<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, 1999
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) 525-8555
(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, 1999 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
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Statements of Income - Second Quarter and
Six Months Ended June 30, 1999 and 1998 3
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 4
Consolidated Statements of Changes in Stockholder's Equity -
Six Months Ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signature 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------------------------------------
(In millions) (Unaudited) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums and other considerations $ 517 $ 383 $ 1,004 $ 946
Net investment income 334 344 686 696
Net realized capital gains (losses) 2 (6) 1 (6)
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 853 721 1,691 1,636
- ------------------------------------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 423 349 816 747
Amortization of deferred policy acquisition costs 136 115 255 209
Dividends to policyholders 10 9 27 116
Other expenses 153 118 327 306
- ------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 722 591 1,425 1,378
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 131 130 266 258
Income tax expense 46 45 93 90
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 85 $ 85 $ 173 $ 168
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
(In millions, except for share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$14,208 and $14,505) $ 14,059 $ 14,818
Equity securities, at fair value 51 31
Policy loans, at outstanding balance 4,526 6,684
Other investments 295 264
- --------------------------------------------------------------------------------------------------------------------------
Total investments 18,931 21,797
Cash 74 17
Premiums receivable and agents' balances 27 17
Reinsurance recoverables 1,060 1,257
Deferred policy acquisition costs 3,927 3,754
Deferred income tax 495 464
Other assets 672 695
Separate account assets 99,967 90,262
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 125,153 $ 118,263
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 3,721 $ 3,595
Other policyholder funds 16,851 19,615
Other liabilities 2,022 2,094
Separate account liabilities 99,967 90,262
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 122,561 115,566
- --------------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Common stock - 1,000 shares authorized, issued and outstanding,
par value $5,690 6 6
Capital surplus 1,045 1,045
Accumulated other comprehensive income
Net unrealized capital (losses) gains on securities, net of tax (94) 184
- --------------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income (94) 184
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings 1,635 1,462
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 2,592 2,697
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 125,153 $ 118,263
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
-----------------
NET
UNREALIZED
CAPITAL
GAINS (LOSSES) TOTAL
COMMON CAPITAL ON SECURITIES, RETAINED STOCKHOLDER'S
(In millions) (Unaudited) STOCK SURPLUS NET OF TAX EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 6 $ 1,045 $ 184 $ 1,462 $ 2,697
Comprehensive income
Net income 173 173
-----------
Other comprehensive income, net of
tax (1)
Net unrealized capital losses on
securities (2) (278) (278)
-----------
Total other comprehensive income (278)
-----------
Total comprehensive income (105)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $ 6 $ 1,045 $ (94) $ 1,635 $ 2,592
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
-----------------
NET
UNREALIZED
CAPITAL
GAINS (LOSSES) TOTAL
COMMON CAPITAL ON SECURITIES, RETAINED STOCKHOLDER'S
(In millions) (Unaudited) STOCK SURPLUS NET OF TAX EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 6 $ 1,045 $ 179 $ 1,113 $ 2,343
Comprehensive income
Net income 168 168
-----------
Other comprehensive income, net of
tax (1)
Net unrealized capital losses on
securities (2) 70 70
-----------
Total other comprehensive income 70
-----------
Total comprehensive income 238
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $ 6 $ 1,045 $ 249 $ 1,281 $ 2,581
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net unrealized capital gains (losses) on securities is reflected net of tax
(benefit) provision of $(150) and $38 for the six months ended June 30,
1999 and 1998, respectively.
(2) There were reclassification adjustments for after-tax gains (losses)
realized in net income of $1 and $(4) for the six months ended June 30,
1999 and 1998, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
(In millions) (Unaudited) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 173 $ 168
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED FOR OPERATING ACTIVITIES
Depreciation and amortization (4) (12)
Net realized capital (gains) losses (1) 6
Increase in premiums receivable and agents' balances (10) (4)
Decrease in other liabilities (57) (117)
Change in receivables, payables and accruals 70 (17)
Decrease in accrued tax (200) (20)
Decrease (increase) in deferred income tax 119 (83)
Increase in deferred policy acquisition costs (173) (258)
Increase in future policy benefits 126 181
(Increase) decrease in reinsurance recoverables and other assets (83) 148
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (40) (8)
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments (4,010) (3,373)
Sales of investments 5,545 2,326
Maturities and principal paydowns of fixed maturity investments 979 979
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 2,514 (68)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (disbursements for) receipts from investment and universal life-type
contracts (charged against) credited to policyholder accounts (2,417) 84
- --------------------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (2,417) 84
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash 57 8
Cash - beginning of period 17 54
CASH - END OF PERIOD $ 74 $ 62
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- --------------------------------------------------------------------------------------------------------------------
NET CASH PAID DURING THE PERIOD FOR
Income taxes $ 111 $ 120
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
NOTES TO 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 consolidated financial statements of Hartford Life
Insurance Company and subsidiaries ("Hartford Life Insurance Company" or 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 significant accounting policies, see Note 2 of Notes to
Consolidated Financial Statements in Hartford Life Insurance Company's 1998 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 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This statement amends SFAS No. 133 to defer its effective
date for one year, to fiscal years beginning after June 15, 2000. Initial
application for Hartford Life Insurance Company will begin for the first quarter
2001.
