<PAGE>
UNITED STATES 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, 1996
[ ] 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 2-89516
HARTFORD LIFE INSURANCE COMPANY
Incorporated in the State of Connecticut
06-0974148
(I.R.S. Employer
Identification No.)
P.O. Box 2999, Hartford, Connecticut 06104-2999
(Principal Executive Offices)
Telephone number 203-843-8291
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No .
--- ---
As of October 31, 1996 there were outstanding 1,000 shares of common stock,
$5,690 par value per share, of the registrant, all of which were directly owned
by Hartford Life and Accident Insurance Company.
The registrant meets the conditions set forth in General Instruction H (1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
(1)
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements:
Consolidated Statements of Income -
Quarter and Nine Months Ended September 30, 1996 and 1995. . . . . . . . 3
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995. . . . . . . . . . . . . . 5
Item 2. Management's Narrative Analysis of Results of Operations*
Quarter and Nine Months Ended September 30, 1996 and 1995. . . . . . . . 6
PART II. OTHER INFORMATION:*
Item 6. Exhibits and Reports on Form 8K . . . . . . . . . . . . . . . . . 9
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(*) Item prepared in accordance with General Instruction H (2) of Form 10-Q.
(2)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The following unaudited financial statements, reflect, in the opinion of
management, all normal recurring adjustments necessary to present fairly the
financial position, the results of operations and the cash flows for the
periods presented. Certain reclassifications of prior year results were made
to conform to current presentation. Interim results are not indicative of
the results which may be expected for any other interim period or the full
year. Certain of the statements contained herein (other than statements of
historical fact) are forward-looking statements. Forward looking statements
are made based upon management's expectations and belief concerning future
developments and their potential effect upon Hartford Life Insurance Company
("Hartford Life"). There can be no assurance that future developments will
be in accordance with management's expectaton 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 Hartford Life,
depending on the outcome of certain factors, including those described with
the forward-looking statements. For a description of accounting policies,
see Notes to Consolidated Financial Statements in the 1995 Form 10-K.
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
REVENUES
<S> <C> <C> <C> <C>
Premiums and other considerations $ 319 $ 385 $ 1,262 $ 1,105
Net investment income 355 357 1,006 1,032
Net realized losses on investments (202) (4) (203) (10)
---------- ---------- ---------- ----------
TOTAL REVENUES 472 738 2,065 2,127
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BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 447 446 1,235 1,162
Amortization of deferred policy acquisition costs 68 48 197 140
Dividends to policyholders 63 152 410 449
Other insurance expenses 58 47 256 240
---------- ---------- ---------- ----------
TOTAL BENEFITS, CLAIMS AND EXPENSES 636 693 2,098 1,991
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAX (164) 45 (33) 136
Income tax expense (benefit) (58) 15 (13) 45
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (106) $ 30 $ (20) $ 91
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</TABLE>
(3)
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Investments:
Fixed maturities, available for sale, at fair value $ 13,309 $ 14,400
Equity securities, at fair value 133 63
Mortgage loans, at outstanding balance 45 265
Policy loans, at outstanding balance 3,898 3,381
Other investments, at cost 81 156
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Total investments 17,466 18,265
Cash 52 46
Premiums and amounts receivable 178 165
Reinsurance recoverable 6,658 6,221
Accrued investment income 394 394
Deferred policy acquisition costs 2,587 2,188
Deferred income tax 611 420
Other assets 210 234
Separate account assets 45,540 36,264
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TOTAL ASSETS $ 73,696 $ 64,197
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---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits $ 2,651 $ 2,373
Other policyholder funds 22,415 22,598
Other liabilities 1,346 1,233
Separate account liabilities 45,540 36,264
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TOTAL LIABILITIES 71,952 62,468
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Common stock - authorized 1,000 shares, $5,690 par value,
issued and outstanding 1,000 shares 6 6
Additional paid-in capital 1,045 1,007
Unrealized loss on investments, net of tax (60) (57)
Retained earnings 753 773
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TOTAL STOCKHOLDERS' EQUITY 1,744 1,729
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,696 $ 64,197
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</TABLE>
(4)
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1996 1995
---- ----
(unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (20) $ 91
Adjustments to net (loss) income:
Realized losses on investments 203 10
Net policyholder investment gains (2) (3)
Net increase in deferred policy acquisition costs (399) (257)
Net amortization of premium on fixed maturities 6 15
Deferred income tax benefit (188) (128)
Decrease (increase) in premiums and amounts receivable 75 (168)
Decrease (increase) in other assets 15 (102)
Increase in reinsurance recoverable (254) (61)
Increase in liability for future policy benefits 278 434
Increase in other liabilities 116 261
Increase in accrued investment income 0 (36)
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CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (170) 56
