<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 March 31, 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 April 30, 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 Instructions H (1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
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PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 1999 and 1998 3
Condensed Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 4
Condensed Consolidated Statements of Changes in Stockholder's Equity -
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signature 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(In millions) (Unaudited) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Premiums and other considerations $ 487 $ 563
Net investment income 352 352
Net realized capital losses (1) -
- --------------------------------------------------------------------------
TOTAL REVENUES 838 915
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BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 393 398
Amortization of deferred policy acquisition costs 119 94
Dividends to policyholders 17 107
Other expenses 174 188
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TOTAL BENEFITS, CLAIMS AND EXPENSES 703 787
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INCOME BEFORE INCOME TAX EXPENSE 135 128
Income tax expense 47 45
- --------------------------------------------------------------------------
NET INCOME $ 88 $ 83
- --------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 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 $14,082 and $14,505) $ 14,226 $ 14,818
Equity securities, at fair value 33 31
Policy loans, at outstanding balance 4,698 6,684
Other investments 310 264
- ------------------------------------------------------------------------------------------------
Total investments 19,267 21,797
Cash 31 17
Premiums receivable and agents' balances 18 17
Reinsurance recoverables 932 1,257
Deferred policy acquisition costs 3,841 3,754
Deferred income tax 498 464
Other assets 662 695
Separate account assets 93,357 90,262
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TOTAL ASSETS $118,606 $118,263
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LIABILITIES
Future policy benefits $ 3,668 $ 3,595
Other policyholder funds 16,944 19,615
Other liabilities 1,953 2,094
Separate account liabilities 93,357 90,262
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TOTAL LIABILITIES 115,922 115,566
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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 gains on securities, net of tax 83 184
-------------------------
Total accumulated other comprehensive income 83 184
-------------------------
Retained earnings 1,550 1,462
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TOTAL STOCKHOLDER'S EQUITY 2,684 2,697
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $118,606 $118,263
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
NET
UNREALIZED CAPITAL TOTAL
COMMON CAPITAL GAINS 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 88 88
----------
Other comprehensive income, net of tax (1)
Net unrealized capital gains on securities (2) (101) (101)
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Total other comprehensive income (101)
----------
Total comprehensive income (13)
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BALANCE, MARCH 31, 1999 $ 6 $ 1,045 $ 83 $ 1,550 $ 2,684
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</TABLE>
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
NET
UNREALIZED CAPITAL TOTAL
COMMON CAPITAL GAINS ON SECURITIES, RETAINED STOCKHOLDER'S
(In millions) (Unaudited) STOCK SURPLUS NET OF TAX EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 6 $ 1,045 $ 179 $ 1,113 $ 2,343
Comprehensive income
Net income 83 83
-----------
Other comprehensive income, net of tax (1)
Net unrealized capital gains on securities (2) (2) (2)
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Total other comprehensive income (2)
-----------
Total comprehensive income 81
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BALANCE, MARCH 31, 1998 $ 6 $ 1,045 $ 177 $ 1,196 $ 2,424
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</TABLE>
(1) Net unrealized capital gains on securities is reflected net of tax of
$(54) and $(1) for the periods ended March 31, 1999 and 1998,
respectively.
(2) There was a reclassification adjustment for after-tax gains (losses)
realized in net income of $(1) and $0 for the three months ended March
31, 1999 and 1998, respectively.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
(In millions) (Unaudited) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 88 $ 83
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED FOR) PROVIDED
BY OPERATING ACTIVITIES
Depreciation and amortization (3) (5)
Net realized capital losses 1 -
Increase in premiums receivable and agents' balances (1) (5)
(Decrease) increase in other liabilities (106) 15
Change in receivables, payables and accruals 46 (23)
(Decrease) increase in accrued tax (49) 59
Decrease (increase) in deferred income tax 21 (102)
Increase in deferred policy acquisition costs (87) (115)
Increase in future policy benefits 73 55
(Increase) decrease in reinsurance recoverables and other assets (22) 127
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NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (39) 89
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INVESTING ACTIVITIES
Purchases of investments (1,541) (2,132)
Sales of investments 3,414 1,373
Maturities and principal paydowns of fixed maturity investments 523 459
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 2,396 (300)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (disbursements for) receipts from investment and universal
life-type contracts (charged against) credited to policyholder accounts (2,343) 209
- ------------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (2,343) 209
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 14 (2)
Cash - beginning of period 17 54
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CASH - END OF PERIOD $ 31 $ 52
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID DURING THE PERIOD FOR
Income taxes $ 25 $ 56
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, unless otherwise stated)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying unaudited condensed 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
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 which include 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, mutual funds, 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.
