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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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)
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CONNECTICUT 06-0974148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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200 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06089
(Address of principal executive offices)
(860) 525-8555
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act: None
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 March 24, 2000, 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 I(1)(a) and
(b) of Form 10-K and is therefore filing this form with the reduced disclosure
format.
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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONTENTS
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ITEM DESCRIPTION PAGE
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PART I 1 Business of Hartford Life Insurance Company* 3
2 Properties* 10
3 Legal Proceedings 10
4 **
PART II 5 Market for Hartford Life Insurance Company's Common Stock and
Related Stockholder Matters 10
6 **
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations* 11
7A Quantitative and Qualitative Disclosures About Market Risk 23
8 Financial Statements and Supplementary Data 23
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
PART III 10 **
11 **
12 **
13 **
PART IV 14 Exhibits, Financial Statements, Schedules and Reports on Form 8-K 23
Signatures II-1
Exhibits Index II-2
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* Item prepared in accordance with General Instruction I(2) of Form 10-K
** Item omitted in accordance with General Instruction I(2) of Form 10-K
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PART I
ITEM 1. BUSINESS OF HARTFORD LIFE INSURANCE COMPANY
(Dollar amounts in millions, unless otherwise stated)
GENERAL
Hartford Life Insurance Company and its subsidiaries ("Hartford Life Insurance
Company" or the "Company"), is a direct subsidiary of Hartford Life and Accident
Insurance Company (HLA), a wholly-owned subsidiary of Hartford Life, Inc.
(Hartford Life). The Company, together with HLA, provides (i) investment
products, including variable annuities, fixed market value adjusted (MVA)
annuities and retirement plan services for the savings and retirement needs of
over 1.2 million customers, (ii) life insurance for income protection and estate
planning to approximately 500,000 customers, (iii) employee benefits products
such as group life and group disability insurance for the benefit of millions of
individuals that is directly written by the Company and is substantially ceded
to its parent, HLA, and (iv) corporate owned life insurance. According to the
latest publicly available data, with respect to the United States, the Company,
along with its parent, is the largest writer of individual variable annuities
based on sales for the year ended December 31, 1999; the third largest writer of
group disability insurance based on premiums written for the nine months ended
September 30, 1999; as well as, the third largest consolidated life insurance
company based on statutory assets as of December 31, 1998. The Company's strong
position in each of its core businesses provides an opportunity to increase the
sale of Hartford Life Insurance Company's products and services as individuals
increasingly save and plan for retirement, protect themselves and their families
against disability or death and prepare their estates for an efficient transfer
of wealth between generations.
Hartford Life Insurance Company strives to maintain and enhance its position as
a market leader within the financial services industry. The Company has pursued
a strategy of developing and selling diverse and innovative products through
multiple distribution channels, continuously developing and expanding those
distribution channels, achieving cost efficiencies through economies of scale
and improved technology, maintaining effective risk management and prudent
underwriting techniques and capitalizing on its brand name and customer
recognition of The Hartford Stag Logo, one of the most recognized symbols in the
financial services industry. In the past year, the Company's total assets
increased 14% to $135.0 billion and total stockholder's equity, excluding net
unrealized capital losses on securities, was $2.9 billion as of December 31,
1999. In addition, the Company generated $3.4 billion in revenues and $361 in
net income in 1999. The Company's return on stockholder's equity, excluding net
unrealized capital gains (losses) on securities, was 13.4% in 1999.
ORGANIZATION
Hartford Life Insurance Company, a Connecticut corporation, was organized in
1902. The Company's indirect parent, Hartford Life, is a direct subsidiary of
Hartford Accident and Indemnity Company (HA&I), an indirect subsidiary of The
Hartford Financial Services Group, Inc. (The Hartford). Pursuant to an initial
public offering (the "IPO") of 26 million shares of the Company's Class A Common
Stock on May 22, 1997, Hartford Life became a publicly traded company
representing approximately 18.6% of the equity ownership in the Company.
Additional information regarding the organization of the business and the IPO
may be found in Note 1 of Notes to Consolidated Financial Statements.
DISTRIBUTION
Hartford Life Insurance Company utilizes a multiple channel distribution network
which provides a distinct competitive advantage in selling products and services
to a broad cross-section of customers throughout varying economic and market
cycles. In particular, the Company has developed an extensive network of banks
and broker-dealers, which is one of the largest in the industry, including over
1,500 national, regional and independent broker-dealers and approximately 500
banks. Consistent with this strategy, in 1998, the Company's parent, HLA,
purchased all the outstanding shares of PLANCO Financial Services, Inc. and its
affiliate, PLANCO, Incorporated (collectively, "PLANCO"), the nation's largest
wholesaler of individual annuities and the Company's primary wholesale
distributor of its Director(R) variable annuity, thus securing an important
distribution channel. In addition, the Company continues to expand its
opportunity to sell through financial institutions. As of December 31, 1999, the
Company was selling products through twenty-four of the nation's twenty-five
largest retail banks, including proprietary relationships with four of the top
ten. The Company's broad distribution network has enabled the Company to
introduce new products and services in an effective manner and allows the
Company significant opportunity to access its customer base. Hartford Life
Insurance Company sells variable annuities, fixed MVA annuities, variable life
insurance and retirement plan services through its broker-dealer and bank
distribution systems.
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PRODUCTS
It is Hartford Life Insurance Company's belief that, as Americans journey
through life, they have specific needs related to building and preserving their
financial resources. The Company's goal is to be the "official supplier" of that
journey -- the preferred source of financial solutions for both individuals and
employers, as well as the financial professionals who serve them. To achieve
this goal, Hartford Life Insurance Company has focused its efforts on offering
products that provide mechanisms for retirement (e.g. annuities) and protecting
and preserving income and wealth (e.g. individual life, group life and group
disability). To ensure that it is able to meet the emerging opportunities that
will arise for individuals pursuing their dreams in the new millennium, the
Company expects to continue to expend significant resources and development
efforts in creating innovative new products and services.
CUSTOMER SERVICE, TECHNOLOGY AND ECONOMIES OF SCALE
Hartford Life Insurance Company maintains advantageous economies of scale and
operating efficiencies due to its continued growth, attention to expense
management and commitment to customer service and technology. These advantages
allow the Company to competitively price its products for its distribution
network and policyholders. The Company continues to achieve operating
efficiencies in its Investment Products business. Operating expenses associated
with the Company's individual annuity products as a percentage of total
individual annuity account value have been more than cut in half over the past
seven years, declining from 43 basis points in 1992 to 21 basis points in 1999.
In addition, the Company utilizes computer technology to enhance communications
within the Company and throughout its distribution network in order to improve
the Company's efficiency in marketing, selling and servicing its products and,
as a result, provides high-quality customer service. In recognition of
excellence in customer service for variable annuities, Hartford Life Insurance
Company, along with its parent, was awarded the 1999 Annuity Service Award by
DALBAR Inc., a recognized independent financial services research organization,
for the fourth consecutive year. Hartford Life Insurance Company, along with its
parent, is the only company to receive this prestigious award in every year of
its existence. Additional information related to Hartford Life Insurance
Company's technology in respect of Year 2000 issues may be found in the
Regulatory Matters and Contingencies section of the Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A).
RISK MANAGEMENT
Hartford Life Insurance Company's product designs, prudent underwriting
standards and risk management techniques protect it against disintermediation
risk and greater than expected mortality and morbidity experience. As of
December 31, 1999, the Company had limited exposure to disintermediation risk on
approximately 98% of its insurance liabilities through the use of non-guaranteed
separate accounts, MVA features, policy loans, surrender charges and
non-surrenderability provisions. The Company effectively utilizes prudent
underwriting to select and price insurance risks and regularly monitors
mortality and morbidity assumptions to determine if experience remains
consistent with these assumptions and to ensure that its product pricing remains
appropriate.
BRAND NAME AND FINANCIAL STRENGTH
The Hartford Stag Logo is one of the most recognized symbols in the insurance
and financial services industry. This brand recognition, coupled with a strong
balance sheet and sound ratings, has enabled the Company to establish the
reputation and financial strength necessary to maintain distribution
relationships, make strategic acquisitions and enhance important alliances, and
generate new customer sales. Pursuant to a Master Intercompany Agreement with
The Hartford, Hartford Life has been granted a perpetual non-exclusive license
to use the Stag Logo in connection with the sale of Hartford Life Insurance
Company's products and services. However, in the event that The Hartford reduces
its beneficial ownership below 50% of the combined voting power of Hartford
Life's then outstanding securities, the license may be revoked upon the later of
the fifth anniversary of the date of consummation of Hartford Life's IPO of its
Class A Common Stock or one year after receipt by the Company of written notice
of The Hartford's intention to revoke the license.
REPORTING SEGMENTS
Hartford Life Insurance Company has the following reportable operating segments:
Investment Products, Individual Life and Corporate Owned Life Insurance (COLI).
The Company includes in "Other" corporate items not directly allocable to any of
its reportable segments, as well as certain employee benefits, including group
life and disability insurance that is directly written by the Company and is
substantially ceded to its parent, HLA. The following is a description of each
segment, including a discussion of principal products, methods of distribution
and competitive environments. Additional information on Hartford Life Insurance
Company's segments may be found in the MD&A on pages 11 to 22 and Note 13 of
Notes to Consolidated Financial Statements.
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INVESTMENT PRODUCTS
The Investment Products segment focuses on the savings and retirement needs of
the growing number of individuals who are preparing for retirement or have
already retired through the sale of individual fixed and variable annuities,
retirement plan services and other investment products. From December 31, 1995
to December 31, 1999, this segment's account values grew to $105.3 billion from
$43.9 billion, a five-year compounded annual growth rate of 24%. This growth has
been driven primarily by strong net cash flow of individual variable annuities,
the result of a high volume of sales and favorable persistency, as well as
equity market appreciation in the separate accounts of the Company's individual
and group variable annuities. Investment Products generated revenues of $1.9
billion and $1.8 billion in 1999 and 1998, respectively. Net income in the
Investment Products segment was $300 in 1999, an 11% increase over 1998.
Hartford Life Insurance Company is the market leader in the annuity industry
and, according to Variable Annuity and Research Data Service (VARDS), was the
number one writer of individual variable annuities in the United States for 1999
and 1998 with sales of $10.3 billion and $9.9 billion, respectively. The Company
sells both variable and fixed individual annuity products through a wide
distribution network of national and regional broker-dealer organizations, banks
and other financial institutions and independent financial advisors. Total
individual annuity sales were $10.9 billion and $10.0 billion in 1999 and 1998,
respectively. The Company was also the number one seller of individual variable
annuities through banks in 1999 and 1998, according to Kenneth Kehrer and
Associates.
The Company's total account value related to individual annuity products was
$89.0 billion as of December 31, 1999. Of this total account value, $80.6
billion, or 91%, related to individual variable annuity products and $8.4
billion, or 9%, related primarily to fixed MVA annuity products.
The Company is among the top providers of retirement products and services,
including asset management and plan administration, to municipalities pursuant
to Section 457 and plans to corporations under Section 401(k) of the Internal
Revenue Code of 1986, as amended (herein after referred to as "Section 457" and
"Section 401(k)", respectively). The Company presently administers over 2,000
Section 457 plans and over 900 Section 401(k) plans. The Company also provides
structured settlement contracts, terminal funding products and other investment
products such as guaranteed investment contracts (GICs).
Products
Individual Variable Annuities -- Hartford Life Insurance Company earns fees for
managing variable annuity assets and maintaining policyholder accounts, which
are based on the policyholders' account values. The Company uses specified
portions of the periodic premiums of a customer to purchase units in one or more
mutual funds, as directed by the customer, who then assumes the investment
performance risks and rewards. As a result, variable annuities permit
policyholders to choose aggressive or conservative investment strategies as they
deem appropriate without affecting the composition and quality of assets in the
Company's general account. These products offer the policyholder a variety of
equity and fixed income options, as well as the ability to earn a guaranteed
rate of interest in the general account of the Company. The Company offers an
enhanced guaranteed rate of interest for a specified period of time (no longer
than twelve months) if the policyholder elects to dollar-cost average (DCA)
funds from the Company's general account into one or more non-guaranteed
separate accounts. Due to this enhanced rate and the volatility experienced in
the overall equity markets, this option has become very popular with
policyholders. Deposits of varying amounts may be made at regular or irregular
intervals and the value of these assets fluctuates in accordance with the
investment performance of the funds selected by the policyholder. To encourage
persistency, many of the Company's individual variable annuities are subject to
withdrawal restrictions and surrender charges ranging initially from 6% to 7% of
the contract's face amount which reduce to zero on a sliding scale, usually
within seven policy years. Volatility experienced by the equity markets in 1998
and 1999 did not cause a significant increase in variable annuity surrenders,
demonstrating that policyholders are aware of the long-term nature of these
products. Individual variable annuity account value of $80.6 billion as of
December 31, 1999, has grown significantly from $13.1 billion as of December 31,
1994 due to strong net cash flow, the result of a high level of sales and low
levels of surrenders, coupled with equity market appreciation in both the equity
and fixed income allocations of the policyholders' account value. Approximately
86% of the individual variable annuity account value was held in non-guaranteed
separate accounts as of December 31, 1999.
