<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 2-89516
HARTFORD LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0974148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06089
(Address of principal executive offices)
(860) 843-7716
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
As of August 13, 1998 there were outstanding 1,000 shares of Common Stock,
$5,690 par value per share, of the registrant, all of which were directly owned
by Hartford Life and Accident Insurance Company.
The registrant meets the conditions set forth in General Instruction H (1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Statements of Income - Second Quarter and
Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997 4
Condensed Consolidated Statements of Changes in Stockholder's Equity -
Six Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signature 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
(IN MILLIONS)
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Premiums and other considerations $ 383 $323 $ 946 $ 633
Net investment income 344 322 696 659
Net realized capital (losses) gains (6) -- (6) 4
----- ---- ------- ------
TOTAL REVENUES 721 645 1,636 1,296
----- ---- ------- ------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 349 310 747 652
Amortization of deferred policy acquisition costs 115 91 209 172
Dividends to policyholders 9 18 116 72
Other insurance expenses 118 117 306 190
----- ---- ------- ------
TOTAL BENEFITS, CLAIMS AND EXPENSES 591 536 1,378 1,086
----- ---- ------- ------
INCOME BEFORE INCOME TAX EXPENSE 130 109 258 210
Income tax expense 45 35 90 73
----- ---- ------- ------
NET INCOME $ 85 $ 74 $ 168 $ 137
----- ---- ------- ------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(In millions, except for share data) 1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$14,083 and $13,885) $ 14,496 $14,176
Equity securities, at fair value 99 180
Policy loans, at outstanding balance 3,767 3,756
Other investments, at cost 239 47
-------- -------
Total investments 18,601 18,159
Cash 62 54
Premiums and amounts receivable 22 18
Accrued investment income 338 330
Reinsurance recoverable 5,925 6,114
Deferred policy acquisition costs 3,573 3,315
Deferred income tax 391 348
Other assets 169 352
Separate account assets 80,673 69,055
-------- -------
TOTAL ASSETS $109,754 $97,745
-------- -------
LIABILITIES
Future policy benefits $ 3,240 $ 3,059
Other policyholder funds 20,950 21,034
Other liabilities 2,310 2,254
Separate account liabilities 80,673 69,055
-------- -------
TOTAL LIABILITIES 107,173 95,402
-------- -------
STOCKHOLDER'S EQUITY
Common stock - authorized 1,000; issued and outstanding,
par value $5,690 6 6
Capital surplus 1,045 1,045
Accumulated other comprehensive income
Net unrealized capital gains on securities, net of tax 249 179
-------- -------
Total accumulated other comprehensive income 249 179
-------- -------
Retained earnings 1,281 1,113
-------- -------
TOTAL STOCKHOLDER'S EQUITY 2,581 2,343
-------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $109,754 $97,745
-------- -------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
--------------------
NET
UNREALIZED
CAPITAL TOTAL
COMMON CAPITAL GAINS ON RETAINED STOCKHOLDER'S
(In millions) (Unaudited) STOCK SURPLUS SECURITIES, NET OF TAX EARNINGS EQUITY
- ------------------------- ----- ------- ---------------------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 6 $ 1,045 $ 179 $ 1,113 $ 2,343
Comprehensive income
Net income - - - 168 168
---------
Other comprehensive income, net of tax (1):
Change in unrealized capital gains
on securities (2) - - 70 - 70
---------
Total other comprehensive income 70
---------
Total comprehensive income 238
------ -------- ------- ---------- ---------
BALANCE, JUNE 30, 1998 $ 6 $ 1,045 $ 249 $ 1,281 $ 2,581
====== ======== ======= ========== =========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
--------------------
NET
UNREALIZED
CAPITAL TOTAL
COMMON CAPITAL GAINS ON RETAINED STOCKHOLDER'S
(In millions) (Unaudited) STOCK SURPLUS SECURITIES, NET OF TAX EARNINGS EQUITY
- ------------------------- ----- ------- ---------------------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 6 $ 1,045 $ 30 $ 811 $ 1,892
Comprehensive income
Net income - - - 137 137
---------
Other comprehensive income, net of tax (1):
Change in unrealized capital gains
on securities (2) - - 3 - 3
---------
Total other comprehensive income 3
---------
Total comprehensive income 140
------ -------- ------- ---------- ---------
BALANCE, JUNE 30, 1998 $ 6 $ 1,045 $ 33 $ 948 $ 2,032
====== ======== ======= ========== =========
</TABLE>
(1) Unrealized gain on securities is reflected net of tax expense of $134
and $18 for June 30, 1998 and 1997, respectively.
