLI business. Leveraged COLI average account values, excluding the recaptured
MBL business, decreased $2.7 billion, or 47%, to $3.1 billion for the third
quarter ended September 30, 1999 and $1.8 billion, or 31%, to $4.0 billion for
the nine months ended September 30, 1999, as compared to the equivalent 1998
periods. (For a discussion of the MBL Recapture, see the Capital Resources and
Liquidity section in Hartford Life's 1998 Form 10-K Annual Report.)
COLI expenses were consistent for the third quarter ended September 30, 1999 and
decreased $36, or 5%, for the nine months ended September 30, 1999, as compared
to the equivalent 1998 periods due to the factors described above.
Net income increased $2, or 33%, and $4, or 22%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
prior year periods. These increases were driven by growth in the variable COLI
business where average account values increased $3.6 billion, or 43%, to $11.9
billion for the third quarter ended September 30, 1999 and $4.0 billion, or 53%,
to $11.6 billion for the nine months ended September 30, 1999, as compared to
the equivalent 1998 periods. Leveraged COLI net income was relatively consistent
for the third quarter and nine months ended September 30, 1999, respectively, as
compared to the equivalent prior year periods as increases associated with the
recaptured MBL business were offset by decreases associated with the downsizing
of the overall leveraged COLI business.
INVESTMENTS
Invested assets, excluding separate account assets, totaled $21.6 billion as of
September 30, 1999 and were comprised of $16.8 billion of fixed maturities, $4.3
billion of policy loans, equity securities of $153 and other investments of
$389. 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 policy and do not
mature in a conventional sense, but expire in conjunction with the related
policy liabilities. Policy loans decreased by $2.4 billion from December 31,
1998 as a result of the Company's declining block of leveraged COLI business.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------------- --------------------------
FIXED MATURITIES BY TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Corporate $ 8,000 47.6% $ 7,898 44.6%
Asset backed securities 2,514 15.0% 2,465 13.9%
Commercial mortgage backed securities 2,048 12.2% 2,036 11.5%
Municipal - tax-exempt 1,027 6.1% 916 5.2%
Short-term 837 5.0% 2,119 12.0%
Mortgage backed securities - agency 876 5.2% 503 2.9%
Collateralized mortgage obligations 645 3.8% 831 4.7%
Government/Government agencies - Foreign 401 2.4% 530 3.0%
Government/Government agencies - U.S. 241 1.4% 166 0.9%
Municipal - taxable 166 1.0% 223 1.3%
Redeemable preferred stock 47 0.3% 5 --
------- ----- ------- -----
TOTAL FIXED MATURITIES $16,802 100.0% $17,692 100.0%
------- ----- ------- -----
</TABLE>
Holdings of short-term securities declined primarily as a result of the funding
of scheduled liability maturities and the reallocation of short-term assets into
other asset sectors.
13
<PAGE> 14
INVESTMENT RESULTS
The table below summarizes Hartford Life's investment results.
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
(Before-tax) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income - excluding policy loan income $ 291 $ 294 $ 865 $ 876
Policy loan income 90 99 298 309
------- ------- ------- -------
Net investment income - total $ 381 $ 393 $ 1,163 $ 1,185
------- ------- ------- -------
Yield on average invested assets (1) 6.9% 7.5% 6.7% 7.6%
------- ------- ------- -------
Net realized loss (5) -- (5) --
------- ------- ------- -------
</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 third quarter and nine months ended September 30,
1999 decreased $12, or 3%, and $22, or 2%, compared to the respective prior year
periods. Yield on average invested assets declined to 6.9% and 6.7% for the
third quarter and nine months ended September 30, 1999, respectively. This
decline was a result of a decrease in policy loan weighted-average interest
rates, which declined to 7.9% as of September 30, 1999 from 11.0% as of
September 30, 1998. Although yields on policy loans have decreased, the average
policy loan balance has increased due to the MBL Recapture. Therefore, policy
loan investment income is relatively consistent with the prior year.
For the third quarter ended September 30, 1999, net realized capital losses
included a $5 loss from the sale of Hartford Life Insurance Company Canada
Holdings, Inc. For the nine months ended September 30, 1999, net realized
capital gains on the sale of equity securities and fixed maturities, partially
offset a $32, after-tax, impairment of asset backed securities securitized and
serviced by CFS securities. The CFS securities were sold in August of 1999 at a
nominal gain. (For additional information on CFS, see Note 4 (b) of Notes to the
Consolidated Financial Statements.)
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 assessment and ratings
assigned by nationally recognized ratings agencies. Obligor, 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 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.
14
<PAGE> 15
As of September 30, 1999 and December 31, 1998, over 97% of the fixed maturity
portfolio was invested in investment-grade securities.
<TABLE>
<CAPTION>
SEPTEMBER 30, 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 $ 2,595 10.0% $ 2,596 9.5%
AAA 3,613 14.0% 3,542 12.9%
AA 3,287 12.7% 2,674 9.7%
A 8,546 33.0% 8,878 32.3%
BBB 6,118 23.7% 7,019 25.6%
BB and below 579 2.2% 492 1.8%
Short-term 1,135 4.4% 2,265 8.2%
------- ------- ------- -------
TOTAL FIXED MATURITIES $25,873 100.0% $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 and 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.
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 The
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 $9.7 billion and $11.2 billion at September 30, 1999
and December 31, 1998, respectively.
