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FORM 10-K/A
AMENDMENT NO. 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No Fee Required)
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 Number)
P.O. Box 2999
Hartford, Connecticut 06104-2999
(Principal Executive Offices)
Telephone number (860) 843-8291
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
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 March 1, 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 J (1) (a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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The purpose of this amendment is to add a Subsequent Event Note 10 (Page F-18-
19) to the financial statements. Item 8, as so amended, is set forth in full
below.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT FOR 1995 ON FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business of Hartford Life Insurance Company* 3
2. Properties* 9
3. Legal Proceedings 9
4. **
PART II
5. Market for Hartford Life Insurance Company's Common Stock and Related
Stockholder Matters 10
6. **
7. Management's Narrative Analysis of Results of Operations* 10
8. Consolidated Financial Statements and Supplementary Data*** 11
9. Disagreements on Accounting and Financial Disclosure 11
PART III
10. **
11. **
12. **
13. **
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 11
Signatures II-1
Exhibit Index II-2
* Item prepared in accordance with General Instruction J(2) of Form 10-K
** Item omitted pursuant to General Instruction J(2) of Form 10-K
***Item included in Form 10-K\A Amendment No. 1
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Management F-1
Report of Independent Public Accountants F-2
Consolidated Statements of Income for the three years
ended December 31, 1995 F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-4
Consolidated Statements of Stockholder's Equity for the
three years ended December 31, 1995 F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1995 F-6
Notes to Consolidated Financial Statements F-7 thru F-19
Summary of Investments (Other than Investments in Affiliates) S-1
Supplemental Insurance Information S-2
Reinsurance S-3
All schedules not listed above have been omitted because they are not applicable
or the amounts are insignificant, immaterial or the information has been
otherwise supplied in the financial statements or notes thereto.
REPORT OF MANAGEMENT
The management of Hartford Life Insurance Company and subsidiaries is
responsible for the preparation and integrity of the information contained in
the accompanying consolidated financial statements and other sections of the
Annual Report. The consolidated financial statements are prepared in accordance
with generally accepted accounting principles, and, where necessary, include
amounts that are based on management's informed judgments and estimates.
Management believes these statements present fairly Hartford Life's financial
position and results of operations, and, that any other information contained in
the Annual Report is consistent with the financial statements.
Management has made available Hartford Life's financial records to Arthur
Andersen LLP, independent public accountants, in order for them to perform an
audit of Hartford Life's consolidated financial statements. Their report appears
on Page F-2.
An essential element in meeting management's responsibilities is Hartford Life's
system of internal controls. These controls, which include accounting controls
and the internal auditing program, are designed to provide reasonable assurance
that assets are safeguarded, and transactions are properly authorized, executed
and recorded. The controls, which are documented and communicated to employees
in the form of written codes of conduct and policies and procedures, provide for
the careful selection of personnel and for appropriate division of
responsibility. Management continually monitors for compliance, while Hartford
Life's internal auditors independently assess the effectiveness of the controls
and make recommendations for improvement. Also, Arthur Andersen LLP took into
consideration Hartford Life's system of internal controls in determining the
nature, timing, and extent of its audit tests.
Another important element is management's recognition of its responsibility for
fostering a strong, ethical climate, thereby ensuring that Hartford Life's
affairs are transacted according to the highest standards of personal and
professional conduct. Hartford Life has a long-standing reputation of
integrity in business conduct and utilizes communication and education to create
and fortify a strong compliance culture.
The Audit Committee of the Board of Directors of ITT Hartford, composed of
non-employee directors, meets periodically with the external and internal
auditors to evaluate the effectiveness of the work performed by them in
discharging their respective responsibilities and to ensure their independence
and free access to the Committee.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Hartford Life
Insurance Company (a Connecticut corporation and wholly-owned subsidiary of
Hartford Life and Accident Insurance Company) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements and the
schedules referred to below are the responsibility of Hartford Life Insurance
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hartford Life Insurance Company and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 1 in Notes to Consolidated Financial Statements, Hartford
Life Insurance Company adopted new accounting standards promulgated by the
Financial Accounting Standards Board, changing its methods of accounting, as of
January 1, 1994, for debt and equity securities.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
Index to Consolidated Financial Statements and Schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 24, 1996 (except with respect to the matter discussed in Note 10
as to which the date is October 18, 1996)
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- --------- -----------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $1,487 $1,100 $747
Net investment income 1,328 1,292 1,051
Net realized (losses) gains (11) 7 16
---------- --------- -----------
TOTAL REVENUES 2,804 2,399 1,814
---------- --------- -----------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,422 1,405 1,046
Dividends to policyholders 675 419 227
Amortization of deferred policy acquisition costs 199 145 113
Other insurance expense 317 227 210
---------- --------- -----------
TOTAL BENEFITS, CLAIMS AND EXPENSES 2,613 2,196 1,596
---------- --------- -----------
INCOME BEFORE INCOME TAX EXPENSE 191 203 218
Income tax expense 62 65 75
---------- --------- -----------
NET INCOME $129 $138 $143
---------- --------- -----------
---------- --------- -----------
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</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF DECEMBER 31,
-----------------------
1995 1994
--------- ---------
ASSETS
Investments
Fixed maturities available for sale,
at market value (amortized cost of
$14,440 and $14,464) $14,400 $13,429
Equity securities, at market value
(cost of $61 and $76) 63 68
Mortgage loans, at outstanding balance 265 316
Policy loans, at outstanding balance 3,381 2,614
Other investments, at cost 156 107
--------- ---------
TOTAL INVESTMENTS 18,265 16,534
Cash 46 20
Premiums and amounts receivable 165 160
Reinsurance recoverable 6,221 5,466
Accrued investment income 394 378
Deferred policy acquisition costs 2,188 1,809
Deferred income tax 420 590
Other assets 234 83
Separate account assets 36,264 22,809
--------- ---------
TOTAL ASSETS $64,197 $47,849
--------- ---------
--------- ---------
LIABILITIES
Future policy benefits $2,373 $1,890
Other policyholder funds 22,598 21,328
Other liabilities 1,233 1,000
Separate account liabilities 36,264 22,809
--------- ---------
TOTAL LIABILITIES 62,468 47,027
--------- ---------