(2) Net of reclassification adjustment for (losses) gains realized in net
income of $(6) and $4 for June 30, 1998 and 1997, respectively.
See Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
(In millions) 1998 1997
---- ----
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 168 $ 137
ADJUSTMENTS TO NET INCOME:
Depreciation and amortization (12) 9
Net realized capital losses (gains) 6 (4)
(Increase) decrease in deferred income taxes (83) 9
Increase in deferred policy acquisition costs (258) (229)
(Increase) decrease in premiums receivable and agents' balances (4) 92
(Increase) decrease in accrued investment income (8) 48
Decrease in other assets 129 41
Decrease (increase) in reinsurance recoverables 20 (40)
Increase in liabilities for future policy benefits 181 204
(Decrease) increase in other liabilities (147) 146
------- -------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (8) 413
------- -------
INVESTING ACTIVITIES
Purchases of fixed maturity investments (3,287) (3,801)
Sales of fixed maturity investments 1,846 2,274
Maturities and principal paydowns of fixed maturity investments 979 1,343
Net (purchases) sales of other investments (86) 110
Net sales of short-term investments 480 138
------- -------
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (68) 64
------- -------
FINANCING ACTIVITIES
Net receipts from (disbursements for) investment and universal life-type
contracts credited to (charged against) policyholder accounts 84 (443)
------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 84 (443)
------- -------
Increase in cash 8 34
Cash - beginning of period 54 43
------- -------
CASH - END OF PERIOD $ 62 $ 77
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NET CASH PAID DURING THE PERIOD FOR:
Income taxes $ 120 $ (12)
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT FOR SHARE DATA UNLESS OTHERWISE STATED)
(UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Hartford Life Insurance Company and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures which are normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, these statements include all adjustments which were normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods presented.
For a description of accounting policies, see Note 2 of Notes to Consolidated
Financial Statements in the Company's 1997 Form 10-K Annual Report.
Certain reclassifications have been made to prior year financial information to
conform to the current year classification of transactions and accounts.
(b) CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard establishes accounting and
reporting guidance for derivative instruments, including certain derivative
instruments embedded in other contracts. The standard requires, among other
things, that all derivatives be carried on the balance sheet at fair value. The
standard also specifies hedge accounting criteria under which a derivative can
qualify for special accounting. In order to receive special accounting, the
derivative instrument must qualify as either a hedge of the fair value or the
variability of the cash flow of a qualified asset or liability. Special
accounting for qualifying hedges provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of the
corresponding changes in value of the hedged item. SFAS No. 133 will be
effective for fiscal years beginning after June 15, 1999. Initial application
for the Company will begin for the first quarter of the year 2000. The Company
is currently in the process of quantifying the impact of SFAS No. 133.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP provides guidance on
accounting for the costs of internal use software and in determining whether the
software is for internal use. The SOP defines internal use software as software
that is acquired, internally developed, or modified solely to meet internal
needs and identifies stages of software development and accounting for the
related costs incurred during the stages. This statement is effective for fiscal
years beginning after December 15, 1998 and is not expected to have a material
impact on the Company's financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of this statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. Comprehensive
income is the total of net income and all other nonowner changes in equity.
Accordingly, the Company has reported comprehensive income in the Condensed
Consolidated Statement of Changes in Stockholder's Equity.
NOTE 2. INITIAL PUBLIC OFFERING ("IPO")
On February 10, 1997, the Company's indirect parent, Hartford Life, Inc.
("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 Hartford Life and Accident
Insurance Company, the Company's direct parent, to support growth in its core
businesses.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INITIAL PUBLIC OFFERING ("IPO") (CONTINUED)
The 26 million shares sold in the IPO 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. Hartford Financial
Services Group, Inc., an indirect parent of Hartford Life, 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.
NOTE 3. COMMITMENTS AND CONTINGENCIES
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS UNLESS OTHERWISE STATED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of the Company as of June
30, 1998, compared with December 31, 1997, and its results of operations for the
second quarter and six months ended June 30, 1998 compared with the equivalent
1997 period. This discussion should be read in conjunction with the MD&A in the
Company's 1997 Form 10-K Annual Report.
