<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1998.
File No. 333-30013
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S- 2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HARTFORD LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
6355
(Primary Standard Industrial Classification Code Number)
06-094148
(I.R.S. Employer Identification Number)
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(Address of Principal Executive Office)
MARIANNE O'DOHERTY, ESQ.
HARTFORD LIFE INC.
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(860) 843-6733
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: May 1, 1998
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1)
of this form, check the following box. [ ]
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
FORM S-2 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
1. Forepart of the Registration Statement
and Outside Front Cover Page of Outside Front Cover
Prospectus Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front Cover
3. Summary Information, Risk Factors and Summary; General Account
Ratio of Earnings to Fixed Charges Option; Financial Statements
4. Use of Proceeds Investments by Hartford Life
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of Contracts
9. Description of Securities to be The General Account
Registered Option
10. Interests and Named Experts and
Counsel Not Applicable
11. Information with Respect to the The Company;
Registrant Financial Statements
12. Incorporation of Certain Information Incorporation of Certain
Information
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not Applicable
<PAGE>
HARTFORD
LIFE INSURANCE COMPANY
THE GENERAL ACCOUNT OPTION
UNDER GROUP ANNUITY CONTRACTS
ISSUED BY HARTFORD LIFE INSURANCE COMPANY
[LOGO]
P.O. BOX 2999
HARTFORD, CT 06104-2999
This Prospectus describes the General Account Option available under certain
group variable annuity contracts (hereinafter the "contract" or "contracts")
issued by Hartford Life Insurance Company ("Hartford ") with respect to DC
Variable Account I ("DC-I") or Separate Account Two ("DC-II") (each, a
"Separate Account"). This Prospectus must be accompanied by, and should be
read in conjunction with, the prospectus for the applicable contract and the
Separate Account options thereunder.
During the Accumulation Period, net contributions to a contract and/or
Participants' Individual Account Values under such contract may be allocated,
in whole or in part, to the General Account Option or to one or more of the
Separate Accounts. Contract values allocated to the General Account Option are
credited with interest at a rate at least equal to the Guaranteed Interest
Rate stated in the contract. Rates of interest in excess of the applicable
Guaranteed Interest Rate may be declared by Hartford from time to time (see
"The General Account Option -- Guaranteed Interest Rates and Declared Interest
Rates," page 6).
While the Mortality, Expense Risk and Administrative charges applicable to
the values held in the Separate Accounts do not apply to the General Account
Option, all other charges, including the Annual Policy Fee, Contingent
Deferred Sales Charges, Transfer Charges and Premium Taxes, as described in
the contract prospectus accompanying this Prospectus, apply equally to values
held in the General Account Option.
Distributions and transfers under the General Account Option are generally
made by Hartford within a reasonable period of time after a request by a
Participant is received by Hartford and reflect the full value of that portion
of the requesting Participant's Individual Account by Hartford allocated to
the General Account Option, less any applicable charges. However, under
certain conditions transfers under the General Account Option may be limited
or deferred (see "The General Account Option -- Transfers from the General
Account Option," page 8) and distributions may be deferred or subject to a
market value adjustment (see, "Surrenders," page 8.)
------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------------------------------------------------------------
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK. IT IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY. INVESTMENT
IN A CONTRACT INVOLVES RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
------------------------------------------------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS
ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE RELATED GROUP VARIABLE ANNUITY
CONTRACT AND THE SEPARATE ACCOUNT OPTIONS THEREUNDER.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
THESE SECURITIES MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE AND
MARKET VALUE ADJUSTMENT WHICH COULD RESULT IN YOUR RECEIPT OF LESS THAN THE
TOTAL OF YOUR CONTRIBUTIONS. SEE "THE GENERAL ACCOUNT OPTION -- SURRENDERS,"
PAGE 8.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
HARTFORD CANNOT PREDICT OR GUARANTEE FUTURE GUARANTEED INTEREST RATES OR
DECLARED INTEREST RATES.
------------------------------------------------------------------------------
Prospectus Dated: May 1, 1998
<PAGE>
AVAILABLE INFORMATION
Hartford is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such filings can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C., and at the Commission's Regional Offices
located at 75 Park Place, New York, NY and at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, IL. Copies of such materials also
can be obtained, at prescribed rates, from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web Site that contains reports, proxy statements, information
statements and other information regarding Hartford at the following address:
http://www.sec.gov.
Hartford has filed a registration statement (the "Registration Statement")
with the Commission under the Securities Act of 1933 relating to the contracts
offered by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth
in the Registration Statement and exhibits thereto, and reference is hereby
made to such Registration Statement and exhibits for further information
relating to Hartford and the contracts. The Registration Statement and the
exhibits thereto may be inspected and copied, and copies can be obtained at
prescribed rates, in the manner set forth in the preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as filed on March 31, 1998 by Hartford with the Commission under the
Exchange Act are incorporated herein by reference.
Hartford will provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon the written or oral request of such
person, a copy of such reports, without the exhibits thereto. Requests for
such reports should be directed to Hartford Life Insurance Company, P.O. Box
2099, Hartford, Connecticut 06104-2999, telephone: 1-800-528-9009.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
SUMMARY................................................................. 4
GLOSSARY OF SPECIAL TERMS............................................... 5
INTRODUCTION............................................................ 6
THE GENERAL ACCOUNT OPTION.............................................. 6
A. The Accumulation Period.............................................. 6
1. Contributions..................................................... 6
2. Guaranteed Interest Rates and Declared Interest Rates............. 6
3. Participants' Individual Account Values........................... 7
4. Transfers from the General Account Option......................... 7
5. Transfers to the General Account Option........................... 8
6. Surrenders........................................................ 8
(a) General....................................................... 8
(b) Payment of Full or Partial Surrenders......................... 8
(c) Contract Termination.......................................... 9
7. Experience Rating of the Contracts................................ 9
B. Annuity Period....................................................... 10
INVESTMENTS BY HARTFORD................................................. 10
DISTRIBUTION OF THE CONTRACTS........................................... 10
FEDERAL TAX CONSIDERATIONS.............................................. 11
A. Taxation of Hartford................................................. 11
B. Information Regarding Deferred Compensation Plans for State and Local
Governments.......................................................... 11
HARTFORD LIFE INSURANCE COMPANY......................................... 11
A. Business of Hartford................................................. 11
B. Selected Financial Data.............................................. 13
C. Management's Discussion and Analysis of Financial Condition and
Results of Operation................................................. 14
1. Consolidated Results.............................................. 14
2. Business Segment Information...................................... 16
D. Reinsurance.......................................................... 16
E. Reserves............................................................. 16
F. Investments.......................................................... 16
G. Competition.......................................................... 21
H. Employees............................................................ 21
I. Properties........................................................... 21
J. Regulation........................................................... 21
LEGAL OPINIONS.......................................................... 22
EXPERTS................................................................. 22
APPENDIX A -- MARKET VALUE LUMP SUM OPTION.............................. 23
FINANCIAL STATEMENTS.................................................... 27
</TABLE>
3
<PAGE>
SUMMARY
This Prospectus describes the General Account Option under group variable
annuity contracts designed for use in conjunction with deferred compensation
plans of tax-exempt and governmental employers under Internal Revenue Code
Section 457 ("Deferred Compensation Plans"). The contracts are issued by
Hartford Life Insurance Company ("Hartford ") with respect to DC Variable
Account-I (DC-I) or Separate Account Two (DC-II) (each, a "Separate Account").
Contributions to the General Account Option become a part of the General Account
of Hartford. Contributions to the contracts may also be allocated to one or more
Separate Account options. The contracts and the Separate Account options are
described in a separate prospectus accompanying this Prospectus. All such
prospectuses should be read carefully and retained for future reference.
During the Accumulation Period under the contracts, the General Account
Option provides for specified Guaranteed Interest Rates for the first five
Calendar Years on Contributions received during the Calendar Year in which the
contract was issued. Prior to each Calendar Year thereafter, Hartford will
establish Guaranteed Interest Rates (for five Calendar Years) for contributions
received in the following year. At the end of each five year guarantee period
for a particular year's contribution, one year Guaranteed Interest Rates are
established annually by Hartford. Declared Interest Rates in excess of any
Guaranteed Interest Rates may be established periodically by Hartford. Such
rates may apply to some or all of the values under the General Account Option
for periods of time determined by Hartford. The rates of interest credited will
affect Participants' Individual Account values (see "The General Account Option
- -- Participants' Individual Account Values," page 7) and are used to determine
amounts payable upon termination of the contracts. (See, "Surrenders -- Contract
Termination," page 9).
Generally, Hartford intends to invest the General Account assets
attributable to the contracts in investment grade securities. Hartford has no
specific formula for determining the rates of interest that it will establish as
Declared Interest Rates or Guaranteed Interest Rates in the future. However,
Hartford's determination generally will be affected by interest rates available
on the types of debt instruments in which Hartford intends to invest the
proceeds attributable to the General Account Option. (See, "Investments by
Hartford," page 10.) In addition, Hartford's management may also consider
various other factors in determining Declared and Guaranteed Interest Rates for
a given period, including, regulatory and tax requirements; sales commission and
administrative expenses borne by Hartford; general economic trends; and
competitive factors. (See, "Investments by Hartford," page 10.)
During the Accumulation Period, the Contract Owner may allocate all or a
portion of a Participant's Individual Account value held under the General
Account Option to one or more of the investment options of the Separate Account.
No Contingent Deferred Sales Charges will be deducted on such transfers.
However, there are restrictions which may limit the amount that may be so
allocated and transfers may be deferred in certain cases. (See, "Transfers from
the General Account Option," page 7.) Distributions from the General Account
Option are generally made within a reasonable period of time after a request is
received and reflect the full value of Participants' Individual Account values
less certain charges, if applicable, described in the contract prospectus.
However, under certain conditions, distributions may be deferred or subject to a
market value adjustment. (See, "Surrenders," page 8.)
4
<PAGE>
GLOSSARY OF SPECIAL TERMS
ACCUMULATION PERIOD: The period before the commencement of Annuity payments
under a contract.
ACTIVE LIFE FUND: The sum of all Participants' Individual Account values under a
contract during the Accumulation Period.
ADMINISTRATIVE OFFICE OF HARTFORD: Currently located at 200 Hopmeadow Street,
Simsbury, CT. All correspondence concerning this Contract should be sent to P.O.
Box 2999, Hartford, CT 06104-2999 Attn: AMS Service Center Administration,
except for overnight or express mail packages, which should be sent to: 200
Hopmeadow Street, Simsbury, CT.
ANNUITANT: A Participant on whose behalf Annuity payments are to be made under a
contract.
ANNUITY: A series of payments for life, or for life with a minimum number of
payments or a determinable sum guaranteed, or for a joint lifetime and
thereafter during the lifetime of the survivor, or for a designated period.
ANNUITY COMMENCEMENT DATE: The date on which Annuity payments under a Contract
are to commence.
ANNUITY PERIOD: The period following the commencement of Annuity payments.
CALENDAR YEAR: The period of time from January 1 through December 31 of each
year.
CONTRACT OWNER: The Employer or other entity owning the contract.
CONTRACT YEAR: A period of 12 consecutive months commencing with the effective
date of the contract or with any anniversary thereof.
CONTRIBUTION(S): The amount(s) paid or transferred to Hartford by the Contract
Owner on behalf of a Participant pursuant to the terms of a contract.
DECLARED INTEREST RATE(S): One or more rates of interest declared by Hartford
which will never be less than the applicable Guaranteed Interest Rates and may
apply to some or all of the Individual Account values allocated to the General
Account Option for period(s) of time determined by Hartford.
GENERAL ACCOUNT: The General Account of Hartford.
GUARANTEED INTEREST RATE(S): The minimum rate(s) of interest to be credited on
the General Account portion of the Active Life Fund, as set forth in the
contract.
HARTFORD (ALSO "WE," "US," "OUR"): Hartford Life Insurance Company.
IN WRITING: A written form satisfactory to us and received at our offices at:
Hartford Life Insurance Company, Attn: AMS Service Center Administration, P.O.
Box 2999, Hartford, CT 06104-2999.
MARKET VALUE LUMP SUM OPTION: At contract termination, a lump sum payment which
includes the market value of the underlying assets as described under
subparagraph (c)(ii) of "The General Account Option -- The Accumulation Period
- -- Surrenders," page 8.
PARTICIPANT: For recordkeeping purposes only, any employee of the Contract Owner
electing to participate in a deferred compensation plan established by such
employer/Contract Owner.
PARTICIPANT'S CONTRACT YEAR: A period of 12 consecutive months commencing with
the date on which a application on behalf of a Participant is received by
Hartford and each successive 12 month period thereafter.
PARTICIPANT'S INDIVIDUAL ACCOUNT: An account in which the Contributions under
the contract are allocated during the Accumulation Period.
PREMIUM TAX: A tax charged by a state or a municipality on premiums,
Contributions or contract values.
SEPARATE ACCOUNTS: The separate accounts established by Hartford designated
Hartford Life Insurance Company DC Variable Account-I and Hartford Life
Insurance Company Separate Account Two.
5
<PAGE>
INTRODUCTION
This Prospectus has been designed to provide you with the information
necessary to make a decision on participating in the General Account Option
under contracts issued in conjunction with a Deferred Compensation Plan. This
Prospectus describes only the elements of the contracts pertaining to the
General Account Option. The contracts also contain various Separate Account
options. The contracts and the Separate Account options are described in a
separate prospectus which must accompany this Prospectus. Please read that
prospectus and its Glossary of Special Terms prior to reading this Prospectus to
familiarize yourself with the terms being used which, unless defined in the
Glossary of Special Terms to this Prospectus, have the same meaning as defined
in that prospectus.
THE GENERAL ACCOUNT OPTION
The General Account Option is available under contracts issued in
conjunction with a Deferred Compensation Plan of an Employer. The contracts
provide for both an Accumulation Period and an Annuity Period. During the
Accumulation Period, Contributions made by the Employer to the General Account
Option, and the values attributable thereto, are a part of the General Account.
During the Annuity Period Participants' Individual Account values are used to
purchase Fixed or Variable Annuities. The operation of the contract during the
Annuity Period is described in the contract prospectus accompanying this
Prospectus.
A. THE ACCUMULATION PERIOD
1. CONTRIBUTIONS
During the Accumulation Period, Contributions (less any Premium Taxes) made
by the Employer under the contract, and Participants' Individual Account values,
may be allocated, in whole or in part, to the General Account Option.
2. GUARANTEED INTEREST RATES AND DECLARED INTEREST RATES
The General Account Option provides that during the Accumulation Period,
specified Guaranteed Interest Rates will be established for the first five
Calendar Years on Contributions received during the Calendar Year in which the
Contract is first issued. Prior to each Calendar Year thereafter, Hartford will
establish Guaranteed Interest Rates (for each of the next five Calendar Years)
for Contributions received in the following year. The Guaranteed Interest Rate
for each year during a five year guarantee period may not be the same as for
other years. At the end of each five year guarantee period for a particular
year's Contribution(s), one year Guaranteed Interest Rates are established
annually by Hartford. These one year Guaranteed Interest Rates will
automatically commence at the end of a five year guarantee period and at the end
of each subsequent one year guarantee period. All Guaranteed Interest Rates and
Declared Interest Rates are effective annual rates after taking into account
daily compounding of interest.
The following example is for illustrative purposes only. It contains
hypothetical rates of interest. Actual Guaranteed Interest Rates for any given
time may be more or less than those illustrated.