Effective January 1, 1999, Hartford Life Insurance Company adopted Statement of
Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". This SOP provides guidance on
accounting for costs of internal use software and in determining whether
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. Adoption of this SOP did not have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 1999, Hartford Life Insurance Company adopted SOP No. 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments". This SOP addresses accounting by insurance and other enterprises
for assessments related to insurance activities, including recognition,
measurement and disclosure of guaranty fund or other assessments. Adoption of
this SOP did not have a material impact on the Company's financial condition or
results of operations.
2. SEGMENT INFORMATION
Hartford Life Insurance Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", during the fourth quarter of
1998. This statement replaces SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise", and establishes new standards for reporting information
about operating segments in annual financial statements and in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that the reportable operating segments be based on the
Company's internal operations. On this basis, Hartford Life Insurance Company's
segments represent strategic operations which offer different products and
services as well as serve different markets.
Hartford Life Insurance Company is organized into three reportable operating
segments: Investment Products, Individual Life and Corporate Owned Life
Insurance (COLI). Investment Products offers individual variable annuities,
fixed market value adjusted (MVA) annuities and fixed and variable immediate
annuities, deferred compensation and retirement plan services, structured
settlement contracts and other special purpose annuity contracts. Individual
Life sells a variety of life insurance products, including variable life,
universal life, interest-sensitive whole life and term life insurance. COLI
primarily offers variable products used by employers to fund non-qualified
benefits or other post-employment benefit obligations as well as leveraged COLI.
The Company includes in "Other" corporate items not directly allocable to any of
its reportable operating segments as well as certain employee benefit products
including group life and disability insurance that is directly written by the
Company and is substantially ceded to its parent, Hartford Life and Accident
Insurance Company.
7
<PAGE> 8
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2 of
Notes to Consolidated Financial Statements in Hartford Life Insurance Company's
1998 Form 10-K Annual Report. Hartford Life Insurance Company evaluates
performance of its segments based on revenues, net income and the segment's
return on allocated capital. The Company charges direct operating expenses to
the appropriate segment and allocates the majority of indirect expenses to the
segments based on an intercompany expense arrangement. Intersegment revenues are
not significant and primarily occur between corporate and the operating
segments. These amounts include interest income on allocated surplus and the
allocation of net realized capital gains and losses through net investment
income utilizing the duration of the segment's investment portfolios. The
following tables present summarized financial information concerning the
Company's segments.
<TABLE>
<CAPTION>
Investment Individual
JUNE 30, 1999 Products Life COLI Other Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER ENDED
Total revenues $474 $140 $215 $ 24 $ 853
Net income (loss) 81 17 7 (20) 85
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
Total revenues $935 $273 $439 $ 44 $1,691
Net income (loss) 159 32 13 (31) 173
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Investment Individual
JUNE 30, 1999 Products Life COLI Other Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER ENDED
Total revenues $455 $136 $132 $ (2) $ 721
Net income (loss) 67 15 6 (3) 85
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
Total revenues $888 $264 $473 $ 11 $1,636
Net income (loss) 130 28 12 (2) 168
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
3. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
Hartford Life Insurance 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, at the present
time the Company does not anticipate that the ultimate liability arising from
such pending or threatened litigation, after consideration of provisions made
for potential losses and costs of defense, will have a material adverse effect
on the financial condition or operating results of the Company.