The assets underlying the Company's variable annuities are managed both
internally and by outside money managers, while the Company provides all policy
administration services. The Company utilizes a select group of money managers,
such as Wellington Management Company, LLP (Wellington), Putnam Financial
Services, Inc. (Putnam), American Funds, MFS Investment Management (MFS),
Franklin Templeton Group and Morgan Stanley Dean Witter InterCapital, Inc. All
have an interest in the continued growth in sales of the Company's products and
greatly enhance the marketability of the Company's annuities and the strength of
its product offerings. Two of the industry's top ten leading variable annuities,
The Director and Putnam Hartford Capital Manager Variable Annuity (based on
sales for the year ended 1999) are sponsored by Hartford Life Insurance Company
and are managed in part by Wellington and Putnam, respectively. In July 1999,
the Company introduced Hartford Leaders, a new multi-
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manager variable annuity. This new venture combines the product manufacturing,
wholesaling and service capabilities of Hartford Life Insurance Company with the
investment management expertise of three of the nation's most successful
investment management organizations, American Funds, Franklin Templeton Group
and MFS. Hartford Life Insurance Company created a separate division at PLANCO
to wholesale the product in order to ensure that the Company fully capitalizes
on this immense opportunity and, by the end of 1999, the Company had in place a
team of over 30 wholesalers. In a matter of six months, sales of Hartford
Leaders have already reached a $1 billion annualized sales rate, placing this
venture as one of the most successful new product launches in the history of the
variable annuity industry.
Fixed MVA Annuities -- Fixed MVA annuities are fixed rate annuity contracts
which guarantee a specific sum of money to be paid in the future, either as a
lump sum or as monthly income. In the event that a policyholder surrenders a
policy prior to the end of the guarantee period, the MVA feature increases or
decreases the cash surrender value of the annuity in respect of any interest
rate decreases or increases, respectively, thereby protecting the Company from
losses due to higher interest rates at the time of surrender. The amount of
payment will not fluctuate due to adverse changes in the Company's investment
return, mortality experience or expenses. The Company's primary fixed MVA
annuities have terms varying from one to ten years with an average term of
approximately seven years. Sales of the Company's fixed MVA annuities increased
during 1999 as a result of a higher interest rate environment making 1999 the
best sales year for this product since 1995. Account values of fixed MVA
annuities were $8.4 billion and $8.6 billion as of December 31, 1999 and 1998,
respectively.
Retirement Plans -- With respect to retirement products and services, Section
457 plans comprise approximately 80% of the related account values. These assets
have traditionally been held in the Company's general account, but increasingly,
plan beneficiaries are transferring assets into mutual funds held in separate
accounts. The Company offers a number of different funds, both fixed income and
equity, to the employees in Section 457 plans. Generally, the Company manages
the fixed income funds and certain other outside money managers act as advisors
to the equity funds offered in Section 457 plans administered by the Company.
The Company also sells Section 401(k) products targeting the small and medium
case markets since the Company believes these markets are underpenetrated in
comparison to the large case market.
Institutional Liabilities -- Hartford Life Insurance Company also sells
structured settlement contracts which provide for periodic payments to an
injured person or survivor for a generally determinable number of years,
typically in settlement of a claim under a liability policy in lieu of a lump
sum settlement. The Company's structured settlements are sold through The
Hartford's property-casualty insurance operations as well as specialty brokers.
The Company also markets other annuity contracts for special purposes such as
the funding of terminated defined benefit pension plans. In addition, the
Company offers GICs and short term funding agreements.
Marketing and Distribution
The Investment Products distribution network has been developed based on
management's strategy of utilizing multiple and competing distribution channels
in an effort to achieve the broadest distribution to reach target customers. The
success of the Company's marketing and distribution system depends on its
product offerings, fund performance, successful utilization of wholesaling
organizations, relationships with national and regional broker-dealer firms,
banks and other financial institutions, and independent financial advisors
(through which the sale of the Company's individual annuities to customers is
consummated) and quality of customer service.
Hartford Life Insurance Company maintains a network of approximately 1,500
broker-dealers and approximately 500 banks, including 24 of the 25 largest
retail banks in the United States. The Company periodically negotiates
provisions and terms of its relationships with unaffiliated parties and there
can be no assurance that such terms will remain acceptable to the Company or
such third parties. In August 1998, the Company's parent, HLA, completed the
purchase of all outstanding shares of PLANCO, a primary wholesaler of the
Company's individual annuities. PLANCO is the nation's largest wholesaler of
individual annuities and has played a significant role in Hartford Life
Insurance Company's growth over the past decade. As a wholesaler, PLANCO
distributes Hartford Life Insurance Company's fixed and variable annuities, and
single premium variable life insurance by providing sales support to registered
representatives, financial planners and broker-dealers at brokerage firms and
banks across the United States. This acquisition secured an important
distribution channel for the Company and gives the Company a wholesale
distribution platform which it can expand in terms of both the number of
individuals wholesaling its products and the portfolio of products in which they
wholesale. In addition, the Company uses internal personnel with extensive
experience in the Section 457 market, as well as access to the Section 401(k)
market, to sell its products and services in the retirement plan market.
Competition
The Investment Products segment competes with numerous other insurance companies
as well as certain banks, securities brokerage firms, investment advisors and
other financial intermediaries marketing annuities and other retirement-oriented
products. As the industry continues to consolidate, some of these companies have
or will gain greater financial strength and resources than Hartford
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Life Insurance Company. In particular, national banks may become more
significant competitors in the future for insurers who sell annuities as a
result of court decisions and recent regulatory actions. Passage in November
1999 of the Gramm-Leach-Bliley Act (the Financial Services Modernization Act),
which permits affiliations among banks, securities firms and insurance
companies, may have competitive, operational and other implications to the
Company. (For additional information, see the Regulatory Matters and
Contingencies section of the MD&A.) Product sales are affected by competitive
factors such as investment performance ratings, product design, visibility in
the marketplace, financial strength ratings, distribution capabilities, levels
of charges and credited rates, reputation and customer service.
INDIVIDUAL LIFE
The Individual Life segment, which focuses on the high end estate and business
planning markets, sells a variety of products including variable life, universal
life, interest sensitive whole life and term life insurance. Life insurance in
force increased 9% to $66.7 billion as of December 31, 1999 from $61.1 billion
as of December 31, 1998. Account values grew 20% to $5.4 billion as of December
31, 1999 from $4.5 billion as of December 31, 1998. The Individual Life segment
generated revenues of $574 and $543 in 1999 and 1998, respectively. Net income
in the Individual Life segment was $68 in 1999, a 6% increase over 1998.
Products
The recent trend in the individual life industry has been a shift away from
traditional products and fixed universal life insurance towards variable life
(including variable universal life) insurance products. Hartford Life Insurance
Company has been on the leading edge of this industry trend and is a top ten
writer of new variable life sales according to Tillinghast-Towers Perrin. In
1999, of the Company's new sales of individual life insurance, 84% was variable
life and 13% was either universal life or interest sensitive whole life. The
Company also sold a small amount of term life insurance.
Variable Life -- Variable life insurance provides a return linked to an
underlying investment portfolio and the Company allows policyholders to
determine their desired asset mix among a variety of underlying mutual funds. As
the return on the investment portfolio increases or decreases, as the case may
be, the death benefit or surrender value of the variable life policy may
increase or decrease. The Company's single premium variable life product
provides a death benefit to the policy beneficiary based on a single premium
deposit. The Company's second-to-die products are distinguished from other
products in that two lives are insured rather than one, and the policy proceeds
are paid upon the second death of the two insureds. Second-to-die policies are
frequently used in estate planning, often to fund estate taxes for a married
couple. Variable life account values were $2.6 billion and $1.7 billion as of
December 31, 1999 and 1998, respectively.
Universal Life and Interest Sensitive Whole Life -- Universal life and interest
sensitive whole life insurance coverages provide life insurance with adjustable
rates of return based on current interest rates. The Company offers both
flexible and fixed premium policies and provides policyholders with flexibility
in the available coverage, the timing and amount of premium payments and the
amount of the death benefit provided there are sufficient policy funds to cover
all policy charges for the coming period. Universal life and interest sensitive
whole life represented 13% of new annualized premium sales of individual life
insurance in 1999. The Company also sells universal life insurance policies with
a second-to-die feature similar to that of the variable life insurance product
offered. Universal life and interest sensitive whole life account values were
$2.0 billion as of December 31, 1999 and 1998.
Marketing and Distribution
Consistent with the Company's strategy to access multiple distribution outlets,
the Individual Life distribution organization has been developed to penetrate a
multitude of retail sales channels. These include independent life insurance
sales professionals; agents of other companies; national, regional and
independent broker-dealers; banks; and property-casualty insurance
organizations. The primary organization used to wholesale Hartford Life
Insurance Company's products to these outlets is a group of highly qualified
life insurance professionals with specialized training in sophisticated life
insurance sales, particularly as it pertains to estate and business planning.
These individuals are generally employees of the Company, who are managed
through a regional sales office system. The Company has grown this organization
rapidly the past few years, to over 180 individuals, and expects to continue to
increase the number of wholesalers in the future.
Competition
The Individual Life segment competes with approximately 1,600 life insurance
companies in the United States, as well as other financial intermediaries
marketing insurance products. Competitive factors related to this segment are
primarily the breadth and quality of life insurance products offered,
competitiveness of pricing, relationships with third-party distributors and the
quality of underwriting and customer service.
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CORPORATE OWNED LIFE INSURANCE (COLI)
Hartford Life Insurance Company is a leader in the COLI market, which includes
life insurance policies purchased by a company on the lives of its employees,
with the company named as the beneficiary under the policy. Until the Health
Insurance Portability Act of 1996 (HIPA Act of 1996), the Company sold two
principal types of COLI, leveraged and variable products. Leveraged COLI is a
fixed premium life insurance policy owned by a company or a trust sponsored by a
company. The HIPA Act of 1996 phased out the deductibility of interest on policy
loans under leveraged COLI at the end of 1998, thus virtually eliminating all
future sales of leveraged COLI. Variable COLI continues to be a product used by
employers to fund non-qualified benefits or other post-employment benefit
liabilities. Products marketed in this segment also include coverage owned by
employees under business sold through corporate sponsorship. Variable COLI
account values were $12.4 billion and $11.2 billion as of December 31, 1999 and
1998, respectively.
In November 1998, Hartford Life recaptured an in force block of leveraged COLI
business from MBL Life Assurance Co. of New Jersey (MBL Life). The transaction
was consummated through the assignment of a reinsurance arrangement between
Hartford Life and MBL Life to a Hartford Life subsidiary. Hartford Life
originally assumed the life insurance block in 1992 from Mutual Benefit Life
Insurance Company (Mutual Benefit Life), which was placed in court-supervised
rehabilitation in 1991, and reinsured a portion of those policies back to MBL
Life. MBL Life, previously a Mutual Benefit Life subsidiary, operates under the
Rehabilitation Plan for Mutual Benefit Life. The recaptured MBL business
increased revenues and expenses for 1998, however, there was no impact to net
income. Leveraged COLI account values decreased to $5.7 billion as of December
31, 1999 from $9.2 billion as of December 31, 1998, primarily due to the HIPA
Act of 1996. Although COLI revenues decreased in 1999 to $830 from $1,567 in
1998, COLI earnings increased 17%, to $28 in 1999.
OTHER MATTERS
RESERVES
In accordance with applicable insurance regulations under which Hartford Life
Insurance Company operates, life insurance subsidiaries of the Company establish
and carry as liabilities actuarially determined reserves which are calculated to
meet the Company's future obligations. Reserves for life insurance contracts are
based on actuarially recognized methods using prescribed morbidity and mortality
tables in general use in the United States, which are modified to reflect the
Company's actual experience when appropriate. These reserves are computed at
amounts that, with additions from estimated premiums to be received and with
interest on such reserves compounded annually at certain assumed rates, are
expected to be sufficient to meet the Company's policy obligations at their
maturities or in the event of an insured's death. Reserves also include unearned
premiums, premium deposits, claims incurred but not reported and claims reported
but not yet paid. Reserves for assumed reinsurance are computed on bases
essentially comparable to direct insurance reserves.
For Hartford Life Insurance Company's universal life and interest sensitive
whole life policies, reserves are set according to premiums collected, plus
interest credited, less charges. Other fixed death benefit and individual life
reserves are based on assumed investment yield, persistency, mortality and
morbidity as per commonly used actuarial tables, expenses and margins for
adverse deviations.
The persistency of Hartford Life Insurance Company's annuity and other interest
sensitive life insurance reserves is enhanced by policy restrictions on the
withdrawal of funds. Withdrawals in excess of allowable penalty-free amounts are
assessed a surrender charge during a penalty period, which is usually at least
seven years. Such surrender charge is initially a percentage of the accumulation
value, which varies by product, and generally decreases gradually during the
penalty period. Surrender charges are set at levels to protect the Company from
loss on early terminations and to reduce the likelihood of policyholders
terminating their policies during periods of increasing interest rates, thereby
lengthening the effective duration of policy liabilities and improving the
Company's ability to maintain profitability on such policies.
