<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, 1997
[ ] 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
Connecticut 06-0974148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Hopmeadow Street, Simsbury, Connecticut 06089
(Address of principal executive offices)
(860) 843-7716
(Registrant's telephone number, including area code)
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 November 13, 1997 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.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
-----
Item 1. Financial Statements:
Condensed Consolidated Statements of Income -
Quarter and Nine Months Ended September 30, 1997 and 1996.............. 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996............................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996.......................... 5
Notes to Condensed Consolidated Financial Statements..................... 6
Item 2. Management's Narrative Analysis of Results of Operations*
Quarter and Nine Months Ended September 30, 1997 and 1996.............. 7
PART II. OTHER INFORMATION*
Item 1. Legal Proceedings................................................ 10
Item 6. Exhibits and Reports on Form 8-K................................. 10
Signature................................................................ 11
- ----------------------
(*) Item prepared in accordance with General Instruction H (2) of Form 10-Q.
2
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PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The following unaudited condensed consolidated financial statements of
Hartford Life Insurance Company and its subsidiaries (the "Company") have
been prepared in accordance with generally accepted accounting principles and
reflect, in the opinion of management, all adjustments which are of normal
recurring nature 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 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.
The forward-looking statements are made based upon management's expectations
and beliefs concerning future developments and their potential effect on the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of these future
developments on the Company 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 with the
forward-looking statements. For a description of accounting policies, see
Note 1 to Consolidated Financial Statements in the 1996 Form 10-K. The
Company is an indirect subsidiary of Hartford Life, Inc. ("HLI").
Accordingly, the financial statements presented below are a partial
disclosure of HLI's financial statements. For a full disclosure of HLI's
operations, refer to the HLI Form 10-Q, as filed with the Securities and
Exchange Commission, for the quarter ended September 30, 1997.
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations.............................................. $ 360 $ 319 $ 993 $ 1,262
Net investment income.......................................................... 319 355 978 1,006
Net realized capital gains (losses)............................................ -- (202) 4 (203)
--------- --------- --------- ---------
Total revenues............................................................ 679 472 1,975 2,065
--------- --------- --------- ---------
Benefits, claims and expenses
Benefits, claims and claim adjustment expenses................................. 318 447 970 1,235
Amortization of deferred policy acquisition costs.............................. 80 68 252 197
Dividends to policyholders..................................................... 47 63 119 410
Other insurance expenses....................................................... 105 58 295 256
--------- --------- --------- ---------
Total benefits, claims and expenses....................................... 550 636 1,636 2,098
--------- --------- --------- ---------
Income (loss) before income tax expense........................................ 129 (164) 339 (33)
Income tax expense (benefit)................................................... 48 (58) 121 (13)
--------- --------- --------- ---------
Net income (loss).............................................................. $ 81 $ (106) $ 218 $ (20)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
3
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities, available for sale, at fair value
(amortized cost $13,849 and $13,579)............................................. $ 14,046 $ 13,624
Equity securities, available for sale, at fair value.............................. 155 119
Mortgage loans, at outstanding balance............................................ -- 2
Policy loans, at outstanding balance.............................................. 3,747 3,836
Other investments, at cost........................................................ 48 54
------------- ------------
Total investments................................................................ 17,996 17,635
Cash................................................................................ 53 43
Premiums and amounts receivable..................................................... 134 137
Reinsurance recoverable............................................................. 6,356 6,259
Accrued investment income........................................................... 359 407
Deferred policy acquisition costs................................................... 3,156 2,760
Deferred income tax................................................................. 431 474
Other assets........................................................................ 246 357
Separate account assets............................................................. 64,020 49,690
------------- ------------
Total assets..................................................................... $ 92,751 $ 77,762
------------- ------------
------------- ------------
Liabilities and Stockholders' Equity
Future policy benefits.............................................................. $ 3,124 $ 2,474
Other policyholder funds............................................................ 21,168 22,134
Other liabilities................................................................... 2,224 1,572
Separate account liabilities........................................................ 64,020 49,690
------------- ------------
