<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 September 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 November 15, 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 - Third Quarter and
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 4
Consolidated Statements of Changes in Stockholder's Equity -
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows - Nine Months Ended
September 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 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signature 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In millions) (Unaudited) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums and other considerations $ 513 $ 484 $ 1,517 $ 1,430
Net investment income 333 339 1,019 1,035
Net realized capital gains (losses) -- 3 1 (3)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 846 826 2,537 2,462
- ----------------------------------------------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 379 353 1,195 1,100
Amortization of deferred policy acquisition costs 141 119 396 328
Dividends to policyholders 70 61 97 177
Other expenses 105 155 432 461
- ----------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 695 688 2,120 2,066
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 151 138 417 396
Income tax expense 51 49 144 139
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 100 $ 89 $ 273 $ 257
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In millions, except for share data) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$14,175 and $14,505) $ 13,902 $ 14,818
Equity securities, at fair value 50 31
Policy loans, at outstanding balance 4,283 6,684
Other investments 352 264
- -----------------------------------------------------------------------------------------------------------------------
Total investments 18,587 21,797
Cash 35 17
Premiums receivable and agents' balances 32 17
Reinsurance recoverables 1,096 1,257
Deferred policy acquisition costs 4,012 3,754
Deferred income tax 490 464
Other assets 704 695
Separate account assets 97,030 90,262
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 121,986 $ 118,263
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 4,033 $ 3,595
Other policyholder funds 16,453 19,615
Other liabilities 1,853 2,094
Separate account liabilities 97,030 90,262
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 119,369 115,566
- -----------------------------------------------------------------------------------------------------------------------
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 (loss)
Net unrealized capital (losses) gains on securities, net of tax (169) 184
-----------------------------
Total accumulated other comprehensive income (loss) (169) 184
-----------------------------
Retained earnings 1,735 1,462
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 2,617 2,697
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 121,986 $ 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
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS)
---------------------
NET
UNREALIZED
CAPITAL
GAINS (LOSSES) ON
SECURITIES, TOTAL
(In millions) (Unaudited) COMMON CAPITAL NET OF RETAINED STOCKHOLDER'S
STOCK SURPLUS 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 273 273
----------
Other comprehensive income (loss), net of
tax (1)
Net unrealized capital losses on
securities (2) (353) (353)
----------
Total other comprehensive income (loss) (353)
----------
Total comprehensive income (80)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 $ 6 $1,045 $(169) $1,735 $2,617
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
NET
UNREALIZED
CAPITAL
GAINS ON
SECURITIES, TOTAL
(In millions) (Unaudited) COMMON CAPITAL NET OF RETAINED STOCKHOLDER'S
STOCK SURPLUS 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 257 257
------------
Other comprehensive income, net of tax(1)
Net unrealized capital gains on
securities (2) 112 112
------------
Total other comprehensive income 112
------------
Total comprehensive income 369
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 $ 6 $1,045 $291 $1,370 $2,712
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net unrealized capital gains (losses) on securities is reflected net of tax
(benefit) provision of $(190) and $60 for the nine months ended September
30, 1999 and 1998, respectively.
(2) There were reclassification adjustments for after-tax gains (losses)
realized in net income of $1 and $(2) for the nine months ended September
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>
NINE MONTHS ENDED
SEPTEMBER 30,
(In millions) (Unaudited) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 273 $ 257
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization (8) (15)
Net realized capital (gains) losses (1) 3
Increase in premiums receivable and agents' balances (15) (4)
(Decrease) increase in other liabilities (81) 8
Change in receivables, payables and accruals 126 (8)
Decrease in accrued tax (200) (55)
Decrease (increase) in deferred income tax 164 (90)
Increase in deferred policy acquisition costs (258) (359)
Increase in future policy benefits 438 282
(Increase) decrease in reinsurance recoverables and other assets (262) 104
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 176 123
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments (5,132) (4,619)
Sales of investments 6,434 3,340
Maturities and principal paydowns of fixed maturity investments 1,338 1,387
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,640 108
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net disbursements for investment and universal life-type
contracts charged against policyholder accounts (2,798) (199)
- -----------------------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (2,798) (199)
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash 18 32
Cash - beginning of period 17 54
- -----------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 35 $ 86
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID DURING THE PERIOD FOR
Income taxes $ 111 $ 241
</TABLE>
SEE NOTES TO 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
SEPTEMBER 30, 1999 Products Life COLI Other Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THIRD QUARTER ENDED
Total revenues $ 468 $148 $220 $ 10 $ 846
Net income 69 19 7 5 100
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
Total revenues $1,403 $421 $659 $ 54 $2,537
Net income (loss) 228 51 20 (26) 273
- ---------------------------------------------------------------------------------------------------------------------
Investment Individual
SEPTEMBER 30, 1998 Products Life COLI Other Total
- ---------------------------------------------------------------------------------------------------------------------
THIRD QUARTER ENDED
Total revenues $ 445 $137 $219 $25 $ 826
Net income 67 16 6 - 89
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
Total revenues $1,333 $401 $691 $37 $2,462
Net income (loss) 197 44 18 (2) 257
- ---------------------------------------------------------------------------------------------------------------------
</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 in December 1998, CFS filed for protection
under Chapter 11 of the Bankruptcy Code. As a result, the Company recognized
$25, after-tax, writedown related to the asset backed securities during the
fourth quarter of 1998. In June 1999, CFS ceased operations at which time the
Company recognized an additional $28, after-tax, writedown. In August 1999, the
Company sold all of its CFS holdings at a nominal gain, recovering its June 30,
1999 amortized cost of $23.