Certain statements contained in this discussion, other than statements of
historical fact, are forward-looking statements. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking statements are
subject to change and uncertainty which are, in many instances, beyond the
Company's control and have been made based upon management's expectations and
beliefs concerning future developments and their potential effect on Hartford
Life Insurance Company and subsidiaries (the "Company"). There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be
those anticipated by management. Actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including those described in the forward-looking statements.
Certain reclassifications have been made to prior year financial information to
conform to the current year classification of transactions and accounts.
INDEX
Consolidated Results of Operations: Operating Summary 8
Annuity 10
Individual Life Insurance 11
Employee Benefits 11
Guaranteed Investment Contracts 11
Regulatory Initiatives and Contingencies 12
Accounting Standards 12
Other Matters 12
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $721 $645 $1,636 $1,296
EXPENSES 636 571 1,468 1,159
---- ---- ------ ------
NET INCOME $ 85 $ 74 $ 168 $ 137
==== ==== ====== ======
</TABLE>
8
<PAGE> 9
The Company's insurance business operates in three principal segments: Annuity,
Individual Life Insurance, and Employee Benefits as well as a Guaranteed
Investments Contracts segment, which is primarily comprised of business written
prior to 1995. The Company also maintains a Corporate operation through which it
reports items that are not directly allocable to any of its business segments.
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.
This segment consists of two areas of operation: Individual Annuity and Group
Annuity. The variety of products sold within this segment reflects the diverse
nature of the market. These include, in the Individual Annuity area, individual
variable annuities, fixed market value adjusted ("MVA") annuities, and mutual
funds; and in the Group Annuity area, deferred compensation and retirement plan
services for municipal governments and corporations, structured settlement
contracts and other special purpose annuity contracts, and investment management
contracts. The Individual Life Insurance segment, which focuses on the high end
estate and business planning markets, sells a variety of life insurance
products, including variable life and universal life insurance. The Employee
Benefits segment consists of two areas of operation: Group Insurance and
Specialty Insurance. Through Group Insurance, the Company offers products such
as group life insurance, group short- and long-term disability and accidental
death and dismemberment. Substantially all of the Group Insurance business
directly written by the Company is ceded to its direct parent, Hartford Life and
Accident Insurance Company. Specialty Insurance primarily consists of the
Company's corporate owned life insurance ("COLI") business. The Guaranteed
Investment Contracts 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"). The Company decided in 1995,
after a thorough review of its GRC business, that it would significantly
de-emphasize general account GRC, choosing to focus its distribution efforts on
other products sold through other divisions. Management expects no material
income or loss from the Guaranteed Investment Contracts segment in the future.
Revenues increased $76, or 12%, and $340, or 26%, for the second quarter and six
months ended June 30, 1998, respectively, compared to the same periods in 1997.
This increase was driven by the Annuity segment whose revenues increased $109,
or 35%, and $210, or 36%, for the second quarter and six months ended June 30,
1998, respectively, compared to the equivalent periods in 1997. This increase
was due to higher fee income earned on growing annuity account values where the
average account value grew $16.8 billion, or 30%, to $72.1 billion at June 30,
1998 from $55.3 billion at June 30, 1997 due to market appreciation and new
sales. Also, Individual Life Insurance revenues increased $11, or 9%, and $28,
or 12%, for the second quarter and six months ended June 30, 1998, respectively,
as compared to the same prior year periods due to increased cost of insurance
charges and other fee income on the Company's growing block of variable life
business. COLI revenues increased $154 for the six months ended June 30, 1998,
primarily driven by first quarter 1998 activity, which was a result of renewal
premium on leveraged COLI and increased fees associated with variable COLI
sales, while revenues were consistent in the second quarter of 1998 as compared
to the same period in prior year. Excluding COLI, revenues increased $83, or
16%, and $186, or 19%, for the second quarter and six months ended June 30,
1998, respectively, compared to the same prior year periods. Partially
offsetting the increases discussed above was a decline of Closed Book GRC
revenues of $24 and $44 for the second quarter and six months ended June 30,
1998, respectively, compared to the same periods in 1997.
Expenses increased $65, or 11%, and $309, or 27% for the second quarter and six
months ended June 30, 1998, respectively, compared to equivalent periods in
1997. Annuity expenses grew $91, or 35%, and $172, or 35%, for the second
quarter and six months ended June 30, 1998 compared to the same periods in the
prior year primarily due to higher benefits, claims, and claim adjustment
expenses as well as increased amortization of deferred policy acquisition costs
and operating expenses directly related to the growth in this segment.