Commitments and contingencies (Note 9)
SHAREHOLDER'S EQUITY
Common stock
Authorized 1,000 shares, $5,690 par value
Issued and outstanding 1,000 shares 6 6
Additional paid-in capital 1,007 826
Retained earnings 773 644
Unrealized loss on investments, net of tax (57) (654)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 1,729 822
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $64,197 $47,849
--------- ---------
--------- ---------
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The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
UNREALIZED LOSS TOTAL
COMMON ADDITIONAL RETAINED ON INVESTMENTS, STOCKHOLDER'S
STOCK PAID-IN CAPITAL EARNINGS NET OF TAX EQUITY
------- ---------------- ---------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $6 $498 $373 $0 $877
Net income - - 143 - 143
Capital contribution - 180 - - 180
Excess of assets over liabilities
on reinsurance assumed from affiliate - (2) - - (2)
Change in unrealized loss on investments,
net of tax - - - (5) (5)
------- ---------------- ---------- ---------------- --------------
BALANCE, DECEMBER 31, 1993 6 676 516 (5) 1,193
------- ---------------- ---------- ---------------- --------------
Net income - - 138 - 138
Capital Contribution - 150 - - 150
Dividend paid - - (10) - (10)
Changes in unrealized loss on investments,
net of tax* - - - (649) (649)
------- ---------------- ---------- ---------------- --------------
BALANCE, DECEMBER 31, 1994 6 826 644 (654) 822
------- ---------------- ---------- ---------------- --------------
Net income - - 129 - 129
Capital contribution - 181 - - 181
Change in unrealized loss on investments,
net of tax - - - 597 597
------- ---------------- ---------- ---------------- --------------
BALANCE, DECEMBER 31, 1995 $6 $1,007 $773 ($57) $1,729
------- ---------------- ---------- ---------------- --------------
------- ---------------- ---------- ---------------- --------------
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</TABLE>
(*) The 1994 change in unrealized loss on investments, net of tax, included an
unrealized gain of $91 due to adoption of SFAS No. 115 as discussed in Note 1(b)
of Notes to Consolidated Financial Statements.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $129 $138 $143
Adjustments to net income:
Net realized (losses) gains 11 (7) (16)
(Decrease) increase in liability to policyholders for realized gains (3) 5 (15)
Net amortization of premium on fixed maturities 21 41 2
Provision for deferred income taxes (172) (128) (121)
Increase in deferred policy acquisition costs (379) (441) (292)
(Increase) decrease in premiums and amounts receivable (81) 10 (28)
Increase in accrued investment income (16) (106) (4)
(Increase) decrease in other assets (177) 101 (36)
(Increase) decrease in reinsurance recoverable (35) 75 (121)
Increase in liability for future policy benefits 483 224 360
Increase in other liabilities 281 191 176
------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 62 103 48
------- ------- -------
INVESTING ACTIVITIES
Purchases of fixed maturities investments (6,228) (9,127) (12,406)
Proceeds from sales of fixed maturities investments 4,848 5,708 8,813
Maturities and principal paydowns of fixed maturities investments 1,741 1,931 2,596
Net purchases of other investments (871) (1,338) (206)
Net (purchases)/sales of short-term investments (24) 135 (564)
------- ------- -------
CASH USED FOR INVESTING ACTIVITIES (534) (2,691) 1,767)
------- ------- -------
FINANCING ACTIVITIES
Net receipts from investment and UL-type contracts credited to
policyholder account balances 498 2,467 1,513
Capital contribution 0 150 180
Dividends paid 0 (10) 0
------- ------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 498 2,607 1,693
------- ------- -------
NET INCREASE (DECREASE) IN CASH 26 19 (26)
Cash at beginning of year 20 1 27
------- ------- -------
CASH AT END OF YEAR $46 $20 $1
------- ------- -------
------- ------- -------
- ---------------------------------------------------------------------------------------------------------------
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</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS)
1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
These consolidated financial statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries ("Hartford Life" or the
"Company"), ITT Hartford Life and Annuity Insurance Company ("ILA") and ITT
Hartford International Life Reassurance Corporation ("HLRe"), formerly
American Skandia Life Reinsurance Corporation. Hartford Life is a
wholly-owned subsidiary of Hartford Life and Accident Insurance Company
("HLA"). Hartford Life is ultimately owned by Hartford Fire Insurance
Company ("Hartford Fire"), which is ultimately owned by ITT Hartford
Group, Inc. ("ITT Hartford"), formerly a subsidiary of ITT Corporation
("ITT"). On December 19, 1995, ITT Corporation distributed all of the
outstanding shares of ITT Hartford Group to ITT Corporation shareholders
of record in an action known herein as the "Distribution". As a result
of the Distribution, ITT Hartford became an independent, publicly traded
company.
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The Company offers life, annuity, pension, and disability
insurance products. These products are distributed and marketed by multiple
distribution channels which include broker-dealers, agents and banks, as
well as a captive sales force. Hartford Life conducts business primarily in
the United States and is licensed to write business in all 50 states. The
Company is headquartered in Simsbury, Connecticut and has 3,045 direct
employees.
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles which differ in certain material
respects from the accounting practices prescribed or permitted by various
insurance regulatory authorities.
(b) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, Hartford Life adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". The new standard requires, among other
things, that securities be classified as "held-to-maturity",
"available-for-sale" or "trading" based on Hartford Life's
intentions with respect to the ultimate disposition of the security and its
ability to effect those intentions. The classification determines the
appropriate accounting carrying value (cost basis or fair value) and, in
the case of fair value, whether the adjustment impacts Stockholder's
Equity directly or is reflected in the Consolidated Statements of Income.
Investments in equity securities had previously been and continue to be
recorded at fair value with the corresponding impact included in
Stockholder's Equity. Under SFAS No. 115, Hartford Life's fixed
maturities are classified as "available-for-sale" and accordingly,
these investments are reflected at fair value with the corresponding
impact included as a component of Stockholder's Equity designated as
"Unrealized loss on investments, net of tax." As with the underlying
investment security, unrealized gains and losses on derivative financial
instruments are considered in determining the fair value of the portfolios.
The impact of adoption was an increase to Stockholder's Equity of $91.
Hartford Life's cash flows were not impacted by this change in
accounting principle.
(c) REVENUE RECOGNITION
Revenues for universal life policies and investment products consist of
policy charges for the cost of insurance, policy administration and
surrender charges assessed to policy account balances. Premiums for
traditional life insurance policies are recognized as revenues when they
are due from policyholders.
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Deferred acquisition costs are amortized using the retrospective deposit
method for universal life and other types of contracts where the payment
pattern is irregular or surrender charges are a significant source of
profit and the prospective deposit method is used where investment margins
are the primary source of profit.