(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.
8
<PAGE> 9
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
September 30, 1999, compared with December 31, 1998, and its results of
operations for the third quarter and nine months ended September 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 11
Corporate Owned Life Insurance (COLI) 11
Regulatory Initiatives and Contingencies 12
Accounting Standards 14
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $846 $826 $2,537 $2,462
Expenses 746 737 2,264 2,205
- ---------------------------------------------------------------------------------------------------------
NET INCOME $100 $ 89 $ 273 $ 257
- ---------------------------------------------------------------------------------------------------------
</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 $20, or 2%, and $75, or 3%, for the third quarter and nine
months ended September 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 assets under management which increased due
to strong net cash flow (new sales less surrenders) and equity market
appreciation. Also, individual life fee income increased due to growth in life
insurance in force and higher average assets under management.
Expenses increased $9, or 1%, and $59, or 3%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
1998 periods, consistent with the revenue growth described above. Net income
increased $11, or 12% and $16, or 6%, for the quarter and nine months ended
September 30, 1999, as compared to the equivalent 1998 periods. This earnings
growth was primarily driven by the Company's increased revenues associated with
higher average assets under management across its operating segments.
9
<PAGE> 10
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Products $ 69 $ 67 $228 $197
Individual Life 19 16 51 44
Corporate Owned Life Insurance (COLI) 7 6 20 18
Other 5 - (26) (2)
- ---------------------------------------------------------------------------------------------------------
NET INCOME $100 $ 89 $273 $257
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segment's results.
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $468 $445 $1,403 $1,333
Expenses 399 378 1,175 1,136
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 69 $ 67 $ 228 $ 197
- ---------------------------------------------------------------------------------------------------
</TABLE>
Revenues in the Investment Products segment increased $23, or 5%, and $70, or
5%, for the third quarter and nine months ended September 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 $42, or 21% and $150,
or 27%, for the respective third quarter and nine month periods, while related
average assets under management grew $15.3 billion, or 28%, to $69.8 billion for
the third quarter 1999 and $15.8 billion, or 32%, to $65.5 billion for the nine
months ended September 30, 1999, as compared to the same periods in 1998. This
growth was due, in part, to strong individual variable annuity sales of $7.9
billion for the first nine months of 1999, as well as strong persistency and
equity market appreciation from the equivalent 1998 periods. Partially
offsetting this segment's revenue growth for the nine months ended September 30,
1999 as compared to the equivalent 1998 period was a decline in net investment
income of $42, or 7%, primarily related to a decrease in general account assets
related to the Company's guaranteed investment contract (GIC) business.
Due to continued growth in average assets under management, expenses increased
$21, or 6%, and $39, or 3%, for the third quarter and nine months ended
September 30, 1999, respectively, as compared to the equivalent prior year
periods. This increase was driven by amortization of deferred policy acquisition
costs, which grew $17, or 19%, and $56, or 22%, for the respective third quarter
and nine month periods. Operating expenses for this segment were relatively
consistent for the third quarter ended September 30, 1999 and increased $22, or
12%, for the nine months ended September 30, 1999 as compared to the equivalent
prior year periods. Partially offsetting this segment's expense growth for the
nine months ended September 30, 1999 as compared to the equivalent 1998 period
was a decrease in benefits and claims, primarily related to the Company's GIC
business.
Net income increased $2, or 3%, and $31, or 16%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
prior year periods. These increases were driven primarily by the segment's
growth in fee income as a result of the increase in average assets under
management.