(b) INVESTMENTS
In October 1998, the Company became aware of allegations of improper activities
at Commercial Financial Services Inc. (CFS), a securitizer and servicer of asset
backed securities, and on December 11, 1998, CFS filed for protection under
Chapter 11 of the Bankruptcy Code. As a result, the Company recognized a $25,
after-tax, writedown on its asset backed securities securitized and serviced by
CFS, during the fourth quarter of 1998. (For a further discussion of CFS, see
Note 12 (e) of Notes to Consolidated Financial Statements included in Hartford
Life Insurance Company's Form 10-K Annual Report.)
In June 1999, CFS ceased operations and bankruptcy trustees began the process of
transitioning servicing accounts over to back up servicers. As a result, the
Company recognized a $28, after-tax, writedown related to the asset backed
securities, during the second quarter of 1999. As of June 30, 1999, Hartford
Life Insurance Company's amortized cost and estimated fair value of these
securities was $23.
8
<PAGE> 9
(c) TAX MATTERS
Hartford Life Insurance Company's federal income tax returns are routinely
audited by the Internal Revenue Service. Management believes that adequate
provision has been made in the financial statements for items that may result
from tax examinations and other tax related matters.
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, 1999, compared with December 31, 1998, and its results of operations for the
second quarter and six months ended June 30, 1999 compared with the equivalent
periods in 1998. This discussion should be read in conjunction with the MD&A
included in the Company's 1998 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 ("Hartford Life Insurance Company" or
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 Hartford Life Insurance 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.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Consolidated Results of Operations 9
Investment Products 10
Individual Life 10
Corporate Owned Life Insurance (COLI) 11
Regulatory Initiatives and Contingencies 11
Accounting Standards 13
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 853 $ 721 $ 1,691 $ 1,636
Expenses 768 636 1,518 1,468
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 85 $ 85 $ 173 $ 168
- -----------------------------------------------------------------------------------------------------
</TABLE>
Hartford Life Insurance Company has the following reportable segments:
Investment Products, Individual Life and Corporate Owned Life Insurance (COLI).
The Company reports in "Other" corporate items not directly allocable to any of
its segments, as well as certain employee benefit products, including group life
and disability insurance that is directly written by the Company and is
substantially ceded to its parent, Hartford Life and Accident Insurance Company.
Revenues increased $132, or 18%, and $55, or 3%, for the second quarter and six
months ended June 30, 1999, respectively, as compared to the equivalent 1998
periods. This increase was driven primarily by higher fee income in the
individual annuity operation of the Investment Products segment. The increased
fees are a result of higher average account values which increased due to strong
net cash flow (new sales less surrenders) and equity market appreciation. Also,
COLI revenues increased primarily relating to cost of insurance charges
associated with the MBL Recapture which was recaptured in November 1998. (For a
discussion of the MBL business, see "MBL Recapture" under the Capital Resources
and Liquidity section in Hartford Life Insurance Company's 1998 Form 10-K Annual
Report.)
Expenses increased $132, or 21%, and $50, or 3%, for the second quarter and six
months ended June 30, 1999, respectively, compared to the equivalent 1998
periods, consistent with the revenue growth described above. Net income
increased $5, or 3%, for six months ended June 30, 1999, as compared to the
equivalent 1998 period. This earnings growth was primarily driven by the
Company's increased revenues associated with higher average account values
across its operating segments.
9
<PAGE> 10
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Products $ 81 $ 67 $ 159 $ 130
Individual Life 17 15 32 28
Corporate Owned Life Insurance (COLI) 7 6 13 12
Other (20) (3) (31) (2)
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 85 $ 85 $ 173 $ 168
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segment's results.
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 474 $ 455 $ 935 $ 888
Expenses 393 388 776 758
- ------------------------------------------------------------------------------------------------
NET INCOME $ 81 $ 67 $ 159 $ 130
- ------------------------------------------------------------------------------------------------
</TABLE>
Revenues in the Investment Products segment increased $19, or 4%, and $47, or
5%, for the second quarter and six months ended June 30, 1999, respectively, as
compared to the equivalent prior year periods. This increase was primarily
driven by higher fee income in the individual annuity operation. Fees generated
by individual variable annuities increased $53 and $108 for the respective
second quarter and six month periods, while related average account values grew
$14.8 billion, or 29%, to $66.5 billion for the six months ended June 30, 1999
from $51.7 billion for the six months ended June 30, 1998. This growth was due,
in part, to strong individual variable annuity sales of $5.3 billion for the
first six months of 1999, as well as strong persistency and equity market
appreciation. Partially offsetting this segment's revenue growth was a decline
in net investment income of $18 and $41 for the respective second quarter and
six month periods, primarily due to a decrease in general account assets related
to the Company's guaranteed investment contract (GIC) business.