Individual Life Insurance expenses increased $8 and $23 for the second quarter
and six months ended June 30, 1998, primarily due to higher benefits, claims,
and claim adjustment expenses, which is consistent with the growth in this block
of business. COLI expenses, primarily driven by first quarter activity,
increased $154 for the six months ended June 30, 1998 as a result of increased
operating expenses associated with significant renewal premium and variable COLI
sales and were consistent in the second quarter of 1998 as compared to the same
period in 1997. Excluding COLI, expenses increased $71, or 16%, and $155, or
18%, for the second quarter and six months ended June 30, 1998, respectively,
compared to equivalent periods in 1997. Partially offsetting the increases
discussed above was a decline in expenses related to Closed Book GRC of $24 and
$44 for the second quarter and six months ended June 30, 1998, respectively, as
compared to the same prior year periods.
Net income increased $11, or 15%, and $31, or 23%, for the second quarter and
six months ended June 30, 1998, respectively, compared to the same periods in
1997 primarily due to growth in the Annuity and the Individual Life Insurance
segments. Annuity earnings increased $18, or 37%, and $38, or 41%, for the
second quarter and six months ended June 30, 1998, respectively, compared to the
same prior year periods due to higher fee income earned on increasing account
values resulting from stock market appreciation and new sales, particularly in
Individual Annuity. Individual Life Insurance earnings increased $3, or 25%, and
$5, or 22%, for the second quarter and six months ended June 30, 1998,
respectively, compared to equivalent periods in 1997 as a result of strong sales
and increased account values. Guaranteed Investment Contracts had no net income
for the second quarter or the six months ended June 30, 1998 or 1997, consistent
with management's expectations.
<PAGE> 10
SEGMENT RESULTS
The Company's reporting segments, which reflect the management structure of the
Company, consist of Annuity, Individual Life Insurance, Employee Benefits,
Guaranteed Investment Contracts and a Corporate Operation.
Below is a summary of net income by segment.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
ANNUITY $ 67 $49 $ 130 $ 92
INDIVIDUAL LIFE INSURANCE 15 12 28 23
EMPLOYEE BENEFITS 6 7 12 13
GUARANTEED INVESTMENT CONTRACTS -- -- -- --
CORPORATE OPERATION (3) 6 (2) 9
---- --- ----- ----
NET INCOME $ 85 $74 $ 168 $137
==== === ===== ====
</TABLE>
The sections that follow analyze each segment's results.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $417 $308 $798 $588
EXPENSES 350 259 668 496
---- ---- ---- ----
NET INCOME $ 67 $ 49 $130 $ 92
==== ==== ==== ====
</TABLE>
Revenues for the second quarter and six months ended June 30, 1998 increased
$109, or 35%, and $210, or 36%, respectively, compared to the same periods in
1997. This increase was driven by individual annuity revenues which increased
$93, or 44%, and $183, or 47%, for the second quarter and six months ended June
30, 1998, respectively, as compared to the same prior year periods primarily due
to higher fee income earned on growth in individual variable annuity account
values. Average individual variable annuity account values grew $15.3 billion,
or 42%, to $51.7 billion as of June 30, 1998 from $36.4 billion as of June 30,
1997. This growth was the result of market appreciation as well as strong
variable annuity sales of $2.8 billion and $5.1 billion for the second quarter
and six months ended June 30, 1998, respectively, as compared to sales of $2.3
billion and $4.7 billion for the second quarter and six months ended June 30,
1997, respectively. In addition, Group Annuity revenues increased $16, or 17%,
and $27, or 14%, for the second quarter and six months ended June 30, 1998
primarily due to higher net investment income resulting from growth in assets
under management. Group Annuity average account values grew $1.7 billion, or
19%, to $11.3 billion as of June 30, 1998 from $9.6 billion as of June 30, 1997
due to market appreciation and new deposits.
Expenses increased $91, or 35%, and $172, or 35%, for the second quarter and six
months ended June 30, 1998, respectively, as compared to the same periods in
1997. Benefits, claims and claim adjustment expenses increased $48 and $62 for
the second quarter and six months ended June 30, 1998, respectively, compared to
the same prior year periods primarily due to increased interest credited on
Individual Annuity general account values. Average Individual Annuity general
account values increased $1.2 billion, or 40%, to $4.2 billion at June 30, 1998
from $3.0 billion at June 30, 1997. Amortization of deferred policy acquisition
costs increased $18 and $38 for the second quarter and six months ended June 30,
1998, respectively, compared to prior year as prior and current year sales
remained strong. In addition, for the second quarter and six months ended June
30, 1998, other business expenses increased $15 and $52, respectively, as a
result of the continued growth in this segment.