(d) FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER FUNDS
Liabilities for future policy benefits are computed by the net level
premium method using interest rate assumptions varying from 3% to 11% and
withdrawal, mortality and morbidity assumptions which vary by plan, year of
issue and policy durations and include a provision for adverse deviation.
Other policyholder funds which represent liabilities for universal life
insurance and investment products reflect policy account balances before
applicable surrender charges.
(e) POLICYHOLDER REALIZED GAINS AND LOSSES
Realized gains and losses on security transactions associated with Hartford
Life's immediate participation guaranteed contracts are excluded from
revenues, since under the terms of the contracts the realized gains and
losses will be credited to policyholders in future years as they are
entitled to receive them.
(f) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, including commissions and certain underwriting
expenses associated with acquiring traditional life insurance products, are
deferred and amortized over the lesser of the estimated or actual contract
life. For universal life insurance and investment products, acquisition
costs are being amortized generally in proportion to the present value of
expected gross profits from surrender charges, investment, mortality and
expense margins.
(g) INVESTMENTS
Hartford Life's investments in fixed maturities include bonds, redeemable
preferred stock and commercial paper which are classified as
"available-for-sale" and accordingly are carried at market value with the
after-tax difference from cost reflected as a component of Stockholder's
Equity designated "Unrealized loss on investments, net of tax". Equity
securities, which include common and non-redeemable preferred stocks, are
carried at market value with the after-tax difference from cost reflected
in Stockholder's Equity. Realized investment gains and losses, after
deducting life and pension policyholders' share, are reported as a
component of revenue and are determined on a specific identification basis.
(h) DERIVATIVE FINANCIAL INSTRUMENTS
Hartford Life uses a variety of derivative financial instruments including,
swaps, caps, floors, options, forwards and exchange traded financial
futures as part of an overall risk management strategy. These instruments
are used as a means of hedging exposure to price, foreign currency and/or
interest rate risk on planned investment purchases or existing assets and
liabilities. Hartford Life does not hold or issue derivative financial
instruments for trading purposes. Hartford Life's accounting for derivative
financial instruments used to manage risk is in accordance with the
concepts established in SFAS No. 80, "Accounting for Futures Contracts,"
SFAS No. 52 , "Foreign Currency Translation", American Institute of
Certified Public Accountants Statement of Position 86-2, "Accounting for
Options" and various Emerging Issues Task Force pronouncements. Written
options are in all cases used in conjunction with other assets and
derivatives as part of an overall risk management strategy. Derivative
instruments are carried at values consistent with the asset or liability
being hedged. Derivatives used to hedge fixed maturities or equities are
carried at fair value with the after-tax difference from cost reflected in
Stockholder's Equity. Derivatives used to hedge other invested assets or
liabilities are carried at cost.
Derivatives, used as part of a risk management strategy, must be designated
at inception as a hedge and measured for effectiveness both at inception
and on an ongoing basis. Hartford Life's minimum correlation threshold for
hedge designation is 80%. If correlation, which is assessed monthly and
measured based on a rolling three month average, falls below 80%, hedge
accounting will be terminated. Derivatives used to create a synthetic asset
must meet synthetic accounting criteria including designation at inception
and consistency of terms between the synthetic and the instrument being
replicated. Synthetic instrument accounting, consistent with industry
practice, provides that the synthetic asset is accounted for like the
financial instrument it is intended to replicate. Derivatives which fail to
meet risk management criteria are marked to market with the impact
reflected in the Consolidated Statements of Income.
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Gains or losses on financial futures contracts entered into in anticipation
of the future receipt of product cash flows are deferred and, at the time
of the ultimate purchase, reflected as a basis adjustment to the purchased
asset. Gains or losses on futures used in invested asset risk management
are deferred and adjusted into the basis of the hedged asset when the
contract futures are closed, except for futures used in duration hedging
which are deferred and basis adjusted on a quarterly basis. The basis
adjustments are amortized into investment income over the remaining asset
life.
Open forward commitment contracts are marked to market through
Stockholder's Equity. Such contracts are recorded at settlement by
recording the purchase of the specified securities at the previously
committed price. Gains or losses resulting from the termination of the
forward commitment contracts before the delivery of the securities are
recognized immediately in the Consolidated Statements of Income as a
component of net investment income.
The cost of options entered into as part of a risk management strategy are
basis adjusted to the underlying asset or liability and amortized over the
remaining life of the hedge. Gains or losses on expiration or termination
are adjusted into the basis of the underlying asset or liability and
amortized over the remaining asset life.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or
payments are accrued and recognized over the life of the swap agreement as
an adjustment to income. Should the swap be terminated, the gain or loss
is adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated
without terminating the swap position, any swap gains or losses are
immediately recognized in earnings. Interest rate swaps purchased in
anticipation of an asset purchase ("anticipatory transaction") are
recognized consistent with the underlying asset components such that the
settlement component is recognized in the Consolidated Statements of Income
while the change in market value is recognized as an unrealized gain or
loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued floor or cap agreements (used for risk management) are adjusted
into the basis of the applicable asset and amortized over the asset life.
Gains or losses on termination of such positions are adjusted into the
basis of the asset or liability and amortized over the remaining asset
life. Net payments are recognized as an adjustment to income or basis
adjusted and amortized depending on the specific hedge strategy.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52.
(i) RELATED PARTY TRANSACTIONS
Transactions of Hartford Life with its parent and affiliates relate
principally to tax settlements, insurance coverage, rental and service fees
and payment of dividends and capital contributions. In addition, certain
affiliated insurance companies purchased group annuity contracts from
Hartford Life to fund pension costs and claim annuities to settle casualty
claims.
On June 30, 1995, the assets of Lyndon Insurance Company ("Lyndon") were
contributed to ILA. As a result, ILA received approximately $365 in fixed
maturities, equity securities and cash, $26 in receivables, $187 of current
tax liability, $20 in deferred tax liability, and $3 of other liabilities.
The excess of assets over liabilities of $181 were recorded as an increase
to paid-in capital.
Substantially all general insurance expenses related to Hartford Life,
including rent expenses, are initially paid by Hartford Fire. Direct
expenses are allocated to Hartford Life using specific identification and
indirect expenses are allocated using other applicable methods.
The rent paid to Hartford Fire for the space occupied by Hartford Life was
$3 in 1995, 1994, and 1993 respectively. Hartford Life expects to pay rent
of $3 in 1996, 1997, 1998, 1999, and 2000, respectively and $57 thereafter,
over the contract life of the lease.