---------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities investments (4,111) (3,752)
Proceeds from sales of fixed maturities investments 2,450 3,211
Maturities and principal paydowns of fixed maturities
investments 2,124 1,078
Net purchases of other investments (337) (1,931)
Net sales (purchases) of short-term investments 328 (184)
---------- ----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 454 (1,578)
---------- ----------
FINANCING ACTIVITIES:
Net (disbursements for) receipts from investment and
universal life-type contracts (charged from) credited
to policyholder account (316) 1,525
Capital contribution 38 0
---------- ----------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (278) 1,525
---------- ----------
NET INCREASE IN CASH 6 3
Cash at beginning of period 46 20
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CASH AT END OF PERIOD $ 52 $ 23
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</TABLE>
(5)
<PAGE>
2. MANAGEMENT'S NARRATIVE ANALYSIS OF
RESULTS OF OPERATIONS
(In Millions)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INDIVIDUAL LIFE AND ANNUITY DIVISION (ILAD)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 322 $ 205 $ 846 $ 612
Expenses 258 168 688 508
------ ------ ------ ------
NET INCOME $ 64 $ 37 $ 158 $ 104
------ ------ ------ ------
------ ------ ------ ------
- -------------------------------------------------------------------------------------
</TABLE>
The premiums, investment income, management and maintenance fees and cost of
insurance associated with this growing asset base continue to be the source
of ILAD's increased revenues, an increase over prior year of 57% and 38% for
the third quarter and nine months ended respectively. New deposits of fixed
and variable annuities for the nine months ended September 30, 1996 were
approximately $7.4 billion, but are not reported as revenues. Net income, up
73% and 52% for the third quarter and nine months ended respectively,
continues to grow as earnings are generated from an existing asset base.
Revenue, new deposit, and net income increases are all indicative of strong,
stable growth.
ASSET MANAGEMENT SERVICES (AMS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 100 $ 96 $ 300 $ 292
Expenses 95 93 287 280
------ ------ ------ ------
NET INCOME $ 5 $ 3 $ 13 $ 12
------ ------ ------ ------
------ ------ ------ ------
- -------------------------------------------------------------------------------------
</TABLE>
Continuing to be an industry leader in deferred compensation products,
revenues in this segment increased 4% and 2% over prior year for the third
quarter and nine months ended, respectively. Included in 1995 results is a
one time benefit of approximately $2 million. Excluding this benefit, net
income rose 30% over prior year for the nine months ended. AMS is currently
engaged in a restructuring process that is anticipated to result in new
product development as well as expense reductions.
SPECIALTY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 223 $ 358 $ 976 $ 951
Expenses 215 351 954 933
------ ------ ------ ------
NET INCOME $ 8 $ 7 $ 22 $ 18
------ ------ ------ ------
------ ------ ------ ------
- -------------------------------------------------------------------------------------
</TABLE>
(6)
<PAGE>
Net income for the nine months ended is attributable to net investment income
and other revenues on the existing block of coporate owned life insurance
(COLI) business. Net income in the Specialty segment held steady in the
third quarter as compared to the same period last year, however, revenues
decreased. As mentioned in the second quarter, Congress passed COLI
legislation which provides for a three year phase-out of the interest
deduction on loans taken against COLI policies. In anticipation of
unfavorable tax legislation, there were no new deposits of leveraged COLI,
but new products, such as variable COLI and other non-qualified deferred
compensation vehicles, and new international ventures have been and continue
to be developed to mitigate lost earnings due to leveraged COLI.
RUNOFF
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
Revenues $ (173) $ 79 $ (57) $ 272
Expenses 10 96 156 315
------ ------ ------ ------
NET LOSS $ (183) $ (17) $ (213) $ (43)
------ ------ ------ ------
------ ------ ------ ------
The Runoff segment consists of a closed block of guaranteed rate contracts
(Closed Book GRC) which had no new or renewal business at the end of 1995.
Prior to 1996, Closed Book GRC was reported as a component of the Asset
Management Services Division of the Hartford Life. The majority of products
included in Closed Book GRC are guaranteed investment contracts with
guaranteed fixed or indexed rates for a specific period. Closed Book GRC
results have been negatively affected by lower investment rates and earnings
on mortgage backed securities due to prepayments experienced in excess of
assumed levels in years prior to 1995. Closed Book GRC was also affected by
the interest rate rise in 1994 when the duration of its assets lengthened
relative to that of the liabilities. Due to the reduced investment earnings
and duration mismatch, the portfolio had insufficient assets to fund fully
its liability commitments. During the third quarter of 1996, assets in the
amount of $200 million were transferred to the Runoff segment to adequately
fund Closed Book GRC so that future cash infusions would be minimal.
Although the Closed Book GRC asset portfolio as a whole is duration matched with
its liabilities, certain investments continue to have a longer maturity than
their corresponding liabilities and will need to be liquidated prior to maturity
in order to meet the specific liability commitments. To protect the existing
value of these investments, Hartford Life entered into various hedge
transactions in late September 1996 which substantially eliminated further
fluctuation in fair value of the investments due to interest rate changes.