Total liabilities................................................................ 90,536 75,870
------------- ------------
Common stock--authorized 1,000 shares, $5,690 par value,
issued and outstanding 1,000 shares............................................... 6 6
Additional paid-in capital.......................................................... 1,045 1,045
Unrealized gain on securities, net of tax........................................... 135 30
Retained earnings................................................................... 1,029 811
------------- ------------
Total stockholders' equity....................................................... 2,215 1,892
------------- ------------
Total liabilities and stockholders' equity..................................... $ 92,751 $ 77,762
------------- ------------
------------- ------------
</TABLE>
4
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<CAPTION> (unaudited)
<S> <C> <C>
Operating Activities:
Net income (loss).............................................................................. $ 218 $ (20)
Adjustments to net income (loss):
Net realized capital (gains) losses.......................................................... (4) 203
Net increase in deferred policy acquisition costs............................................ (396) (399)
Net amortization of premium on fixed maturities.............................................. 5 6
Increase in deferred income tax benefit...................................................... (14) (188)
Decrease in premiums and amounts receivable.................................................. 3 75
Decrease in other assets..................................................................... 169 15
Increase in reinsurance recoverable.......................................................... (310) (254)
Increase in liability for future policy benefits............................................. 650 278
Increase in other liabilities................................................................ 131 116
Decrease in accrued investment income........................................................ 48 --
--------- ---------
Cash provided by (used for) operating activities............................................... 500 (168)
--------- ---------
Investing Activities:
Purchases of fixed maturities investments...................................................... (4,628) (4,111)
Sales of fixed maturities investments.......................................................... 3,039 2,450
Maturities and principal paydowns of fixed maturities investments.............................. 1,643 2,124
Net sales (purchases) of other investments..................................................... 32 (339)
Net (purchases) sales of short-term investments................................................ (70) 328
--------- ---------
Cash provided by investing activities.......................................................... 16 452
--------- ---------
Financing Activities:
Net disbursements for investment and universal life-type contracts charged from policyholder
accounts..................................................................................... (506) (316)
Capital contribution........................................................................... -- 38
--------- ---------
Cash used for financing activities............................................................. (506) (278)
--------- ---------
Net increase in cash........................................................................... 10 6
Cash at beginning of period.................................................................... 43 46
--------- ---------
Cash at end of period.......................................................................... $ 53 $ 52
--------- ---------
--------- ---------
</TABLE>
5
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Hartford Life Inc. Initial Public Offering
On February 10, 1997, HLI, an indirect parent of the Company, filed a
registration statement with the Securities and Exchange Commission, as
amended, relating to the Initial Public Offering ("IPO") of up to 20% of
HLI's Class A common stock. Pursuant to the IPO on May 22, 1997, HLI sold to
the public 26 million shares at $28.25 per share and received net proceeds of
$687. Of the proceeds, $527 was used to retire debt related to HLI's
promissory notes outstanding and the line of credit discussed in the note
below with the remaining $160 contributed to HLI's insurance subsidiaries to
be used for working capital and other general corporate purposes.
The 26 million shares sold from the IPO represent approximately 18.6% of the
equity ownership in HLI and approximately 4.4% of the combined voting power
of HLI's Class A and Class B Common Stock. The Hartford Financial Services
Group, Inc. ("The Hartford"), an indirect parent of HLI, owns all of the 114
million outstanding shares of Class B Common Stock of HLI, representing 81.4%
of the equity ownership in HLI and approximately 95.6% of the combined voting
power of HLI's Class A and Class B Common Stock. Holders of Class A Common
Stock generally have identical rights to the holders of Class B Common Stock
except that the holders of Class A Common Stock are entitled to one vote per
share while holders of Class B Common Stock are entitled to five votes per
share on all matters submitted to a vote of the HLI stockholders.
Note 2. Hartford Life Inc. Debt Offering
On February 7, 1997, HLI declared a dividend of $1,184 payable to its direct
parent, Hartford Accident and Indemnity Company ("HA&I"). As a result, HLI
borrowed $1,084 on February 18, 1997, pursuant to a $1,300 line of credit,
with interest payable at the two-month Eurodollar rate plus 15 basis points,
which, together with a promissory note in the amount of $100, was paid as a
dividend to HA&I on February 20, 1997. Of the $1,184 dividend, $893
constituted a repayment of the portion of HLI's third party indebtedness
internally allocated, for financial reporting purposes, to HLI's insurance
subsidiaries (the "Allocated Advances"). In addition, on April 4, 1997, HLI
declared and paid a dividend of $25 to its parent in the form of a promissory
note. Subsequently, $12 of this note was forgiven in the form of a capital
contribution from HA&I.