(j) DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders primarily represent those amounts paid to
corporate owned life insurance ("COLI") policyholders. These dividend
liabilities, which appear as other policyholder funds on the
Consolidated Balance Sheets, are recorded when approved by the board of
directors.
See Note (4) for the related party coinsurance agreements.
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2. INVESTMENTS
(a) COMPONENTS OF NET INVESTMENT INCOME
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Interest income $1,338 $1,247 $1,007
Income from other investments 1 54 53
-------- -------- --------
GROSS INVESTMENT INCOME 1,339 1,301 1,060
Less: Investment expenses 11 9 9
-------- -------- --------
NET INVESTMENT INCOME $1,328 $1,292 $1,051
-------- -------- --------
-------- -------- --------
---------------------------------------------------------------------------
(b) UNREALIZED GAINS/(LOSSES) ON EQUITY SECURITIES
---------------------------------------------------------------------------
AS OF DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Gross unrealized gains $4 $2 $3
Gross unrealized losses (2) (11) (11)
Deferred income tax expense/(benefit) 1 (3) (3)
-------- -------- --------
NET UNREALIZED GAINS (LOSSES) AFTER TAX 1 (6) (5)
Balance at the beginning of the year (6) (5) 0
-------- -------- --------
CHANGE IN NET UNREALIZED GAINS (LOSSES)
ON EQUITY SECURITIES $7 ($1) ($5)
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------
(c) UNREALIZED GAINS/(LOSSES) IN FIXED MATURITIES
---------------------------------------------------------------------------
AS OF DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Gross unrealized gains $529 $150 $538
Gross unrealized losses (569) (1,185) (290)
Unrealized (losses)/gains credited to
policyholders (52) 37 0
Deferred income tax (benefit)/expense (34) (350) 87
-------- -------- --------
NET UNREALIZED (LOSSES) GAINS AFTER TAX (58) (648) 161
Balance at the beginning of the year (648) 161 144
-------- -------- --------
CHANGE IN NET UNREALIZED GAINS (LOSSES)
ON FIXED MATURITIES $590 ($809) $17
-------- -------- --------
-------- -------- --------
---------------------------------------------------------------------------
(d) COMPONENTS OF NET REALIZED GAINS/(LOSSES)
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Fixed maturities $23 ($34) ($12)
Equity securities (6) (11) 0
Real estate and other (25) 47 43
Less: (decrease)/increase in liability
to policyholders for realized gains (3) 5 (15)
-------- -------- --------
NET REALIZED (LOSSES) GAINS ($11) $7 $16
-------- -------- --------
-------- -------- --------
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<PAGE>
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- --------------------------------------------------------------------------------
(e) DERIVATIVE INVESTMENTS
A summary of investments, segregated by major category along with the types
of derivatives and their respective notional amounts, are as follows as of
December 31, 1995 :
SUMMARY OF INVESTMENTS
AS OF DECEMBER 31, 1995
(CARRYING AMOUNT)
<TABLE>
<CAPTION>
CAPS, FLOORS & OPTIONS FOREIGN
CARRYING ------------------------------------------ CURRENCY
VALUE NON-DERIVATIVE ISSUED (b) PURCHASED(c) FUTURES (d) SWAPS (f) SWAPS
-------- -------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset-backed securities $5,764 $5,752 ($1) $30 $0 ($17) $0
Inverse floaters (a) 711 794 (30) 16 0 (69) 0
Anticipatory (e) 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
TOTAL ASSET-BACKED SECURITIES 6,475 6,546 (31) 46 0 (86) 0
Other bonds and notes 7,118 7,165 (1) 0 0 (22) (24)
Short-term investments 807 807 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED MATURITIES 14,400 14,518 (32) 46 0 (108) (24)
Other investments 3,865 3,865 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENTS $18,265 $18,383 ($32) $46 $0 ($108) ($24)
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
SUMMARY OF INVESTMENTS
AS OF DECEMBER 31, 1995
(NOTIONAL AMOUNT)
(EXCLUDING LIABILITY HEDGES)
<TABLE>
<CAPTION>
CAPS, FLOORS & OPTIONS FOREIGN
NOTIONAL ---------------------- CURRENCY
AMOUNT ISSUED (b) PURCHASED (c) FUTURES (d) SWAPS (f) SWAPS
-------- --------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Asset-backed securities $3,863 $118 $3,133 $322 $290 $0
Inverse floaters (a) 1,601 560 354 6 681 0
Anticipatory (e) 238 0 0 213 25 0
-------- --------- --------- -------- ------- -------
TOTAL ASSET-BACKED SECURITIES 5,702 678 3,487 541 996 0
Other bonds and notes 1,365 33 66 322 757 187
Short-term investments 0 0 0 0 0 0
-------- --------- --------- -------- ------- -------
TOTAL FIXED MATURITIES 7,067 711 3,553 863 1,753 187
Other investments 18 0 0 0 18 0
-------- --------- --------- -------- ------- -------
TOTAL INVESTMENTS $7,085 $711 $3,553 $863 $1,771 $187
-------- --------- --------- -------- ------- -------
-------- --------- --------- -------- ------- -------
</TABLE>
(a) Inverse floaters, are variations of CMO's for which the coupon rates move
inversely with an index rate (e.g. LIBOR). The risk to principal is
considered negligible as the underlying collateral for the securities is
guaranteed or sponsored by government agencies. To address the volatility
risk created by the coupon variability, Hartford Life uses a variety of
derivative instruments, primarily interest rate swaps and issued floors.
(b) Includes issued caps $475 with a weighted average strike rate of 8.5%
(ranging from 7.0% to 10.4%) and over 85% mature in 2000 through 2004.
Issued floors totaled $236, have a weighted average strike rate of 8.1%
(ranging from 5.3% to 10.9%) and mature through 2007 with 76% maturing by
2004.
(c) Comprised of purchased floors of $1.8 billion and purchased caps of $1.7
billion. The floors have a weighted average strike price of 5.8% (ranging
from 3.7% to 6.8%) and over 85% mature in 1997 through 1999. The caps
have a weighted average strike price of 7.5% (ranging from 4.5% and 10.1%)
and over 82% mature in 1997 through 1999.
(d) Over 95% of futures contracts expire before December 31, 1996.
(e) Deferred gains and losses on anticipatory transactions are included in
the carrying value of bond investments in the Consolidated Balance Sheets.
At the time of the ultimate purchase, they are reflected as a basis
adjustment
<PAGE>
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- -------------------------------------------------------------------------------
to the purchased asset. At December 31, 1995, there were $5.3 in net
deferred losses for futures, interest rate swaps and purchased options.