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
amortization of net
7
<PAGE> 8
realized capital gains and losses through net investment income utilizing the
duration of the segment's investment portfolios. The following tables outline
summarized financial information concerning the Company's segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED Investment Individual
MARCH 31, 1999 Products Life COLI Other Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 461 $ 133 $ 224 $ 20 $ 838
Net income (loss) 78 15 6 (11) 88
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</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED Investment Individual
MARCH 31, 1998 Products Life COLI Other Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 433 $ 128 $ 341 $ 13 $ 915
Net income 63 13 6 1 83
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</TABLE>
3. COMMITMENTS AND CONTINGENT LIABILITIES
(a) 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
As of March 31, 1999, Hartford Life Insurance Company held $70 of asset backed
securities securitized and serviced by Commercial Financial Services, Inc. (CFS)
of which $49 were included in the Company's general account and $21 in the
Company's guaranteed separate account. In October 1998, the Company became aware
of allegations of improper activities at CFS. On December 11, 1998, CFS filed
for protection under Chapter 11 of the Bankruptcy Code. In March 1999, CFS
announced that it is in active negotiations with several potential purchasers.
CFS continues to service the asset backed securities, which remain current on
payments of principal and interest, however, the Company does not expect to
recover all of its principal investment. Based upon available information, the
Company recognized a $25, after-tax, writedown related to its holdings in CFS in
the fourth quarter of 1998, of which $18 was related to the Company's general
account assets. The ultimate realizable amount depends on the outcome of the
bankruptcy of CFS and these estimates are therefore subject to material change
as new information becomes available. The Company is presently unable to
determine the amount of further potential loss, if any, related to the
securities.
(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 March
31, 1999, compared with December 31, 1998, and its results of operations for the
three months ended March 31, 1999 compared with the equivalent period 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.
8
<PAGE> 9
INDEX
<TABLE>
<S> <C>
Consolidated Results of Operations 9
Investment Products 10
Individual Life 10
Corporate Owned Life Insurance (COLI) 10
Regulatory Initiatives and Contingencies 11
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
OPERATING SUMMARY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $838 $915
Expenses 750 832
- --------------------------------------------------------------------------------
NET INCOME $ 88 $ 83
- --------------------------------------------------------------------------------
</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 decreased $77, or 8%, for the three months ended March 31, 1999 as
compared to the equivalent 1998 period, primarily due to the declining block of
leveraged COLI business. Excluding COLI, revenues increased $40, or 7%. This
increase was primarily driven by the Investment Products segment, which
experienced increased fee income in the individual annuity operation. The
increased fees are directly attributable to higher account values, which was
driven by strong net cash flow (new sales less surrenders) and equity market
appreciation.
Expenses decreased $82, or 10%, for the three months ended March 31, 1999 as
compared to the equivalent 1998 period, primarily due to significantly reduced
dividends to policyholders in the declining block of leveraged COLI business.
Excluding COLI, expenses increased $35, or 7%, primarily due to increased
amortization of deferred policy acquisition costs and increased operating
expenses directly related to growth in the Investment Products segment,
particularly the individual annuity operation. However, operating expenses as a
percentage of average assets under management as of March 31, 1999 were
consistent with the equivalent period in 1998.
Net income increased $5, or 6%, for the three months ended March 31, 1999 as
compared to the same period in 1998. This improvement in earnings was primarily
driven by both asset growth and an improvement in profit margin within the
Investment Products segment, as well as fees earned on significant increases in
variable life account values, within the Individual Life segment.
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Products $ 78 $ 63
Individual Life 15 13
Corporate Owned Life Insurance (COLI) 6 6
Other (11) 1
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NET INCOME $ 88 $ 83
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</TABLE>
The sections that follow analyze each segment's results.
9
<PAGE> 10
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $461 $433
Expenses 383 370
- --------------------------------------------------------------------------------
NET INCOME $ 78 $ 63
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</TABLE>
Revenues in the Investment Products segment increased $28, or 6%, to $461 for
the three months ended March 31, 1999 from $433 in the comparable 1998 period.
This improvement was primarily driven by the individual annuity operation. Fee
income generated by individual variable annuities products increased $61 as
related average account values grew $13.6 billion, or 27%, to $63.9 billion for
the three months ended March 31, 1999 as compared to $50.3 billion for the three
months ended March 31, 1998. This growth was due, in part, to strong individual
variable annuity sales of $2.6 billion in the first quarter of 1999, a 9%
increase over the comparable prior year level, as well as strong persistency and
equity market appreciation. Partially offsetting this increase was a decline in
net investment income of $23, primarily due to lower levels of general account
assets in the guaranteed investment contract (GIC) business.