Due to continued growth in average account values, expenses increased $5, or 1%,
and $18, or 2%, for the second quarter and six months ended June 30, 1999,
respectively, compared to the equivalent prior year periods. This increase was
driven by amortization of deferred policy acquisition costs, which grew $15 and
$39 for the respective second quarter and six month periods. Operating expenses
as a percentage of average account value for this segment were relatively
consistent for the second quarter and six months ended June 30, 1999 as compared
to the equivalent prior year periods. Partially offsetting this segment's
expense growth was a decrease in benefits and claims of $8 and $32 for the
respective second quarter and six month periods, primarily related to the
Company's GIC business.
Net income increased $14, or 21%, and $29, or 22%, for the second quarter and
six months ended June 30, 1999, respectively, as compared to the equivalent
prior year periods. These increases were driven by the segment's growth in fee
income as a result of the increase in average account value of 17% and 20%, for
the second quarter and six months ended June 30, 1999, respectively, as compared
to the equivalent 1998 periods.
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 140 $ 136 $ 273 $ 264
Expenses 123 121 241 236
- ------------------------------------------------------------------------------------------------
NET INCOME $ 17 $ 15 $ 32 $ 28
- ------------------------------------------------------------------------------------------------
</TABLE>
Revenues in the Individual Life segment increased $4, or 3%, and $9, or 3%, for
the second quarter and six months ended June 30, 1999, respectively, as compared
to the equivalent prior year periods. This increase in revenues is attributed to
higher fee income, which increased $10, or 12%, and $18, or 11%, for the
respective second quarter and six month periods, primarily as a result of higher
variable life average account values, which increased $700, or 58%, to $1.9
billion for the six months ended June 30, 1999 as compared to $1.2 billion for
the six months ended June 30, 1998.
10
<PAGE> 11
Expenses increased $2, or 2%, and $5, or 2%, for the second quarter and six
months ended June 30, 1999, respectively, as compared to the equivalent prior
year periods, primarily due to higher amortization of deferred policy
acquisition costs partially offset by favorable mortality experience.
Net income increased $2, or 13%, and $4, or 14%, for the second quarter and six
months ended June 30, 1999, respectively, as compared to the equivalent 1998
periods. These increases were driven by the higher average variable life account
values and favorable mortality described above. Total life insurance in force
was over $63 billion as of June 30, 1999, a 10% increase over the same period in
1998.
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 215 $ 132 $ 439 $ 473
Expenses 208 126 426 461
- ----------------------------------------------------------------------------------------------
NET INCOME $ 7 $ 6 $ 13 $ 12
- ----------------------------------------------------------------------------------------------
</TABLE>
COLI revenues increased $83, or 63%, for the second quarter ended June 30, 1999
from the comparable 1998 period. Contributing to the increase in revenues were
cost of insurance charges associated with the MBL business recaptured in
November 1998 and higher fee income associated with increased variable COLI
account values. Average variable COLI account values increased $4.0 billion, or
51%, to $11.8 billion for the second quarter ended June 30, 1999 compared to
$7.8 billion for the comparable 1998 period. These increases were offset by the
reduction in revenue associated with the declining block of leveraged COLI
business due to the Health Insurance Portability and Accountability Act of 1996,
which phased out the deductibility of interest expense on policy loans through
the end of 1998. Revenues decreased $34, or 7%, for the six months ended June
30, 1999 from the comparable 1998 period primarily due to higher revenues in
1998 associated with the segment's significant first quarter 1998 sales. The
revenue decrease was partially offset by the increase in fee income on the
variable COLI business and the increased revenues associated with the MBL
business described above.
Expenses increased $82, or 65%, for the second quarter ended June 30, 1999 from
the comparable 1998 period, primarily due to higher benefits and claims
associated with MBL business, partially offset by decreases due to the declining
block of leveraged COLI business. However, expenses decreased $35, or 8%, for
the six months ended June 30, 1999 as compared to the same period in 1998,
primarily due to significant dividends to policyholders in the first quarter of
1998 relating to the revenues discussed above.
Net income increased $1, or 17%, and $1, or 8%, for the second quarter and six
months ended June 30, 1999, respectively, as compared to the equivalent prior
year periods, primarily due to higher fees earned on increased variable COLI
account values, as well as earnings associated with MBL business.