(f) The following table summarizes the maturities by notional value of
interest rate swaps outstanding at December 31, 1995 and the related
weighted average interest pay rate or receive rate assuming current market
conditions:
MATURITY OF SWAPS ON INVESTMENTS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LAST
1996 1997 1998 1999 2000 THEREAFTER TOTAL MATURITY
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
PAY FIXED/RECEIVE VARIABLE
Notional Value $15 $50 $0 $453 $31 $229 $778 2004
Weighted Average Pay Rate 5.0% 7.2% 0.0% 8.1% 7.1% 7.8% 7.8%
Weighted Average Receive Rate 5.8% 5.9% 0.0% 5.8% 5.7% 5.9% 5.9%
PAY VARIABLE/RECEIVE FIXED
Notional Value $100 $68 $25 $25 $35 $190 $443 2007
Weighted Average Pay Rate 5.9% 8.6% 5.9% 0.0% 5.9% 5.4% 5.4%
Weighted Average Receive Rate 2.4% 7.9% 4.0% 0.0% 6.5% 6.9% 6.9%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $50 $18 $36 $12 $200 $234 $550 2004
Weighted Average Pay Rate 5.8% 0.0% 3.7% 3.5% 4.5% 16.3% 5.7%
Weighted Average Receive Rate 5.4% 0.0% 5.6% 5.2% 6.8% 5.9% 6.4%
TOTAL INTEREST RATE SWAPS $165 $136 $61 $490 $266 $653 $1,771 2007
WEIGHTED AVERAGE PAY RATE 5.8% 7.8% 4.6% 7.6% 5.0% 7.3% 6.9%
WEIGHTED AVERAGE RECEIVE RATE 3.6% 7.2% 4.9% 5.4% 6.6% 6.3% 5.8%
</TABLE>
(g) The following table reconciles the derivative notional amounts by
derivative type and by strategy:
<TABLE>
<CAPTION>
BY DERIVATIVE TYPE
---------------------------------------------------------------
12/31/94 MATURITIES/ 12/31/95
NOTIONAL AMOUNT ADDITIONS TERMINATIONS NOTIONAL AMOUNT
--------------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Caps $1,861 $2,666 $2,343 $2,184
Floors 2,131 237 188 2,180
Swaps/Collars/Forwards/Options 4,374 1,355 2,163 3,566
Futures 253 6,125 5,515 863
------- ------- ------- ------
TOTAL $8,619 $10,383 $10,209 $8,793
------- ------- ------- ------
------- ------- ------- ------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
BY STRATEGY
---------------------------------------------------------------
12/31/94 MATURITIES/ 12/31/95
NOTIONAL AMOUNT ADDITIONS TERMINATIONS NOTIONAL AMOUNT
--------------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Liability $1,725 $729 $746 $1,708
Anticipatory 626 1,564 1,952 238
Asset 3,048 3,153 3,217 2,984
Portfolio 3,220 4,937 4,294 3,863
------- ------- ------- ------
TOTAL $8,619 $10,383 $10,209 $8,793
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
In addition to risk management through derivative financial instruments
pertaining to the investment portfolio, interest rate sensitivity related
to certain Company liabilities was altered primarily through interest rate
swap agreements. The notional
<PAGE>
Page 16
- -------------------------------------------------------------------------------
amount of the liability agreements in which Hartford Life generally pays
one variable rate in exchange for another, was $1.7 billion at December 31,
1995 and 1994 respectively. The weighted average pay rate is 5.9%; the
weighted average receive rate is 6.0% , and these agreements mature at
various times through 2001.
(f) CONCENTRATION OF CREDIT RISK
Hartford Life has a reinsurance recoverable of $5.6 billion from Mutual
Benefit Life Assurance Corporation (Mutual Benefit). The risk of Mutual
Benefit becoming insolvent is mitigated by the reinsurance agreement's
requirement that the assets be kept in a security trust with Hartford
Life as sole beneficiary. Excluding investments in U.S. government and
agencies, Hartford Life has no other significant concentrations of credit
risk.
Included in fixed maturity investments at December 31, 1995 were $39 of
Orange County, California Pension Obligation Bonds, $17 of which were
carried in the general account and $22 which were included in Hartford
Life's guaranteed separate accounts. During 1995 all interest payments
due were received. While Orange County is currently operating under
Protection of Chapter 9 of the Federal Bankruptcy Laws, Hartford Life
believes the bonds are not impaired other than on a temporary basis.
(g) FIXED MATURITIES
The schedule below details the amortized cost and fair values of
Hartford Life's fixed maturities by component, along with the gross
unrealized gains and losses:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------------------
GROSS UNREALIZED
AMORTIZED ---------------- MARKET
COST GAINS LOSSES VALUE
--------- ----- ------ -------
<S> <C> <C> <C> <C>
U.S. Government and government
agencies and authorities:
Guaranteed and sponsored $502 $4 ($9) $497
Guaranteed and sponsored - asset backed 3,568 210 (387) 3,391
States, municipalities and political
subdivisions 201 4 (3) 202
International governments 291 19 (4) 306
Public utilities 949 29 (2) 976
All other corporate - asset backed 3,065 76 (55) 3,086
All other corporate 5,056 187 (109) 5,134
Short-term investments 808 0 0 808
------- ---- ----- -------
TOTAL INVESTMENTS $14,440 $529 $(569) $14,400
------- ---- ----- -------
------- ---- ----- -------
</TABLE>
<PAGE>
Page 17
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-----------------------------------------
GROSS UNREALIZED
AMORTIZED ---------------- MARKET
COST GAINS LOSSES VALUE
--------- ----- ------ -------
<S> <C> <C> <C> <C>
U.S. Government and government
agencies and authorities:
Guaranteed and sponsored $1,516 $1 ($87) $1,430
Guaranteed and sponsored - asset backed 4,256 78 (571) 3,763
States, municipalities and political
subdivisions 148 1 (12) 137
International governments 189 1 (14) 176
Public utilities 531 1 (32) 500
All other corporate - asset backed 2,442 30 (121) 2,351
All other corporate 3,717 38 (297) 3,458
Short-term investments 1,665 0 (51) 1,614
------- ---- ------- -------
TOTAL INVESTMENTS $14,464 $150 ($1,185) $13,429
------- ---- ------- -------
------- ---- ------- -------
</TABLE>
<PAGE>
Page 18
- -------------------------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturities at
December 31, 1995, by maturity, are shown below. Asset backed securities
are distributed to maturity year based on estimates of the rate of
future prepayments of principal over the remaining life of the securities.