Due to strong sales and continued growth in account values, expenses increased
$13, or 4%, to $383 for the three months ended March 31, 1999 from $370 in the
comparable 1998 period. This increase was driven by amortization of deferred
policy acquisition costs which grew $24 and other expenses which increased $4
over prior year levels. Partially offsetting this was a decrease in benefits,
claims and claim adjustment expenses of $23 related to the Company's GIC
business.
Net income increased $15, or 24%, to $78 for the three months ended March 31,
1999 from $63 for the same period in 1998. This increase was driven by an
overall 21% growth in total investment products average account values over
comparable prior year levels, coupled with an improvement in profit margin as
net income as a percentage of average account values increased to 36 basis
points for the three months ended March 31, 1999 from 34 basis points for the
comparable period in 1998.
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $133 $128
Expenses 118 115
- --------------------------------------------------------------------------------
NET INCOME $ 15 $ 13
- --------------------------------------------------------------------------------
</TABLE>
Revenues in the Individual Life segment increased $5, or 4%, to $133 for the
three months ended March 31, 1999 from $128 in the comparable 1998 period.
Expenses increased $3, or 3%, to $118 for the three months ended March 31, 1999
compared to $115 for the comparable 1998 period. Net income grew by 15% for the
three months ended March 31, 1999 to $15 from $13 for the same period in 1998.
The increase was driven by a 46% increase in variable life account values which
grew to $1.9 billion as of March 31, 1999 from $1.3 billion as of March 31,
1998. Total individual life insurance in force reached $62.0 billion as of March
31, 1999, a 10% increase over the same period in 1998.
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $224 $341
Expenses 218 335
- --------------------------------------------------------------------------------
NET INCOME $ 6 $ 6
- --------------------------------------------------------------------------------
</TABLE>
COLI revenues decreased $117, or 34%, to $224 for the three months ended March
31, 1999 from $341 in the comparable 1998 period. Expenses decreased $117, or
35%, to $218 for the three months ended March 31, 1999 compared to $335 in the
comparable 1998 period. Net income was consistent with the prior year.
The decline in revenues and expenses are both attributable to the fact that
policyholder premium payments for leveraged COLI have been virtually eliminated
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.
10
<PAGE> 11
The decrease in net income related to leveraged COLI was offset by increased net
income associated with the MBL Recapture in 1998 and higher average account
values related to variable COLI business. (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.) Average account values for
variable COLI increased $4.5 billion, or 64%, to 11.5 billion for the three
months ended March 31, 1999 as compared to $7.0 billion for the three months
ended March 31, 1998.
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. Even if enacted in
Connecticut or other states in which the Company's subsidiaries are domiciled,
it is expected that these laws will neither significantly change the Company's
investment strategies nor have any material adverse effect on the 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 the 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.
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.
11
<PAGE> 12
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, insurance agents, brokers, third party
administrators, 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 be approximately $5 to $10, of which
approximately $1 was incurred in the quarter ended March 31, 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 is in the process of developing 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 involves identifying reasonably likely business
disruption scenarios that, if they were to occur, could create significant
problems in critical functions of the Company. The Company is developing plans
to respond to such problems so that critical business functions may continue to
operate with minimal disruption. Contingency planning also includes assessing
the dependency of such business functions on critical third parties and their
Year 2000 readiness. Hartford Life Insurance Company currently anticipates
that internal and external contingency plans will be substantially complete by
the end of the second quarter of 1999. These plans will then be reviewed and
tested on an integrated basis 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.
12
<PAGE> 13
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.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARTFORD LIFE INSURANCE COMPANY
/s/ Mary Jane B. Fortin
----------------------------------
Mary Jane B. Fortin
Chief Accounting Officer and
Vice President
MAY 14, 1999
14
<PAGE> 15
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
EXHIBITS INDEX
EXHIBIT # DESCRIPTION
27 Financial Data Schedule is filed herewith.
15
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<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 14,226
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 33
<MORTGAGE> 204
<REAL-ESTATE> 0
<TOTAL-INVEST> 19,267
<CASH> 31
<RECOVER-REINSURE> 932
<DEFERRED-ACQUISITION> 3,841
<TOTAL-ASSETS> 118,606
<POLICY-LOSSES> 3,668
<UNEARNED-PREMIUMS> 2
<POLICY-OTHER> 16,944
<POLICY-HOLDER-FUNDS> 93,357
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 2,678
<TOTAL-LIABILITY-AND-EQUITY> 118,606
487
<INVESTMENT-INCOME> 352
<INVESTMENT-GAINS> (1)
<OTHER-INCOME> 0
<BENEFITS> 393
<UNDERWRITING-AMORTIZATION> 119
<UNDERWRITING-OTHER> 149
<INCOME-PRETAX> 135
<INCOME-TAX> 47
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