Hartford Life Insurance Company's reserves comply, in all material respects,
with state insurance department statutory accounting practices; however, in the
Company's Consolidated Financial Statements, life insurance reserves are
determined in accordance with generally accepted accounting principles, which
may vary from statutory accounting practices.
REGULATION AND PREMIUM RATES
Insurance companies are subject to comprehensive and detailed regulation and
supervision throughout the United States. The extent of such regulation varies,
but generally has its source in statutes which delegate regulatory, supervisory
and administrative powers to state insurance departments. Such powers relate to,
among other things, the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; premium rates; claim handling and trade practices; restrictions on
the size of risks which may be insured under a single policy; deposits of
securities for the benefit of
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policyholders; approval of policy forms; periodic examinations of the affairs of
companies; annual and other reports required to be filed on the financial
condition of companies or for other purposes; fixing maximum interest rates on
life insurance policy loans and minimum rates for accumulation of surrender
values; and, the adequacy of reserves and other necessary provisions for
unearned premiums, unpaid claims and claim adjustment expenses and other
liabilities, both reported and unreported.
REINSURANCE
In accordance with normal industry practice, Hartford Life Insurance Company is
involved in both the cession and assumption of insurance with other insurance
and reinsurance companies. As of December 31, 1999, the maximum amount of life
insurance retained on any one life by any of the life operations is
approximately $2.5, excluding accidental death benefits.
INVESTMENT OPERATIONS
Hartford Life Insurance Company's investment operations are managed by its
investment strategy group which reports directly to senior management of the
Company. The Company's investments have been separated into specific portfolios
which support specific classes of product liabilities. The investment strategy
group works closely with the product lines to develop investment guidelines,
including duration targets, asset allocation and convexity constraints,
asset/liability mismatch tolerances and return objectives, to ensure that the
product line's individual risk and return objectives are met. The Company's
primary investment objective for its general account and guaranteed separate
accounts is to maximize after-tax returns consistent with acceptable risk
parameters, including the management of the interest rate sensitivity of
invested assets to that of policyholder obligations.
For further discussion of Hartford Life Insurance Company's investment
operations and the Company's approach to managing investment risk, see the
Investments section of the MD&A, as well as Notes 2(f), 2(g), 2(h) and 3 of
Notes to Consolidated Financial Statements.
RATINGS
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Ratings".
RISK-BASED CAPITAL
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Risk-Based Capital".
LEGISLATIVE AND REGULATORY INITIATIVES
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Legislative and Regulatory Initiatives".
INSOLVENCY FUND
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Insolvency Fund".
NAIC PROPOSALS
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "NAIC Proposals".
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Dependence on Certain Third Party Relationships".
YEAR 2000
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Year 2000".
EMPLOYEES
Hartford Life Insurance Company's parent (Hartford Life) had approximately 5,000
employees at February 29, 2000.
9
<PAGE> 10
ITEM 2. PROPERTIES
The principal executive offices of Hartford Life Insurance Company, together
with its parent, are located in Simsbury, Connecticut. The home office complex
consists of approximately 615 thousand square feet, and is leased from a third
party by Hartford Fire Insurance Company (Hartford Fire), an indirect subsidiary
of The Hartford. This lease expires in the year 2009. Expenses associated with
these offices are allocated on a direct and indirect basis to Hartford Life
Insurance Company by Hartford Fire.
ITEM 3. 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. Some of these cases have been filed as purported
class actions and some cases have been filed in certain jurisdictions that
permit punitive damage awards disproportionate to the actual damages incurred.
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 estimated losses and
costs of defense, will have a material adverse effect on the financial condition
or operating results of the Company.
PART II
ITEM 5. MARKET FOR HARTFORD LIFE INSURANCE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
All of the Company's outstanding shares are ultimately owned by Hartford Life
which is ultimately a subsidiary of The Hartford. As of March 24, 2000, the
Company had issued and outstanding 1,000 shares of common stock at a par value
of $5,690 per share.
10
<PAGE> 11
ITEM 7. 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 should be read in conjunction with the Consolidated Financial
Statements and related Notes beginning on page F-1.
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 the possibility
of general economic, business and legislative conditions that are less favorable
than anticipated, changes in interest rates or the stock markets, stronger than
anticipated competitive activity and those described in the forward-looking
statements.
Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consolidated Results of Operations 11 Investments 14
Investment Products 12 Capital Resources and Liquidity 20
Individual Life 13 Regulatory Matters and Contingencies 21
Corporate Owned Life Insurance (COLI) 14 Accounting Standards 22
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
Hartford Life Insurance Company is a leading financial services and insurance
company providing investment and retirement products such as variable and fixed
annuities and retirement plan services; individual and corporate owned life
insurance; and, employee benefit products such as 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 (HLA).
The Company derives its revenues principally from: (a) asset management fees on
separate account assets and mortality and expense fees; (b) net investment
income on general account assets; (c) cost of insurance charges; (d) fully
insured premiums; and (e) certain other fees earned by the Company. Asset
management fees and mortality and expense fees are primarily generated from
separate account assets, which are deposited with the Company through the sale
of variable annuity products and variable life products. Cost of insurance
charges are assessed on the net amount at risk for investment oriented life
insurance products.
Hartford Life Insurance Company's expenses essentially consist of interest
credited to policyholders on general account liabilities, insurance benefits
provided, dividends to policyholders, costs of selling and servicing the various
products offered by the Company, and other general business expenses.
Hartford Life Insurance Company's profitability depends largely on the amount of
assets, the level of fully insured premiums, the adequacy of product pricing and
underwriting discipline, and its ability to earn target spreads between earned
investment rates on general account assets and credited rates to customers.
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total revenues $3,400 $3,975
Total expenses 3,039 3,625
----- -----
NET INCOME $ 361 $ 350
----- -----
</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 benefits, including group life and
disability insurance that is directly written by the Company and is
substantially ceded to its parent, HLA. For information regarding the Company's
segments, see Note 13 of Notes to Consolidated Financial Statements.
11
<PAGE> 12
Revenues decreased $575, or 14%, due primarily to the declining block of
leveraged COLI business. Excluding the COLI segment, revenues increased $162, or
7%, driven mostly by the Investment Products and Individual Life segments, where
revenues increased $105, or 6%, and $31, or 6%, respectively. The revenue growth
in the Investment Products segment was, for the most part, due to higher fee
income in the individual annuity operation, where fee income increased $209, or
24%, due to significant growth in related account values resulting from strong
sales, favorable persistency and equity market appreciation. The growth in
Individual Life was fundamentally due to higher fee income associated with the
growing block of variable life insurance.
Total benefits, claims and expenses decreased $589, or 17%, primarily due to the
declining block of leveraged COLI business. Excluding the COLI segment, total
benefits, claims and expenses increased $155, or 8%, consistent with the revenue
growth described above. Combined net income for Investment Products, Individual
Life and COLI increased $38, or 11%, driven mostly by increased fee income
associated with higher account values in the Investment Products segment, as
well as continued growth in Individual Life and COLI. Net losses in "Other"
increased $27 primarily related to the loss of $16 associated with the
commutation of a reinsurance arrangement as discussed in Note 9 of Notes to
Consolidated Financial Statements.
OUTLOOK
Management believes that it has developed and implemented strategies to maintain
and enhance its position as a market leader within the financial services
industry and to continue the Company's growth in assets. Hartford Life Insurance
Company is well positioned to assist individuals in meeting their financial
goals as they increasingly save and plan for retirement, protect themselves and
their families against disability or death and prepare their estates for an
efficient transfer of wealth between generations. Hartford Life Insurance
Company's strong market position in its primary businesses, which align with
these growing markets, will provide opportunities to increase sales of the
Company's products and services.
Certain proposed legislative initiatives which could impact Hartford Life
Insurance Company are discussed in the Regulatory Matters and Contingencies
section.
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Investment Products $ 300 $ 270
Individual Life 68 64
Corporate Owned Life Insurance 28 24
Other (35) (8)
----- -----
NET INCOME $ 361 $ 350
----- -----
</TABLE>
A description of each segment as well as an analysis of the operating results
summarized above is included on the following pages.
INVESTMENT PRODUCTS
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total revenues $ 1,884 $ 1,779
Total expenses 1,584 1,509
----- -----
NET INCOME $ 300 $ 270
----- -----
</TABLE>
The Investment Products segment focuses on the savings and retirement needs of
the growing number of individuals who are preparing for retirement or have
already retired through the sale of individual fixed and variable annuities,
retirement plan services and other investment products. The Company, along with
its parent, was ranked the number one writer of individual variable annuities in
the United States for 1999 according to Variable Annuity and Research Data
Service (VARDS) and the number one seller of individual variable annuities
through banks, according to Kenneth Kehrer and Associates.
Revenues increased $105, or 6%, primarily due to higher fee income in the
individual annuity operation. Fees generated by individual annuities increased
$209, or 24%, as related account values increased $18.2 billion, or 26%. The
growth in individual annuity account values was mostly due to significant net
cash flow, resulting from strong sales of $10.9 billion and favorable
persistency, as well as equity market appreciation. Partially offsetting this
growth, was a decline in total revenues of $72 as the non-insurance
subsidiaries, which included fees generated from mutual fund operations, were
transferred to HLA in November 1998 in the form of a dividend
12
<PAGE> 13
as discussed in Note 1 of Notes to Consolidated Financial Statements.
Total expenses increased $75, or 5%, as a result of the continued growth in this
segment. This increase was primarily driven by amortization of deferred policy
acquisition costs, which grew $85, or 26%. Additionally, other expenses in the
individual annuity operations increased $37, or 17%, essentially due to growth
in the individual variable annuity operation. Partially offsetting this growth
was a decline in total expenses of $57 related to the transfer of the
non-insurance subsidiaries, which included fees generated from mutual fund
operations, described above.
Net income increased $30, or 11%, for the most part due to the growth in
revenues discussed above. Also contributing to the higher net income were
operating efficiencies that the segment continues to achieve, particularly in
its individual variable annuity operation, where operating expenses as a
percentage of average individual annuity account values decreased from 23 basis
points to 21 basis points. Additionally, the transfer of the non-insurance
subsidiaries, which included fees generated from mutual fund operations,
described above, partially offset the growth in this segment.
OUTLOOK
The market for retirement products continues to expand as individuals
increasingly save and plan for retirement. Demographic trends suggest that as
the baby boom generation matures, a significant portion of the United States
population will allocate a greater percentage of their disposable incomes to
saving for their retirement years due to uncertainty surrounding the Social
Security system and increases in average life expectancy. As this market grows,
particularly for variable annuities and mutual funds, new companies are
continually entering the market and aggressively seeking distribution
capabilities and pursuing market share. This trend is not expected to subside,
particularly in light of the Gramm-Leach-Bliley Act of 1999 (the Financial
Services Modernization Act), which was enacted into law, allowing banks,
securities firms and insurance companies to have ownership affiliation. (For
additional information, see the Regulatory Matters and Contingencies section.)
Management believes that it has developed and implemented strategies to maintain
and enhance its position as a market leader in the financial services industry.
INDIVIDUAL LIFE
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total revenues $ 574 $ 543
Total expenses 506 479
--- ---
NET INCOME $ 68 $ 64
--- ---
</TABLE>
The Individual Life segment, which focuses on the high end estate and business
planning markets, sells a variety of life insurance products, including variable
life, universal life, interest sensitive whole life and term life insurance.
Revenues increased $31, or 6%, resulting primarily from higher fee income
associated with the growing block of variable life insurance. Fee income
increased $52, or 15%, as variable life account values increased $868, or 50%,
and variable life insurance in force increased $7.5 billion, or 46%. The higher
fee income was partially offset by a decrease of $12, or 7%, in net investment
income. Expenses increased $27, or 6%, primarily as a result of an increase in
amortization of deferred policy acquisition costs and operating expenses of $23,
or 22%, and $10, or 9%, respectively, associated with the growth of this
segment. Partially offsetting these increases was a decrease in benefits, claims
and claim adjustment expenses of $8, or 3%, principally due to lower mortality
costs. Net income increased $4, or 6%, essentially due to the higher fee income
and favorable mortality described above.
OUTLOOK
Management believes that the Company's strong market position will provide
opportunities for growth in this segment as individuals increasingly prepare
their estates for an efficient transfer of wealth between generations.
13
<PAGE> 14
CORPORATE OWNED LIFE INSURANCE (COLI)
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total revenue $ 830 $ 1,567
Total expenses 802 1,543
--- -----
NET INCOME $ 28 $ 24
--- -----
</TABLE>
Hartford Life Insurance Company is a leader in the COLI market, which includes
life insurance policies purchased by a company on the lives of its employees,
with the company named as beneficiary under the policy. Until the Health
Insurance Portability and Accountability Act of 1996 (HIPA Act of 1996), the
Company sold two principal types of COLI business, leveraged and variable
products. Leveraged COLI is a fixed premium life insurance policy owned by a
company or a trust sponsored by a company. The HIPA Act of 1996 phased out the
deductibility of interest on policy loans under leveraged COLI through the end
of 1998, virtually eliminating all future sales of this product. Variable COLI
continues to be a product used by employers to fund non-qualified benefits or
other postemployment benefit liabilities. Products marketed in this segment also
include coverage owned by employees under business sold through corporate
sponsorship.