Hartford Life's accounting policy is to record an other than temporary
impairment charge on a security if it is determined that the Company is
unable to recover all amounts due under the contractual obligations of the
security. In addition, Hartford Life has established specific criteria to
be used in the impairment evaluation of an individual portfolio of assets.
Specifically, if the asset portfolio is supporting a runoff operation, is
forced to be liquidated prior to maturity to meet liability commitments, and
has a fair value below amortized cost, which will not materially fluctuate as
a result of future interest rate changes, then an other than temporary
impairment has been determined to have occurred. Once an impairment charge
has been recorded, Hartford Life continues to review the impaired securities
for appropriate valuation.
With the initiation of the hedge transactions, which eliminated the
possibility that the fair value of the Closed Book GRC investments would
recover to their current amortized cost, an other than temporary impairment
loss of $82 million after tax was determined to have occurred and was
recorded in September 1996. Also, during the third quarter of 1996, Closed
Book GRC had asset sales resulting in proceeds of approximately $500 and a
realized loss of $55 after tax. The asset sales were the result of current
liquidity needs in addition to taking advantage of favorable market
conditions for certain securities. Other charges of $32 after tax were also
incurred in the third quarter.
(7)
<PAGE>
During 1995, Closed Book GRC incurred a $68 after tax loss from operations.
In addition, prior to the above actions the level of the 1995 loss was
expected by management to decline by 10% to 25% in 1996 and 1997 with the
losses having run off in their entirety by the year 2000. As a result of the
above actions, management expects that the comparable 1996 after tax loss
will be in the range of $51 to $55, while after tax losses in 1997 and 1998
will be reduced to the range of $10 to $20 per year. Losses from Closed Book
GRC in years subsequent to 1998 are expected to be minimal.
FINANCIAL RATINGS
The following table summarizes ITT Hartford's significant U.S. member companies'
financial ratings from the major independent rating organizations as of
September 30, 1996:
Duff & Standard
A.M. Best Phelps & Poor's Moody's
------------------------------------------
Hartford Fire A+ AA AA Aa2
Hartford Life A+ AA+ AA Aa2
Hartford Life and Accident A+ AA+ AA Not Rated
ITT Hartford Life and Annuity A+ AA+ AA Not Rated
On September 24, 1996, Standard & Poor's announced that it had reduced the
claims-paying ability ratings of the ITT Hartford group of companies (ITT
Hartford), including Hartford Life Insurance Company, from AA+ to AA. In
announcing the rating change, Standard and Poor's said that the action was based
primarily on increased concern with the overall strength of ITT Hartford's
consolidated capital, partially offset by superior business position within the
markets that ITT Hartford operates. It noted that the rating action assumed
continued significant capital raising initiatives by ITT Hartford over the next
year and said that these initiatives, in combination with continued improvement
in operating earnings, excluding any unusual charges, should allow ITT Hartford
to improve it's overall capital position.
On October 18, 1996, Moody's Investors Service announced that it was reviewing
for possible downgrade various ratings of ITT Hartford and its subsidiaries,
including the financial strength ratings of ITT Hartford's insurance
subsidiaries. Moody's stated that the reveiw was prompted by ITT Hartford's
announcement that it was taking the charges related to its environmental and
asbestos reserves and Closed Book GRC, and that its review would focus on ITT
Hartford's exposure to asbestos and environmental losses, its appetite for
financial leverage and its strategic complexion over the intermediate term.
Financial ratings from A.M. Best and Duff & Phelps were reaffirmed for ITT
Hartford's significant U.S. member companies as of October 18, 1996.
(8)
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) None.
(9)
<PAGE>
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 Insurance Company
(Registrant)
by /s/ Gregory A. Boyko
---------------------
October 31, 1996 Gregory A. Boyko
Vice-President and Controller
(10)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000045947
<NAME> HARTFORD LIFE INS. CO.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 13,309
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 133
<MORTGAGE> 45
<REAL-ESTATE> 0
<TOTAL-INVEST> 17,466
<CASH> 52
<RECOVER-REINSURE> 6,658
<DEFERRED-ACQUISITION> 2,587
<TOTAL-ASSETS> 73,696
<POLICY-LOSSES> 2,651
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 22,415
<POLICY-HOLDER-FUNDS> 45,540
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 1,045
<TOTAL-LIABILITY-AND-EQUITY> 73,696
1,262
<INVESTMENT-INCOME> 1,006
<INVESTMENT-GAINS> (203)
<OTHER-INCOME> 0
<BENEFITS> 1,235
<UNDERWRITING-AMORTIZATION> 197
<UNDERWRITING-OTHER> 666
<INCOME-PRETAX> (33)
<INCOME-TAX> (13)
<INCOME-CONTINUING> (20)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