Expected maturities differ from contractual maturities reflecting the
borrowers' rights to call or prepay their obligations.
AMORTIZED MARKET
COST VALUE
--------- ------
Due in on year or less $3,146 $3,133
Due after one year through five years 6,373 6,316
Due after five years through ten years 3,609 3,644
Due after ten years 1,312 1,307
------ ------
TOTAL $14,440 $14,400
------ ------
------ ------
Sales of fixed maturities excluding short-term fixed maturities for the
years ended December 31, 1995, 1994, and 1993 resulted in proceeds of
$4,848, $5,708, and $8,813, respectively, resulting in gross realized
gains of $91, $71, and $192, respectively, and gross realized losses of
$72, $100, and $219, respectively, not including policyholder gains and
losses. Sales of equity securities and other investments for the years
ended December 31, 1995, 1994, and 1993 resulted in proceeds of $64, $159,
and $127, respectively, resulting in gross realized gains of $28, $3,
and $0, respectively, and gross realized losses of $59, $14, $0,
respectively, not including policyholder gains and losses.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 1995 AS OF DECEMBER 31, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
ASSETS
Fixed maturities $14,400 $14,400 $13,429 $13,429
Equity securities 63 63 68 68
Policy loans 3,381 3,381 2,614 2,614
Mortgage loans 265 265 316 316
Investments in partnerships
and trusts 94 97 36 42
Miscellaneous 62 62 67 67
LIABILITIES
Other policy claims and
benefits $12,727 $12,767 $13,001 $12,374
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument: fair value for fixed maturities
and equity securities approximate those quotations published by applicable
stock exchanges or are received from other reliable sources; policy and
mortgage loan carrying amounts approximate fair value; investments in
partnerships and trusts are based on external market valuations from
partnership and trust management; and other policy claims and benefits
payable are determined by estimating future cash flows discounted at the
current market rate.
<PAGE>
Page 19
- -------------------------------------------------------------------------------
3. INCOME TAX
Hartford Life is included in ITT Hartford Group's consolidated
U.S. Federal income tax return and remits to (receives from) ITT
Hartford Group a current income tax provision (benefit) computed in
accordance with the tax sharing arrangements between its insurance
subsidiaries. The effective tax rate was 32% in 1995 and 1994, and
approximates the U.S. statutory tax rate of 35% in 1993.
The provision for income taxes was as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
INCOME TAX EXPENSE
Current $211 $185 $190
Deferred (149) (120) (115)
---- ---- ----
TOTAL $62 $65 $75
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INCOME TAX PROVISION
Tax provision at U.S.
statutory rate $67 $71 $76
Tax-exempt income (3) (3) 0
Foreign tax credit (4) (1) 0
Other 2 (2) (1)
---- ---- ----
PROVISION FOR INCOME TAX $62 $65 $75
---- ---- ----
---- ---- ----
Income taxes paid were $162, $244, and $301 in 1995, 1994, and 1993
respectively. The current taxes due from Hartford Fire were $8 and $46
in 1995 and 1994, respectively.
Deferred tax assets (liabilities) include the following:
DECEMBER 31,
------------
1995 1994
---- ----
Tax deferred acquisition costs $410 $284
Book deferred acquisition costs
and reserves 138 (134)
Employee benefits 8 7
Unrealized net loss on investments 32 353
Investments and other (168) 80
---- ----
$420 $590
---- ----
---- ----
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income
Tax Act of 1959 permitted the deferral from taxation of a portion of
statutory income under certain circumstances. In these situations, the
deferred income was accumulated in a "Policyholders' Surplus Account"
and will be taxable in the future only under conditions which management
considers to be remote; therefore, no Federal income taxes have been
provided on this deferred income. The balance for tax return purposes
of the Policyholders' Surplus Account as of December 31, 1995 was $37.
4. REINSURANCE
Hartford Life cedes insurance to non-affiliated insurers in order
to limit its maximum loss. Such transfer does not relieve Hartford
Life of its primary liability. Hartford Life also assumes
insurance from other insurers. Group life and accident and health
insurance business is substantially reinsured to affiliated
companies.
Life insurance net retained premiums were comprised of the
following:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
Gross premiums $1,545 $1,316 $1,135
Insurance assumed 591 299 93
Insurance ceded 649 515 481
------ ------ ------
NET RETAINED PREMIUMS $1,487 $1,100 $747
------ ------ ------
------ ------ ------
<PAGE>
Page 20
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Life reinsurance recoveries, which reduced death and other
benefits, for the years ended December 31, 1995, 1994 and 1993
approximated $220, $164, and $149, respectively.
In December 1994, Hartford Life assumed from a third party
approximately $500 of corporate owned life insurance reserves on a
coinsurance basis. In December 1995, this block of business was
reinsured to HLRe utilizing modified coinsurance, with the assets
and policy liabilities placed in a separate account. In October
1994, HLRe recaptured approximately $500 of corporate owned life
insurance from a third party reinsurer. Subsequent to this
transaction, Hartford Life and HLRe restructured their coinsurance
agreement from coinsurance to modified coinsurance, with the assets
and policy liabilities placed in the separate account. These
transactions did not have a material impact on consolidated net income.
Also in December 1994, ILA ceded to a third party $1.0 billion in
individual fixed and variable annuities on a modified coinsurance
basis. In December 1995, Hartford Life ceded approximately $1.2
billion in individual variable annuities on a modified coinsurance
basis to a third party. These transactions did not have a material
impact on consolidated net income.
In May 1994, Hartford Life assumed the life insurance policies and
the individual annuities of Pacific Standard with reserves and
account values of approximately $400. Hartford Life received cash
and investment grade assets to support the life insurance and
individual annuity contract obligations assumed.
In November 1993, ILA acquired, through an assumption reinsurance
transaction, substantially all of the individual fixed and variable
annuity business of HLA. As a result of this transaction, the
assets and liabilities of Hartford Life increased approximately $1
billion. The excess of liabilities assumed over assets received,
of $2, was recorded as a decrease to capital surplus. The remaining
$41 in assets and liabilities were transferred in October 1995.
The impact on consolidated net income was not significant.
In August 1993, Hartford Life received assets of $300 for assuming
the group COLI contract obligations of Mutual Benefit Life
Insurance Company, through an assumption reinsurance transaction.