REGULATORY INITIATIVES AND CONTINGENCIES
NAIC PROPOSALS
The NAIC has been developing several model laws and regulations, including a
Model Investment Law and amendments to the Model Holding Company System
Regulatory Act (the "Holding Act Amendments"). The Model Investment Law defines
the investments which are permissible for life insurers to hold, and the Holding
Act Amendments address the types of activities in which subsidiaries and
affiliates may engage. The NAIC adopted these models in 1997 and 1996, but the
laws have not been enacted for insurance companies domiciled in the State of
Connecticut, such as Hartford Life Insurance Company and its insurance
subsidiaries. Even if enacted in Connecticut, it is expected that these laws
will neither significantly change Hartford Life Insurance Company's investment
strategies nor have any material adverse effect on Hartford Life Insurance
Company's liquidity or financial position.
The 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 Hartford Life Insurance Company's
domiciliary state will adopt the 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 Hartford Life Insurance
Company's insurance subsidiaries.
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Hartford Life Insurance Company distributes its annuity and life insurance
products through a variety of distribution channels, including broker-dealers,
banks, wholesalers, its own internal sales force and other third party marketing
organizations. The Company periodically negotiates provisions and renewals of
these relationships and there can be no assurance that such terms will remain
acceptable to the Company or such service providers. An interruption in the
Company's continuing relationship with certain of these third parties could
materially affect the Company's ability to market its products. During the first
quarter of 1999, the Company modified its contract with
11
<PAGE> 12
Putnam Mutual Funds Corp. (Putnam) to eliminate the exclusivity provision, which
will allow both parties to pursue new market opportunities. Putnam is
contractually obligated to support and service the related annuity in force
block of business and to market, support and service new business. However,
there can be no assurance that this contract modification will not adversely
impact the Company's ability to distribute Putnam-related products.
YEAR 2000
In General
The Year 2000 issue relates to the ability or inability of computer hardware,
software and other information technology (IT) systems, as well as non-IT
systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, 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, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford Life Insurance Company's IT systems,
as well as the reliability of its non-IT systems, are integral aspects of
Hartford Life Insurance Company's business. Hartford Life Insurance Company
issues insurance policies, annuities and other financial products to individual
and business customers, nearly all of which contain date sensitive data, such as
policy expiration dates, birth dates and premium payment dates. In addition,
various IT systems support communications and other systems that integrate
Hartford Life Insurance Company's various business segments and field offices,
including Hartford Life Insurance Company's foreign operations. Hartford Life
Insurance Company also has business relationships with numerous third parties
that affect virtually all aspects of Hartford Life Insurance 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, many of which provide date sensitive data to
Hartford Life Insurance Company, and whose operations are important to Hartford
Life Insurance Company's business.
Internal Year 2000 Efforts and Timetable
Beginning in 1990, Hartford Life Insurance Company began working on making its
IT systems Year 2000 ready, either through installing new programs or replacing
systems. Since January 1998, Hartford Life Insurance Company's Year 2000 efforts
have focused on the remaining Year 2000 issues related to IT and non-IT systems
in all of Hartford Life Insurance Company's business segments. These Year 2000
efforts include the following five main initiatives: (1) identifying and
assessing Year 2000 issues; (2) taking actions to remediate IT and non-IT
systems so that they are Year 2000 ready; (3) testing IT and non-IT systems for
Year 2000 readiness; (4) deploying such remediated and tested systems back into
their respective production environments; and (5) conducting internal and
external integrated testing of such systems. As of December 31, 1998, Hartford
Life Insurance Company substantially completed initiatives (1) through (4) of
its internal Year 2000 efforts. Hartford Life Insurance Company is currently
performing initiative (5) testing and management currently anticipates that such
activity will continue into the fourth quarter of 1999.
Third Party Year 2000 Efforts and Timetable
Hartford Life Insurance Company's Year 2000 efforts include assessing the
potential impact on Hartford Life Insurance Company of third parties' Year 2000
readiness. Hartford Life Insurance Company's third party Year 2000 efforts
include the following three main initiatives: (1) identifying third parties
which have significant business relationships with Hartford Life Insurance
Company, including, without limitation, suppliers, computer hardware and
software vendors, insurance agents and brokers, third party administrators,
securities broker-dealers, banks, and other distributors and servicers of
financial products, and inquiring of such third parties regarding their Year
2000 readiness; (2) evaluating such third parties' responses to Hartford Life
Insurance Company's inquiries; and (3) based on the evaluation of third party
responses (or a third party's failure to respond) and the significance of the
business relationship, conducting additional activities with respect to third
parties as determined to be necessary in each case. These activities may include
conducting additional inquiries, more in-depth evaluations of Year 2000
readiness and plans, and integrated IT systems testing. Hartford Life Insurance
Company has substantially completed third party initiatives (1) and (2).