On February 14, 1997, HLI filed a shelf registration statement for the
issuance and sale of up to $1.0 billion in the aggregate of senior debt
securities, subordinated debt securities and preferred stock. On June 17,
1997, HLI issued $650 of unsecured redeemable long-term debt in the form of
notes and debentures. Of this amount, $200 was in the form of 6.90% notes due
June 15, 2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65%
debentures due June 15, 2027. Interest on each of the notes and debentures is
payable semi-annually on June 15 and December 15, of each year, commencing
December 15, 1997. HLI also issued $50 of short-term debt in the form of
commercial paper. Of the proceeds from this issuance, $670 was used to retire
the remaining balance on the $1,300 line of credit with the remainder being
used for working capital and other general corporate purposes. Subsequently,
HLI reduced the capacity of the line of credit from $1,300 to $250, which
will be primarily used to support the commercial paper program.
Note 3. Contingencies
(a) Litigation
The Company 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, management, at the
present time, does not anticipate that the ultimate liability arising from
such pending or threatened litigation will have a material effect on the
financial condition or operating results of the Company.
6
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF
RESULTS OF OPERATIONS
(in millions)
Quarter and Nine Months Ended September 30, 1997 and 1996
Segment Results
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
1997 1996 1997 1996
---------- --------- --------- ---------
Annuity........................ $ 56 $ 40 $ 148 $ 110
Individual Life Insurance...... 15 11 38 30
Employee Benefits.............. 8 8 23 22
Guaranteed Investment
Contracts.................... -- (184) -- (214)
Corporate Operation............ 2 19 9 32
---------- --------- --------- ---------
Net Income (Loss).............. $ 81 $ (106) $ 218 $ (20)
---------- --------- --------- ---------
---------- --------- --------- ---------
Net income was $81 and $218 for the third quarter and nine months ended
September 30, 1997, as compared to a loss of $106 and $20 for the same
periods in 1996. Included in the results for the third quarter and nine
months ended September 30, 1996, are after-tax losses, primarily related to
Closed Book GRC, of $179 and $210. Excluding these after-tax losses,
operating income increased $8, or 11%, and $28, or 15%, for the third quarter
and nine months ended September 30, 1997, compared to the same periods in
1996. Net income in the Annuity segment increased due to higher fee income on
growing account values as well as strong new business sales. Net income in
the Individual Life Insurance segment increased due to cost of insurance
charges and other fee income on a growing block of life insurance in-force.
Guaranteed Investment Contracts reported no net income in the third quarter
of 1997 consistent with management's expectations that net income (loss)
subsequent to 1996 will be immaterial.
Annuity
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues................... $ 336 $ 241 $ 924 $ 707
Expenses................... 280 201 776 597
--------- --------- --------- ---------
Net Income................. $ 56 $ 40 $ 148 $ 110
--------- --------- --------- ---------
--------- --------- --------- ---------
Revenues, which are primarily comprised of investment income and fees earned
on assets under management, grew $95 or 39%, to $336 in the third quarter of
1997 and $217 or 31%, to $924 for the nine months ended September 30, 1997,
compared to the same periods in 1996. This growth resulted from an increase
in the average account value, primarily driven by individual variable
annuities, of $15.4 billion, or 36%, to $57.9 billion as of September 30,
1997 from $42.5 billion as of September 30, 1996, as a result of strong sales
and market appreciation in the separate account assets. Individual annuity
sales were approximately $2.6 billion and $7.6 billion for the third quarter
and nine months ended September 30, 1997, respectively, as compared to sales
of $2.4 billion and $7.4 billion, respectively, for the same periods in 1996.
Growth in the assets under management by this segment also resulted in
increased expenses related to other insurance expenses, amortization of
deferred policy acquisition costs and taxes. Expenses increased $79, or 39%,
to $280 in the third quarter of 1997 and $179, or 30%, to $776 for the nine
months ended September 30,
7
<PAGE>
1997, compared to the same periods in 1996. Net income increased $16, or 40%,
to $56 in the third quarter of 1997 and $38, or 35%, to $148 for the nine
months ended September 30, 1997, compared to the same periods in 1996.
Individual Life Insurance
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues................... $ 122 $ 107 $ 358 $ 323
Expenses................... 107 96 320 293
--------- --------- --------- ---------
Net Income................. $ 15 $ 11 $ 38 $ 30
--------- --------- --------- ---------
--------- --------- --------- ---------
Revenues increased $15, or 14%, to $122 in the third quarter of 1997 and $35,
or 11%, to $358 for the nine months ended September 30, 1997, over the
comparable periods in 1996. In the first quarter of 1996, a block of business
was assumed from Investors Equity which increased 1996 revenues by $9.