Under the terms of the agreement, Hartford Life coinsured back 75%
of the liabilities to Mutual Benefit Life Insurance Company. All
assets supporting Mutual Benefit's reinsurance liability to
Hartford Life are placed in a "security trust", with Hartford Life
as the sole beneficiary. The impact on 1993 consolidated net
income was not significant.
5. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Hartford Life's employees are included in Hartford Fire's
noncontributory defined benefit pension plans. These plans provide
pension benefits that are based on years of service and the
employee's compensation during the last ten years of employment.
Hartford Life's funding policy is to contribute annually an amount
between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974 and the maximum amount that
can be deducted for Federal income tax purposes. Generally, pension
costs are funded through the purchase of Hartford Life's group
pension contracts. The cost to Hartford Life was approximately $2,
$2, and $3 in 1995, 1994 and 1993, respectively.
Hartford Life provides certain health care and life insurance
benefits for eligible retired employees. A substantial portion of
Hartford Life's employees may become eligible for these benefits
upon retirement. Hartford Life's contribution for health care
benefits will depend on the retiree's date of retirement and years
of service. In addition, the plan has a defined dollar cap which
limits average company contributions. Hartford Life has prefunded
a portion of the health care and life insurance obligations through
trust funds where such prefunding can be accomplished on a tax
effective basis. Postretirement health care and life insurance
benefits expense, allocated by Hartford Fire were immaterial for
1995, 1994, and 1993 respectively.
The assumed rate of future increases in the per capita cost of
health care (the health care trend rate) was 10.1% for 1995,
decreasing ratably to 6.0% in the year 2001. Increasing the health
care trend rates by one percent per year would have an immaterial
impact on the accumulated postretirement benefit obligation and the
annual expense. To the extent that the actual experience differs
from the inherent assumptions, the effect will be amortized over
the average future service of the covered employees.
<PAGE>
Page 21
- -------------------------------------------------------------------------------
6. Business Segment Information
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
REVENUES
Individual Life and Annuity $797 $691 $595
Asset Management Services 734 789 794
Specialty Insurance Operations 1,273 919 425
----- ----- -----
TOTAL REVENUES $2,804 $2,399 $1,814
----- ----- -----
----- ----- -----
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
INCOME BEFORE INCOME TAX EXPENSE
Individual Life and Annuity $236 $139 $129
Asset Management Services (79) 38 71
Specialty Insurance Operations 34 26 18
----- ----- -----
TOTAL INCOME BEFORE INCOME
TAX EXPENSE $191 $203 $218
----- ----- -----
----- ----- -----
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AS OF DECEMBER 31,
-------------------
1995 1994 1993
---- ---- ----
IDENTIFIABLE ASSETS
Individual Life and Annuity $36,741 $26,668 $19,147
Asset Management Services 13,962 13,334 12,416
Specialty Insurance Operations 13,494 7,847 6,723
------ ------ ------
TOTAL IDENTIFIABLE ASSETS $64,197 $47,849 $38,286
------- ------- -------
------- ------- -------
7. STATUTORY NET INCOME AND SURPLUS
Substantially all of the statutory surplus is permanently
reinvested or is subject to dividend restrictions relating to
various state regulations which limit the payment of dividends
without prior approval. Statutory net income and surplus as of
December 31 were:
1995 1994 1993
---- ---- ----
Statutory net income $112 $58 $63
Statutory surplus $1,125 $941 $812
8. Separate Accounts
Hartford Life maintains separate account assets and liabilities
totaling $36.3 billion and $22.8 billion at December 31, 1995 and
1994, respectively which are reported at fair value. Separate
account assets are segregated from other investments and investment
income and gains and losses accrue directly to the policyholder.
Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $25.9 billion and $14.8
billion at December 31, 1995 and 1994, respectively, wherein the
policyholder assumes the investment risk, and guaranteed separate
account assets totaling $10.4 billion and $8.0 billion at December
31, 1995 and 1994, respectively, wherein Hartford Life
contractually guarantees either a minimum return or account value
to the policyholder. Included in the non-guaranteed category are
policy loans totaling $1.7 billion and $0.5 billion at December 31,
1995 and 1994, respectively. Investment income (including
investment gains and losses) and interest credited to policyholders
on separate account assets are not reflected in the Consolidated
Statements of Income. Separate account management fees, net of
minimum guarantees, were $387, $256, and $189, in 1995, 1994, and
1993, respectively.
<PAGE>
Page 22
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The guaranteed separate accounts include modified guaranteed
individual annuity, and modified guaranteed life insurance. The
average credit interest rate on these contracts is 6.62%. The
assets that support these liabilities were comprised of $10.4
billion in bonds at December 31, 1995. The portfolios are
segregated from other investments and are managed so as to minimize
liquidity and interest rate risk. In order to minimize the risk of
disintermediation associated with early withdrawals, individual
annuity and modified guaranteed life insurance contracts carry a
graded surrender charge as well as a market value adjustment.
Additional investment risk is hedged using a variety of derivatives
which totaled $133 in carrying value and $2.7 billion in notional
amounts at December 31, 1995.
9. Commitments and Contingencies
In August 1994, Hartford Life renewed a two year note purchase
facility agreement which in certain instances obligates Hartford
Life to purchase up to $100 in collateralized notes from a third
party. Hartford Life is receiving fees for this commitment. At
December 31, 1995, Hartford Life had not purchased any notes under
this agreement.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed up to prescribed limits for
policyholder losses incurred by insolvent companies. The amount of
any future assessments on Hartford Life under these laws cannot be
reasonably estimated. Most of these laws do provide, however, that
an assessment may be excused or deferred if it would threaten an
insurer's own financial strength. Additionally, guaranty fund
assessments are used to reduce state premium taxes paid by the
Company in certain states. Hartford Life paid guaranty fund
assessments of approximately $10, $8 and $6 in 1995, 1994, and
1993, respectively.
Hartford Life is involved in various legal actions, some of which
involve claims for substantial amounts. In the opinion of
management the ultimate liability with respect to such lawsuits, as
well as other contingencies, is not considered material in relation
to the consolidated financial position of Hartford Life.
SUBSEQUENT EVENTS
Prior to 1996, Closed Book GRC was reported as a component of the
Asset Management Services Division of the Life segment. The
majority of products included in Closed Book GRC are guaranteed
investment contracts with guaranteed fixed or indexed rates for a
specific period. In 1996, Closed Book GRC is reported as a
component of Runoff Operations and had no new or renewal business
as of the end of 1995. 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, the Life segment transferred
assets in the amount of $200 million (unaudited) 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.