10
<PAGE> 11
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $148 $137 $421 $401
Expenses 129 121 370 357
- ---------------------------------------------------------------------------------------------
NET INCOME $ 19 $ 16 $ 51 $ 44
- ---------------------------------------------------------------------------------------------
</TABLE>
Revenues in the Individual Life segment increased $11, or 8%, and $20, or 5%,
for the third quarter and nine months ended September 30, 1999, respectively, as
compared to the equivalent prior year periods. This increase in revenues is
attributed to higher fee income, which increased $17, or 20%, and $35, or 14%,
for the respective third quarter and nine month periods, primarily as result of
an increase in life insurance in force of 10% to $64.7 billion from September
30, 1998 to September 30, 1999, as well as higher variable life average assets
under management which increased $700, or 50%, to $2.1 billion for the third
quarter ended September 30, 1999 and $700, or 58%, to $1.9 billion for the nine
months ended September 30, 1999 as compared to the equivalent 1998 periods. The
higher fee income was offset by a decrease in premium revenue resulting from
the segment's shift from traditional life insurance products to investment
oriented life insurance products.
Expenses increased $8, or 7%, and $13, or 4%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
prior year periods. These increases were primarily due to higher amortization of
deferred policy acquisition costs and operating expenses related to the growth
in life insurance in force and average variable life assets under management.
These expense increases were partially offset by favorable mortality experience.
Net income increased $3, or 19%, and $7, or 16%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
1998 periods. These increases were primarily driven by higher life insurance in
force and average variable life assets under management, as well as favorable
mortality described above.
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $220 $219 $659 $691
Expenses 213 213 639 673
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 7 $ 6 $ 20 $ 18
- ---------------------------------------------------------------------------------------------------------
</TABLE>
COLI revenues were consistent for the third quarter ended September 30, 1999 and
decreased $32 or 5%, for the nine months ended September 30, 1999, as compared
to the equivalent 1998 periods. Leveraged COLI revenues increased $58 and $29
for the third quarter and nine months ended September 30, 1999, respectively, as
compared to the equivalent prior year periods due to increases related to the
MBL business recaptured in November 1998 which were partially offset by
decreases in revenues associated with the downsizing of the overall leveraged
COLI business. Leveraged COLI average account values, excluding the recaptured
MBL business, decreased $2.7 billion, or 47%, to $3.1 billion for the third
quarter ended September 30, 1999 and $1.8 billion, or 31%, to $4.0 billion for
the nine months ended September 30, 1999, as compared to the equivalent 1998
periods. (For a discussion of the MBL Recapture, see the Capital Resources and
Liquidity section in Hartford Life Insurance Company's 1998 Form 10-K Annual
Report.)
COLI expenses were consistent for the third quarter ended September 30, 1999 and
decreased $34, or 5%, for the nine months ended September 30, 1999, as compared
to the equivalent 1998 periods due to the factors described above.
Net income increased $1, or 17%, and $2, or 11%, for the third quarter and nine
months ended September 30, 1999, respectively, as compared to the equivalent
prior year periods. These increases were driven by growth in the variable COLI
business where average account values increased $3.6 billion, or 43%, to $11.9
billion for the third quarter ended September 30, 1999 and $4.0 billion, or 53%,
to $11.6 billion for the nine months ended September 30, 1999, as compared to
the equivalent 1998 periods. Leveraged COLI net income was relatively consistent
for the third quarter and nine months ended September 30, 1999, respectively, as
compared to the equivalent prior year periods as increases associated with the
recaptured MBL business were offset by decreases associated with the downsizing
of the overall leveraged COLI business.
11
<PAGE> 12
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 and its 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.
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 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, mutual funds 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.
12
<PAGE> 13
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 has completed
internal integrated testing relating to initiative (5) and will continue
external integrated testing 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.
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 not exceed $10, and for the nine months
ended September 30, 1999 Hartford Life Insurance Company has incurred
approximately $1. 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 were reviewed and simulated
on an integrated basis, where appropriate, and will continue to be evaluated 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.
13
<PAGE> 14
Rollover and Event Management
A Corporate Event Management Team has been established to monitor the
corporate-wide rollover from 1999 to 2000. In addition, each business unit has
developed detailed rollover plans that will be managed and coordinated by their
individual Business Unit Event Management Centers.
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.
14
<PAGE> 15
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
NOVEMBER 15, 1999
15
<PAGE> 16
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>
16
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 13,902
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 50
<MORTGAGE> 183
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,587
<CASH> 35
<RECOVER-REINSURE> 1,096
<DEFERRED-ACQUISITION> 4,012
<TOTAL-ASSETS> 121,986
<POLICY-LOSSES> 4,033
<UNEARNED-PREMIUMS> 1
<POLICY-OTHER> 16,453
<POLICY-HOLDER-FUNDS> 97,030
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 2,611
<TOTAL-LIABILITY-AND-EQUITY> 121,986
1,517
<INVESTMENT-INCOME> 1,019
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 0
<BENEFITS> 1,195
<UNDERWRITING-AMORTIZATION> 396
<UNDERWRITING-OTHER> 477
<INCOME-PRETAX> 417
<INCOME-TAX> 144
<INCOME-CONTINUING> 273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273
<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>