Revenues decreased $737, or 47%, primarily attributable to the downsizing of the
leveraged COLI business as a result of the HIPA Act of 1996. During 1999,
leveraged COLI account values decreased $3.4 billion, or 37%. Consistent with
the decrease in revenues, expenses decreased $741, or 48%. Net income increased
$4, or 17%, primarily due to growth in the variable COLI business, where related
account values increased $1.2 billion, or 10%. Additionally, leveraged COLI net
income increased due to earnings associated with the MBL business recaptured in
November 1998 (as discussed earlier), which was partially offset by decreases
associated with the downsizing of the overall leveraged COLI business.
OUTLOOK
The focus of this segment is variable COLI, which continues to be a product
generally used by employers to fund non-qualified benefits or other
postemployment benefit liabilities. The leveraged COLI product has been an
important contributor to Hartford Life Insurance Company's profitability in
recent years and will continue to contribute to the profitability of Hartford
Life Insurance Company in the future, although the level of profit is expected
to decline. COLI is subject to a changing legislative and regulatory environment
that could have a material adverse affect on its business. Certain proposed
legislative initiatives could impact COLI and are discussed in the Regulatory
Matters and Contingencies section.
INVESTMENTS
GENERAL
The Company's investments are managed by its investment strategy group which
consists of a risk management unit and a portfolio management unit and reports
directly to senior management of the Company. The risk management unit is
responsible for monitoring and managing the Company's asset/liability profile
and establishing investment objectives and guidelines. The portfolio management
unit is responsible for determining, within specified risk tolerances and
investment guidelines, the appropriate asset allocation, duration, and convexity
characteristics of the Company's general account and guaranteed separate account
investment portfolios. The Hartford Investment Management Company, a wholly
owned subsidiary of The Hartford Financial Services Group, Inc., executes the
investment plan of the investment strategy group including the identification
and purchase of securities that fulfill the objectives of the strategy group.
The primary investment objective of the Company's general account and guaranteed
separate accounts is to maximize after-tax returns consistent with acceptable
risk parameters (including the management of the interest rate sensitivity of
invested assets relative to that of policyholder obligations). The Company does
not hold any financial instruments purchased for trading purposes. The Company
is exposed to two primary sources of investment risk: credit risk, relating to
the uncertainty associated with an obligor's continued ability to make timely
payment of principal and/or interest, and interest rate risk, relating to the
market price and/or cash flow variability associated with changes in market
yield curves. See "Investment Risk Management" for further discussion of the
Company's approach to managing these investment risks.
The Company's separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $110.4 billion and $80.6 billion as of
December 31, 1999 and 1998, respectively wherein the policyholder assumes
substantially all the investment risk and reward, and guaranteed separate
accounts totaling $8.7 billion and $9.7 billion as of December 31, 1999 and
1998, respectively, wherein Hartford Life Insurance Company contractually
guarantees either a minimum return or account value to the policyholder.
Non-guaranteed separate account products include variable annuities, variable
life insurance contracts and variable
14
<PAGE> 15
COLI. Guaranteed separate account products primarily consist of modified
guaranteed individual annuities and modified guaranteed life insurance and
generally include market value adjustment features to mitigate the risk of
disintermediation.
The Company's general account consists of a diversified portfolio of
investments. Although all the assets of the general account support the
Company's general account liabilities, the Company's investment strategy group
has developed separate investment portfolios for specific classes of product
liabilities within the general account. The strategy group works closely with
the business lines to develop specific investment guidelines, including duration
targets, asset allocation and convexity constraints, asset/liability mismatch
tolerances and return objectives for each product line in order to achieve each
product line's individual risk and return objectives.
Invested assets in the Company's general account totaled $18.1 billion as of
December 31, 1999 and were comprised of $13.5 billion of fixed maturities, $4.2
billion of policy loans and other investments of $398. As of December 31, 1998,
general account invested assets totaled $21.8 billion and were comprised of
$14.8 billion of fixed maturities, $6.7 billion of policy loans and other
investments of $295. Policy loans, which had a weighted-average interest rate of
7.5% and 9.9%, as of December 31, 1999 and 1998, respectively, increased
primarily as a result of the MBL Recapture. These loans are secured by the cash
value of the underlying life insurance policies and do not mature in a
conventional sense, but expire in conjunction with the related policy
liabilities.
During 1999, the Hartford Life Insurance Company continued its investment
strategy of increasing its allocation to municipal tax-exempt securities with
the objective of increasing after-tax yields, and also increased its allocation
to commercial mortgage backed and mortgage backed securities. Short-term
investments decreased as of December 31, 1999 as compared to 1998 primarily due
to the funding of scheduled liability maturities and reallocation into other
asset sectors.
Approximately 22.2% and 23.3% of the Company's fixed maturity portfolio was
invested in private placement securities (including Rule 144A offerings) as of
December 31, 1999 and 1998, respectively. Private placement securities are
generally less liquid than public securities; however, covenants for private
placements are designed to mitigate liquidity risk. Most of the private
placement securities in the Company's portfolio are rated by nationally
recognized rating organizations.
INVESTMENT RESULTS
The table below summarizes Hartford Life Insurance Company's investment results.
<TABLE>
<CAPTION>
(Before-tax) 1999 1998
------------ ---- ----
<S> <C> <C>
Net investment income - excluding policy loan income $ 968 $ 970
Policy loan income 391 789
-------- --------
Net investment income - total $ 1,359 $ 1,759
-------- --------
Yield on average invested assets (1) 6.8% 8.0%
-------- --------
Net realized capital losses $ (4) $ (2)
-------- --------
</TABLE>
(1) Represents net investment income (excluding net realized capital losses)
divided by average invested assets at cost (fixed maturities at amortized
cost). In 1998, average invested assets were calculated assuming the MBL
Recapture proceeds were received on January 1, 1998.
Total net investment income, before-tax, decreased $400, or 23%, most notably
due to a decrease in policy loan income of $398 associated with the downsizing
of the leveraged COLI business. Yield on average invested assets declined to
6.8%, as a result of a decline in the policy loan weighted average interest rate
to 7.5% in 1999 from 9.9% in 1998. Net realized capital gains on the sale of
equity securities and fixed maturities offset a $28, after-tax, other than
temporary impairment charge related to asset backed securities securitized and
serviced by Commercial Financial Services, Inc. (CFS) securities, which were
sold in August of 1999.
15
<PAGE> 16
INVESTMENT RISK MANAGEMENT
Credit risk and interest rate risk are the primary sources of investment risk to
the Company. The Company manages credit risk through industry and issuer
diversification and asset allocation. Investment credit policies have been
established that focus on the credit quality of obligors and counterparties,
limit credit concentrations, and encourage diversification and require frequent
creditworthiness reviews. The Company invests primarily in securities rated
investment grade and has established exposure limits, diversification standards
and review procedures for all credit risks including borrower, issuer and
counterparty. Also, the Company maintains credit policies regarding the
financial stability and credit standing of its major derivatives' counterparties
and, to the extent the current value of derivatives exceed exposure policy
thresholds, collateral is pledged to or held by the Company. The Company manages
interest rate risk as part of its asset/liability management strategies,
including the use of certain hedging techniques (which may include the use of
certain financial derivatives), product design, such as the use of MVA features
and surrender charges, and proactive monitoring and management of certain
non-guaranteed elements of the Company's products (such as resetting of credited
rates for policies that permit such adjustments). For additional information of
the Company's interest rate risk management techniques see the "Asset/Liability
Management Strategies Used to Manage Market Risk" discussion below.
Upward movement in market interest rates during 1999 resulted in a significant
decline in the fair value of the fixed maturities portfolio over 1998. However,
the Company's asset allocation, and therefore its exposure to market risk, has
not changed materially from its position at December 31, 1998.
The following table reflects the principal amounts of the fixed and variable
rate fixed maturity portfolio, along with the respective weighted average
coupons by estimated maturity year as of December 31, 1999. Comparative totals
are included for December 31, 1998. Expected maturities differ from contractual
maturities due to call or prepayment provisions. The weighted average coupon on
variable rate securities is based on spot rates as of December 31, 1999 and
1998, and is primarily based on the London Interbank Offered Rate (LIBOR).
Callable bonds and notes are distributed to either call dates or maturity,
depending on which date produces the most conservative yield. Asset backed
securities, collateralized mortgage obligations and mortgage backed securities
are distributed to maturity year based on estimates of the rate of future
prepayments of principal over the remaining life of the securities. These
estimates are developed using prepayment speeds provided in broker consensus
data. Such estimates are derived from prepayment speeds previously experienced
at the interest rate levels projected for the underlying collateral. Actual
prepayment experience may vary from these estimates. Financial instruments with
certain leverage features have been included in each of the fixed maturity
categories. These instruments have not been separately displayed because they
were immaterial to the Company's investment portfolio.
16
<PAGE> 17
<TABLE>
<CAPTION>
1999 1998
2000 2001 2002 2003 2004 Thereafter TOTAL Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BONDS AND NOTES - CALLABLE
Fixed Rate
Par value $ 92 $ 54 $ 34 $ 64 $ 3 $ 230 $ 477 $ 480
Weighted average coupon 7.1% 5.8% 7.1% 7.6% 7.5% 5.3% 6.2% 6.3%
Fair value $ 456 $ 480
Variable Rate
Par value $ 126 $ 29 $ 26 $ -- $ 30 $ 1,011 $ 1,222 $ 974
Weighted average coupon 6.6% 6.2% 6.6% -- 7.4% 6.6% 6.6% 6.0%
Fair value $ 1,124 $ 883
BONDS AND NOTES - OTHER
Fixed Rate
Par value $ 3,175 $ 1,663 $ 1,106 $ 1,117 $ 1,132 $ 5,393 $ 13,586 $13,146
Weighted average coupon 6.7% 7.0% 7.3% 6.9% 6.3% 5.5% 6.2% 6.4%
Fair value $ 12,015 $13,655
Variable Rate
Par value $ 222 $ 84 $ 119 $ 73 $ 42 $ 334 $ 874 $ 1,132
Weighted average coupon 6.5% 6.0% 6.1% 5.7% 5.3% 4.9% 5.7% 5.7%
Fair value $ 901 $ 1,096
ASSET BACKED SECURITIES
Fixed Rate
Par value $ 409 $ 565 $ 308 $ 197 $ 172 $ 332 $ 1,983 $ 1,886
Weighted average coupon 6.8% 6.6% 6.5% 6.4% 6.8% 7.3% 6.7% 6.8%
Fair value $ 1,847 $ 1,811
Variable Rate
Par value $ 187 $ 275 $ 222 $ 216 $ 166 $ 421 $ 1,487 $ 1,720
Weighted average coupon 6.4% 6.4% 6.6% 6.7% 6.7% 6.7% 6.6% 6.1%
Fair value $ 1,419 $ 1,622
COLLATERALIZED MORTGAGE OBLIGATIONS
Fixed Rate
Par value $ 349 $ 235 $ 142 $ 75 $ 39 $ 202 $ 1,042 $ 1,342
Weighted average coupon 6.0% 6.1% 6.2% 6.5% 7.1% 7.2% 6.4% 6.3%
Fair value $ 941 $ 1,286
Variable Rate
Par value $ 16 $ 3 $ 1 $ -- $ 1 $ 103 $ 124 $ 276
Weighted average coupon 7.1% 5.0% 6.9% -- 8.1% 5.5% 5.8% 6.2%
Fair value $ 113 $ 260
COMMERCIAL MORTGAGE BACKED SECURITIES
Fixed Rate
Par value $ 106 $ 148 $ 129 $ 50 $ 94 $ 1,234 $ 1,761 $ 1,535
Weighted average coupon 6.7% 7.6% 7.2% 7.1% 7.2% 7.1% 7.1% 7.1%
Fair value $ 1,604 $ 1,578
Variable Rate
Par value $ 237 $ 117 $ 134 $ 178 $ 122 $ 459 $ 1,247 $ 1,046
Weighted average coupon 7.3% 7.6% 7.3% 7.2% 7.5% 7.7% 7.5% 6.7%
Fair value $ 1,073 $ 1,000
MORTGAGE BACKED SECURITIES
Fixed Rate
Par value $ 73 $ 83 $ 82 $ 74 $ 66 $ 698 $ 1,076 $ 654
Weighted average coupon 7.0% 7.0% 7.0% 7.0% 7.0% 7.9% 7.6% 6.8%
Fair value $ 816 $ 615
Variable Rate
Par value $ 1 $ 1 $ -- $ -- $ -- $ 2 $ 4 $ 11
Weighted average coupon 6.6% 6.6% -- -- -- 6.3% 6.4% 8.6%
Fair value $ 4 $ 10
</TABLE>
17
<PAGE> 18
ASSET/LIABILITY MANAGEMENT STRATEGIES USED TO MANAGE MARKET RISK
The Company employs several risk management tools to quantify and manage market
risk arising from its investments and interest sensitive liabilities. For
certain portfolios, management monitors the changes in present value between
assets and liabilities resulting from various interest rate scenarios using
integrated asset/liability measurement systems and a proprietary system that
simulates the impacts of parallel and non-parallel yield curve shifts. Based on
this current and prospective information, management implements risk reducing
techniques to improve the match between assets and liabilities.