EXAMPLE: A contract is issued on July 1, 1998. At issue, the Guaranteed
Interest Rates for Calendar Years 1998 through 2002 are set by Hartford as
follows:
<TABLE>
<CAPTION>
CALENDAR GUARANTEED INTEREST RATE
YEAR (APPLICABLE TO 1996 CONTRIBUTIONS)
- ----------- -----------------------------------
<S> <C>
1998 5.00%
1999 4.75%
2000 4.50%
2001 4.25%
2002 4.00%
</TABLE>
Assume that Contributions of $1,000 are received during 1998 and that
Contributions of $1,500 are received during 1999. The 1998 contributions of
$1,000 will be credited with interest at a rate of at least 5.00% (i.e., the
Guaranteed Interest Rate for 1998) for 1998. During 1999, the 1998
Contributions, with interest credited from 1998, will be credited with interest
at a rate of at least 4.75% per year. Similarly, for Calendar
6
<PAGE>
Years 2000, 2001, and 2002, the 1998 contributions, with interest credited from
prior years, will be credited with interest at a rate of at least 4.50%, 4.25%
and 4.00% per year respectively. At the end of 2002, a one year Guaranteed
Interest Rate will be set for 2003. This procedure of setting a one year
Guaranteed Interest Rate will be followed for each subsequent year.
At the end of 1998, the Guaranteed Interest Rates for Calendar Years 1999
through 2003 will be set for the contributions of $1,500 received in 1999. At
the end of 2003 and annually thereafter, one year Guaranteed Interest Rates will
be set for the 1999 contributions of $1,500 and the interest which was credited
on the $1,500 in prior years.
For contributions received in 2000 and later, the same procedure would be
followed. At the end of each Calendar Year, Guaranteed Interest Rates for each
of the next five Calendar Years will be set for the following year's
contributions. At the end of each five year guaranteed period for a particular
year's contributions, one year Guaranteed Interest Rates will be established
annually.
Declared Interest Rates in excess of any Guaranteed Interest Rates may be
established periodically by Hartford. Such rates may apply to some or all of the
values under the General Account Option for periods of time determined by
Hartford. For example, Hartford could determine to declare an interest rate in
excess of the otherwise applicable Guaranteed Interest Rate(s) for a nine month
period, and applicable only to Participants' Individual Account values
attributable to Contributions received in a particular time period. The rates of
interest credited will affect Participants' Individual Account values (see
"Participants' Individual Account Values," below) and are used to determine
amounts payable upon termination of the contracts (See, "Surrenders -- Contract
Termination," page 9). Written notification of the Declared Interest Rate and
the values to which such interest rate will apply will be provided by Hartford
to the Contract Owner.
Hartford has no specific formula for determining the rate of interest that
it will establish as Declared Interest Rates or Guaranteed Interest Rates in the
future. However, any such determination generally will be affected by interest
rates available on the types of debt instruments in which Hartford intends to
invest the proceeds attributable to the General Account Option (see,
"Investments by Hartford," page 10). In addition, Hartford's management may also
consider various other factors in determining Declared Interest Rates and
Guaranteed Interest Rates for a given period, including: regulatory and tax
requirements; sales commissions and administrative expenses; general economic
trends; and competitive factors. HARTFORD'S MANAGEMENT WILL MAKE THE FINAL
DETERMINATION AS TO ANY DECLARED INTEREST RATES AND ANY GUARANTEED INTEREST
RATES IN EXCESS OF THE CONTRACTUALLY GUARANTEED RATE. HARTFORD CANNOT PREDICT
NOR CAN HARTFORD GUARANTEE THE RATES OF ANY FUTURE DECLARED INTEREST OR OF ANY
GUARANTEED INTEREST RATES IN EXCESS OF THE CONTRACTUALLY GUARANTEED RATE.
3. PARTICIPANTS' INDIVIDUAL ACCOUNT VALUES
Participants' Individual Account values held under the General Account
Option are credited with interest at rates at least equal to the applicable
Guaranteed Interest Rates. Contributions are credited to Participants'
Individual Accounts, and begin earning interest as of the date Hartford receives
the Contribution at its Administrative Office. Interest is credited to
Participants' Individual Account values daily.
4. TRANSFERS FROM THE GENERAL ACCOUNT OPTION
The Contract Owner may transfer Participants' Individual Account values held
in the General Account Option to one or more of the Separate Account options
under the contract. The charges for transfers are described in the prospectus
for the contracts which accompanies this Prospectus. No deduction is made for
Contingent Deferred Sales Charges when a transfer is made.
All transfers will be made on a last in, first out basis; that is, that
portion of a Participant's Individual Account attributable to older
Contributions or transfers will be transferred only after the portion
attributable to the most recent Contribution or transfer has been transferred.
This right to transfer values is subject to Hartford's right to limit any
such transfer in any Calendar Year, to one-sixth (1/6) of the Participant's
Individual Account value under the General Account Option under the contract as
of the end of the preceding Calendar Year. (See also "Surrenders," page 8.)
7
<PAGE>
Transfers of assets presently held in the General Account, or which were
held in the General Account at any time during the preceding three month period
to the Money Market Fund are prohibited. Similarly, transfers of assets
presently held in the Money Market Fund Account or which were held in such
Account or the General Account during the preceding three months, to the General
Account are prohibited.
5. TRANSFERS TO THE GENERAL ACCOUNT OPTION
Participants' Individual Account values in a Separate Account may be
transferred to the General Account Option at any time. The charges for transfers
are described in the contract prospectus which accompanies this Prospectus. No
deduction is made for Contingent Deferred Sales Charges when a transfer is made.
Such transfers will be treated like contributions to the General Account Option
on the date of such transfer.
6. SURRENDERS
(a) GENERAL
Subject to the termination provisions described below, the Contract
Owner may request a full or partial surrender of Participants' Individual
Account values at any time. However, if the sum of all surrenders and
transfers from the General Account Option in a Calendar Year, including the
currently requested surrender, exceeds one-sixth (1/6th) of the aggregate
values held in the General Account Option under the contract at the end of
the preceding Calendar Year, Hartford reserves the right to defer surrenders
in excess of the limit to the next Calendar Year. At such time, unless
Hartford is directed in writing otherwise, deferred surrenders will be made
in the order originally received up to the limit, if applicable. This method
will be used until all surrenders have been satisfied.
(b) PAYMENT OF FULL OR PARTIAL SURRENDERS (PARTICIPANT'S INDIVIDUAL ACCOUNT
ONLY)
In the event of a partial surrender of a Participant's Individual
Account, Hartford will pay the requested value less any applicable
Contingent Deferred Sales Charge. All partial surrenders of a Participant's
Individual Account will be made on a last in, first out basis; that is, that
portion of the Participant's Individual Account attributable to his most
recent Contribution (or transfer) will be surrendered first. In the event of
a full surrender of a Participant's Individual Account, Hartford will pay
the account value less any applicable Premium Tax not previously deducted,
the Annual Policy Fee and applicable Contingent Deferred Sales Charges.
The applicable Contingent Deferred Sales Charges, depending on which of
the three separate group variable annuity contracts involved, are as
follows: (a) a deduction for Contingent Deferred Sales Charges is made if
there is any surrender of contract values during the first 15 Participant
Contract Years. During the first 8 years, a maximum deduction of 5% will be
made against the full amount of the surrender; during the next 7 years, a
maximum deduction of 3% will be made against the full amount of the
surrender, (b) a deduction for the Contingent Deferred Sales Charges is made
if there is any surrender of contract values during the first 12 Participant
Contract Years. During the first six Participant Contract Years, a maximum
deduction of 7% will be made against the full amount of the surrender;
during the next six Participant Contract Years, a maximum deduction of 5%
will be made against the full amount of the surrender, and (3) a deduction
for Contingent Deferred Sales Charges is made if there is any surrender of
contract values during the first 12 Participant Contract Years. During the
first six Participant Contract Years, a maximum deduction of 5% will be made
against the full amount of any such surrender; during the next two
Participant Contract Years, a maximum deduction of 4% will be made against
the full amount of any such surrender; during the next two Participant
Contract Years, a maximum deduction of 3% will be made against the full
amount of any such surrender; and during the next two Participant Contract
Years, a maximum deduction of 2% will be made against the full amount of any
such surrender. Such charges will in no event exceed 8.5% where applied as a
percentage against the sum of all Contributions to a Participant's
Individual Account. Please consult the prospectus for the related group
variable annuity contract and the Separate Account for applicable Contingent
Deferred Sales Charges.
No deduction for the Annual Policy Fee and/or applicable contingent
deferred sales charges will be made in certain cases (see "Experience Rating
of Contracts," page 9).
8
<PAGE>
(c) CONTRACT TERMINATION (CONTRACT OWNERS ONLY)
If the Contract Owner requests a full surrender of the contract or of
all contract values held in the General Account Option, the Contract Owner
may select one of the two optional methods of payment, as described below.
The terms utilized have the following meanings:
<TABLE>
<C> <C> <S>
i = the rate of interest (expressed as a percent, e.g. .05 = 5%) to be credited, subject to
a minimum rate of 0% and a maximum rate of B%.
A = The weighted average interest rate (expressed as a decimal, e.g. 1% = .01) being
credited under the General Account Option as of the date of termination.
B = The average yield (expressed as decimal, e.g. 1% = .01) for the month prior to the date
of termination of the higher of the Salomon Brothers weekly index of new Long Term
Public Utilities rated Aa by Moody's Investors Services, Inc. and the Salomon Brothers
weekly Index of Current Coupon 30 year Federal National Mortgage Association Securities,
or their equivalents.
</TABLE>
(i) BOOK VALUE SPREAD OPTION (PERIODIC PAYMENT NOT TO EXCEED FIVE YEARS):
Under this option, Hartford will pay an amount equal to the contract
values held in the General Account Option less applicable Premium Taxes, any
Annual Policy Fee and applicable Contingent Deferred Sales Charges. Hartford
reserves the right to make such payment in level annual installments over a
period not to exceed five years from the date of the request, in which event
interest will be credited on the unpaid balance at a rate per annum produced
by the following formula:
i = (A - 2(B - A)) - .005
Example: If A = 6% and B = 7%, then interest on the unpaid balance would
be paid at a rate of
(.06 - 2(.07 - .06)) - .005 or 3.5%
This formula may result in an interest rate which is less than the
weighted average interest rate being credited under the General Account
Option as of the date of termination.
(ii) MARKET VALUE LUMP SUM OPTION:
Under this option, Hartford will pay a lump sum amount equal to the
contract values held in the General Account Option, less any applicable
Contingent Deferred Sales Charges, Annual Policy Fee, and Premium Taxes
multiplied by the appropriate market value factor. The amount payable on
surrender may be adjusted down by application of the market value
adjustment. This market value factor is determined as follows:
(a) if B is greater than A, the market value factor equals 1 - (6 (B-A))
or,
(b) if A is greater than B, the market value factors equals 1.00
Example: If A = 7% and B = 9%, then the market value factor would be 1 -
(6 (.09 - .07)) = .88.
Under this option, it is possible that the amount payable on surrender
would be more or less than your contribution(s).
Additional examples of both optional methods of payment are contained in
Appendix A, page 23.
7. EXPERIENCE RATING OF CONTRACTS:
Hartford may apply experience credits under a contract based on investment,
administrative, mortality or other factors, including, but not limited to (1)
the total number of Participants, (2) the sum of all Participant's Individual
Account values, (3) the allocation of contract values between the General
Account and the Separate Accounts under the contract, (4) present or anticipated
levels of Contributions, distributions, transfers, administrative expenses or
commissions, and (5) whether Hartford is the exclusive annuity contract
provider. Experience credits may be applied, either prospectively or
retrospectively, as a reduction in the deduction for mortality, expense risk and
administrative undertakings, applicable under the Separate Accounts under a
contract, as a reduction in the term or amount of any applicable contingent
deferred sales charges, an increase in the rate of interest credited under the
contract, a payment to be allocated as directed by the Contract Owner, or any
combination of the foregoing. Hartford may apply and allocate experience credits
in such manner as Hartford deems appropriate. Any such credit will not be
unfairly discriminatory against any person, including the affected Contract
Owners or Participants. Experience credits have been given in certain
9
<PAGE>
cases. Participants in contracts receiving experience credits will receive
notification regarding such credits. Experience Credits may be discontinued at
Hartford's sole discretion in the event of a change in applicable factors.
B. ANNUITY PERIOD
Annuity payments will normally be made within 15 business days after the
receipt of a claim for settlement or any other later specified date. Subsequent
annuity payments will be made periodically on the anniversaries of the first
payment.
The prospectus for the contract and the Separate Account options
accompanying this Prospectus describes more fully the Annuity Period and annuity
options under the contracts. It should be noted that once fixed Annuity payments
commence, no surrender of the annuity benefit can be made for the purpose of
receiving a lump sum settlement in lieu thereof.
INVESTMENTS BY HARTFORD
General Account assets of Hartford must be invested in accordance with the
requirements established by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state, and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments. (See "Hartford Life
Insurance Company -- Business of Hartford -- Annuity," page 11 for a percentage
breakdown of recent investments of Hartford.) All General Account assets of
Hartford would be available to meet Hartford's guarantee under the General
Account Option. The proceeds from the General Account Option will become part of
Hartford's general assets and are available to fund the claims of all classes of
customers of Hartford.
In establishing Guaranteed Interest Rates and Declared Interest Rates,
Hartford will take into account the yields available on the instruments in which
it intends to invest the General Account assets attributable to the contracts.
(See "The General Account Option -- Guaranteed Interest Rates and Declared
Interest Rates," page 6.) Hartford's investment strategy with respect to the
assets attributable to the General Account Option under the contracts generally
will be to invest in investment-grade debt instruments including:
(i) Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
United States Government;
(ii) Debt securities rated, at the time of purchase, within the four highest
investment grades assigned by Moody's Investors Services, Inc. (i.e.,
Aaa, Aa, A or Baa), Standard & Poor's Corporation (i.e., AAA, AA, A or
BBB) or any other nationally recognized rating service;
(iii) Other debt instruments, including, but not limited to, issues of, or
guaranteed by, banks or bank holding companies and issues of
corporations, which obligations, although not rated by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, are deemed by Hartford to
have an investment quality comparable to the foregoing securities.
WHILE THE FOREGOING GENERALLY DESCRIBES HARTFORD'S INVESTMENT STRATEGY WITH
RESPECT TO THE GENERAL ACCOUNT OPTION, HARTORD IS NOT OBLIGATED TO INVEST THE
ASSETS ATTRIBUTABLE TO THE CONTRACTS ACCORDING TO ANY PARTICULAR STRATEGY,
EXCEPT AS MAY BE REQUIRED BY THE INSURANCE LAWS OF CONNECTICUT AND OTHER STATE
INSURANCE LAWS . HARTFORD HAS THE RIGHT TO ALTER ITS INVESTMENT STRATEGY WITH
RESPECT TO THE GENERAL ACCOUNT OPTION, CONSISTENT WITH APPLICABLE LAW.
DISTRIBUTION OF THE CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the contract issued with respect to the General Account Option.
HSD is a wholly-owned subsidiary of Hartford. The principal business address of
HSD is the same as that of Hartford.
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<PAGE>
The contract will be sold by salespersons of HSD, who represent Hartford as
insurance and Variable Annuity agents and who are registered representatives or
broker-dealers who have entered into distribution agreements with HSD.
HSD is registered as a broker-dealer with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for insurance
compensation. Compensation is generally based on premium payments made by
policyholders or contract owners. This compensation is usually paid from the
sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the policyholders or contract
owners to purchase, hold or surrender insurance products.
FEDERAL INCOME TAX CONSIDERATIONS
A. TAXATION OF HARTFORD
Hartford is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). The assets of the General Account
attributable to the contracts will be owned by Hartford. The income earned on
such assets will be Hartford's income.
B. INFORMATION REGARDING DEFERRED COMPENSATION PLANS FOR STATE AND LOCAL
GOVERNMENTS
The tax treatment of contributions and distributions under contracts issued
to Employers which are state and local governments is briefly described in the
prospectus for the contracts and the Separate Accounts accompanying this
Prospectus.
HARTFORD LIFE INSURANCE COMPANY
A. BUSINESS OF HARTFORD
(i) ORGANIZATION
Hartford Life Insurance Company ("Hartford") is a stock life insurance
company engaged in the business of writing life insurance, both individual
and group, in all states of the United States and the District of Columbia.