Annuity net income increased $18, or 37%, and $38, or 41%, for the second
quarter and six months ended June 30, 1998, respectively, compared to the
equivalent periods in the prior year as a result of growing average account
values discussed above and operating expense efficiencies.
10
<PAGE> 11
INDIVIDUAL LIFE INSURANCE
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $136 $125 $264 $236
EXPENSES 121 113 236 213
---- ---- ---- ----
NET INCOME $ 15 $ 12 $ 28 $ 23
==== ==== ==== ====
</TABLE>
Revenues for the second quarter and six months ended June 30, 1998 increased
$11, or 9%, and $28, or 12%, respectively, as compared to the same period in
1997. This increase was primarily due to higher cost of insurance charges and
other fee income earned on the Company's growing block of variable life
insurance. Variable life average account values increased $516, or 72%, to $1.2
billion as of June 30, 1998 from $719 as of June 30, 1997 due to market
appreciation and strong sales. Variable life product sales constituted $54, or
76%, of total Individual Life Insurance new sales as of June 30, 1998, an
increase of $16, or 42%, compared to the same period in 1997.
Expenses increased $8, or 7%, and $23, or 11%, for the second quarter and six
months ended June 30 1998, respectively, as compared to the equivalent periods
of prior year. This increase was primarily the result of higher benefits,
claims, and claim adjustment expenses of $4 and $24 for the second quarter and
six months ended June 30, 1998, respectively, compared to the same periods in
prior year due to the growth in this segment as well as increased mortality
experience in 1998.
Net income increased $3, or 25%, and $5, or 22%, for the second quarter and six
months ended June 30, 1998, respectively, compared to the same periods in 1997
as a result of strong sales and growing account values.
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $130 $142 $478 $321
EXPENSES 124 135 466 308
---- ---- ---- ----
NET INCOME $ 6 $ 7 $ 12 $ 13
==== ==== ==== ====
</TABLE>
Revenues decreased $12, or 8%, for the second quarter of 1998 as compared to the
second quarter of 1997 as a result of a slight decline in account values related
to leveraged COLI compared to the same period in 1997. Revenues increased $157,
or 49%, as of June 30, 1998, compared to the same period in the prior year, as
a result of renewal premium on leveraged COLI, as well as an increase in fee
income related to new sales of variable COLI, which took place in the first
quarter of 1998.
Expenses decreased $11, or 8% for the second quarter of 1998 as compared to the
second quarter of 1997 due to the factors described above. Expenses increased
$158, or 51%, as of June 30, 1998, compared to the equivalent periods in 1997,
primarily due to higher expenses associated with variable COLI sales and
leveraged COLI renewal premium in the first quarter of 1998. Net income was
consistent with the prior year.
GUARANTEED INVESTMENT CONTRACTS
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $38 $62 $90 $134
EXPENSES 38 62 90 134
--- --- --- ----
NET LOSS $-- $-- $-- $--
=== === === ====
</TABLE>
This segment reported no net income for the second quarter and six months ended
June 30, 1998 and 1997 consistent with management's expectations that net income
from Closed Book GRC in the years subsequent to 1996 will be immaterial based on
the Company's current projections for the performance of the assets and
liabilities associated with Closed Book GRC. However, no assurance can be given
that, under certain unanticipated economic circumstances which result in the
Company's assumptions being proven inaccurate, further losses in respect of
Closed Book GRC will not occur in the future.
11
<PAGE> 12
REGULATORY INITIATIVES AND CONTINGENCIES
NAIC PROPOSALS
The National Association of Insurance Commissioners ("NAIC") adopted the
Codification of Statutory Accounting Principles ("SAP") in March, 1998. The
proposed effective date for the statutory accounting guidance is January 1,
2001. It is expected that the Company's domiciliary state will adopt SAP and the
Company will make the necessary changes required for implementation. These
changes are not anticipated to have a material impact on the statutory financial
statements of the Company.
YEAR 2000
The Year 2000 issue relates to the ability or inability of computer systems to
properly process information and data containing or related to dates beginning
with the year 2000 and beyond. The Year 2000 issue exists because many computer
systems that are in use today were developed years ago when a year was
identified using a two-digit field rather than a four-digit field. As
information and data containing or related to the century date are introduced to
computer hardware, software and other systems, date sensitive systems may
recognize the year 2000 as 1900, or not at all, which may result in computer
systems processing information incorrectly. This, in turn, may significantly and
adversely affect the integrity and reliability of information databases and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors and others, may also adversely affect any
given company.