Derivatives play an important role in facilitating the management of interest
rate risk, creating opportunities to efficiently fund obligations, hedge against
risks that affect the value of certain liabilities and adjust broad investment
risk characteristics as a result of any significant changes in market risks. The
Company uses a variety of derivatives, including swaps, caps, floors, forwards
and exchange traded financial futures and options, in order to hedge exposure
primarily to interest rate risk on anticipated investment purchases or existing
assets and liabilities. The Company does not make a market or trade derivatives
for the express purpose of earning trading profits. The Company's derivative
program is monitored by an internal compliance unit and is reviewed frequently
by senior management. The notional amounts of derivative contracts, which
represent the basis upon which pay or receive amounts are calculated and are not
reflective of credit risk, totaled $7.5 billion as of December 31, 1999 ($4.7
billion related to insurance investments and $2.8 related to life insurance
liabilities). As of December 31, 1998, the notional amounts pertaining to
derivatives totaled $9.7 billion ($4.9 billion related to insurance investments
and $4.8 billion related to life insurance liabilities.)
The strategies described below are used to manage the aforementioned risks.
Anticipatory Hedging -- For certain liabilities, the Company commits to the
price of the product prior to receipt of the associated premium or deposit.
Anticipatory hedges are routinely executed to offset the impact of changes in
asset prices arising from interest rate changes pending the receipt of premium
or deposit and the subsequent purchase of an asset. These hedges involve taking
a long position in interest rate futures or entering into an interest rate swap
with duration characteristics equivalent to the associated liabilities or
anticipated investments. The notional amount of anticipatory hedges as of
December 31, 1999 and 1998 was $186 and $235, respectively.
Liability Hedging -- Several products obligate the Company to credit a return to
the contractholder which is indexed to a market rate. To hedge risks associated
with these products, the Company enters into various derivative contracts.
Interest rate swaps are used to convert the contract rate into a rate that
trades in a more liquid and efficient market. This hedging strategy enables the
Company to customize contract terms and conditions to customer objectives and
satisfies Hartford Life Insurance Company's asset/liability matching policy.
Interest rate swaps are also used to convert certain fixed contract rates into
floating rates, thereby allowing them to be appropriately matched against
floating rate assets. Additionally, interest rate caps are used to hedge against
the risk of contractholder disintermediation in a rising interest rate
environment. The notional amount of derivatives used for liability hedges as of
December 31, 1999 and 1998 was $2.8 billion and $4.8 billion, respectively.
Asset Hedging -- To meet the various policyholder obligations and to provide
cost effective prudent investment risk diversification, the Company may combine
two or more financial instruments to achieve the investment characteristics of a
fixed maturity security or that match an associated liability. The use of
derivative instruments in this regard effectively transfers unwanted investment
risks or attributes to others. The selection of the appropriate derivative
instruments depends on the investment risk, the liquidity and efficiency of the
market, and the asset and liability characteristics. The notional amount of
asset hedges as of December 31, 1999 and 1998 was $3.5 billion and $3.2 billion,
respectively.
Portfolio Hedging -- The Company periodically compares the duration and
convexity of its portfolios of assets to their corresponding liabilities and
enters into portfolio hedges to reduce any difference to desired levels.
Portfolio hedges reduce the mismatch between assets and liabilities and offset
the potential impact to cash flows caused by changes in interest rates. The
notional amount of portfolio hedges as of December 31, 1999 and 1998 was $1.0
billion and $1.5 billion, respectively.
LIFE INSURANCE LIABILITY CHARACTERISTICS
Hartford Life Insurance Company's insurance liabilities, other than
non-guaranteed separate accounts, are primarily related to accumulation vehicles
such as fixed or variable annuities and investment contracts and other insurance
products such as long-term disability and term life insurance.
Asset Accumulation Vehicles
While interest rate risk associated with these insurance products has been
reduced through the use of market value adjustment features and surrender
charges, the primary risk associated with these products is that the spread
between investment return and credited rate may not be sufficient to earn
targeted returns.
18
<PAGE> 19
Fixed Rate -- Products in this category require the Company to pay a fixed rate
for a certain period of time. The cash flows are not interest sensitive because
the products are written with a market value adjustment feature and the
liabilities have protection against the early withdrawal of funds through
surrender charges. Product examples include fixed rate annuities with a market
value adjustment and fixed rate guaranteed investment contracts. Contract
duration is dependent on the policyholder's choice of guarantee period.
Indexed -- Products in this category are similar to the fixed rate asset
accumulation vehicles but require the Company to pay a rate that is determined
by an external index. The amount and/or timing of cash flows will therefore vary
based on the level of the particular index. The primary risks inherent in these
products are similar to the fixed rate asset accumulation vehicles, with an
additional risk that changes in the index may adversely affect profitability.
Product examples include indexed guaranteed investment contracts with an
estimated duration of up to two years.
Interest Credited -- Products in this category credit interest to policyholders,
subject to market conditions and minimum guarantees. Policyholders may surrender
at book value but are subject to surrender charges for an initial period.
Product examples include universal life contracts and the general account
portion of the Company's variable annuity products. Liability duration is short
to intermediate term.
Other Insurance Products
Long-term Pay Out Liabilities -- Products in this category are long term in
nature and may contain significant actuarial (including mortality and morbidity)
pricing and cash flow risks. The cash flows associated with these policy
liabilities are not interest rate sensitive but do vary based on the timing and
amount of benefit payments. The primary risks associated with these products are
that the benefits will exceed expected actuarial pricing and/or that the actual
timing of the cash flows will differ from those anticipated resulting in an
investment return lower than that assumed in pricing. Product examples include
structured settlement contracts, on-benefit annuities (i.e., the annuitant is
currently receiving benefits thereon) and long-term disability contracts.
Contract duration is generally five to ten years.
Short-term Pay Out Liabilities -- These liabilities are short term in nature
with a duration of less than one year. The primary risks associated with these
products are determined by the non-investment contingencies such as mortality or
morbidity and the variability in the timing of the expected cash flows.
Liquidity is of greater concern than for the long-term pay out liabilities.
Products include individual and group term life insurance contracts and
short-term disability contracts.
Management of the duration of investments with respective policyholder
obligations is an explicit objective of the Company's management strategy. The
estimated cash flows of insurance policy liabilities based upon internal
actuarial assumptions as of December 31, 1999 are reflected in the table below
by expected maturity year.
Comparative totals are included for December 31, 1998.
(Dollars in billions)
<TABLE>
<CAPTION>
1999 1998
DESCRIPTION (1) 2000 2001 2002 2003 2004 Thereafter TOTAL Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate asset accumulation vehicles $ 1.9 $ 1.4 $ 0.7 $ 1.3 $ 2.2 $ 2.1 $ 9.6 $ 10.8
Weighted average credited rate 6.6% 6.8% 6.3% 5.5% 6.9% 6.8% 6.6% 6.6%
Indexed asset accumulation vehicles $ 0.4 $ 0.1 $ - $ - $ - $ - $ 0.5 $ 0.3
Weighted average credited rate 6.2% 6.2% - - - - 6.2% 5.1%
Interest credited asset accumulation $ 4.7 $ 0.6 $ 0.5 $ 0.3 $ 0.3 $ 3.7 $ 10.1 $ 10.7
vehicles
Weighted average credited rate 5.9% 5.5% 5.5% 5.6% 5.6% 5.6% 5.7% 5.7%
Long-term pay out liabilities $ 0.3 $ 0.3 $ 0.3 $ 0.2 $ 0.2 $ 1.9 $ 3.2 $ 2.9
Short-term pay out liabilities $ 0.2 $ - $ - $ - $ - $ - $ 0.2 $ 0.2
</TABLE>
(1) As of December 31, 1999 and 1998, the fair value of the Company's investment
contracts including guaranteed separate accounts was $20.4 billion and $21.4
billion, respectively.
19
<PAGE> 20
CAPITAL RESOURCES AND LIQUIDITY
RATINGS
The following table summarizes the Company's financial ratings from the major
independent rating organizations as of February 29, 2000:
<TABLE>
<CAPTION>
DUFF & STANDARD &
INSURANCE RATINGS A.M. BEST PHELPS MOODY'S POOR'S
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hartford Life Insurance Company A+ AA+ Aa3 AA
Hartford Life and Annuity A+ AA+ Aa3 AA
---------------------------------------------------------------------------------------------
</TABLE>
Ratings are an important factor in establishing the competitive position of an
insurance company such as Hartford Life Insurance Company. There can be no
assurance that the Company's ratings will continue for any given period of time
or that they will not be changed. In the event that the Company's ratings are
downgraded, the level of sales or the persistency of the Company's block of in
force business may be adversely impacted.
RISK-BASED CAPITAL
The National Association of Insurance Commissioners (NAIC) has regulations
establishing minimum capitalization requirements based on Risk-Based Capital
(RBC) formulas for life insurance companies. The requirements consist of
formulas which identify companies that are undercapitalized and require specific
regulatory actions. The RBC formula for life insurance companies establishes
capital requirements relating to insurance, business, asset and interest rate
risks. The RBC ratios for each of the life insurance subsidiaries are in excess
of 200% as of December 31, 1999, which are greater than the minimum threshold.
CASH FLOW
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash provided by operating activities $ 325 $ 371
Cash provided by investing activities 2,423 601
Cash used for financing activities (2,710) (1,009)
Cash - end of year 55 17
-- --
</TABLE>
In 1999, the decrease in cash provided by operating activities was primarily the
result of timing in the settlement of receivables and payables. The increase in
cash provided by investing activities and the decrease in cash used for
financing activities primarily related to the significant downsizing of the
leveraged COLI block of business, as well as the decrease in the Company's
guaranteed investment contract (GIC) business.
Operating cash flows in the periods presented have been more than adequate to
meet liquidity requirements.
MBL RECAPTURE
On November 10, 1998, the Company recaptured an in force block of COLI business
(referred to as "MBL Recapture") previously ceded to MBL Life Assurance Co. of
New Jersey (MBL Life). The transaction was consummated through the assignment of
a reinsurance arrangement between Hartford Life and MBL Life to a Hartford Life
subsidiary. Hartford Life originally assumed the life insurance block in 1992
from Mutual Benefit Life, which was placed in court-supervised rehabilitation in
1991, and reinsured a portion of those policies back to MBL Life. MBL Life,
previously a Mutual Benefit Life subsidiary, operated under the Rehabilitation
Plan for Mutual Benefit Life. The MBL Recapture has been recorded retroactive to
January 1, 1998 with respect to results of operations. The transaction resulted
in a decrease in reinsurance recoverables of $4.8 billion with an offset
primarily in policy loans and other investments.
20
<PAGE> 21
REGULATORY MATTERS AND CONTINGENCIES
LEGISLATIVE AND REGULATORY INITIATIVES
The business of insurance is primarily regulated by the states and is also
affected by a range of legislative developments at the state and federal levels.
Passage in November 1999 of the Gramm-Leach-Bliley Act (the Financial Services
Modernization Act), which permits affiliations among banks, insurance companies
and securities firms, may have competitive, operational and other implications
for the Company. In particular, the measure includes privacy protections
requiring all financial services providers to disclose their privacy policies
and restrict the sharing of personal information for marketing purposes. Various
states are considering even more restrictive privacy measures that could
potentially affect the Company's operations. Medical records are also subject to
new privacy safeguards under guidelines proposed by the U.S. Department of
Health and Human Services. These and similar measures proposed at the state
level could affect the Company's ability to manage medical claims.
Enactment of Gramm-Leach-Bliley at the federal level has focused renewed
attention on state regulation of insurance. Elements of the insurance industry
are involved in a countrywide initiative to streamline regulatory procedures.
Such measures could result in reduced transaction costs and improved speed to
market.
Current and proposed federal measures which may significantly affect the life
insurance business include tax law changes affecting the tax treatment of life
insurance products and its impact on the relative desirability of various
personal investment vehicles, medical testing for insurability, and proposed
legislation to prohibit the use of gender in determining insurance and pension
rates and benefits. In particular, President Clinton's 2001 federal budget
proposal currently contains certain recommendations for modifying tax rules
related to the treatment of COLI by contractholders which, if enacted as
described, could have a material adverse impact on the Company's sales of these
products. The budget proposal also includes provisions which would result in a
significant increase in the "DAC tax" on certain of the Company's products and
would apply a tax to the Company's policyholder surplus account. (For further
discussion on policyholder surplus accounts and related tax treatment as of
December 31, 1999, see Note 10 of Notes to Consolidated Financial Statements.)
It is too early to determine whether these tax proposals will ultimately be
enacted by Congress. Therefore, the potential impact to the Company's financial
condition or results of operations cannot be reasonably estimated at this time.
INSOLVENCY FUND
See Note 12 (b) of Notes to Consolidated Financial Statements.
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 Hartford Life Insurance Company's insurance
subsidiaries are domiciled, 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 each of Hartford Life Insurance Company's
domiciliary states will adopt the SAP and the Company will make the necessary
changes required for implementation. The Company has not yet determined the
impact that the SAP will have on the statutory financial statements of the
insurance subsidiaries 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.