Hartford was originally incorporated under the laws of Massachusetts on June
5, 1902, and was subsequently redomiciled to Connecticut. Its offices are
located in Simsbury, Connecticut; however, its mailing address is P.O. Box
2999, Hartford, CT 06104-2999. Hartford is a subsidiary of Hartford Fire
Insurance Company, one of the largest multiple line insurance carriers in
the United States. Hartford is ultimately owned by The Hartford Financial
Services Group, Inc., a Delaware corporation.
Hartford is rated A+ (superior) by A.M. Best and Company, Inc. on the
basis of its financial soundness and operating performance. Hartford is
rated AA by Standard & Poor's Corporation and AA+ by Duff and Phelps, on the
basis of its claims paying ability. These ratings do not apply to the
investment performance of the Sub-Accounts of the Separate Accounts. The
ratings apply to Hartford's ability to meet its insurance obligations
including those described in this Prospectus.
Hartford provides for the insurance and retirement needs of millions of
individuals and has been among the fastest growing major life insurance
companies in the United States for the past several years,
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<PAGE>
as measured by assets. At December 31, 1997, Hartford's total assets of $98
billion included 14% of fixed maturities and 70% of separate accounts with
the remainder representing equity securities, cash, policy loans,
reinsurance recoverable, deferred policy acquisition costs and other assets.
The reportable segments of the Company and its subsidiaries are:
Annuity
Individual Life Insurance
Employee Benefits
Guaranteed Investment Contracts
Corporate Operations
Revenue, income before income tax expense and assets by reportable
segment are set forth in Note 7 in Notes to Consolidated Financial
Statements.
BRIEF DESCRIPTION OF REPORTABLE SEGMENTS
The Company operates in three principal business segments: Annuity,
Individual Life Insurance and Employee Benefits. The Company also maintains
a Guaranteed Investment Contracts segment, which is primarily comprised of
guaranteed rate contract business written prior to 1995 ("Closed Book GRC")
and a Corporate Operation through which it reports net investment income on
assets representing surplus not assigned to any of its business segments and
certain other revenues and expenses not specifically allocable to any of its
business segments. The following is a description of each segment, including
a discussion of principal products, methods of distribution, and competitive
environments.
ANNUITY
The Annuity segment focuses on the savings and retirement needs of the
growing number of individuals who are preparing for retirement or have
already retired. The Investment Products segment offers fixed market value
adjusted ("MVA") and variable annuities, deferred compensation plan services
for municipal governments and corporations, structured settlement contracts
and other special purpose annuity contracts, mutual funds, investment
management contracts and certain other financial products. Investment
Products accounted for $206 million of the total segment earnings of the
Company for the year ended December 31, 1997. Growth in Hartford's assets
has been driven by its sale of variable annuities. For the year ended
December 31, 1997, Hartford was the largest writer of both individual
annuities and individual variable annuities. New sales of individual
annuities were approximately $10.2 billion in 1997, bringing total
individual annuity account value to $56.3 billion as of December 31, 1997.
Of the total individual annuity account value, $46.9 billion relates to
variable annuities and $9.0 billion relates to fixed MVA annuities held in
guaranteed separate accounts. Of Hartford's $46.9 billion in individual
variable annuities in force, $43.3 billion, or 92%, are held in
non-guaranteed separate accounts, as of December 31, 1997. In contrast, the
next nine largest writers of variable annuities in the United States held an
average of 76% of their variable annuities in force in non-guaranteed
separate accounts, as of December 31, 1997, based on Hartford's analysis of
certain information compiled by Variable Annuity and Research Data Service
("VARDS").
Hartford has distribution arrangements to sell its individual annuity
products with approximately 1,350 national and regional broker-dealers and
450 banks. Hartford believes that it has established a strong distribution
franchise through its long-standing relationships with the members of its
bank and broker-dealer network and is committed both to expanding sales
through these established channels of distribution and promoting new
distributors for all its life insurance and Annuity products and services.
INDIVIDUAL LIFE INSURANCE
The Individual Life Insurance segment focuses on individuals' needs
regarding the transfer of wealth between generations, as well as the
protection of individuals and their families against lost earnings resulting
from death. The chief products sold in this market include both variable and
fixed universal life contracts (including interest-sensitive whole life) and
single premium variable life and term life products. Individual life
insurance in force increased from $45.2 billion in 1994 to $55.4 billion in
1997, $4.4 billion of which was derived from acquisitions. Hartford's growth
in insurance in force, together with favorable mortality results and a
declining expense ratio, has resulted in increased segment earnings from $25
million in 1994 to $55 million in 1997.
The primary Individual Life distribution system is focused on products
designed for high-end estate and business planning. The high-end estate and
business planning organization is managed through a sales office system of
qualified insurance professionals with specialized training in sophisticated
life insurance sales. These employees have access to an extensive network of
licensed life insurance agents. High-end sales also occur, in certain regions,
through a group of independent life insurance marketing organizations,
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<PAGE>
each of which maintains a separate marketing agreement with the Company. In
addition, other distribution relationships exist to provide incremental sales of
life insurance products for both estate planning and basic protection against
lost income from death. Furthermore, sales of single premium variable life are
generated through the individual annuity distribution system. Along with HLA,
61% of total sales were produced by the sales office system, 11% resulted from
the individual annuity distribution system with the remaining 28% of sales
generated by other life insurance distribution relationships during 1997.
EMPLOYEE BENEFITS
The Employee Benefits segment focuses on the needs of employers and
associations to purchase group insurance products. The group life, long-term
and short-term disability, stop-loss and supplementary medical coverages
sold in this segment are reinsured to HLA. This segment also contains
specialty businesses such as corporate owned life insurance ("COLI") and
life/health reinsurance. Hartford and HLA are the largest writers of group
short-term disability benefit plans, the second largest writers of group
long-term disability insurance, and the fourth largest writers of group life
insurance based on full-year 1997 new premium and premium equivalents,
according to information compiled by the Employee Benefits Plan Review
("EBPR"). Hartford believes that the recognizability of The Hartford name,
the value-added nature of Hartford's managed disability products and its
effective claims administration make Hartford one of the leading sellers in
the "large case" (companies with over 1,000 employees) group market and that
further growth opportunities exist in the "small case" and "medium case"
group markets. Sales of COLI have resulted in an increase in segment
earnings from $18 million in 1994 to $32 million in 1997.
The Employee Benefits segment uses an experienced group of Hartford
employees to distribute its products through a variety of distribution
outlets, including insurance agents, brokers, associations and third-party
administrators.
B. SELECTED FINANCIAL DATA
The following selected financial data for Hartford, its subsidiaries and
affiliated companies should be read in conjunction with the consolidated
financial statements and notes thereto included in this Prospectus beginning on
page F-1.
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums and other considerations...................... $ 1,637 $ 1,705 $ 1,487 $ 1,100 $ 747 $ 259
Net investment income.................................. 1,368 1,397 1,328 1,292 1,051 907
Net realized (losses) gains............................ 4 (213) (11) 7 16 5
--------- --------- --------- --------- --------- ---------
Total Revenues....................................... 3,009 2,889 2,804 2,399 1,814 1,171
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses......... 1,379 1,535 1,422 1,405 1,046 797
Amortization of deferred policy acquisition costs...... 335 234 199 145 113 55
Dividends to policyholders............................. 240 635 675 419 227 47
Other insurance expenses............................... 586 427 317 227 210 138
--------- --------- --------- --------- --------- ---------
Total Benefits, Claims and Expenses.................. 2,540 2,831 2,613 2,196 1,596 1,037
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE......................... 469 58 191 203 218 134
Income tax expense..................................... 167 20 62 65 75 45
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of changes in
accounting principles................................. 302 38 129 138 143 89
Cumulative effect of changes in accounting principles
net of tax benefits of $7............................. -- 0 0 0 0 (13)
--------- --------- --------- --------- --------- ---------
NET INCOME............................................... $ 302 $ 38 $ 129 $ 138 $ 143 $ 76
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
13
<PAGE>
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
(DOLLAR AMOUNTS IN MILLIONS)
1. CONSOLIDATED RESULTS
Operating Summary
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues........................................................................................... $ 3,009 $ 2,889
Expenses........................................................................................... 2,707 2,851
--------- ---------
Net Income......................................................................................... $ 302 $ 38
--------- ---------
--------- ---------
</TABLE>
Revenues increased $120, or 4%, to $3 billion in 1997 from $2.9 billion in
1996. Revenues were impacted by the Health Insurance Portability and
Accountability Act of 1996 ("HIPA Act of 1996"), which phases out the
deductibilty of interest expense on policy loans by the end of 1998, virtually
eliminating all new sales of leveraged corporate owned life insurance ("COLI"),
and by the Guaranteed Investment Contracts segment ("GIC"), which had a loss of
$225 in 1996, primarily related to a closed block of guaranteed rate contract
business ("Closed Book GRC"). Excluding COLI and GIC, revenues increased $293,
or 20%, to $1.8 billion in 1997 as compared to $1.5 billion 1996. This growth
was driven by increased Individual Annuity revenues of $256, or 42%, in 1997 as
compared to 1996. This increase is primarily related to premiums and other
considerations where individual variable annuity fee income grew $198, or 54%,
in 1997 as compared to 1996, primarily resulting from increased average
individual variable annuity account values of $13.1 billion, or 49%, to $39.7
billion in 1997. This solid growth in average account value was due to strong
variable annuity sales of $9.7 billion and significant stock market
appreciation. In addition, Individual Life Insurance premiums and other
considerations grew $36, or 13%, reflecting the impact of applying cost of
insurance charges and variable life fees to a larger block of business.
Individual Life Insurance account values increased $555, or 17%, to $3.8 billion
in 1997 as compared to 1996.
Expenses decreased $144 in 1997 as compared to 1996. Excluding COLI and GIC
for the reasons described above, expenses increased $255, or 20%, to $1.5
billion in 1997 as compared to $1.2 billion in 1996. Benefits, claims and
expenses related to the Annuity segment increased $210, or 28%, in 1997 as
compared to 1996. This increase was driven by increased amortization of deferred
policy acquisition costs of $76, or 44%, due to strong sales in both 1997 and
1996, as well as increased operating expenses of $101, or 65%, reflective of the
strong growth in this segment. In addition, Individual Life Insurance benefits,
claims and expenses grew $30, or 8%, primarily related to amortization of
deferred policy acquisition costs associated with this growing block of
business.
ANNUITY
Operating Summary
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues............................................................................................. $ 1,269 $ 968
Expenses............................................................................................. 1,063 820
--------- ---------
Net income........................................................................................... $ 206 $ 148
--------- ---------
--------- ---------
</TABLE>
Revenues increased $301, or 31%, to $1.3 billion in 1997 from $1.0 billion
in 1996. This increase was principally the result of a $234 increase in premiums
and other considerations, reflecting a substantial increase in aggregate fees
earned due to the segment's growing block of separate account assets. The
average separate account assets of this segment increased to $50.7 billion in
1997, from $37.2 billion in 1996 primarily due to sales of individual variable
annuities of approximately $9.7 billion in 1997, as well as significant market
appreciation. Also, Group Annuity sales were $820 in 1997, an increase of $186,
or 29%, over 1996. In addition, net investment income grew $67, or 15%, to $500
in 1997 primarily due to growth in average general account assets which
increased to $8.1 billion in 1997 from $7.2 billion in 1996 largely as a result
of growth in the general account portion of the individual variable annuity
products.
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<PAGE>
The growth in this segment in 1997 also resulted in an increase in expenses
of $243, or 30%, to $1.1 billion in 1997 from $820 in 1996. Benefits, claims and
claim adjustment expenses grew $33, or 8%, in 1997 primarily related to
increased interest credited on Group Annuity general account liabilites.
Amortization of DPAC related to the Individual Annuity operation grew $82, or
52%, in 1997 as prior and current year sales remained strong. Also, other
business expenses increased $101, in 1997, as a result of the growth in this
segment.
A 33% growth in average account value in 1997, coupled with a reduction in
individual annuity operating expenses as a percentage of total individual
annuity account value to 25 basis points in 1997 from 28 basis points in 1996,
contributed to the increase in net income of $58, or 39%, to $206 from $148 in
1996.
INDIVIDUAL LIFE INSURANCE
Operating Summary
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues................................................................................................ $ 487 $ 440
Expenses................................................................................................ 432 396
--------- ---------
Net income.............................................................................................. $ 55 $ 44
--------- ---------
--------- ---------
</TABLE>
Revenues in 1997 increased $47, or 11%, to $487 from $440 in 1996. In the
first quarter of 1996, a block of business was assumed from Investors Equity
Life Insurance Company ("IEL") which increased 1996 revenues by $9. Excluding
this transaction, 1997 revenues increased $56, or 13%, as compared to 1996,
reflecting the impact of applying cost of insurance charges and variable life
fees to a larger block of business. Account values increased $555, or 17%, to
$3.8 billion in 1997 from $3.2 billion in 1996. Sales were $140 in 1997, an
increase of 8% over 1996. Variable life product sales comprised 70%, or $98, of
total 1997 sales and grew $23, or 31%, over 1996 levels. Expenses increased $36,
or 9%, to $432 in 1997 from $396 in 1996. Excluding IEL, expenses increased $45,
or 12%, in 1997. This increase was primarily driven by an increase in
amortization of DPAC of $23 in 1997 related to the growth in new variable life
business.
EMPLOYEE BENEFITS
Operating Summary
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues............................................................................................. $ 972 $ 1,366
Expenses............................................................................................. 940 1,337
--------- ---------
Net income........................................................................................... $ 32 $ 29
--------- ---------
--------- ---------
</TABLE>
Revenues decreased $394 to $972 in 1997, which was primarily attributable to
the COLI business for which associated revenues decreased $380. The decrease in
COLI revenues is primarily a result of the elimination of sales of leveraged
COLI due to the HIPA Act of 1996, which phases out the deductibility of interest
on policy loans under leveraged COLI by the end of 1998. The Company continues
to sell variable COLI and recorded $3.6 billion of new deposits in 1997,
increasing total account value to $12.3 billion at December 31, 1997 compared to
$8.5 billion at December 31, 1996. Expenses decreased $397 to $940 in 1997,
which generally reflected a decrease in dividends to policyholders of $394, or
62%, primarily due to the elimination of sales of leveraged COLI as discussed
above. Net income increased $3, or 10%, in 1997 as compared to 1996 due to an
increase in COLI of $1 and the sale of a block of reinsurance business which
resulted in a gain of approximately $2, after tax.
GUARANTEED INVESTMENT CONTRACTS
Operating Summary
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues............................................................................................... $ 241 $ 34
Expenses............................................................................................... 241 259
--------- ---------
Net income............................................................................................. $ -- $ (225)
--------- ---------
--------- ---------
</TABLE>
15
<PAGE>
The GIC segment consists of guaranteed rate contract ("GRC") business that
is supported by assets held in either the Company's general account or a
guaranteed separate account and includes a closed block of guaranteed rate
contracts ("Closed Book GRC"). Historically, a significant majority of these
contracts were sold as general account contracts with fixed rates and fixed
maturities. The Company decided in 1995, after a thorough review of its GRC
business, that it would significantly de-emphasize general account GRC, choosing
instead to focus its distribution efforts on other products sold through other
segments and selling general account GRC primarily as an accommodation to
customers. From 1992 to 1994, the GIC segment sold over $5 billion of GRC. In
contrast, the GIC segment sold only $47 and $108 of general account GRC in 1997
and 1996, respectively. Consistent with management's expectations, the segment
had no net income in 1997 and expects no material income or loss from the GIC
segment in the future.
Closed Book GRC results in 1996 were negatively affected by lower investment
rates and earnings in the related investment portfolio (primarily consisting of
collateralized mortgage obligations and mortgage backed securities) due to
prepayments experienced in excess of assumed and historical levels. 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.