ITT Hartford'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, ITT Hartford
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 temporary impairment has been determined to have occurred.
Once an impairment charge has been recorded, ITT Hartford 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 $515 million and a realized loss of $55
million 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 million
(unaudited) after tax were also incurred in the third quarter.
During 1995, Closed Book GRC incurred a $68 million 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 million, while after tax losses in 1997
and 1998 will be reduced to the range of $10 to $20 million per
year. Losses from Closed Book GRC in years subsequent to 1998 are
expected to be minimal.
<PAGE>
Page 23
- -------------------------------------------------------------------------------
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
-------------------------------------
Gregory A. Boyko
October 18, 1996
Vice-President and Controller
<PAGE>
Page 24
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS (OTHER THAN INVESTMENTS IN AFFILIATES)
AS OF DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FAIR REPORTED ON
COST VALUE BALANCE SHEET
---------- ---------- -------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds
U.S. Government and government agencies
and authorities
Guaranteed and sponsored $502 $497 $497
Guaranteed and sponsored - asset backed 3,568 3,391 $3,391
States, municipalities and political subdivisions 201 202 $202
International governments 291 306 $306
Public utilities 949 976 $976
All other corporate 5,056 5,134 $5,134
All other corporate - asset backed 3,065 3,086 $3,086
Short-term investments 808 808 $808
---------- ---------- -------------
TOTAL FIXED MATURITIES $14,440 $14,400 $14,400
EQUITY SECURITIES
Common stocks - industrial, miscellaneous
and all other 61 63 63
TOTAL FIXED MATURITIES AND EQUITY SECURITIES $14,501 $14,463 $14,463
POLICY LOANS 3,381 3,381 3,381
MORTGAGE LOANS 265 265 265
OTHER INVESTMENTS 156 159 156
---------- ---------- -------------
TOTAL INVESTMENTS $18,303 $18,268 $18,265
---------- ---------- -------------
---------- ---------- -------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Fair value for stocks and bonds approximate those quotations published by
applicable stock exchanges or are received from other reliable sources. The
fair value for short-term investments approximates cost.
Policy and mortgage loans carrying amounts approximate fair value.
<PAGE>
Page 25
- -------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTAL INSURANCE INFORMATION
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT OF
DEFERRED FUTURE OTHER PREMIUMS AND NET BENEFITS, CLAIMS DEFERRED OTHER
POLICY POLICY POLICYHOLDER OTHER INVESTMENT AND CLAIM ADJ. POLICY INSURANCE
ACQ. COSTS BENEFITS FUNDS CONSIDERATIONS INCOME EXPENSES ACQ. COSTS EXPENSES
---------- -------- ------------ -------------- ---------- ---------------- ---------- ---------
AS OF DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
------------------------------------ ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Individual Life
and Annuity $2,088 $706 $4,371 $514 $283 $277 $176 $108
Asset Management
Services 87 1,169 8,942 51 683 722 23 68
Specialty Insurance
Operations 13 498 9,285 922 351 423 0 816
------- ------- ------- ------- ------- ------- ------- -------
TOTAL $2,188 $2,373 $22,598 $1,487 $1,317 $1,422 $199 $992
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
------------------------------------ ------------------------------------------------------------------------
AS OF DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1994
------------------------------------ ------------------------------------------------------------------------
Individual Life
and Annuity $1,708 $582 $4,257 $492 $199 $334 $137 $80
Asset Management
Services 101 845 10,160 39 750 695 8 48
Specialty Insurance
Operations 0 463 6,911 569 350 376 0 518
------- ------- ------- ------- ------- ------- ------- -------
TOTAL $1,809 $1,890 $21,328 $1,100 $1,299 $1,405 $145 $646
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
------------------------------------ ------------------------------------------------------------------------
AS OF DECEMBER 31, 1993 YEAR ENDED DECEMBER 31, 1993
------------------------------------ ------------------------------------------------------------------------
Individual Life
and Annuity $1,237 $428 $3,535 $423 $172 $249 $97 $120
Asset Management
Services 97 703 9,026 35 759 662 16 45
Specialty Insurance
Operations 0 528 5,673 289 136 135 0 272
------- ------- ------- ------- ------- ------- ------- -------
TOTAL $1,334 $1,659 $18,234 $747 $1,067 $1,046 $113 $437
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment income is allocated to the reportable division based on each
division's share of investable funds or on a direct basis, where applicable,
including realized capital gains and losses.
Benefits, claims and claims adjustment expenses include the interest in
liability for future policy benefits and death, disability and other contract
benefits payments.
Other insurance expenses are allocated to the division based upon specific
identification, where possible.
<PAGE>
Page 26
- -------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
GROSS CEDED TO ASSUMED FROM NET AMOUNT ASSURED
AMOUNT OTHER COMPANIES OTHER COMPANIES AMOUNT TO NET AMOUNT
------ --------------- --------------- ------ --------------
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
LIFE INSURANCE IN FORCE $182,716 $112,774 $26,996 $96,938 27.8%
PREMIUMS AND OTHER CONSIDERATIONS
Individual Life and Annuity $549 $163 $122 $508 24.0%
Asset Management Services 51 0 0 51 0.0%
Specialty Insurance Operations 632 162 452 922 49.0%
313 324 17 6 283.3%
-------- -------- -------- --------
TOTAL $1,545 $649 $591 $1,487 39.7%
-------- -------- -------- --------
-------- -------- -------- --------
YEAR ENDED DECEMBER 31, 1994
LIFE INSURANCE IN FORCE $136,929 $87,553 $35,016 $84,392 41.5%
PREMIUMS AND OTHER CONSIDERATIONS
Individual Life and Annuity $448 $71 $106 $483 21.9%
Asset Management Services 39 0 0 39 0.0%
Specialty Insurance Operations 521 140 188 569 33.0%
Accident and Health 308 304 5 9 55.6%
-------- -------- -------- --------
TOTAL $1,316 $515 $299 $1,100 27.2%
-------- -------- -------- --------
-------- -------- -------- --------
YEAR ENDED DECEMBER 31, 1993
LIFE INSURANCE IN FORCE $93,099 $71,415 $27,067 $48,751 55.5%
PREMIUMS AND OTHER CONSIDERATIONS
Individual Life and Annuity $417 $85 $91 $423 21.5%
Asset Management Services 25 0 0 25 0.0%
Specialty Insurance Operations 386 97 0 289 0.0%
Accident and Health 307 299 2 10 20.0%
-------- -------- -------- --------
TOTAL $1,135 $481 $93 $747 12.4%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