21
<PAGE> 22
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
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, banks and other distributors and servicers 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 and Third Party Year 2000 Efforts
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. These efforts were substantially completed by the end of 1999,
including the internal and external integrated testing of such systems. In
addition, Hartford Life Insurance Company's Year 2000 efforts included assessing
the potential impact on Hartford Life Insurance Company of third parties' Year
2000 readiness.
Status and Contingency Plans
As of February 29, 2000, Hartford Life Insurance Company had not experienced any
Year 2000-related business interruptions arising either from its own systems or
those of third parties. However, Hartford Life Insurance Company has developed
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 the critical functions of each business segment. Each
business segment 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 Hartford Life
Insurance Company's critical business on 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. 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.
Year 2000 Costs
The after-tax costs of Hartford Life Insurance Company's Year 2000 efforts that
were incurred prior to January 1, 1998 were not material to Hartford Life
Insurance Company's financial condition or results of operations. For the years
ended December 31, 1999 and 1998, the after-tax costs were approximately $2 and
$3, respectively. These costs were expensed as incurred. Hartford Life Insurance
Company does not expect to incur significant costs in the year 2000 related to
its Year 2000 efforts.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 2 of Notes to Consolidated
Financial Statements.
22
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the "Investment Risk Management" discussion of the
Investments section of the Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. CONSOLIDATED FINANCIAL STATEMENTS. See Index to Consolidated Financial
Statements and Schedules elsewhere herein.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES. See Index to Consolidated
Financial Statement and Schedules elsewhere herein.
3. EXHIBITS. See Exhibit Index elsewhere herein.
(b) Reports on Form 8-K - None.
(c) See Item 14(a)(3).
(d) See Item 14(a)(2).
23
<PAGE> 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Management F-1
Report of Independent Public Accountants F-2
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7-21
Schedule I -- Summary of Investments - Other Than Investments in Affiliates S-1
Schedule III -- Supplementary Insurance Information S-2
Schedule IV -- Reinsurance S-3
</TABLE>
REPORT OF MANAGEMENT
The management of Hartford Life Insurance Company (the "Company") is
responsible for the preparation and integrity of information contained in
the accompanying Consolidated Financial Statements. The Consolidated
Financial Statements are prepared in accordance with generally accepted
accounting principles, and, where necessary, include amounts that are based
on management's informed judgments and estimates. Management believes these
consolidated statements present fairly Hartford Life Insurance Company's
financial position and results of operations.
Management has made available Hartford Life Insurance Company's financial
records and related data to Arthur Andersen LLP, independent public
accountants, in order for them to perform an audit of the Company's
Consolidated Financial Statements. Their report appears on page F-2.
An essential element in meeting management's financial responsibilities is
Hartford Life Insurance Company's system of internal controls. These
controls, which include accounting controls and the internal auditing
program, are designed to provide reasonable assurance that assets are
safeguarded, and transactions are properly authorized, executed and
recorded. The controls, which are documented and communicated to employees
in the form of written codes of conduct and policies and procedures,
provide for careful selection of personnel and for appropriate division of
responsibility. Management continually monitors for compliance, while
Hartford Life Insurance Company's internal auditors independently assess
the effectiveness of the controls and make recommendations for improvement.
Also, Arthur Andersen LLP took into consideration the Company's system of
internal controls in determining the nature, timing and extent of their
audit tests.
Another important element is management's recognition of its responsibility
for fostering a strong, ethical climate, thereby ensuring that Hartford
Life Insurance Company's affairs are transacted according to the highest
standards of personal and professional conduct. Hartford Life Insurance
Company has a long-standing reputation of integrity in business conduct and
utilizes communication and education to create and fortify a strong
compliance culture.
The Audit Committee of the Board of Directors of Hartford Life, Inc. (the
"Committee"), the Company's ultimate parent, composed of independent
directors, meets periodically with the external and internal auditors to
evaluate the effectiveness of work performed by them in discharging their
respective responsibilities and to assure their independence and free
access to the Committee.
F-1
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO HARTFORD LIFE INSURANCE COMPANY:
We have audited the accompanying Consolidated Balance Sheets of Hartford
Life Insurance Company and subsidiaries as of December 31, 1999 and 1998,
and the related Consolidated Statements of Income, Changes in Stockholder's
Equity and Cash Flows for each of the three years in the period ended
December 31, 1999. These Consolidated Financial Statements and the
schedules referred to below are the responsibility of Hartford Life
Insurance Company's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of
Hartford Life Insurance Company and subsidiaries as of December 31, 1999
and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Consolidated Financial Statements and Schedules are presented for the
purpose of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. These schedules have
been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 31, 2000
F-2
<PAGE> 26
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
(In millions) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $ 2,045 $ 2,218 $ 1,637
Net investment income 1,359 1,759 1,368
Net realized capital gains (losses) (4) (2) 4
------- ------- -------
TOTAL REVENUES 3,400 3,975 3,009
------- ------- -------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,574 1,911 1,379
Amortization of deferred policy acquisition costs 539 431 335
Dividends to policyholders 104 329 240
Other expenses 631 766 586
------- ------- -------
TOTAL BENEFITS, CLAIMS AND EXPENSES 2,848 3,437 2,540
------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 552 538 469
Income tax expense 191 188 167
------- ------- -------
NET INCOME $ 361 $ 350 $ 302
------- ------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 27
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of 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 $13,923 and $14,505) $ 13,499 $ 14,818
Equity securities, at fair value 56 31
Policy loans, at outstanding balance 4,187 6,684
Other investments 342 264
--------- ---------
Total investments 18,084 21,797
Cash 55 17
Premiums receivable and agents' balances 29 17
Reinsurance recoverables 1,274 1,257
Deferred policy acquisition costs 4,013 3,754
Deferred income tax 459 464
Other assets 654 695
Separate account assets 110,397 90,262
--------- ---------
TOTAL ASSETS $ 134,965 $ 118,263
--------- ---------
LIABILITIES
Future policy benefits $ 4,332 $ 3,595
Other policyholder funds 16,004 19,615
Other liabilities 1,613 2,094
Separate account liabilities 110,397 90,262
--------- ---------
TOTAL LIABILITIES 132,346 115,566
--------- ---------
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 gains (losses) on securities, net of tax (255) 184
--------- ---------
Total accumulated other comprehensive income (loss) (255) 184
--------- ---------
Retained earnings 1,823 1,462
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 2,619 2,697
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 134,965 $ 118,263
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 28
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
--------------
NET
UNREALIZED
CAPITAL
GAINS (LOSSES) TOTAL
COMMON CAPITAL ON SECURITIES, RETAINED STOCKHOLDER'S
(In millions) STOCK SURPLUS NET OF TAX EARNINGS EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 6 $ 1,045 $ 184 $ 1,462 $ 2,697
Comprehensive income
Net income 361 361
-------
Other comprehensive income (loss),
net of tax (1):
Changes in net unrealized capital
gains (losses) on securities (2) (439) (439)
-------
Total other comprehensive income (loss) (439)
-------
Total comprehensive income (loss) (78)
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1999 $ 6 $ 1,045 $ (255) $ 1,823 $ 2,619
------- ------- ------- ------- -------
1998
Balance, December 31, 1997 $ 6 $ 1,045 $ 179 $ 1,113 $ 2,343
Comprehensive income
Net income 350 350
-------
Other comprehensive income, net of tax (1):
Changes in net unrealized capital
gains on securities (2) 5 5
-------
Total other comprehensive income 5
-------
Total comprehensive income 355
-------
Dividends (1) (1)
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1998 $ 6 $ 1,045 $ 184 $ 1,462 $ 2,697
------- ------- ------- ------- -------
1997
Balance, December 31, 1996 $ 6 $ 1,045 $ 30 $ 811 $ 1,892
Comprehensive income
Net income 302 302
-------
Other comprehensive income, net of tax (1):
Changes in net unrealized capital
gains on securities (2) 149 149
-------
Total other comprehensive income 149
-------
Total comprehensive income 451
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1997 $ 6 $ 1,045 $ 179 $ 1,113 $ 2,343
------- ------- ------- ------- -------
</TABLE>
(1) Net unrealized capital gain (loss) on securities is reflected net of
tax of $(236), $3 and $80, for the years ended December 31, 1999, 1998
and 1997, respectively.
(2) Net of reclassification adjustment for after-tax gains (losses)
realized in net income of $(2), $(1) and $2 for the years ended
December 31, 1999, 1998 and 1997, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 29
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
(In millions) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 361 $ 350 $ 302
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Depreciation and amortization (18) (23) 8
Net realized capital losses (gains) 4 2 (4)
Loss due to commutation of reinsurance 16 -- --
(Increase) decrease in premiums receivable and agents' balances (18) 1 119
(Decrease) increase in other liabilities (263) (79) 223
Change in receivables, payables, and accruals 125 83 107
(Decrease) increase in accrued taxes (163) 60 126
Decrease (increase) in deferred income tax 241 (118) 40
Increase in deferred policy acquisition costs (358) (439) (555)
Increase in future policy benefits 797 536 585
Increase in reinsurance recoverables (318) (101) (31)
Other, net (81) 99 52
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 325 371 972
------- ------- -------
INVESTING ACTIVITIES
Purchases of investments (5,753) (6,061) (6,869)
Sales of investments 6,383 4,901 4,256
Maturity of investments 1,818 1,761 2,329
Purchases of affiliates and other (25) -- --
------- ------- -------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 2,423 601 (284)
------- ------- -------
FINANCING ACTIVITIES
Net disbursements for investment and universal life-type contracts charged
against policyholder accounts (2,710) (1,009) (677)
------- ------- -------
NET CASH USED FOR FINANCING ACTIVITIES (2,710) (1,009) (677)
------- ------- -------
Net increase (decrease) in cash 38 (37) 11
Cash - beginning of year 17 54 43
------- ------- -------
CASH - END OF YEAR $ 55 $ 17 $ 54
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NET CASH PAID DURING THE YEAR FOR:
Income taxes $ 111 $ 263 $ 9
</TABLE>
NONCASH INVESTING ACTIVITIES:
In 1999, the Company's parent, Hartford Life and Accident Insurance Company,
recaptured an in force block of individual life insurance previously ceded to
the Company. This commutation resulted in a reduction in the Company's assets of
$666, consisting of $556 of invested assets, $99 of deferred policy acquisition
costs and $11 of other assets. Liabilities decreased $650, consisting of $543 of
other policyholder funds, $60 of future policy benefits and $47 of other
liabilities. As a result, the Company recognized an after-tax loss relating to
this transaction of $16.
In 1998, due to the recapture of an in force block of business previously ceded
to MBL Life Assurance Co. of New Jersey, reinsurance recoverables of $4,753 were
exchanged for the fair value of assets comprised of $4,310 in policy loans and
$443 in other net assets.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 30
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions except per share data unless otherwise stated)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These Consolidated Financial Statements include Hartford Life Insurance Company
and its wholly-owned subsidiaries ("Hartford Life Insurance Company" or the
"Company"), Hartford Life and Annuity Insurance Company (HLAI) and Hartford
International Life Reassurance Corporation (HLRe), formerly American Skandia
Life Reinsurance Corporation. The Company is a wholly-owned subsidiary of
Hartford Life and Accident Insurance Company (HLA), a wholly-owned subsidiary of
Hartford Life, Inc. (Hartford Life). Hartford Life is a direct subsidiary of
Hartford Accident and Indemnity Company (HA&I), an indirect subsidiary of The
Hartford Financial Services Group, Inc. (The Hartford). In November 1998,
Hartford Life Insurance Company transferred in the form of a dividend, Hartford
Financial Services, LLC and its subsidiaries to HLA.
Pursuant to an initial public offering (the "IPO") on May 22, 1997, Hartford
Life sold 26 million shares of Class A Common Stock at $28.25 per share and
received proceeds, net of offering expenses, of $687. Of the proceeds, $527 was
used to retire debt related to Hartford Life's outstanding promissory notes and
line of credit with the remaining $160 contributed by Hartford Life to its
insurance subsidiaries to support growth in its core businesses. Hartford Life
became a publicly traded company upon the sale of 26 million shares representing
approximately 18.6% of the equity ownership in Hartford Life.
Along with its parent, HLA, the Company is a leading financial services and
insurance company which provides (a) investment products such as individual
variable annuities and fixed market value adjusted annuities, mutual funds and
retirement plan services for savings and retirement needs; (b) life insurance
for income protection and estate planning; (c) employee benefits products such
as group life and disability insurance that is directly written by the Company
and is substantially ceded to its parent, HLA, and (d) corporate owned life
insurance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
These Consolidated Financial Statements are prepared on the basis of accounting
principles generally accepted in the United States, which differ materially from
the statutory accounting practices prescribed by various insurance regulatory
authorities. All material intercompany transactions and balances between
Hartford Life Insurance Company and its subsidiaries have been eliminated.
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
(b) ADOPTION OF NEW ACCOUNTING STANDARDS
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 the costs of internal use software and in determining whether the
software is for internal use. The SOP defines internal use software as software
that is acquired, internally developed, or modified solely to meet internal
needs and identifies stages of software development and accounting for the
related costs incurred during the stages. 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
F-7
<PAGE> 31
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.