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, the Company 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. As of
December 31, 1997, Closed Book GRC had general account assets and liabilities of
$2.2 billion. The scheduled maturities are $1.0 billion, or 45%, in 1998, $0.7
billion, or 32%, in 1999 and $0.5 billion, or 23%, thereafter.
2. BUSINESS SEGMENT INFORMATION
For business segment information, see Note 14 to Notes to Consolidated
Financial Statements.
D. REINSURANCE
Hartford cedes insurance to non-affiliated insurers in order to limit its
maximum loss. Such transfer does not relieve Hartford of its primary liability.
Hartford also assumes insurance from other insurers. Group life and health
insurance is substantially reinsured to affiliated companies.
E. RESERVES
In accordance with applicable insurance regulations, Hartford establishes
and carries as liabilities actuarially determined reserves which are calculated
to meet its future obligations. The reserves are based on actuarially recognized
methods using prescribed morbidity and mortality tables in general use in the
United States, which are modified to reflect Hartford's actual experience when
appropriate. These reserves are computed at amounts that, with additions from
premiums to be received and with interest on such reserves compounded annually
at certain assumed rates, are expected to be sufficient to meet Hartford's
policy obligations at their maturities or in the event of an insured's death.
Reserves include unearned premiums, premium deposits, claims reported but not
yet paid, claims incurred but not reported and claims in the process of
settlement. Hartford's reserves for assumed reinsurance are computed on bases
essentially comparable to direct insurance reserves.
F. INVESTMENTS
INVESTMENT OPERATIONS
The Company's investments are managed by its investment strategy group which
consists of a risk management unit and a portfolio management unit and directly
reports to senior management of the Company. The risk management unit is
responsible for monitoring and managing the Company's asset/liability profile
and establishing investment objectives and guidelines. The portfolio management
unit is responsible for determining, within specified risk tolerances and
investment guidelines, the general asset allocation, duration, convexity and
other characteristics of the Company's general account and guaranteed separate
account investment portfolios. The Hartford Investment Management Company, a
wholly owned subsidiary of The Hartford, executes the investment plan of the
investment strategy group including the identification and purchase of
securities that fulfill the objectives of the strategy group.
16
<PAGE>
The primary investment objective of the Company's general account and
guaranteed separate accounts is to maximize after-tax returns consistent with
acceptable risk parameters (including the management of the interest rate
sensitivity of invested assets relative to that of policyholder obligations).
The Company does not have any financial instruments entered into for trading
purposes. The Company is exposed to two primary sources of investment risk:
credit risk, relating to the uncertainty associated with an obligor's continued
ability to make timely payment of principal and interest, and interest rate
risk, relating to the market price and/or cash flow variability associated with
changes in market yield curves. See the Asset-Liability Management Strategies
section below for further discussion of the Company's approach to managing these
investment risks.
The Company's general account consists of a diversified portfolio of
investments. Although all the assets of the general account support all the
Company's liabilities, the Company's investment strategy group has developed
separate investment portfolios for specific classes of product liabilities
within the general account. The strategy group works closely with the business
lines to develop specific investment guidelines, including duration targets,
asset allocation and convexity constraints, asset/liability mismatch tolerances
and return objectives, for each product line in order to achieve each product
line's individual risk and return objectives.
Invested assets in the Company's general account totaled $18.2 billion at
December 31, 1997 and were comprised of $14.2 billion of fixed maturities, $3.8
billion of policy loans, and other investments of $227. Policy loans, which had
a weighted-average interest rate of 11.2%, as of December 31, 1997, are secured
by the cash value of the underlying life insurance policies. These loans do not
mature in a conventional sense, but expire in conjunction with the related
policy liabilities.
During 1997, the Company continued to concentrate on reducing exposure to
collateralized mortgage obligations ("CMOs") and reallocated the funds into
public and private corporate bonds, commercial mortgage-backed securities
("MBSs") and other nonresidential asset-backed securities. In general,
commercial MBSs and asset-backed securities, although subject to prepayment
risk, are significantly less sensitive to changes in interest rates as compared
to CMOs and MBSs.
As of December 31, 1997 and 1996, approximately 22.1% and 13.2%,
respectively, of the Company's fixed maturity portfolio was invested in private
placement securities (including Rule 144A offerings). Private placement
securities are generally less liquid than public securities; however, covenants
for private placements are designed to mitigate the impact of such increased
liquidity risk. Most of the private placement securities in the Company's
portfolio are rated by nationally recognized rating organizations.
INVESTED ASSET CHARACTERISTICS AND DERIVATIVE STRATEGIES
Invested assets totaled approximately $18.2 billion at December 31, 1997 and
were comprised of asset-backed securities, including government agency CMOs and
MBSs of $5.2 billion, bonds and notes and short-term investments of $8.8
billion, inverse floating securities of $75 million, and other investments
(primarily policy loans) of $4 billion. Policy loans of $3.7 billion, which
carry a weighted average interest rate of 11.2%, are secured by the cash value
of the life insurance policy. These loans do not mature in a conventional sense
but expire in conjunction with the related policy liabilities.
The following table reflects the principal amounts of the fixed and variable
rate fixed maturity portfolio at December 31, 1997, along with the respective
weighted average coupons by estimated maturity year. Expected maturities differ
from contractual maturities due to call or prepayment provisions. The weighted
average coupon on variable rate securities is based upon spot rates as of
December 31, 1997, and is primarily based upon the London Interbank Offered Rate
("LIBOR"). Callable bonds and notes are distributed to either call dates or
maturity depending on which date produces the most conservative yield. Asset
backed securities, collateralized mortgage obligations and mortgage 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. These
estimates are developed using prepayment speeds provided in broker consensus
data. Such estimates are derived from prepayment speeds previously experienced
at the interest rate levels projected for the
17
<PAGE>
underlying collateral. Actual prepayment experience may vary from these
estimates. Financial instruments with certain leverage features have been
included in each of the fixed maturity categories. These instruments have not
been separately displayed because they were immaterial to the Company's
investment portfolio.
<TABLE>
<CAPTION>
1997
FAIR
1998 1999 2000 2001 2002 THEREAFTER TOTAL VALUE
----- ----- ----- ----- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BONDS AND NOTES -- CALLABLE
FIXED RATE
Par value $ 37 $ 50 $ 21 $ 13 $ 12 $ 333 $ 466 $ 435
Weighted average coupon 10.5% 7.5% 8.0% 7.6% 7.7% 5.4% 6.3%
VARIABLE RATE
Par value $ 66 $ 15 $ 28 $ 33 $ 15 $ 863 $1,020 $ 966
Weighted average coupon 6.4% 6.7% 7.1% 6.0% 6.4% 6.5% 6.5%
BONDS AND NOTES -- OTHER
FIXED RATE
Par value $2,762 $1,328 $1,192 $1,133 $ 897 $6,075 $13,387 $13,465
Weighted average coupon 3.9% 6.8% 7.1% 7.5% 7.7% 6.3% 6.1%
VARIABLE RATE
Par value $ 140 $ 47 $ 138 $ -- $ 84 $ 841 $1,250 $1,141
Weighted average coupon 5.1% 1.3% 6.4% -- 5.7% 5.3% 5.3%
ASSET BACKED SECURITIES
FIXED RATE
Par value $ 211 $ 221 $ 433 $ 500 $ 220 $ 491 $2,076 $2,109
Weighted average coupon 6.9% 6.5% 6.7% 7.0% 6.8% 7.4% 6.9%
VARIABLE RATE
Par value $ 39 $ 186 $ 184 $ 261 $ 305 $ 721 $1,696 $1,696
Weighted average coupon 6.2% 6.2% 6.2% 6.7% 6.2% 6.4% 6.4%
COLLATERALIZED MORTGAGE OBLIGATIONS
FIXED RATE
Par value $ 29 $ 170 $ 529 $ 307 $ 78 $ 506 $1,619 $1,582
Weighted average coupon 6.5% 6.0% 6.0% 5.6% 5.6% 6.1% 6.0%
VARIABLE RATE
Par value $ 29 $ 11 $ 25 $ 13 $ 6 $ 346 $ 430 $ 408
Weighted average coupon 6.7% 6.6% 4.2% 6.7% 3.4% 7.7% 7.3%
COMMERCIAL MORTGAGE BACKED
SECURITIES
FIXED RATE
Par value $ 4 $ 34 $ 176 $ 114 $ 118 $ 798 $1,244 $1,246
Weighted average coupon 8.6% 7.7% 6.9% 7.7% 7.0% 7.4% 7.3%
VARIABLE RATE
Par value $ 20 $ 82 $ 75 $ 43 $ 153 $ 335 $ 708 $ 718
Weighted average coupon 6.1% 7.5% 7.0% 6.6% 6.5% 7.4% 7.1%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
1997
FAIR
1998 1999 2000 2001 2002 THEREAFTER TOTAL VALUE
----- ----- ----- ----- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES
FIXED RATE
Par value $ 4 $ 25 $ 3 $ 41 $ 2 $ 424 $ 499 $ 511
Weighted average coupon 7.0% 7.0% 7.4% 6.2% 8.1% 7.5% 7.3%
VARIABLE RATE
Par value $ -- $ -- $ -- $ -- $ -- $ 24 $ 24 $ 24
Weighted average coupon -- -- -- -- -- 6.6% 6.6%
</TABLE>
ASSET-LIABILITY MANAGEMENT STRATEGIES
The Company employs several risk management tools to quantify and manage
market risk arising from its investments and interest sensitive liabilities. For
certain portfolios, management monitors the changes in present value between
assets and liabilities resulting from various interest rate scenarios using
integrated asset/liability measurement systems and a proprietary system that
simulates the impacts of parallel and non-parallel yield curve shifts. Based on
this current and prospective information, management implements risk reducing
techniques to improve the match between assets and liabilities.
Derivatives play an important role in facilitating the management of
interest rate risk, creating opportunities to efficiently fund obligations,
hedge against risks that affect the value of certain liabilities and adjust
broad investment risk characteristics as a result of any significant changes in
market risks. The Company uses a variety of derivatives, including swaps, caps,
floors, forwards and exchange-traded financial futures and options, in order to
hedge exposure primarily to interest rate risk on anticipated investment
purchases or existing assets and liabilities. The Company does not make a market
or trade derivatives for the express purpose of earning trading profits. The
Company's derivative program is monitored by an internal compliance unit and is
reviewed by senior management and Hartford Life's Finance Committee. The
notional amounts of derivative contracts, which represent the basis upon which
pay or receive amounts are calculated and are not reflective of credit risk,
totaled $6.5 billion at December 31, 1997 ($4.6 billion related to insurance
investments and $1.9 related to life insurance liabilities).
The strategies described below are used to manage the aforementioned risks.
ANTICIPATORY HEDGING -- For certain liabilities, the Company commits to the
price of the product prior to receipt of the associated premium or deposit.
Anticipatory hedges are routinely executed to offset the impact of changes in
asset prices arising from interest rate changes pending the receipt of premium
or deposit and the subsequent purchase of an asset. These hedges involve taking
a long position in interest rate futures or entering into an interest rate swap
with duration characteristics equivalent to the associated liabilities or
anticipated investments. The Company did not have any anticipatory hedges as of
December 31, 1997.
LIABILITY HEDGING -- Several products obligate the Company to credit a
return to the contract holder which is indexed to a market rate. To hedge risks
associated with these products, the Company typically enters into interest rate
swaps to convert the contract rate into a rate that trades in a more liquid and
efficient market. This hedging strategy enables the Company to customize
contract terms and conditions to customer objectives and satisfies the
operation's asset/liability matching policy. Additionally, interest rate swaps
are used to convert certain fixed contract rates into floating rates, thereby
allowing them to be appropriately matched against floating rate assets. The
notional amount of derivatives used for liability hedging as of December 31,
1997 was $1.9 billion.
ASSET HEDGING -- To meet the various policyholder obligations and to provide
cost effective prudent investment risk diversification, the Company may combine
two or more financial instruments to achieve the investment characteristics of a
fixed maturity security or that match an associated liability. The use of
derivative instruments in this regard effectively transfers unwanted investment
risks or attributes to others. The selection of the appropriate derivative
instruments depends on the investment risk, the liquidity and efficiency of the
market, and the asset and liability characteristics. The notional amount of
asset hedges as of December 31, 1997 was $1.8 billion.
PORTFOLIO HEDGING -- The Company periodically compares the duration and
convexity of its portfolios of assets to their corresponding liabilities and
enters into portfolio hedges to reduce any difference to desired
19
<PAGE>
levels. Portfolio hedges reduce the mismatch between assets and liabilities and
offset the potential impact to cash flows caused by changes in interest rates.
The notional amount of portfolio hedges as of December 31, 1997 was $2.8
billion.
INSURANCE LIABILITY CHARACTERISTICS
Insurance liabilities, other than non-guaranteed separate accounts, which
were backed by $39.4 billion in total assets (including investments of $28.7
billion), totaled $24.1 billion (net of ceded reinsurance and policy loans) at
December 31, 1997. These insurance liabilities consisted of future policy
benefits of $3.3 billion, other policyholder funds of $21 billion, guaranteed
separate accounts of $9.9 billion and reinsurance recoverables of $(6.3) billion
and policy loans of $(3.8) billion. Matching of the duration of the investments
with respective policyholder obligations is an explicit objective of the
Company's management strategy. The Company's insurance policy liabilities, along
with estimated duration periods based on the Company's internal actuarial
assumptions, can be summarized based on investment needs in the five categories
described below at December 31, 1997.
($ IN BILLIONS)
<TABLE>
<CAPTION>
DESCRIPTION (1) 1998 1999 2000 2001 2002 THEREAFTER TOTAL
- ------------------------------------------------------- ----- ----- ----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate asset accumulation vehicles................. $ 2.9 $ 1.8 $ 1.9 $ 1.2 $ 0.6 $ 4.3 $ 12.7
Weighted average credited rate......................... 6.6% 7.1% 6.9% 6.9% 7.1% 6.6% 6.8%
Indexed asset accumulation vehicles.................... $ 0.1 $ 0.1 $ -- $ -- $ -- $ -- $ 0.2
Weighted average credited rate......................... 5.7% 6.3% -- -- -- -- 5.9%
Interest credited asset accumulation vehicles.......... $ 4.2 $ 0.6 $ 0.4 $ 0.4 $ 0.5 $ 4.7 $ 10.8
Weighted average credited rate......................... 5.7% 6.0% 6.0% 6.0% 6.1% 5.9% 5.8%
Long-term pay out liabilities.......................... $ 0.1 $ 0.1 $ -- $ -- $ -- $ 0.4 $ 0.6
Short-term pay out liabilities......................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(1) As of December 31, 1997, the fair value of the Company's investment
contracts including guaranteed separate accounts was $21.7 billion.
FIXED RATE ASSET ACCUMULATION VEHICLES -- Products in this category require
the Company to pay a fixed rate for a certain period of time. The cash flows are
not interest sensitive because the products are written with a market value
adjustment feature and the liabilities have protection against the early
withdrawal of funds through surrender charges. Product examples include fixed
rate annuities with a market value adjustment and fixed rate guaranteed
investment contracts. Contract duration is dependent on the policyholder's
choice of guarantee period.
INDEXED ASSET ACCUMULATION VEHICLES -- Products in this category are similar
to the fixed rate asset accumulation vehicles but require the Company to pay a
rate that is determined by an external index. The amount and/or timing of cash
flows will therefore vary based on the level of the particular index. The
primary risks inherent in these products are similar to the fixed rate asset
accumulation vehicles, with an additional risk that changes in the index may
adversely affect profitability. Product examples include indexed-guaranteed
investment contracts with an estimated duration of up to two years.
INTEREST CREDITED ASSET ACCUMULATION VEHICLES -- Products in this category
credit interest to policyholders, subject to market conditions and minimum
guarantees. Policyholders may surrender at book value but are subject to
surrender charges for an initial period. Product examples include universal life
contracts and the general account portion of the Company's variable annuity
products. Liability duration is short to intermediate term.