Hartford Life Insurance Company is currently conducting the additional
activities described in initiative (3) and management currently anticipates that
it will continue to do so through the end of 1999. However, notwithstanding
these third party Year 2000 efforts, Hartford Life Insurance Company does not
have control over these third parties and, as a result, Hartford Life Insurance
Company cannot currently determine to what extent future operating results may
be adversely affected by the failure of these third parties to adequately
address their Year 2000 issues.
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<PAGE> 13
Year 2000 Costs
The after-tax costs of Hartford Life Insurance Company's Year 2000 efforts that
were incurred prior to the year ended December 31, 1998 were not material to
Hartford Life Insurance Company's financial condition or results of operations.
For the year ended December 31, 1998, the after-tax costs were approximately $3.
Management currently estimates that after-tax costs related to the Year 2000
program to be incurred in 1999 will be approximately $5 to $10, of which
approximately $1 was incurred in the six months ended June 30, 1999. These costs
are being expensed as incurred.
Risks and Contingency Plans
If significant Year 2000 problems arise, including problems arising with third
parties, failures of IT and non-IT systems could occur, which in turn could
result in substantial interruptions in Hartford Life Insurance Company's
business. In addition, Hartford Life Insurance Company's investing activities
are an important aspect of its business and Hartford Life Insurance Company may
be exposed to the risk that issuers of investments held by it will be adversely
impacted by Year 2000 issues. Given the uncertain nature of Year 2000 problems
that may arise, especially those related to the readiness of third parties
discussed above, management cannot determine at this time whether the
consequences of Year 2000 related problems that could arise will have a material
impact on Hartford Life Insurance Company's financial condition or results of
operations.
Hartford Life Insurance Company has substantially completed the development of
certain contingency plans so that if, despite its Year 2000 efforts, Year 2000
problems ultimately arise, the impact of such problems may be avoided or
minimized. The contingency planning process involved identifying reasonably
likely business disruption scenarios that, if they were to occur, could create
significant problems in critical functions of the Company. The Company has
developed plans to respond to such problems so that critical business functions
may continue to operate with minimal disruption. Contingency planning also
included assessing the dependency of business functions on critical third
parties and their Year 2000 readiness. These plans will be reviewed and tested
on an integrated basis, where appropriate, for the remainder of the year.
Furthermore, in many contexts, Year 2000 issues are dynamic, and ongoing
assessments of business functions, vulnerabilities and risks must be made. As
such, new contingency plans may be needed in the future and/or existing plans
may need to be modified as circumstances warrant.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 of Notes to Consolidated
Financial Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hartford Life Insurance 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, at the present
time the Company does not anticipate that the ultimate liability arising from
such pending or threatened litigation, after consideration of provisions made
for potential losses and costs of defense, will have a material adverse 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.
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<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
/s/ Mary Jane B. Fortin
---------------------------------------
Mary Jane B. Fortin
Vice President and Chief Accounting
Officer
AUGUST 13, 1999
14
<PAGE> 15
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
27 Financial Data Schedule is filed herewith.
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 14,059
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 51
<MORTGAGE> 144
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,931
<CASH> 74
<RECOVER-REINSURE> 1,060
<DEFERRED-ACQUISITION> 3,927
<TOTAL-ASSETS> 125,153
<POLICY-LOSSES> 3,721
<UNEARNED-PREMIUMS> (2)
<POLICY-OTHER> 16,851
<POLICY-HOLDER-FUNDS> 99,967
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 2,586
<TOTAL-LIABILITY-AND-EQUITY> 125,153
1,004
<INVESTMENT-INCOME> 686
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 0
<BENEFITS> 816
<UNDERWRITING-AMORTIZATION> 255
<UNDERWRITING-OTHER> 273
<INCOME-PRETAX> 266
<INCOME-TAX> 93
<INCOME-CONTINUING> 173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173
<EPS-BASIC> 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>