The Company's cash flows were not impacted by these changes in accounting
principles.
(c) FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
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, "Accounting for
Derivative Instruments and Hedging Activities", 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 January 1, 2001. SFAS No. 133
establishes accounting and reporting guidance for derivative instruments,
including certain derivative instruments embedded in other contracts. The
standard requires, among other things, that all derivatives be carried on the
balance sheet at fair value. The standard also specifies hedge accounting
criteria under which a derivative can qualify for special accounting. In order
to receive special accounting, the derivative instrument must qualify as either
a hedge of the fair value or the variability of the cash flow of a qualified
asset or liability. Special accounting for qualifying hedges provides for
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of the corresponding changes in value of the hedged item. The
Company has reviewed its derivative holdings and is in the process of
quantifying the impact of SFAS No. 133. The Company is also assessing what
actions, if any, need to be taken to minimize potential volatility, while at the
same time maintaining the economic protection needed to support the goals of its
business.
In October 1998, the American Institute of Certified Public Accountants (AICPA)
issued SOP No. 98-7, "Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk". This SOP provides guidance on the method of
accounting for insurance and reinsurance contracts that do not transfer
insurance risk, defined in the SOP as the deposit method. This SOP is effective
for financial statements for fiscal years beginning after June 15, 1999 and is
not expected to have a material impact on the Company's financial condition or
results of operations.
(d) REVENUE RECOGNITION
Revenues for investment products and universal life-type policies consist of
policy charges for policy administration, cost of insurance and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance and
disability policies are recognized as revenues ratably over the policy period.
(e) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that enable
the policyholder to participate in the earnings on that participating block of
business of the life insurance subsidiaries of the Company. The participating
insurance in force accounted for 34%, 35% and 33% in 1999, 1998 and 1997,
respectively, of total insurance in force.
(f) INVESTMENTS
Hartford Life Insurance Company's investments in both fixed maturities, which
include bonds, redeemable preferred stock and commercial paper, and equity
securities, which include common and non-redeemable preferred stocks, are
classified as "available for sale" in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". Accordingly, these
securities are carried at fair value with the after-tax difference from cost
reflected in stockholder's equity as a component of accumulated other
comprehensive income. Policy loans are carried at outstanding balance which
approximates fair value. Other invested assets consist primarily of partnership
investments, which are accounted for by the equity method, and mortgage loans,
whereby the carrying value approximates fair value. Realized capital gains and
losses on security transactions associated with the Company's immediate
participation guaranteed contracts are excluded from revenues and deferred over
the expected maturity of the securities, since under the terms of the contracts
the realized gains and losses will be credited to policyholders in future years
as they are entitled to receive them. Net realized capital gains and losses,
excluding those related to immediate participation guaranteed contracts, are
reported as a component of revenue and are determined on a specific
identification basis.
The Company's accounting policy for impairment requires recognition of an other
than temporary impairment charge on a security if it is determined that the
Company is unable to recover all amounts due under the contractual obligations
of the security. In addition, for securities expected to be sold, an other than
temporary impairment charge is recognized if the Company does not expect the
fair value of a security to recover to cost or amortized cost prior to the
expected date of sale. Once an impairment charge has been
F-8
<PAGE> 32
recorded, the Company then continues to review the other than temporarily
impaired securities for additional impairment, if necessary.
(g) DERIVATIVE INSTRUMENTS
HEDGE ACCOUNTING -- Hartford Life Insurance Company uses a variety of derivative
instruments, including swaps, caps, floors, forwards and exchange traded
financial futures and options as part of an overall risk management strategy.
These instruments are used as a means of hedging exposure to price, foreign
currency and/or interest rate risk on planned investment purchases or existing
assets and liabilities. Hartford Life Insurance Company does not hold or issue
derivative instruments for trading purposes. Hartford Life Insurance Company's
accounting for derivative instruments used to manage risk is in accordance with
the concepts established in SFAS No. 80, "Accounting for Futures Contracts",
SFAS No. 52, "Foreign Currency Translation", AICPA SOP No. 86-2, "Accounting for
Options" and various Emerging Issues Task Force pronouncements. Written options
are used, in all cases in conjunction with other assets and derivatives, as part
of the Company's asset and liability management strategy. Derivative instruments
are carried at values consistent with the asset or liability being hedged.
Derivative instruments used to hedge fixed maturities or equity securities are
carried at fair value with the after-tax difference from cost reflected in
stockholder's equity. Derivative instruments used to hedge other invested assets
or liabilities are carried at cost. For a discussion of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", issued in June
1998, see (c) Future Adoption of New Accounting Standards.
Derivative instruments must be designated at inception as a hedge and measured
for effectiveness both at inception and on an ongoing basis. Hartford Life
Insurance Company's correlation threshold for hedge designation is 80% to 120%.
If correlation, which is assessed monthly or quarterly and measured based on a
rolling three month average, falls outside the 80% to 120% range, hedge
accounting will be terminated. Derivative instruments used to create a synthetic
asset must meet synthetic accounting criteria, including designation at
inception and consistency of terms between the synthetic and the instrument
being replicated. Consistent with industry practice, synthetic instruments are
accounted for like the financial instrument they are intended to replicate.
Derivative instruments which fail to meet risk management criteria, subsequent
to acquisition, are marked to market with the impact reflected in the
Consolidated Statements of Income.
FUTURES -- Gains or losses on financial futures contracts entered into in
anticipation of the investment of future receipt of product cash flows are
deferred and, at the time of the ultimate investment purchase, reflected as an
adjustment to the cost basis of the purchased asset. Gains or losses on futures
used in invested asset risk management are deferred and adjusted into the cost
basis of the hedged asset when the contract futures are closed, except for
futures used in duration hedging, which are deferred and basis adjusted on a
quarterly basis. The basis adjustments are amortized into net investment income
over the remaining asset life.
FORWARD COMMITMENTS -- Open forward commitment contracts are marked to market
through stockholder's equity. Such contracts are accounted for at settlement by
recording the purchase of the specified securities at the previously committed
price. Gains or losses resulting from the termination of forward commitment
contracts are recognized immediately in the Consolidated Statements of Income as
a component of net investment income.
OPTIONS -- The cost of options entered into as part of a risk management
strategy are basis adjusted to the underlying asset or liability and amortized
over the remaining life of the option. Gains or losses on expiration or
termination are adjusted into the basis of the underlying asset or liability and
amortized over the remaining asset life.
INTEREST RATE SWAPS -- Interest rate swaps involve the periodic exchange of
payments without the exchange of underlying principal or notional amounts. Net
receipts or payments are accrued and recognized over the life of the swap
agreement as an adjustment to investment income. Should the swap be terminated,
the gain or loss is adjusted into the basis of the asset or liability and
amortized over the remaining life. Should the hedged asset be sold or liability
terminated without terminating the swap position, any swap gains or losses are
immediately recognized in earnings. Interest rate swaps purchased in
anticipation of an asset purchase (anticipatory transaction) are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the Consolidated Statements of Income while the
change in market value is recognized as an unrealized capital gain or loss.
INTEREST RATE CAPS AND FLOORS -- Premiums paid on purchased cap or floor
agreements and the premium received on issued cap or floor agreements (used for
risk management) are adjusted into the basis of the applicable asset and
amortized over the asset life. Gains or losses on termination of such positions
are adjusted into the basis of the asset or liability and amortized over the
remaining asset life. Net payments are recognized as an adjustment to income or
basis adjusted and amortized depending on the specific hedge strategy.
F-9
<PAGE> 33
FORWARD EXCHANGE AND CURRENCY SWAPS CONTRACTS -- Forward exchange contracts and
foreign currency swaps are accounted for in accordance with SFAS No. 52. Changes
in the spot rate of instruments designated as hedges of the net investment in a
foreign subsidiary are reflected in the cumulative translation adjustment
component of stockholder's equity.
Cash flows from futures, options and swaps, accounted for as hedges, are
included with the cash flows of the item being hedged.
(h) SEPARATE ACCOUNTS
Hartford Life Insurance Company maintains separate account assets and
liabilities which are reported at fair value. Separate account assets are
segregated from other investments. Separate accounts reflect two categories of
risk assumption: non-guaranteed separate accounts, wherein the policyholder
assumes substantially all the investment risk and rewards, and guaranteed
separate accounts, wherein the Company contractually guarantees either a minimum
return or account value to the policyholder.
(i) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain other expenses
associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, usually 20 years. Generally, acquisition costs
are deferred and amortized using the retrospective deposit method. Under the
retrospective deposit method, acquisition costs are amortized in proportion to
the present value of expected gross profits from surrender charges, investment
charges, mortality and expense margins. Actual gross profits can vary from
management's estimates, resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates, when appropriate,
and evaluates the recoverability of the deferred acquisition cost asset. When
appropriate, management revises its assumptions on the estimated gross profits
of these contracts and the cumulative amortization for the books of business are
re-estimated and adjusted by a cumulative charge or credit to income.
Acquisition costs and their related deferral are included in the Company's other
expenses as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commissions $ 887 $ 1,069 $ 976
Deferred acquisition costs (898) (891) (862)
Other 642 588 472
------- ------- -------
Total other expenses $ 631 $ 766 $ 586
======= ======= =======
</TABLE>
(j) FUTURE POLICY BENEFITS
Liabilities for future policy benefits are computed by the net level premium
method using interest rate assumptions varying from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued.
(k) OTHER POLICYHOLDER FUNDS
Other policyholder funds include reserves for investment contracts without life
contingencies, corporate owned life insurance and universal life insurance
contracts. These reserves are based on account values, which represent the
balance that accrues to the benefit of policyholders.
F-10
<PAGE> 34
3. INVESTMENTS AND DERIVATIVE INSTRUMENTS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(a) COMPONENTS OF NET INVESTMENT INCOME
Interest income from fixed maturities $ 934 $ 952 $ 932
Interest income from policy loans 391 789 425
Income from other investments 48 32 26
------- ------- -------
Gross investment income 1,373 1,773 1,383
Less: Investment expenses 14 14 15
------- ------- -------
NET INVESTMENT INCOME $ 1,359 $ 1,759 $ 1,368
======= ======= =======
(b) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
Fixed maturities $ (7) $ (28) $ (7)
Equity securities 2 21 12
Real estate and other 1 5 (1)
------- ------- -------
NET REALIZED CAPITAL GAINS (LOSSES) $ (4) $ (2) $ 4
======= ======= =======
(c) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
Gross unrealized capital gains $ 9 $ 2 $ 14
Gross unrealized capital losses (2) (1) --
------- ------- -------
Net unrealized capital gains 7 1 14
Deferred income tax expense 2 -- 5
------- ------- -------
Net unrealized capital gains, net of tax 5 1 9
Balance - beginning of year 1 9 8
------- ------- -------
NET CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES $ 4 $ (8) $ 1
======= ======= =======
(d) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
Gross unrealized capital gains $ 48 $ 421 $ 371
Gross unrealized capital losses (472) (108) (80)
Unrealized capital (gains) losses credited to policyholders 24 (32) (30)
------- ------- -------
Net unrealized capital gains (losses) (400) 281 261
Deferred income tax expense (benefit) (140) 98 91
------- ------- -------
Net unrealized capital gains (losses), net of tax (260) 183 170
Balance - beginning of year 183 170 22
------- ------- -------
NET CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES $ (443) $ 13 $ 148
======= ======= =======
</TABLE>
F-11
<PAGE> 35
(e) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 180 $ 5 $ (3) $ 182
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset backed 1,094 5 (35) 1,064
States, municipalities and political subdivisions 155 2 (1) 156
Foreign governments 289 6 (14) 281
Public utilities 865 7 (39) 833
All other corporate, including international 5,646 18 (244) 5,420
All other corporate - asset backed 4,103 5 (123) 3,985
Short-term investments 1,156 -- -- 1,156
Certificates of deposit 434 -- (12) 422
Redeemable preferred stock 1 -- (1) --
------- ------- ------- -------
TOTAL FIXED MATURITIES $13,923 $ 48 $ (472) $13,499
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 121 $ 2 $ -- $ 123
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset backed 1,001 23 (8) 1,016
States, municipalities and political subdivisions 165 8 -- 173
Foreign governments 393 26 (7) 412
Public utilities 844 33 (3) 874
All other corporate, including international 5,469 260 (42) 5,687
All other corporate - asset backed 4,155 58 (42) 4,171
Short-term investments 1,847 -- -- 1,847
Certificates of deposit 510 11 (6) 515
------- ------- ------- -------
TOTAL FIXED MATURITIES $14,505 $ 421 $ (108) $14,818
======= ======= ======= =======
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments as of
December 31, 1999 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including mortgage backed securities and
collateralized mortgage obligations, are distributed to maturity year based on
the Company's estimates of the rate of future prepayments of principal over the
remaining lives of the securities. These estimates are developed using
prepayment speeds provided in broker consensus data. Such estimates are derived
from prepayment speeds experienced at the interest rate levels projected for the
applicable underlying collateral and can be expected to vary from actual
experience.