LONG-TERM PAY OUT LIABILITIES -- Products in this category are long-term in
nature and may contain significant actuarial (including mortality and morbidity)
pricing and cash flow risks. The cash flows associated with these policy
liabilities are not interest rate sensitive but do vary based on the timing and
amount of benefit payments. The primary risks associated with these products are
that the benefits will exceed expected actuarial pricing and/or that the actual
timing of the cash flows differ from those anticipated resulting in an
investment return lower than that assumed in pricing. Product examples include
structured settlement contracts, on-benefit annuities (i.e., the annuitant is
currently receiving benefits thereon) and long-term disability contracts.
Contract duration is generally 6 to 10 years but, at times, exceeds 30 years.
20
<PAGE>
SHORT-TERM PAY OUT LIABILITIES -- These liabilities are short-term in nature
with a duration of less than one year. The primary risks associated with these
products are determined by the non-investment contingencies such as mortality or
morbidity and the variability in the timing of the expected cash flows.
Liquidity is of greater concern than for the long-term pay out liabilities.
Products include individual and group term life insurance contracts and
short--term disability contracts.
SEPARATE ACCOUNT PRODUCTS
The Company's separate accounts reflect two categories of risk assumption:
non--guaranteed separate accounts totaling $46.9 billion as of December 31,
1997, wherein the policyholder assumes substantially all of the risk and reward,
and guaranteed separate accounts totaling $10.5 billion as of December 31, 1997,
wherein the Company contractually guarantees either a minimum return or account
value to the policyholder. The investment strategy followed varies by fund
choice, as outlined in the applicable fund prospectus or separate account plan
of operations. Non-guaranteed products include variable annuities and variable
life contracts. The funds underlying such contracts are managed by the
investment staff of The Hartford and a variety of independent money managers,
including Wellington Management Company, LLP, Putnam Financial Services, Inc.
and Dean Witter InterCapital, Inc. Guaranteed separate account products
primarily consist of modified guaranteed individual annuity and modified
guaranteed life insurance, and generally include MVA features to mitigate the
disintermediation risk upon surrenders. Virtually all of the assets in the
guaranteed separate accounts are fixed maturity securities and, as of December
31, 1997, $10.2 billion, or approximately 99%, of the fixed maturity securities
portfolio within the guaranteed separate accounts were investment grade or
better. Additional investment risk is hedged using a variety of derivatives
which totaled $119 million in carrying value and $3.0 billion in notional
amounts at December 31, 1997.
G. COMPETITION
The Company is engaged in a business that is highly competitive due to the
large number of stock and mutual life insurance companies and other entities
marketing insurance products. There are approximately 2,000 stock, mutual, and
other types of insurers in the life insurance business in the United States.
According to A.M. Best, Hartford is the eleventh largest consolidated life
insurance company in the United States based on statutory admitted assets as of
December 31, 1996. As of December 31, 1997, A.M. Best assigned Hartford its
second highest ranking classification, A+.
H. EMPLOYEES
As of February 28, 1998, the Company and HLA have approximately 4,000 direct
employees, of which a majority are employed at the home office in Simsbury,
Connecticut.
I. PROPERTIES
The Company occupies office space leased from a third party by Hartford Fire
Insurance Company ("Hartford Fire"), an indirect subsidiary of The Hartford.
Expenses associated with these offices are allocated on a direct and indirect
basis to Hartford and its subsidiaries by Hartford Fire.
J. REGULATION
The insurance business of the Company is subject to comprehensive state and
federal regulation and supervision throughout the United States. The purpose of
such regulation is primarily to provide safeguards for policyholders rather than
to protect the interests of the stockholders. The laws of various state
jurisdictions establish supervisory agencies with broad administrative powers
with respect to, among other things, licensing to transact business, admittance
of assets, regulating premium rates, approving policy forms, regulating unfair
trade and claims practices, establishing reserve requirements and solvency
standards, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, restricting certain
transactions between affiliates and regulating the type, amount and valuation of
investments permitted. State insurance regulators and the National Association
of Insurance Commissioners ("NAIC") continually re-examine existing laws and
regulations.
The NAIC has established solvency laws that relate an insurance company's
capital requirements to the risks inherent in its overall operations. These
rules are known as risk based capital ("RBC"). As of December 31, 1997, the
Company's RBC ratio was in excess of 200% of its RBC.
21
<PAGE>
Each insurance company is required to file detailed annual reports with
supervisory agencies in each of the jurisdictions in which it does business and
its operations and accounts are subject to examination by such agencies at
regular intervals. The Company prepares its statutory financial statements in
accordance with accounting practices prescribed or permitted by the State of
Connecticut Insurance Department. Prescribed statutory accounting practices
include publications of the NAIC, as well as state laws, regulations, and
general administrative rules. In accordance with the insurance laws and
regulations under which the Company operates, it is obligated to carry on its
books, as liabilities, actuarially determined reserves to meet its obligations
on its outstanding life insurance contracts and universal life and investment
contracts. Reserves for life insurance contracts are based on mortality and
morbidity tables in general use in the United States, modified to reflect actual
experience. These reserves are computed at amounts that, with additions from
premiums to be received, and with interest on such reserves compounded annually
at certain assumed rates, are expected to be sufficient to meet the Company's
policy obligations at their maturities or in the event of an insured's death.
Reserves for universal life insurance and investment products represent policy
account balances before applicable surrender charges. In the accompanying
consolidated financial statements, these life insurance reserves are determined
in accordance with generally accepted accounting principles, which may vary from
statutory requirements.
The Health Insurance Portability and Accountability Act of 1996 ("the HIPA
Act of 1996") phases out the deductibility of interest on policy loans under
COLI by 1998, thus eliminating all future sales of leveraged COLI. The Company's
leveraged COLI product has been an important contributor to its profitability in
recent years and will continue to contribute to the profitability of the Company
(although such contribution will be reduced in the future due to the effects of
this legislation). As a result of the elimination of leveraged COLI sales, net
income contributed by COLI may be lower in the future (particularly 1999 and
later years).
LEGAL OPINIONS
The validity of the contracts will be passed upon by Lynda Godkin, Senior
Vice President, General Counsel and Corporate Secretary of Hartford.
EXPERTS
The audited financial statements and financial statement schedules included
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. The principal business
address of Arthur Andersen LLP is One Financial Plaza, Hartford, Connecticut
06103.
22
<PAGE>
APPENDIX A
MARKET VALUE LUMP SUM OPTION
If A is greater than B, the Market Value Adjustment factor equals 1.
If B is greater than A, the Market Value Adjustment factor equals 1 -
(6(B-A))
WHERE: A = The weighted average interest rate (expressed as a decimal, e.g.,
1% = .01) being credited under the General Account Option as of
the date of termination.
B = The average yield (expressed as a decimal, e.g. 1% = .01) for
the month prior to the date of termination of the higher of the
Salomon Brothers weekly index of new Long Term Public Utilities
rated Aa by Moody's Investors Service, Inc. and the Salomon
Brothers weekly Index of Current Coupon 30 year Federal National
Mortgage Association Securities, or the equivalents of such
indices.
BOOK VALUE SPREAD OPTION
Interest to be credited on unpaid balance ("i") equals (A - 2(B-A)) - .005,
where A and B are defined as above.
Examples of Contract Termination (Assuming a 5% Contingent Deferred Sales
Charge, and no Policy Fees or Premium Taxes are applicable):
<TABLE>
<CAPTION>
ACTIVE LIFE FUND
INTEREST RATE CREDITED ATTRIBUTABLE TO
TO CONTRIBUTIONS CONTRIBUTIONS
DEPOSITED IN THE GIVEN DEPOSITED IN THE GIVEN
CALENDAR YEAR CALENDAR YEAR
---------------------- ----------------------
<S> <C> <C>
1992 6.00% $ 300,000
1993 6.50% 600,000
1994 7.00% 700,000
--- -----------
Total 6.63%* $1,600,000
--- -----------
--- -----------
</TABLE>
* Total = the weighted average interest rate being credited on the date of
termination ("A"), calculated as follows:
<TABLE>
<C> <S>
300,000 X .06 + 600,000 X .065 + 700,000 X .07 = .0663 = 6.63%
- ----------------------------------------------
300,000 + 600,000 + 700,000
</TABLE>
At termination, the book value of the General Account Option portion of the
Active Life Fund would be $1,600,000. This amount is reduced by Contingent Sales
Charges of 5%, or $80,000. The remaining $1,520,000 would be payable under
either Option 1 (Book Value Spread Option) or Option 2 (Market Value Lump Sum
Option).
EXAMPLE 1
B = .09
If the Book Value Spread Option is selected, the Book Value Spread rate of
interest would equal 1.39% (.0663 - 2 (.09 - .0663)) - .005 = .0139 ). The
Contract Owner would receive six annual payments (beginning immediately) of
$262,153.80.
If the Market Value Lump Sum Option is selected, the Market Value Factor is
1 - (6(.09 - .0663)) = .8578 and the payout would be $1,520,000 x .8578 =
$1,303,856.
EXAMPLE 2
B = .07
If the Book Value Spread Option is selected, the Book Value Spread rate of
interest would equal 7% (the maximum value of i) and the Contract Owner would
receive six annual payments (beginning immediately) of $298,027.68.
23
<PAGE>
If the Market Value Lump Sum Option is selected, the Market Value factor
would be 1 and the amount payable to the Contract Owner upon termination of the
Contract would be $1,520,000.
The assessment of Policy Fees, if any, will reduce the amount payable to the
Contract Owner upon termination of the contract.
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Management........................................
Report of Independent Public Accountants....................
Consolidated Statements of Income for the three years ended
December 31, 1997..........................................
Consolidated Balance Sheets as of December 31, 1997 and
1996.......................................................
Consolidated Statements of Stockholder's Equity for the
three years ended December 31, 1997........................
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997....................................
Notes to Consolidated Financial Statements..................
Summary of Investments -- Other Than Investments in
Affiliates.................................................
Supplementary Insurance Information.........................
Reinsurance.................................................
</TABLE>
25
<PAGE>
REPORT OF MANAGEMENT
The management of Hartford Life Insurance Company and subsidiaries (the
"Company") is responsible for the preparation and integrity of information
contained in the accompanying consolidated financial statements and other
sections of the Annual Report. The 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 the Company's financial
position and results of operation, and, that any other information contained in
the Annual Report is consistent with the financial statements.
Management has made available the Company's financial records and related
data to Arthur Andersen LLP, independent public accountants, in order for them
to perform an audit of the Company's consolidated financial statements. Their
report appears on page F-2.
An essential element in meeting management's financial responsibilities is
the Company'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 careful selection of personnel and for appropriate
division of responsibility. Management continually monitors for compliance,
while the Company's internal auditors independently assess the effectiveness of
the controls and make recommendations for improvement. Also, Arthur Andersen LLP
took into consideration the Company'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 the Company's
affairs are transacted according to the highest standards of personal and
professional conduct. The Company 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 Hartford Life, Inc. (the
"Committee"), the Company's ultimate parent, composed of non-employee directors,
meets periodically with the external and internal auditors to evaluate the
effectiveness of work performed by them in discharging their respective
responsibilities and to ensure their independence and free access to the
Committee.
26
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company:
We have audited the accompanying Consolidated Balance Sheets of Hartford Life
Insurance Company (the "Company") and subsidiaries as of December 31, 1997 and
1996, 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,
1997. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial position of Hartford Life
Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Index to
Consolidated Financial Statements and Schedules are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic 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 financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 27, 1998
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $1,637 $1,705 $1,487
Net investment income........................... 1,368 1,397 1,328
Net realized capital gains (losses)............. 4 (213) (11)
------ ------ ------
Total revenues................................ 3,009 2,889 2,804
------ ------ ------
Benefits, claims and expenses
Benefits, claims and claim adjustment
expenses....................................... 1,379 1,535 1,422
Amortization of deferred policy acquisition
costs.......................................... 335 234 199
Dividends to policyholders...................... 240 635 675
Other expenses.................................. 586 427 317
------ ------ ------
Total benefits, claims and expenses........... 2,540 2,831 2,613
------ ------ ------
Income before income tax expense................ 469 58 191
Income tax expense.............................. 167 20 62
------ ------ ------
Net income........................................ $ 302 $ 38 $ 129
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1997 1996
------- -------
<S> <C> <C>
(IN MILLIONS,
EXCEPT FOR SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $13,885 and
$13,579)....................................... $14,176 $13,624
Equity securities, at fair value................ 180 119
Policy loans, at outstanding balance............ 3,756 3,836
Other investments, at cost...................... 47 56
------- -------
Total investments............................. 18,159 17,635
Cash............................................ 54 43
Premiums receivable and agents' balances........ 18 137
Accrued investment income....................... 330 407
Reinsurance recoverables........................ 6,325 6,259
Deferred policy acquisition costs............... 3,315 2,760
Deferred income tax............................. 348 474
Other assets.................................... 352 357
Separate account assets......................... 69,055 49,690
------- -------
Total assets.................................. $97,956 $77,762
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 3,270 $ 2,474
Other policyholder funds........................ 21,034 22,134
Other liabilities............................... 2,254 1,572
Separate account liabilities.................... 69,055 49,690
------- -------
Total liabilities............................. 95,613 75,870
------- -------
Stockholder's Equity
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690.............. 6 6
Additional paid in capital...................... 1,045 1,045
Net unrealized capital gains on securities, net
of tax......................................... 179 30
Retained earnings............................... 1,113 811
------- -------
Total stockholder's equity.................... 2,343 1,892
------- -------
Total liabilities and stockholder's equity...... $97,956 $77,762
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL GAINS
ADDITIONAL (LOSSES) ON TOTAL
COMMON PAID IN SECURITIES, RETAINED STOCKHOLDER'S
STOCK CAPITAL NET OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1994.............. $6 $ 826 $(654) $ 644 $ 822
Net income............................ -- -- -- 129 129
Capital contribution.................. -- 181 -- -- 181
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 597 -- 597
--
------ ------ ----------- ------
Balance, December 31, 1995.............. 6 1,007 (57) 773 1,729
Net income............................ -- -- -- 38 38
Capital contribution.................. -- 38 -- -- 38
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 87 -- 87
--
------ ------ ----------- ------
Balance, December 31, 1996.............. 6 1,045 30 811 1,892
Net income............................ -- -- -- 302 302
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 149 -- 149
--
------ ------ ----------- ------
Balance, December 31, 1997.............. $6 $1,045 $179 $1,113 $2,343
--
--
------ ------ ----------- ------
------ ------ ----------- ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Operating Activities
Net income............................ $ 302 $ 38 $ 129
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization......... 8 14 21
Net realized capital (gains) losses... (4) 213 11
Decrease (increase) in deferred income
taxes................................ 40 (102) (172)
Increase in deferred policy
acquisition costs.................... (555) (572) (379)
Decrease (increase) in premiums
receivable and agents' balances...... 119 10 (81)
Decrease (increase) in accrued
investment income.................... 77 (13) (16)
Decrease (increase) in other assets... 52 (132) (177)
(Increase) decrease in reinsurance
recoverables......................... (416) 179 (35)
Increase (decrease) in liabilities for
future policy benefits............... 796 (92) 483
Increase in other liabilities......... 379 477 281
-------- -------- --------
Cash provided by operating
activities......................... 798 20 65
-------- -------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (6,231) (5,747) (6,228)
Sales of fixed maturity investments... 4,232 3,459 4,845
Maturities and principal paydowns of
fixed maturity investments........... 2,329 2,693 1,741
Net sales (purchases) of other
investments.......................... 24 (107) (871)
Net (purchases) sales of short-term
investments.......................... (638) 84 (24)
-------- -------- --------
Cash (used for) provided by
investing activities............... (284) 382 (537)
-------- -------- --------
Financing Activities
Capital contribution.................. -- 38 --
Net (disbursements for) receipts from
investment and universal life-type
contracts (charged against) credited
to policyholder accounts............. (503) (443) 498
-------- -------- --------
Cash (used for) provided by
financing activities............... (503) (405) 498
-------- -------- --------
Increase (decrease) in cash........... 11 (3) 26
Cash -- beginning of year............. 43 46 20
-------- -------- --------
Cash -- end of year................... $ 54 $ 43 $ 46
-------- -------- --------
-------- -------- --------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Year for:
Income taxes.......................... $ 9 $ 189 $ 162
Noncash Financing Activities:
Capital contribution.................. $ -- $ -- $ 181
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These consolidated financial statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries (the "Company"), ITT Hartford Life and
Annuity Insurance Company ("ILA") and ITT Hartford International Life
Reassurance Corporation ("HLRe"), formerly American Skandia Life Reinsurance
Corporation. The Company is a wholly-owned subsidiary of Hartford Life and
Accident Insurance Company ("HLA"), a wholly-owned subsidiary of Hartford Life,
Inc. ("Hartford Life"). Hartford Life is a direct subsidiary of Hartford
Accident and Indemnity Company ("HA&I"), an indirect subsidiary of The Hartford
Financial Services Group, Inc. ("The Hartford"). On February 10, 1997, Hartford
Life filed a registration statement, as amended, with the Securities and
Exchange Commission relating to an Initial Public Offering ("IPO") of the
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life 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 Hartford Life's outstanding promissory notes and line of credit with
the remaining $160 contributed by Hartford Life to HLA to support growth in its
core businesses.