Excluding this transaction, year to date revenues increased $44, or 14% over
prior year. This growth was driven by increased cost of insurance charges and
other fee income earned on this growing block of business. Life insurance
in-force grew approximately $3 billion, or 6%, for September 30, 1997 over
the prior period, primarily due to sales of variable life products. Expenses
in this segment increased $11 or 11%, and $27 or 9%, for the third quarter
and nine months ended September 30, 1997, over the same periods in 1996,
consistent with this growing block of business. As a result, net income
increased $4, or 36%, to $15 in the third quarter of 1997 and $8, or 27%, to
$38 for the nine months ended September 30, 1997, compared to the same
periods in 1996.
Employee Benefits
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues.................. $ 150 $ 223 $ 471 $ 976
Expenses.................. 142 215 448 954
--------- --------- --------- ---------
Net Income................ $ 8 $ 8 $ 23 $ 22
--------- --------- --------- ---------
--------- --------- --------- ---------
Revenues declined $73, or 33%, to $150 in the third quarter of 1997 and $505,
or 52%, for the nine months ended September 30, 1997, as compared to the same
periods in 1996. This decline is mainly related to the passage of the Health
Insurance Portability and Accountability Act of 1996, which effectively
eliminated all future sales of leveraged COLI due to the phase out of the
interest deduction on policy loans by 1998. The Company continues to write
variable COLI. Expenses declined $73, or 34%, in the third quarter of 1997
and $506, or 53%, for the nine months ended September 30, 1997, as compared
to the same periods in 1996. Significant declines in benefits, claims and
claim adjustment expenses and policyholder dividends are the result of the
decline of the block of COLI business. As a result, net income was unchanged
for the third quarter of 1997, as compared to the same periods in 1996 and
increased $1, or 5%, for the nine months ended September 30, 1997, as
compared to the same periods in 1996.
8
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Guaranteed Investment Contracts
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
1997 1996 1997 1996
---------- --------- --------- ---------
Revenues.................. $ 62 $ (163) $ 196 $ (23)
Expenses.................. 62 21 196 191
---------- --------- --------- ---------
Net Income (Loss)......... $ 0 $ (184) $ 0 $ (214)
---------- --------- --------- ---------
---------- --------- --------- ---------
This segment reported no net income for the nine months ended September 30,
1997, as compared to losses of $184 and $214 for the same periods last year.
Exclusive of after-tax realized losses and other charges taken in the third
quarter of 1996 related to Closed Book GRC, this segment had an operating
loss of $15 and $45 for the third quarter and nine months ended
September 30, 1996. These results are consistent with management's
expectations that net income (loss) from Closed Book GRC in the years
subsequent to 1996 will be immaterial based on the Company's current
projections for the performance of the assets and liabilities associated with
Closed Book GRC due to actions taken in the third quarter of 1996. However,
no assurance can be given that, under certain unanticipated economic
circumstances which results in the Company's assumptions being proven
inaccurate, further losses in respect of Closed Book GRC will not occur in
the future.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company 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, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material 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
10
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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)
November 13, 1997 by /s/ Gregory A. Boyko
-------------------------
Gregory A. Boyko
Senior Vice-President, Chief Financial Officer
and Treasurer
11
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
Exhibit # Description
- --------- -----------
27 Financial Data Schedule is filed herewith.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000045947
<NAME> HARTFORD LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 14,046
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 155
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 17,996
<CASH> 53
<RECOVER-REINSURE> 6,356
<DEFERRED-ACQUISITION> 3,156
<TOTAL-ASSETS> 92,751
<POLICY-LOSSES> 3,124
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 21,168
<POLICY-HOLDER-FUNDS> 64,020
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 1,045
<TOTAL-LIABILITY-AND-EQUITY> 92,751
993
<INVESTMENT-INCOME> 978
<INVESTMENT-GAINS> 4
<OTHER-INCOME> 0
<BENEFITS> 970
<UNDERWRITING-AMORTIZATION> 252
<UNDERWRITING-OTHER> 403
<INCOME-PRETAX> 339
<INCOME-TAX> 121
<INCOME-CONTINUING> 218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