As an insurance and financial services company, Hartford Life Insurance Company
has thousands of individual and business customers that have insurance policies,
annuities, mutual funds and other financial products from the Company. Nearly
all of these policies and products contain date sensitive data, such as policy
expiration dates, birth dates, premium payment dates, and the like. In addition,
the Company has business relationships with numerous third parties that affect
virtually all aspects of the Company's business, including, without limitation,
suppliers, computer hardware and software vendors, insurance agents and brokers,
securities broker-dealers and other distributors of financial products.
Beginning in 1990, the Company began working on making its computer systems Year
2000 ready, either by installing new programs or by replacing systems. In
January 1998, the Company commenced a company-wide program to further identify,
assess and remediate the impact of Year 2000 problems in all of the Company's
business segments. The Company currently anticipates that this internal program
will be substantially completed by the end of 1998, and testing of computer
systems will continue through 1999. The costs of addressing the Year 2000 issue
that have been incurred by the Company through the six months ended June 30,
1998 have not been material to the Company's financial condition or results of
operations. The Company will continue to incur costs related to its Year 2000
efforts and does not anticipate that the costs to be incurred will be material
to the Company's financial condition or results of operations.
In addition, as part of its Year 2000 program, the Company is identifying third
parties with which it has significant business relations in order to attempt to
assess the potential impact on the Company of their Year 2000 issues and
remediation plans. The Company currently anticipates that it will substantially
complete this evaluation by the end of 1998, and will conduct systems testing
with certain third parties through 1999. The Company does not have control over
these third parties and, as a result, the Company cannot currently determine to
what extent future operating results may be adversely affected by the failure of
these third parties to successfully address their Year 2000 issues.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 of Notes to Condensed
Consolidated Financial Statements.
OTHER MATTERS
SUBSEQUENT EVENT
On July 7, 1998, Hartford Life, Inc. ("Hartford Life"), an indirect parent of
the Company, announced that it will recapture an in-force block of COLI business
from MBL Life Assurance Co. of New Jersey ("MBL Life"), as well as purchase the
outstanding interest in International Corporate Marketing Group ("ICMG"), which
is currently 60% owned by Hartford Life. The transaction is expected to close by
early in the fourth quarter of 1998, subject to court approval. The transaction
is being consummated through the assignment of a reinsurance arrangement between
Hartford Life and MBL Life to the Company's direct parent, Hartford Life and
Accident Insurance Company. Hartford Life originally assumed the life insurance
block in 1992 from Mutual Benefit Life Insurance Company ("Mutual Benefit
Life"), which was placed in court-supervised rehabilitation in 1991, and
reinsured a portion of those polices back to MBL Life. MBL Life, previously a
Mutual Benefit Life subsidiary, operates under the Rehabilitation Plan for
Mutual Benefit Life. Hartford Life is now recapturing the reinsured portion of
these policies ceded to MBL Life.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material effect on the financial condition
or operating results of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibits Index
(b) Reports on Form 8-K - None
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hartford Life Insurance Company
(Registrant)
/s/ Mary Jane Fortin
---------------------------------------
Mary Jane Fortin
Chief Accounting Officer and
Assistant Vice President
AUGUST 13, 1998
14
<PAGE> 15
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
EXHIBIT # DESCRIPTION
--------- -----------
27 Financial Data Schedule is filed herewith.
15
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 14,496
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 99
<MORTGAGE> 185
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,601
<CASH> 62
<RECOVER-REINSURE> 5,925
<DEFERRED-ACQUISITION> 3,573
<TOTAL-ASSETS> 109,754
<POLICY-LOSSES> 3,240
<UNEARNED-PREMIUMS> 2
<POLICY-OTHER> 20,950
<POLICY-HOLDER-FUNDS> 80,673
<NOTES-PAYABLE> 0
6
0
<COMMON> 0
<OTHER-SE> 2,575
<TOTAL-LIABILITY-AND-EQUITY> 109,754
946
<INVESTMENT-INCOME> 696
<INVESTMENT-GAINS> (6)
<OTHER-INCOME> 0
<BENEFITS> 747
<UNDERWRITING-AMORTIZATION> 209
<UNDERWRITING-OTHER> 419
<INCOME-PRETAX> 258
<INCOME-TAX> 90
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<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>