On December 19, 1995, ITT Industries, Inc. (formerly ITT Corporation)
("ITT") distributed all the outstanding shares of capital stock of The Hartford
to ITT stockholders of record on such date. As a result, The Hartford became an
independent, publicly traded company.
Along with its parent, the Company is a leading insurance and financial
services company which provides (a) investment products such as individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services and mutual funds for savings and
retirement needs; (b) life insurance for income protection and estate planning;
and (c) employee benefits products such as group life and group disability
insurance and corporate owned life insurance.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These consolidated financial statements present the financial position,
results of operations and cash flows of the Company. All material intercompany
transactions and balances between the Company, its subsidiaries and affiliates
have been eliminated. The consolidated financial statements are prepared on the
basis of generally accepted accounting principles which differ materially from
the statutory accounting practices prescribed by various insurance regulatory
authorities.
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 most
significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information
to conform to the current year presentation.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-3 "Accounting by Insurance
and Other Enterprises for Insurance Related Assessments". This SOP provides
guidance on accounting by insurance and other enterprises for assessments
related to insurance activities. Specifically, the SOP provides guidance on when
a guaranty fund or other assessment should be recognized, how to measure the
liability, and what information should be disclosed. This SOP will be effective
for fiscal years beginning after December 15, 1998. Adoption of SOP 97-3 is not
expected to have a material impact on the Company's financial condition or
results of operations.
On November 14, 1996, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 96-12, "Recognition of Interest Income and Balance Sheet
Classification of Structured Notes". This EITF issue requires companies to
record income on certain structured securities on a retrospective interest
method. The Company adopted EITF No. 96-12 for structured securities acquired
after November 14, 1996. Adoption of EITF No. 96-12 did not have a material
effect on the Company's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
which is effective for transfers and servicing of financial
<PAGE>
- --------------------------------------------------------------------------------
assets and extinguishments of liabilities occurring after December 31, 1996.
This statement established criteria for determining whether transferred assets
should be accounted for as sales or secured borrowings. Subsequently, in
December 1996, the FASB issued SFAS No. 127, "Deferral of Effective Date of
Certain Provisions of FASB Statement No. 125", which defers the effective date
of certain provisions of SFAS No. 125 for one year. Adoption of SFAS No. 125 is
not expected to have a material effect on the Company's financial condition or
results of operations.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Adoption of SFAS No. 121 did not
have a material effect on the Company's financial condition or results of
operations.
The Company's cash flows were not impacted by these changes in accounting
principles.
(C) REVENUE RECOGNITION
Revenues for universal life-type policies and investment products consist of
policy charges for the cost of insurance, policy administration and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance and
disability policies are recognized as revenues when they are due from
policyholders.
(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 and
mortality assumptions appropriate at the time the policies were issued. Health
reserves, which are the result of sales of group long-term and short-term
disability, stop loss, Medicare Supplement and individual disability products,
are stated at amounts determined by estimates on individual cases and estimates
of unreported claims based on past experience. Liabilities for universal
life-type and investment contracts are stated at policyholder account values
before surrender charges.
(E) POLICYHOLDER REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on security transactions associated with
the Company's immediate participation guaranteed contracts are excluded from
revenues and deferred over the expected maturity of the securities, 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) INVESTMENTS
The Company's investments in fixed maturities include bonds and commercial
paper which are considered "available for sale" and accordingly are carried at
fair value with the after-tax difference from cost reflected as a component of
Stockholder's Equity designated "Net unrealized capital gains (losses) on
securities, net of tax". Equity securities, which include common and
non-redeemable preferred stocks, are carried at fair values with the after-tax
difference from cost reflected in Stockholder's Equity. Policy loans are carried
at outstanding balance which approximates fair value. Net realized capital gains
and losses, after deducting pension policyholders' share, are reported as a
component of revenue and are determined on a specific identification basis.
The Company's accounting policy for impairment requires recognition of 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, for securities expected to be sold, an
other than temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover to cost or amortized cost prior
to the expected date of sale. Once an impairment charge has been recorded, the
Company then continues to review the other than temporarily impaired securities
for appropriate valuation on an on-going basis.
During 1996, it was determined that certain individual securities within the
investment portfolio supporting the Company's block of guaranteed rate contract
business written prior to 1995 ("Closed Book GRC") could not recover to
amortized cost prior to sale. Therefore, an other than temporary impairment loss
of $88, after-tax, was recorded.
(G) DERIVATIVE INSTRUMENTS
The Company uses a variety of derivative instruments including swaps, caps,
floors, forwards and exchange traded financial futures and options 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. The Company
does not hold or issue derivative instruments for trading purposes. The
Company's accounting for derivative 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", AICPA SOP 86-2,
"Accounting for Options" and various EITF pronouncements. Written options are
used, in all cases in conjunction with other assets and derivatives, as part of
the Company's asset and liability management strategy. Derivative instruments
are carried at values consistent with the asset or liability being hedged.
Derivative instruments used to hedge fixed maturities or equity securities are
carried at fair value
<PAGE>
- --------------------------------------------------------------------------------
with the after-tax difference from cost reflected in Stockholder's Equity.
Derivative instruments used to hedge other invested assets or liabilities are
carried at cost.
Derivative instruments must be designated at inception as a hedge and
measured for effectiveness both at inception and on an on-going basis. The
Company'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. Derivative
instruments 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. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
it is intended to replicate. Derivative instruments which fail to meet risk
management criteria, subsequent to acquisition, are marked to market with the
impact reflected in the Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation
of the investment of future receipt of product cash flows are deferred and, at
the time of the ultimate investment purchase, reflected as an adjustment to the
cost basis of the purchased asset. Gains or losses on futures used in invested
asset risk management are deferred and adjusted into the cost 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 net investment income over the remaining
asset life.
Open forward commitment contracts are marked to market through Stockholder's
Equity. Such contracts are accounted for at settlement by recording the purchase
of the specified securities at the previously committed price. Gains or losses
resulting from the termination of 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 option. 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 investment 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 net investment income. 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 capital gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued cap or floor 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. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustments component of Stockholder's Equity. Cash flows
from futures, options, and swaps, accounted for as hedges, are included with the
cash flows of the item being hedged.
(H) SEPARATE ACCOUNTS
The Company maintains separate account assets and liabilities 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
policyholders. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts, wherein the policyholder assumes the
investment risk, and guaranteed separate account assets, wherein the Company
contractually guarantees either a minimum return or account value to the
policyholder.
(I) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, generally 20 years. Generally, acquisition
costs are deferred and amortized using the retrospective deposit method. Under
the retrospective deposit method, acquisition costs are amortized in proportion
to the present value of expected gross profits from surrender charges,
investment, mortality and expense margins. Actual gross profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates, when appropriate,
and evaluates the recoverability of the deferred acquisition cost asset. When
appropriate, management revises its assumptions on the estimated gross profits
of these contracts and the cumulative amortization
<PAGE>
- --------------------------------------------------------------------------------
for the books of business are reestimated and adjusted by a cumulative charge or
credit to income.
The Company's other expenses include the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Commissions........................... $ 976 $ 848 $ 619
Deferred acquisition costs............ (862) (823) (618)
Other................................. 472 402 316
--------- --------- ---------
Total other expenses.............. $ 586 $ 427 $ 317
--------- --------- ---------
--------- --------- ---------
</TABLE>
(J) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the life insurance
subsidiaries of the Company. The participating insurance in force accounted for
55%, 44%, and 41% in 1997, 1996, and 1995, respectively, of total insurance in
force.
3. INITIAL PUBLIC OFFERING
On February 10, 1997, Hartford Life filed a registration statement, as
amended, with the Securities and Exchange Commission, relating to the IPO of
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life sold to the public 26 million shares at $28.25 per share and
received proceeds, net of offering expenses, of $687. Of the proceeds, $527 was
used to retire debt related to Hartford Life's promissory notes outstanding and
line of credit. The remaining $160 was contributed by Hartford Life to HLA to
support growth in its core businesses. The 26 million shares sold in the
Offering represent approximately 18.6% of the equity ownership in Hartford Life
and approximately 4.4% of the combined voting power of Hartford Life's Class A
and Class B Common Stock. The Hartford owns all of the 114 million outstanding
shares of Class B Common Stock of Hartford Life, representing approximately
81.4% of the equity ownership in Hartford Life and approximately 95.6% of the
combined voting power of Hartford Life'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 Hartford
Life's stockholders.
4. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income from fixed
maturities......................... $ 932 $ 918 $ 996
Interest income from policy loans... 425 477 342
Income from other investments....... 26 15 1
--------- --------- ---------
Gross investment income............. 1,383 1,410 1,339
Less: Investment expenses........... 15 13 11
--------- --------- ---------
Net investment income............... $ 1,368 $ 1,397 $ 1,328
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
----- --------- ---------
<S> <C> <C> <C>
Fixed maturities......................... $ (7) $ (201) $ 23
Equity securities........................ 12 2 (6)
Real estate and other.................... (1) (4) (25)
Less: Increase in liability to
policyholders for realized capital
gains................................... -- (10) (3)
--- --------- ---------
Net realized capital gains (losses) $ 4 $ (213) $ (11)
--- --------- ---------
--- --------- ---------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains.............. $ 14 $ 13 $ 4
Gross unrealized capital losses............. -- (1) (2)
--- --- ---
Net unrealized capital gains................ 14 12 2
Deferred income tax expense................. 5 4 1
--- --- ---
Net unrealized capital gains, net of tax.... 9 8 1
Balance -- beginning of year................ 8 1 (6)
--- --- ---
Net change in unrealized capital gains
(losses) on equity securities.............. $ 1 $ 7 $ 7
--- --- ---
--- --- ---
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains................................... $ 371 $ 386 $ 529
Gross unrealized capital losses.................................. (80) (341) (569)
Unrealized capital (gains) losses credited to policyholders...... (30) (11) (52)
----- ----- -----
Net unrealized capital gains (losses)............................ 261 34 (92)
Deferred income tax expense (benefit)............................ 91 12 (34)
----- ----- -----
Net unrealized capital gains (losses), net of tax................ 170 22 (58)
Balance -- beginning of year..................................... 22 (58) (648)
----- ----- -----
Net change in unrealized capital gains (losses) on fixed
maturities...................................................... $ 148 $ 80 $ 590
----- ----- -----
----- ----- -----
</TABLE>
(E) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 217 $ 3 $ (1) $ 219
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,175 64 (35) 1,204
States, municipalities and political subdivisions................ 211 7 (1) 217
International governments........................................ 376 20 (3) 393
Public utilities................................................. 871 26 (3) 894
All other corporate including international...................... 5,033 200 (25) 5,208
All other corporate -- asset backed.............................. 4,091 41 (8) 4,124
Short-term investments........................................... 1,318 -- -- 1,318
Certificates of deposit.......................................... 593 10 (4) 599
---------- ----- ----- ----------
Total fixed maturities....................................... $13,885 $371 $(80) $14,176
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 166 $ 12 $ (3) $ 175
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,970 161 (128) 2,003
States, municipalities and political subdivisions................ 373 6 (11) 368
International governments........................................ 281 12 (4) 289
Public utilities................................................. 877 12 (8) 881
All other corporate including international...................... 4,656 120 (107) 4,669
All other corporate -- asset backed.............................. 3,601 49 (59) 3,591
Short-term investments........................................... 1,655 14 (21) 1,648
---------- ----- ----------- ----------
Total fixed maturities....................................... $13,579 $386 $(341) $13,624
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 1997 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including MBS and CMO's, are distributed to
maturity year based on the Company's estimates of the rate of future prepayments
of principal over the remaining lives of the securities. These estimates are
developed using prepayment speeds provided in broker consensus data. Such
estimates are derived from prepayment speeds experienced at the interest rate
levels projected for the applicable underlying collateral and can be expected to
vary from actual experience.
MATURITY
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less......................... $ 2,838 $ 2,867
Over one year through five years......... 5,528 5,595
Over five years through ten years........ 3,094 3,156
Over ten years........................... 2,425 2,558
----------- -----------
Total................................ $ 13,885 $ 14,176
----------- -----------
----------- -----------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Sales of fixed maturities, excluding short-term fixed maturities, for the
years ended December 31, 1997, 1996 and 1995 resulted in proceeds of $4.2
billion, $3.5 billion and $4.8 billion, gross realized capital gains of $169,
$87 and $91, gross realized capital losses (including writedowns) of $176, $298
and $72, respectively. Sales of equity security investments for the years ended
December 31, 1997, 1996 and 1995 resulted in proceeds of $132, $74 and $64,
gross realized capital gains of $12, $2 and $28 and gross realized capital
losses of $0, $0 and $59, respectively.
(F) CONCENTRATION OF CREDIT RISK
Excluding investments in U.S. government and agencies, the Company has not
invested in the securities of a single issuer in amounts greater than 10% of
stockholder's equity at December 31, 1997.
(G) DERIVATIVE INSTRUMENTS
The Company utilizes a variety of derivative instruments, including swaps,
caps, floors, forwards and exchange traded futures and options, in accordance
with Company policy and in order to achieve one of three Company approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; or, to control transactions costs. The
Company utilizes derivative instruments to manage market risk through four
principal risk management strategies: hedging anticipated transactions, hedging
liability instruments, hedging invested assets and hedging portfolios of assets
and/or liabilities. The Company does not trade in these instruments for the
express purpose of earning trading profits.
The Company maintains a derivatives counterparty exposure policy which
establishes market-based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. Credit risk is measured as the amount owed to the Company based on
current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are quantified weekly and netted, and
collateral is pledged to or held by the Company to the extent the current value
of derivatives exceed exposure policy thresholds.
The Company's derivative program is monitored by an internal compliance unit
and is reviewed by senior management and Hartford Life's Finance Committee.
Notional amounts, which represent the basis upon which pay or receive amounts
are calculated and are not reflective of credit risk, pertaining to derivative
financial instruments (excluding the Company's guaranteed separate account
derivative investments), totaled $6.5 billion and $9.9 billion ($4.6 billion and
$7.4 billion related to the Company's investments, $1.9 billion and $2.5 billion
on the Company's liabilities) at December 31, 1997 and 1996, respectively.