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 in its general
account totaling $896 and $2.2 billion as of September 30, 1999 and December 31,
1998, respectively. Holdings of short-term securities declined primarily as a
result of the funding of scheduled liability maturities and the reallocation of
short-term assets into other asset sectors.
15
<PAGE> 16
The capital structure of the Company consists of debt and equity, and is
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 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 (losses) on securities, net of tax $ 2,532 $ 2,230
Net unrealized capital gains (losses) on securities, net of tax (215) 263
------- -------
TOTAL STOCKHOLDERS' EQUITY $ 2,317 $ 2,493
------- -------
TOTAL CAPITALIZATION (1) $ 3,432 $ 3,130
------- -------
Debt to equity (1) 36% 40%
Debt to capitalization (1) 26% 29%
------- -------
</TABLE>
(1) Excludes net unrealized capital gains (losses) on securities, net of tax.
CAPITALIZATION
The Company's total capitalization, excluding net unrealized capital gains
(losses) on securities, net of tax, increased $302, or 10%, as of September 30,
1999, as compared to December 31, 1998. This increase was primarily the result
of net income of $339 partially offset by dividends declared of $38. As a
result, both the debt to equity and debt to capitalization ratios (both
excluding net unrealized capital gains (losses) on securities, net of tax)
decreased to 36% and 26% as of September 30, 1999, respectively, from 40% and
29% as of December 31, 1998, respectively. Net unrealized capital gains (losses)
on securities, net of tax, decreased $478 as of September 30, 1999, as compared
to December 31, 1998, primarily due the impact of increased interest rates on
the Company's fixed maturity portfolio.
DIVIDENDS
Hartford Life declared $38 in dividends for the nine month period ended
September 30, 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 $74 for the nine months ended
September 30, 1999, of which $57 had been received by the Company as of
September 30, 1999.
TREASURY STOCK
During the first nine months of 1999, to make shares available to employees
pursuant to stock-based benefit plans, the Company repurchased 95,000 shares of
its Class A Common Stock in the open market at a total cost of $5. 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.
CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash provided by operating activities $ 352 $ 320
Cash provided by (used for) investing activities 2,476 (343)
Cash (used for) provided by financing activities (2,805) 25
Cash - end of period 59 87
</TABLE>
The increase in cash provided by operating activities was primarily the result
of an increase in net income as well as timing in the settlement of receivables
and payables in the first nine 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 related to the significant downsizing of the
leveraged COLI block of business, as well as the decrease in the Company's GIC
business. Operating cash flows in both periods have been more than adequate to
meet liquidity requirements.
16
<PAGE> 17
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 the insurance company subsidiaries of Hartford Life. Even
if enacted in Connecticut, 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 Connecticut will adopt the SAP and the
Company will make the necessary changes required for implementation.
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 in force 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 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.
17
<PAGE> 18
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 has completed internal
integrated testing relating to initiative (5) and will continue external
integrated testing 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, suppliers, computer hardware and software
vendors, insurance agents and brokers, third party administrators, securities
broker-dealers, 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 not exceed $10, and for the nine months ended September 30, 1999 Hartford
Life has incurred approximately $2. 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 has substantially completed the development of 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 involved identifying reasonably likely business disruption
scenarios that, if they were to occur, could create significant problems in
critical functions of the Company. The Company has developed plans to respond to
such problems so that critical business functions may continue to operate with
minimal disruption. Contingency planning also included assessing the dependency
of business functions on critical third parties and their Year 2000 readiness.
These plans were reviewed and simulated on an integrated basis, where
appropriate, and will continue to be evaluated 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.
Rollover and Event Management
A Corporate Event Management Team has been established to monitor the
corporate-wide rollover from 1999 to 2000. In addition, each business unit has
developed detailed rollover plans that will be managed and coordinated by their
individual Business Unit Event Management Centers.
18
<PAGE> 19
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 of Notes to Consolidated
Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
19
<PAGE> 20
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
Vice President and Chief Accounting Officer
NOVEMBER 15, 1999
20
<PAGE> 21
HARTFORD LIFE, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
EXHIBIT # DESCRIPTION
27 Financial Data Schedule is filed herewith.
21
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 16,802
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 153
<MORTGAGE> 183
<REAL-ESTATE> 0
<TOTAL-INVEST> 21,627
<CASH> 59
<RECOVER-REINSURE> 461
<DEFERRED-ACQUISITION> 4,103
<TOTAL-ASSETS> 125,581
<POLICY-LOSSES> 5,987
<UNEARNED-PREMIUMS> 53
<POLICY-OTHER> 16,678
<POLICY-HOLDER-FUNDS> 97,377
<NOTES-PAYABLE> 650
250<F1>
0
<COMMON> 1
<OTHER-SE> 2,316
<TOTAL-LIABILITY-AND-EQUITY> 125,581
2,954
<INVESTMENT-INCOME> 1,163
<INVESTMENT-GAINS> (5)
<OTHER-INCOME> 0
<BENEFITS> 2,282
<UNDERWRITING-AMORTIZATION> 417
<UNDERWRITING-OTHER> 847
<INCOME-PRETAX> 494
<INCOME-TAX> 155
<INCOME-CONTINUING> 339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339
<EPS-BASIC> 2.42
<EPS-DILUTED> 2.42
<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 OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
</FN>
</TABLE>