The table below provides a summary of derivative instruments held by the
Company at December 31, 1997 and 1996, segregated by major investment and
liability category:
<TABLE>
<CAPTION>
1997 -- AMOUNT HEDGED (NOTIONAL AMOUNTS)
----------------------------------------------------------------------------------
PURCHASED
CAPS, FOREIGN
TOTAL ISSUED FLOORS INTEREST CURRENCY TOTAL
CARRYING CAPS & AND FUTURES RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS OPTIONS (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- -------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,253 $ 500 $ 1,404 $ 28 $ 221 $-- $ 2,153
Inverse floaters (1)............... 75 47 80 -- 25 -- 152
Anticipatory (4)................... -- -- -- -- -- -- --
Other bonds and notes.............. 7,531 462 460 22 1,258 91 2,293
Short-term investments............. 1,317 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total fixed maturities......... 14,176 1,009 1,944 50 1,504 91 4,598
Equity securities, policy loans and
other investments................. 3,983 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total investments.............. $ 18,159 $ 1,009 $ 1,944 $ 50 $ 1,504 $91 $ 4,598
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 1,747 -- 1,907
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- notional
value........................... $ 1,019 $ 2,094 $ 50 $ 3,251 $91 $ 6,505
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- fair value.... $ (8) $ 23 $ -- $ 19 $(6) $ 28
-------- -------- ---------- --- ---------- --- ----------
-------- -------- ---------- --- ---------- --- ----------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 --AMOUNT HEDGED (NOTIONAL AMOUNTS)
--------------------------------------------------------------------------
FOREIGN
TOTAL ISSUED PURCHASED INTEREST CURRENCY TOTAL
CARRYING CAPS & CAPS, FLOORS RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS AND OPTIONS FUTURES (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- ------- ------------ ----------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,242 $ 500 $ 2,454 $ -- $ 941 $ -- $3,895
Inverse floaters (1)............... 352 98 856 -- 346 -- 1,300
Anticipatory (4)................... -- -- -- 132 -- -- 132
Other bonds and notes.............. 7,369 425 440 5 1,079 125 2,074
Short-term investments............. 661 -- -- -- -- -- --
-------- ------- ------------ ----- --------- -------- -------
Total fixed maturities......... 13,624 1,023 3,750 137 2,366 125 7,401
Equity securities, policy loans and
other investments................. 4,011 -- -- -- 19 -- 19
-------- ------- ------------ ----- --------- -------- -------
Total investments.............. $ 17,635 $ 1,023 $ 3,750 $ 137 $ 2,385 $ 125 $7,420
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 2,351 -- 2,511
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- notional
value......................... $ 1,033 $ 3,900 $ 137 $ 4,736 $ 125 $9,931
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- fair
value......................... $ (10) $ 38 $ -- $ 2 $ (9 ) $ 21
-------- ------- ------------ ----- --------- -------- -------
-------- ------- ------------ ----- --------- -------- -------
</TABLE>
- ---------
(1) Inverse floaters are variations of collateralized mortgage obligations
("CMO's") for which the coupon rates move inversely with an index rate such as
the London interbank offered rate ("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, the Company uses a variety of derivative instruments,
primarily interest rate swaps, caps and floors.
(2) As of December 31, 1997 and 1996, over 44% and 39% , respectively, of
the notional futures contracts expire within one year.
(3) As of December 31, 1997 and 1996, over 16% and 42%, respectively, of
foreign currency swaps expire within one year; the balance matures over the
succeeding 9 years.
(4) Deferred gains and losses on anticipatory transactions are included in
the carrying value of fixed maturities in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis adjustment to
the purchased asset. At December 31, 1997, the Company had $0 deferred gains and
losses. At December 31, 1996, the Company had $0.9 in net deferred gains for
futures, interest rate swaps and purchased options of which $2.0 was basis
adjusted in 1997.
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MATURITIES/ DECEMBER 31, 1997
NOTIONAL AMOUNT ADDITIONS TERMINATIONS (1) NOTIONAL AMOUNT
----------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps......................................... $1,755 $ 14 $ 530 $1,239
Floors....................................... 3,168 28 1,332 1,864
Swaps/Forwards............................... 4,861 941 2,460 3,342
Futures...................................... 137 131 218 50
Options...................................... 10 -- -- 10
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
BY STRATEGY
Liability.................................... $2,511 $ 191 $ 795 $1,907
Anticipatory................................. 132 4 136 --
Asset........................................ 2,112 739 1,046 1,805
Portfolio.................................... 5,176 180 2,563 2,793
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
- ---------
(1) During 1997, the Company had no significant gains or losses on terminations
of hedge positions using derivative financial instruments.
<PAGE>
- --------------------------------------------------------------------------------
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair
Value of Financial Instruments" requires disclosure of fair value information of
financial instruments. For certain financial instruments where quoted market
prices are not available, other independent valuation techniques and assumptions
are used. Because considerable judgment is used, these estimates are not
necessarily indicative of amounts that could be realized in a current market
exchange. SFAS No. 107 excludes certain financial instruments from disclosure,
including insurance contracts.
For cash, short-term investments, accounts receivable, policy loans,
mortgage loans and other liabilities, carrying amounts on the Consolidated
Balance Sheets approximate fair value.
Fair value for fixed maturities and marketable equity securities are based
upon quoted market prices. Fair value for securities that are not publicly
traded are analytically determined. These amounts are disclosed in Note 4 of
Notes to Consolidated Financial Statements.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is validated through quarterly comparison to dealer quoted prices.
Amounts are disclosed in Note 4 of Notes to Consolidated Financial Statements.
Fair value for partnerships and trusts are based on external market
valuations from partnership and trust management.
Other policy claims and benefits payable fair value information is
determined by estimating future cash flows, discounted at the current market
rate.
The carrying amount and fair values of the Company's financial instruments
at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities..................................... $ 14,176 $14,176 $ 13,624 $13,624
Equity securities.................................... 180 180 119 119
Policy loans......................................... 3,756 3,756 3,836 3,836
Mortgage loans....................................... -- -- 2 2
Investments in partnerships, trusts and other........ 47 91 54 104
LIABILITIES
Other policy benefits................................ $ 11,769 $11,755 $ 11,707 $11,469
</TABLE>
6. SEPARATE ACCOUNTS
The Company maintained separate account assets and liabilities totaling
$69.1 billion and $49.7 billion at December 31, 1997 and 1996, respectively,
which are reported at fair value. Separate account assets are segregated from
other investments and net investment income and net realized capital gains and
losses accrue directly to the policyholder. Separate accounts reflect two
categories of risk assumption: non-guaranteed separate accounts totaling $58.6
billion and $39.4 billion at December 31, 1997 and 1996, respectively, wherein
the policyholder assumes the investment risk, and guaranteed separate accounts
totaling $10.5 and $10.3 billion at December 31, 1997 and 1996, respectively,
wherein the Company contractually guarantees either a minimum return or account
value to the policyholder. Included in the non-guaranteed category were policy
loans totaling $1.9 billion and $2.0 billion at December 31, 1997 and 1996,
respectively. Net investment income (including net realized capital 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 were $699, $538 and $387 in 1997, 1996 and
1995, respectively. The guaranteed separate accounts include fixed market value
adjusted individual annuity and modified guaranteed life insurance. The average
credited interest rate on these contracts was 6.52% at December 31, 1997. The
assets that support these liabilities were comprised of $10.2 billion in fixed
maturities as of December 31, 1997. The portfolios are segregated from other
investments and are managed to minimize liquidity and interest rate risk. In
order to minimize the risk of disintermediation associated with early
withdrawals, fixed MVA 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 $119 in
carrying value and $3.0 billion in notional amounts as of December 31, 1997.
<PAGE>
- --------------------------------------------------------------------------------
7. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement
under which each member in the consolidated U.S. Federal income tax return will
make payments between them such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, generally will
be determined as though the Company were filing separate Federal, state and
local income tax returns.
As long as The Hartford continues to beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of Hartford Life, the Company will be included for
Federal income tax purposes in the affiliated group of which The Hartford is the
common parent. To the extent allowed by law, it is the intention of The Hartford
and its subsidiaries to continue to file a single consolidated Federal income
tax return. The Company will continue to remit (receive from) The Hartford a
current income tax provision (benefit) computed in accordance with such tax
sharing agreement. The Company's effective tax rate was 36%, 35% and 32% in
1997, 1996 and 1995, respectively.
Income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
---- ------ ------
<S> <C> <C> <C>
Current...................................... $119 $ 122 $ 211
Deferred..................................... 48 (102) (149)
---- ------ ------
Income tax expense......................... $167 $ 20 $ 62
---- ------ ------
---- ------ ------
</TABLE>
A reconciliation of the tax provision at the U.S. Federal statutory rate to
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
Tax provision at the U.S. Federal statutory
rate...................................... $ 164 $ 20 $ 67
Tax-exempt income.......................... -- -- (3)
Foreign tax credit......................... -- -- (4)
Other...................................... 3 -- 2
--------- --- ---
Total.................................... $ 167 $ 20 $ 62
--------- --- ---
--------- --- ---
</TABLE>
Deferred tax assets include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax return deferred acquisition costs............ $ 639 $ 514
Financial statement deferred acquisition costs
and reserves.................................... (366) (242)
Employee benefits................................ 5 8
Net unrealized capital gains on securities....... (96) (16)
Investments and other............................ 166 210
--------- ---------
Total.......................................... $ 348 $ 474
--------- ---------
--------- ---------
</TABLE>
Income taxes paid were $9, $189 and $162 in 1997, 1996 and 1995,
respectively. The Company had a current tax payment of $27 due to The Hartford
at December 31, 1997 and a tax refund due from The Hartford of $72 at December
31, 1996.
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,
1997 was $37.
8. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(A) PENSION PLANS
The Company's employees are included in The Hartford'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. The Company'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, as amended, and the maximum amount that
can be deducted for U.S. Federal income tax purposes. Generally, pension costs
are funded through the purchase of the Company's group pension contracts. The
cost to the Company was approximately $5, $5 and $2 in 1997, 1996 and 1995,
respectively.
The Company also provides, through The Hartford, certain health care and
life insurance benefits for eligible retired employees. A substantial portion of
the Company's employees may become eligible for these benefits upon retirement.
The Company'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. The Company 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 The
Hartford, was immaterial to the results of operations for 1997, 1996 and 1995,
respectively.
The assumed rate in the per capita cost of health care (the health care
trend rate) was 8.5% for 1997, 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,
<PAGE>
- --------------------------------------------------------------------------------
the effect will be amortized over the average future service of covered
employees.
(B) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in The
Hartford's Investment and Savings Plan. Under this plan, designated
contributions, which may be invested in Class A Common Stock of Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to the Company for the above-mentioned plans was approximately
$2 in 1997.
9. STOCK COMPENSATION PLANS
During the second quarter of 1997, Hartford Life adopted the 1997 HLI
Incentive Stock Plan (the "Plan"). Under the Plan, options granted may be either
non-qualified options or incentive stock options qualifying under Section 422A
of the Internal Revenue Code. The aggregate number of shares of Class A Common
Stock which may be awarded in any one year shall be subject to an annual limit.
The maximum number of shares of Class A Common Stock which may be granted under
the Plan in each year shall be 1.5% of the total issued and outstanding shares
of Hartford Life Class A Common Stock and treasury stock as reported in the
Annual Report on Hartford Life's Form 10-K for the preceding year plus unused
portions of such limit from prior years. In addition, no more than 5,000,000
shares of Class A Common Stock shall be cumulatively available for awards of
incentive stock options under the Plan, and no more than 20% of the total number
of shares on a cumulative basis shall be available for restricted stock and
performance shares.
All options granted have an exercise price equal to the market price of
Hartford Life's stock on the date of grant and an option's maximum term is ten
years. Certain nonperformance based options become exercisable upon the
attainment of specified market price appreciation of Hartford Life's common
shares or at seven years after the date of grant, while the remaining
nonperformance based options become exercisable over a three year period
commencing with the date of grant.
Also included in the Plan are long term performance awards which become
payable upon the attainment of specific performance goals achieved over a three
year period.
During the second quarter of 1997, Hartford Life established the HLI
Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees of
Hartford Life and the Company may purchase Class A Common Stock of Hartford Life
at a 15% discount from the lower of the market price at the beginning or end of
the quarterly offering period. Hartford Life may sell up to 2,700,000 shares of
stock to eligible employees. Hartford Life sold 54,316 shares under the ESPP in
1997.
10. REINSURANCE
The Company cedes insurance to other insurers, including its parent HLA, in
order to limit its maximum loss. Such transfer does not relieve the Company of
its primary liability. The Company also assumes insurance from other insurers.
Failure of reinsurers to honor their obligations could result in losses to the
Company. The Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
Net premiums and other considerations were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums............................... $ 2,164 $ 2,138 $ 1,545
Assumed...................................... 159 190 591
Ceded........................................ (686) (623) (649)
--------- --------- ---------
Net premiums and other considerations...... $ 1,637 $ 1,705 $ 1,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company ceded approximately $76, $100 and $101 of group life premium in
1997, 1996 and 1995, respectively, representing $33.6 billion, $33.3 billion and
$32.3 billion of insurance in force, respectively. The Company ceded $339, $318
and $320 of accident and health premium to HLA in 1997, 1996 and 1995,
respectively. The Company assumed $89, $101 and $103 of premium in 1997, 1996
and 1995, respectively, representing $8.2 billion, $8.5 billion and $8.5 billion
of individual life insurance in force, respectively, from HLA.
Life reinsurance recoveries, which reduce death and other benefits,
approximated $158, $140 and $220 for the years ended December 31, 1997, 1996 and
1995, respectively.
As of December 31, 1997, the Company had reinsurance recoverables of $5.0
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $5.0 billion (including policy loans
and accrued interest of $4.5 billion). 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 the Company as sole beneficiary. The
Company has no other significant reinsurance-related concentrations of credit
risk.
11. RELATED PARTY TRANSACTIONS
Transactions of the Company with HA&I and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees,
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which,
<PAGE>
- --------------------------------------------------------------------------------
depending on type, are allocated based on either a percentage of direct expenses
or on utilization. Indirect expenses allocated to the Company by The Hartford
were $34, $40, and $45 in 1997, 1996 and 1995, respectively. Management believes
that the methods used are reasonable.
The rent paid to Hartford Fire for space occupied by the Company was $7 in
1997, and $3 in 1996 and 1995. The Company expects to pay annual rent of $7 in
1998 and 1999, respectively, $12 in 2000 and 2001, respectively, $13 in 2002 and
$87 thereafter, over the remaining term of the sublease, which expires on
December 31, 2009. Rental expense is recognized over a level basis over the term
of the sublease and amounted to approximately $9 in 1997 and $8 in 1996 and
1995.
12. STATUTORY RESULTS
The domestic insurance subsidiaries of Hartford Life prepare their statutory
financial statements in accordance with accounting practices prescribed by the
State of Connecticut Insurance Department. Prescribed statutory accounting
practices include publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and general
administrative rules.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory net income......................... $ 214 $ 144 $ 112
------ ------ ------
Statutory surplus............................ $1,441 $1,207 $1,125
------ ------ ------
------ ------ ------
</TABLE>
A significant percentage of the consolidated statutory surplus is
permanently reinvested or is subject to various state regulatory restrictions
which limit the payment of dividends without prior approval. The total amount of
statutory dividends which may be paid by the insurance subsidiaries of the
Company in 1998 is estimated to be $144.
13. COMMITMENTS AND CONTINGENT LIABILITIES
(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.
(B) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life insurance
companies for the deemed losses. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's solvency
and further provide annual limits on such assessments. A large part of the
assessments paid by the Company's insurance subsidiaries pursuant to these laws
may be used as credits for a portion of the Company's insurance subsidiaries'
premium taxes. The Company paid guaranty fund assessments of approximately $15,
$11 and $10 in 1997, 1996 and 1995, respectively, of which $4, $5, and $6 were
estimated to be creditable against premium taxes.
14. BUSINESS SEGMENT INFORMATION
The Company, along with its parent, sells financial products such as fixed
and variable annuities, retirement plan services, and life and disability
insurance on both an individual and a group basis. The Company divides its core
businesses into three segments: Annuity, Individual Life Insurance, and Employee
Benefits. The Company also maintains a Guaranteed Investment Contracts segment,
which is primarily comprised of guaranteed rate contract business written prior
to 1995 and a Corporate Operation. The Annuity segment offers individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services, mutual funds, investment management
services and other financial products. The Individual Life Insurance segment
sells a variety of individual life insurance products, including variable life,
universal life, interest-sensitive whole life, and term life policies. The
Employee Benefits segment sells group insurance products, including group life,
group short and long-term disability and corporate owned life insurance, and
engages in certain international operations. The Guaranteed Investment Contracts
segment sells a limited amount of guaranteed investment contracts and contains
Closed Book GRC. Through its Corporate Operation, the Company reports items that
are not directly allocable to any of its business segments. Included in the
Corporate Operation are unallocated income and expense and certain other items
not directly allocable to any segment. Net realized capital gains and losses are
recognized in the period of realization, but are allocated to the segments
utilizing durations of the segment portfolios.
<PAGE>
- --------------------------------------------------------------------------------
The following table outlines revenues, operating income and assets by
business segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Annuity.............................................. $ 1,269 $ 968 $ 759
Individual Life Insurance............................ 487 440 383
Employee Benefits.................................... 972 1,366 1,273
Guaranteed Investment Contracts...................... 241 34 337
Corporate Operation.................................. 40 81 52
-------- -------- --------
Total revenues..................................... $ 3,009 $ 2,889 $ 2,804
-------- -------- --------
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
Annuity.............................................. $ 317 $ 226 $ 171
Individual Life Insurance............................ 85 68 56
Employee Benefits.................................... 53 44 37
Guaranteed Investment Contracts...................... -- (346) (103)
Corporate Operation.................................. 14 66 30
-------- -------- --------
Total income before income tax expense............. $ 469 $ 58 $ 191
-------- -------- --------
-------- -------- --------
ASSETS
Annuity $ 69,152 $ 52,877 $ 39,732
Individual Life Insurance............................ 4,918 3,753 3,173
Employee Benefits.................................... 18,196 14,708 13,494
Guaranteed Investment Contracts...................... 3,347 4,533 6,069
Corporate Operation.................................. 2,343 1,891 1,729
-------- -------- --------
Total assets....................................... $ 97,956 $ 77,762 $ 64,197
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE I -- SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH
FAIR SHOWN ON
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- --------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
Fixed Maturities
Bonds and Notes
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) $ 217 $ 219 $ 219
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) --
asset-backed.............................. 1,175 1,204 1,204
States, municipalities and political
subdivisions.............................. 211 217 217
International governments.................. 376 393 393
Public utilities........................... 871 894 894
All other corporate including
international............................. 5,033 5,208 5,208
All other corporate -- asset-backed........ 4,091 4,124 4,124
Short-term investments..................... 1,318 1,318 1,318
Certificates of deposit...................... 593 599 599
------- ------- -------
Total fixed maturities....................... 13,885 14,176 14,176
------- ------- -------
Equity Securities
Common Stocks
Public utilities........................... -- -- --
Banks, trusts and insurance companies...... -- -- --
Industrial and miscellaneous............... 166 180 180
Nonredeemable preferred stocks............. -- -- --
------- ------- -------
Total equity securities...................... 166 180 180
------- ------- -------
Total fixed maturities and equity
securities.................................. 14,051 14,356 14,356
------- ------- -------
Real Estate.................................. -- -- --
Other Investments
Mortgage loans on real estate.............. -- -- --
Policy loans............................... 3,756 3,756 3,756
Investments in partnerships, trusts and
other..................................... 47 91 47
------- ------- -------
Total other investments...................... 3,803 3,847 3,803
------- ------- -------
Total investments............................ $17,854 $18,203 $18,159
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS,
UNPAID OTHER
DEFERRED CLAIMS POLICY
POLICY AND CLAIM CLAIMS AND PREMIUMS NET
ACQUISITION ADJUSTMENT BENEFITS AND OTHER INVESTMENT
SEGMENT COSTS EXPENSES PAYABLE CONSIDERATIONS INCOME
- --------------------------------------------- ----------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $2,478 $2,070 $ 6,838 $ 769 $ 500
Individual Life Insurance.................... 837 392 2,182 323 164
Employee Benefits............................ -- 780 9,232 541 431
Guaranteed Investment Contracts.............. -- -- 2,782 2 239
Corporate Operation.......................... -- 28 -- 2 34
----------- --------- ---------- ------ ---------
Consolidated operations...................... $3,315 $3,270 $21,034 $1,637 $1,368
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1996
Annuity...................................... $2,030 $1,526 $ 6,016 $ 535 $ 433
Individual Life Insurance.................... 730 346 2,160 287 153
Employee Benefits............................ -- 574 9,834 881 485
Guaranteed Investment Contracts.............. -- -- 4,124 2 251
Corporate Operation.......................... -- 28 -- -- 75
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,760 $2,474 $22,134 $1,705 $1,397
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1995
Annuity...................................... $1,561 $1,314 $ 5,661 $ 319 $ 400
Individual Life Insurance.................... 615 706 1,932 246 137
Employee Benefits............................ 12 325 9,285 922 351
Guaranteed Investment Contracts.............. -- 28 5,720 -- 377
Corporate Operation.......................... -- -- -- -- 63
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,188 $2,373 $22,598 $1,487 $1,328
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
<CAPTION>
NET BENEFITS, AMORTIZATION
REALIZED CLAIMS AND OF DEFERRED
CAPITAL CLAIM POLICY
GAINS ADJUSTMENT ACQUISITION DIVIDENDS TO OTHER
SEGMENT (LOSSES) EXPENSES COSTS POLICYHOLDERS EXPENSES
- --------------------------------------------- ----------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $ -- $ 445 $250 $ -- $ 257
Individual Life Insurance.................... -- 242 83 -- 77
Employee Benefits............................ -- 425 2 240 252
Guaranteed Investment Contracts.............. -- 232 -- -- 9
Corporate Operation.......................... 4 35 -- -- (9)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ 4 $1,379 $335 $240 $ 586
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1996
Annuity...................................... $ -- $ 412 $174 $ -- $ 156
Individual Life Insurance.................... -- 245 59 -- 68
Employee Benefits............................ -- 546 -- 635 141
Guaranteed Investment Contracts.............. (219) 332 1 -- 47
Corporate Operation.......................... 6 -- -- -- 15
----------- ----------- ----- ----- -----
Consolidated operations...................... $(213) $1,535 $234 $635 $ 427
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1995
Annuity...................................... $ -- $ 317 $117 $ -- $ 114
Individual Life Insurance.................... -- 203 70 -- 54
Employee Benefits............................ -- 424 -- 675 137
Guaranteed Investment Contracts.............. -- 453 12 -- 15
Corporate Operation.......................... (11) 25 -- -- (3)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ (11) $1,422 $199 $675 $ 317
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED FROM PERCENTAGE
GROSS OTHER OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------- -------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Life insurance in force........................... $245,487 $ 178,771 $ 33,156 $ 99,872 33.2%
Insurance revenues
Life insurance and annuities.................... 1,818 340 157 1,635 9.6%
Accident and health insurance................... 346 346 2 2 100.0%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,164 $ 686 $ 159 $ 1,637 9.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1996
Life insurance in force......................... $177,094 $ 106,146 $ 31,957 $102,905 31.1%
Insurance revenues
Life insurance and annuities.................... 1,801 298 169 1,672 10.1%
Accident and health insurance................... 337 325 21 33 63.6%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,138 $ 623 $ 190 $ 1,705 11.1%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1995
Life insurance in force......................... $182,716 $ 112,774 $ 26,996 $ 96,938 27.8%
Insurance revenues
Life insurance and annuities.................... 1,232 325 574 1,481 38.8%
Accident and health insurance................... 313 324 17 6 283.3%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 1,545 $ 649 $ 591 $ 1,487 39.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
</TABLE>
<PAGE>
PART II
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not applicable.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 33-772 of the Connecticut General Statutes,
unless limited by its certificate of incorporation, the
Registrant must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses
incurred by him in connection with the proceeding.
The Registrant may indemnify an individual made a party to a
proceeding because he is or was a director against liability
incurred in the proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the Registrant, and with respect to any
criminal proceeding, had no reason to believe his conduct was
unlawful. Conn. Gen. Stat. Section 33-771(a). Additionally,
pursuant to Conn. Gen Stat. Section 33-776, the Registrant may
indemnify officers and employees or agents for liability
incurred and for any expenses to which they becomes subject by
reason of being or having been an employee or officer of the
Registrant. Connecticut law does not prescribe standards for
the indemnification of officers, employees and agents and
expressly states that their indemnification may be broader
than the right of indemnification granted to directors.
The foregoing statements are specifically made subject to the
detailed provisions of Section 33-770, et. seq.
Notwithstanding the fact that Connecticut law obligates the
Registrant to indemnify a director only that was successfully
on the merits in a suit, under Article VIII, Section 1 of the
Registrant's bylaws, the Registrant must indemnify both
officers and directors of the Registrant for (1) any claims
and liabilities to which they become subject by reason of
being or having been a director or officer of the Registrant
and legal and (2) other expenses incurred in defending against
such claims, in each case, to the extent such is consistent
with statutory provisions.
Additionally, the directors and officers the Registrant and
Hartford Securities Distribution Company, Inc. ("HSD") are
covered under a directors and officer liability insurance
policy issued to The Hartford Financial Services Group, Inc.
and its subsidiaries. Such policy will reimburse the
Registrant for any payments that it shall make to directors
and officers pursuant to law and will, subject to certain
exclusions contained in the policy, further pay any other
costs, charges and expenses and settlements and judgements
arising from any proceeding involving any director or officer
of the
<PAGE>
Registrant in his part or present capacity as such, and
for which he may be liable, except as to any liabilities
arising from acts that are deemed to be uninsurable.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant, pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act will be
governed by the final adjudication of such issue.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
NUMBER DESCRIPTION METHOD OF FILING
1 Underwriting Agreement Incorporated by reference to
the Registration Statement
File No. 33-17324, dated
May 1, 1996.
4 Group Annuity Contract Incorporated by reference to
the Registration Statement
File No. 33-17324, dated
May 1, 1995.
5 Opinion of Lynda Godkin,
General Counsel Filed herewith.
23 Consent of Arthur Anderson LLP,
Independent Public Accountants Filed herewith.
24 Power of Attorney Filed herewith.
27 Financial Data Schedule Filed herewith.
Item 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
<PAGE>
i. To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
ii. To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement;
iii. To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement,
including (but not limited to) any addition
or deletion of a managing underwriter;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a
new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes to, for
purposes of determining any liability under the
Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the
registration statement shll be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be initial bona fide
offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that is has reeasonable grounds to believe that it meets all the
requirements for filing this Post-Effective Amendment No. 1 on Form S-2 and
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut on this 10th day of April, 1998.
HARTFORD LIFE INSURANCE COMPANY
*By: /s/John P. Ginnetti *By: /s/Lynda Godkin
------------------------------------------ ----------------
John P. Ginnetti, Executive Vice President Lynda Godkdin
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on this
10th day of April, 1998.
Gregory A. Boyko, Senior Vice President,
Director*
John P. Ginnetti, Executive Vice
President and Director of Asset
Management Services, Director*
Lynda Godkin, Senior Vice President,
General Counsel and Corporate
Secretary and Director*
Thomas M. Marra, Executive Vice *By: /s/ Lynda Godkin
President and Director, Individual ----------------------
Life and Annuity Division, Director* Lynda Godkin
Lowndes A. Smith, President, Attoney-in-Fact
Chief Executive Officer, Director*
Raymond P. Welnicki, Senior Vice
President, Director*
Lizabeth H. Zlatkus, Senior Vice President,
Director*
David M. Znamierowski, Senior Vice President,
Director*
<PAGE>
EXHIBIT INDEX
5 Opinion and Consent of Lynda Godkin, General Counsel
23 Consent of Arthur Andersen LLP, Independent Public Accountants
24 Copy of Power of Attorney
27 Financial Data Schedule
<PAGE>
EXHIBIT 5
April 10, 1998 Lynda Godkin
General Counsel & Secretary
Law Department
Board of Directors
Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
RE: GENERAL ACCOUNT OPTION
HARTFORD LIFE INSURANCE COMPANY
FILE NO. 333-30013
Dear Sir/Madam:
This opinion is furnished in connection with the registration under the
Securities Act of 1933, as amended, of a certain group deferred annuity
contract (the "Contract") that will be offered and sold by Hartford Life
Insurance Company (the "Company") and certain units of interest to be issued in
connection with the Contract. I have examined such documents (including the
Form S-2 Registration Statement) and reviewed such questions of law as I
considered necessary and appropriate, and on the basis of such examination and
review, it is my opinion that:
1. The Separate Account is a separate account of the Company validly existing
pursuant to Connecticut law and the regulations issued thereunder.
2. The assets held in the Separate Account are not chargeable with liabilities
arising out of any other business the Company may conduct.
3. The Contract is legally issued and represents binding obligations of the
Company.
I hereby consent to the use of this opinion as an exhibit to the Form S-2
Registration Statement for the Contract and to the reference to my name under
the heading "Legal Opinions" in the prospectus included as a part of such Form
S-2 Registration Statement.
Sincerely,
/s/Lynda Godkin
- ---------------
Lynda Godkin
<PAGE>
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 333-30013 for Hartford Life Insurance Company
General Account Option on Form S-2.
/s/ Arthur Andersen LLP
Hartford, Connecticut
April 13, 1998
<PAGE>
EXHIBIT 24
HARTFORD LIFE INSURANCE COMPANY
POWER OF ATTORNEY
-----------------
Gregory A. Boyko
John P. Ginnetti
Lynda Godkin
Thomas M. Marra
Lowndes A. Smith
Raymond P. Welnicki
Lizabeth H. Zlatkus
David M. Znamierowski
do hereby jointly and severally authorize Lynda Godkin, Marianne O'Doherty,
and Leslie T. Soler to sign as their agent, any Registration Statement,
pre-effective amendment, post-effective amendment and any application for
exemptive relief of the Hartford Life Insurance Company and Hartford Life and
Accident Insurance Company under the Securities Act of 1933 and/or the
Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney for
the purpose herein set forth.
/s/ Gregory A. Boyko Dated as of March 16, 1998
- --------------------------------------- --------------------------
Gregory A. Boyko
/s/ John P. Ginnetti Dated as of March 16, 1998
- --------------------------------------- --------------------------
John P. Ginnetti
/s/ Lynda Godkin Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated as of March 16, 1998
- --------------------------------------- --------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lowndes A. Smith
/s/ Raymond P. Welnicki Dated as of March 16, 1998
- --------------------------------------- --------------------------
Raymond P. Welnicki
/s/ Lizabeth H. Zlatkus Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lizabeth H. Zlatkus
/s/ David M. Znamierowski Dated as of March 16, 1998
- --------------------------------------- --------------------------
David M. Znamierowski
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 14,176
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 180
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,159
<CASH> 54
<RECOVER-REINSURE> 6,325
<DEFERRED-ACQUISITION> 3,315
<TOTAL-ASSETS> 97,956
<POLICY-LOSSES> 3,270
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 21,034
<POLICY-HOLDER-FUNDS> 69,055
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 2,337
<TOTAL-LIABILITY-AND-EQUITY> 97,956
1,637
<INVESTMENT-INCOME> 1,368
<INVESTMENT-GAINS> 4
<OTHER-INCOME> 0
<BENEFITS> 1,379
<UNDERWRITING-AMORTIZATION> 335
<UNDERWRITING-OTHER> 814
<INCOME-PRETAX> 469
<INCOME-TAX> 167
<INCOME-CONTINUING> 302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302
<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>