<TABLE>
<CAPTION>
MATURITY Amortized Cost Fair Value
- -------- -------------- ----------
<S> <C> <C>
One year or less $ 2,454 $ 2,440
Over one year through five years 4,874 4,787
Over five years through ten years 3,072 2,940
Over ten years 3,523 3,332
------- -------
TOTAL $13,923 $13,499
======= =======
</TABLE>
F-12
<PAGE> 36
(f) SALES OF FIXED MATURITY AND EQUITY SECURITY INVESTMENTS
Sales of fixed maturities, excluding short-term fixed maturities, for the years
ended December 31, 1999, 1998 and 1997 resulted in proceeds of $3.4 billion,
$3.2 billion and $4.2 billion, gross realized capital gains of $153, $103 and
$169, gross realized capital losses (including writedowns) of $160, $131 and
$176, respectively. Sales of equity security investments for the years ended
December 31, 1999, 1998 and 1997 resulted in proceeds of $7, $35 and $132 and
gross realized capital gains of $2, $21 and $12, respectively, and no gross
realized capital losses for all periods.
(g) CONCENTRATION OF CREDIT RISK
The Company is not exposed to any significant concentration of credit risk in
fixed maturities of a single issuer greater than 10% of stockholder's equity.
(h) DERIVATIVE INSTRUMENTS
Hartford Life Insurance Company utilizes a variety of derivative instruments,
including swaps, caps, floors, forwards and exchange traded futures and options,
in accordance with Company policy and in order to achieve one of three Company
approved objectives: to hedge risk arising from interest rate, price or currency
exchange rate volatility; to manage liquidity; or, to control transactions
costs. The Company utilizes derivative instruments to manage market risk through
four principal risk management strategies: hedging anticipated transactions,
hedging liability instruments, hedging invested assets and hedging portfolios of
assets and/or liabilities. The Company does not trade in these instruments for
the express purpose of earning trading profits.
The Company maintains a derivatives counterparty exposure policy which
establishes market based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. Credit risk is measured as the amount owed to the Company based on
current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are quantified weekly and netted, and
collateral is pledged to or held by the Company to the extent the current value
of derivatives exceed exposure policy thresholds.
The Company's derivative program is monitored by an internal compliance unit and
is reviewed by senior management. Notional amounts, which represent the basis
upon which pay or receive amounts are calculated and are not reflective of
credit risk, pertaining to derivative financial instruments (excluding the
Company's guaranteed separate account derivative investments), totaled $5.5
billion and $6.2 billion ($3.9 billion and $3.9 billion related to the Company's
investments, $1.6 billion and $2.3 billion on the Company's liabilities) as of
December 31, 1999 and 1998, respectively.
The tables below provide a summary of derivative instruments held by Hartford
Life Insurance Company as of December 31, 1999 and 1998, segregated by major
investment and liability category:
<TABLE>
<CAPTION>
1999 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- ---- -------------------------------------------
Total Purchased
Carrying Issued Caps Caps, Floors
ASSETS HEDGED Value & Floors & Options
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset backed securities (excluding
anticipatory) $ 5,049 $ -- $ --
Anticipatory(3) -- -- --
Other bonds and notes 7,294 494 611
Short-term investments 1,156 -- --
-------- ------- -------
TOTAL FIXED MATURITIES 13,499 494 611
Equity securities, policy loans and
other investments 4,585 -- --
-------- -------- -------
TOTAL INVESTMENTS $ 18,084 494 611
OTHER POLICYHOLDER FUNDS $ 16,004 -- 1,150
-------- -------- -------
TOTAL DERIVATIVE INSTRUMENTS -
NOTIONAL VALUE $ 494 $ 1,761
======== ======== ========
TOTAL DERIVATIVE INSTRUMENTS -
FAIR VALUE $ (22) $ 8
======== ======== ========
1999 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- ---- -------------------------------------------------------
Interest Foreign Total
Rate Swaps Currency Notional
ASSETS HEDGED Futures (1) & Forwards Swaps (2) Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset backed securities (excluding
anticipatory) $ - $ 911 $ - $ 911
Anticipatory (3) 5 112 -- 117
Other bonds and notes -- 1,676 80 2,861
Short-term investments -- -- -- --
-------- -------- -------- --------
TOTAL FIXED MATURITIES 5 2,699 80 3,889
Equity securities, policy loans and
other investments -- -- -- --
-------- -------- -------- --------
TOTAL INVESTMENTS 5 2,699 80 3,889
OTHER POLICYHOLDER FUNDS -- 430 -- 1,580
-------- -------- -------- --------
TOTAL DERIVATIVE INSTRUMENTS -
NOTIONAL VALUE $ 5 $ 3,129 $ 80 $ 5,469
======== ======== ======== ========
TOTAL DERIVATIVE INSTRUMENTS -
FAIR VALUE $ - $ (30) $ 2 $ (42)
======== ======== ======== ========
</TABLE>
F-13
<PAGE> 37
<TABLE>
<CAPTION>
1998 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- ---- -----------------------------------------
Total Purchased
Carrying Issued Caps Caps &
ASSETS HEDGED Value & Floors Floors
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset backed securities (excluding
anticipatory) $ 5,187 $ 44 $ 243
Anticipatory (3) -- -- --
Other bonds and notes 7,683 461 597
Short-term investments 1,948 -- --
-------- -------- --------
TOTAL FIXED MATURITIES 14,818 505 840
Equity securities, policy loans and
other investments 6,979 -- --
-------- -------- --------
TOTAL INVESTMENTS $ 21,797 505 840
OTHER POLICYHOLDER FUNDS $ 19,615 -- 1,150
-------- -------- --------
TOTAL DERIVATIVE INSTRUMENTS -
NOTIONAL VALUE $ 505 $ 1,990
======== ======== ========
TOTAL DERIVATIVE INSTRUMENTS -
FAIR VALUE $ (6) $ 19
======== ======== ========
1998 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- ---- -------------------------------------------------------
Interest Foreign Total
Rate Swaps Currency Notional
ASSETS HEDGED Futures (1) & Forwards Swaps (2) Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset backed securities (excluding
anticipatory) $ 3 $ 885 $ -- $ 1,175
Anticipatory (3) -- 235 -- 235
Other bonds and notes 18 1,300 90 2,466
Short-term investments -- -- -- --
-------- -------- ------ --------
TOTAL FIXED MATURITIES 21 2,420 90 3,876
Equity securities, policy loans and
other investments -- -- -- --
-------- -------- ------ --------
TOTAL INVESTMENTS 21 2,420 90 3,876
OTHER POLICYHOLDER FUNDS -- 1,195 -- 2,345
-------- -------- ------ --------
TOTAL DERIVATIVE INSTRUMENTS -
NOTIONAL VALUE $ 21 $ 3,615 $ 90 $ 6,221
======== ======== ====== ========
TOTAL DERIVATIVE INSTRUMENTS -
FAIR VALUE $ -- $ 27 $ (7) $ 33
======== ======== ====== ========
</TABLE>
(1) As of December 31, 1999 and 1998, approximately 100% and 5%,
respectively, of the notional futures contracts expire within one year.
(2) As of December 31, 1999 and 1998, approximately 28% and 11%,
respectively, of foreign currency swaps expire within one year.
(3) Deferred gains and losses on anticipatory transactions are included in
the carrying value of fixed maturities in the Consolidated Balance
Sheets. At the time of the ultimate purchase, they are reflected as a
basis adjustment to the purchased asset. As of December 31, 1999, the
Company had $1.4 of net deferred losses on interest rate swaps and
futures. The Company expects to basis adjust the entire loss in 2000.
During 1999, $0.2 of new future activity was basis adjusted. As of
December 31, 1998, the Company had no deferred gains for interest rate
swaps.
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1998 Maturities/ December 31, 1999
Notional Amount Additions Terminations (1) Notional Amount
--------------- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps $1,912 $- $ 148 $1,764
Floors 583 -- 178 405
Swaps/ Forwards 3,705 991 1,487 3,209
Futures 21 292 308 5
Options -- 86 -- 86
------
TOTAL $6,221 $1,369 $2,121 $5,469
------
BY STRATEGY
Liability $2,345 $ 17 $ 782 $1,580
Anticipatory 235 204 322 117
Asset 2,398 831 427 2,802
Portfolio 1,243 317 590 970
------
TOTAL $6,221 $1,369 $2,121 $5,469
------
</TABLE>
(1) During 1999, the Company had no significant gains or losses on terminations
of hedge positions using derivative financial instruments.
F-14
<PAGE> 38
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure about Fair Value of Financial Instruments" requires
disclosure of fair value information of financial instruments. For certain
financial instruments where quoted market prices are not available, other
independent valuation techniques and assumptions are used. Because considerable
judgment is used, these estimates are not necessarily indicative of amounts that
could be realized in a current market exchange. SFAS No. 107 excludes certain
financial instruments from disclosure, including insurance contracts. Hartford
Life Insurance Company uses the following methods and assumptions in estimating
the fair value of each class of financial instrument.
Fair value for fixed maturities and marketable equity securities approximates
those quotations published by applicable stock exchanges or received from other
reliable sources.
For policy loans, carrying amounts approximate fair value.
Other invested assets consist primarily of partnership investments, which are
accounted for by the equity method, and mortgage loans, whereby the carrying
value approximates fair value.
Other policyholder funds fair value information is determined by estimating
future cash flows, discounted at the current market rate.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is similar to external valuation models.
The carrying amount and fair values of Hartford Life Insurance Company's
financial instruments as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities $13,499 $13,499 $14,818 $14,818
Equity securities 56 56 31 31
Policy loans 4,187 4,187 6,684 6,684
Other investments 342 348 264 309
LIABILITIES
Other policyholder funds (1) 11,734 11,168 11,709 11,726
------- ------- ------- -------
</TABLE>
(1) Excludes corporate owned life insurance and universal life insurance
contracts.
5. SEPARATE ACCOUNTS
Hartford Life Insurance Company maintained separate account assets and
liabilities totaling $110.4 billion and $90.3 billion as of December 31, 1999
and 1998, respectively, which are reported at fair value. Separate account
assets, which are segregated from other investments, reflect two categories of
risk assumption: non-guaranteed separate accounts totaling $101.7 billion and
$80.6 billion as of December 31, 1999 and 1998, respectively, wherein the
policyholder assumes substantially all the investment risk, and guaranteed
separate accounts totaling $8.7 and $9.7 billion as of December 31, 1999 and
1998, respectively, wherein Hartford Life Insurance Company contractually
guarantees either a minimum return or account value to the policyholder.
Included in non-guaranteed separate account assets were policy loans totaling
$860 and $1.8 billion as of December 31, 1999 and 1998, respectively. Net
investment income (including net realized capital gains and losses) and interest
credited to policyholders on separate account assets are not reflected in the
Consolidated Statements of Income.
Separate account management fees and other revenues were $1.1 billion, $908 and
$699 in 1999, 1998 and 1997, respectively. The guaranteed separate accounts
include fixed market value adjusted (MVA) individual annuities and modified
guaranteed life insurance. The average credited interest rate on these contracts
was 6.5% and 6.6% as of December 31, 1999 and 1998, respectively. The assets
that support these liabilities were comprised of $8.7 billion and $9.5 billion
in fixed maturities as of December 31, 1999 and 1998, respectively, and $0.2
billion of other invested assets as of December 31, 1998. The portfolios are
segregated from other investments and are managed to minimize liquidity and
interest rate risk. In order to minimize the risk of disintermediation
associated with early withdrawals, fixed MVA annuity and modified guaranteed
life insurance contracts carry a graded surrender charge as well as a market
F-15
<PAGE> 39
value adjustment. Additional investment risk is hedged using a variety of
derivatives which totaled $(96) and $40 in carrying value and $2.0 billion and
$3.5 billion in notional amounts as of December 31, 1999 and 1998, respectively.
6. STATUTORY RESULTS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1999 1998 1997
------
<S> <C> <C> <C>
Statutory net income $ 151 $ 211 $ 214
------ ------ ------
Statutory capital and surplus $1,905 $1,676 $1,441
------ ------ ------
</TABLE>
A significant percentage of the consolidated statutory surplus is permanently
reinvested or is subject to various state regulatory restrictions which limit
the payment of dividends without prior approval. The total amount of statutory
dividends which may be paid by the insurance subsidiaries of the Company in
2000, without prior regulatory approval, is estimated to be $190.
Hartford Life Insurance Company and its domestic insurance subsidiaries prepare
their statutory financial statements in accordance with accounting practices
prescribed by the applicable state of domicile. Prescribed statutory accounting
practices include publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations and general
administrative rules.
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. The Company has not yet determined the
impact that the SAP will have on the statutory financial statements of Hartford
Life Insurance Company and its insurance subsidiaries.
7. STOCK COMPENSATION PLANS
Hartford Life Insurance Company's employees are included in the 1997 Hartford
Life, Inc. Incentive Stock Plan (the "Plan"), which was adopted during the
second quarter of 1997. Under the Plan, options granted may be either
non-qualified options or incentive stock options qualifying under Section 422A
of the Internal Revenue Code, stock appreciation rights, performance shares or
restricted stock, or any combination of the foregoing. The aggregate number of
shares of Class A Common Stock which may be awarded in any one year shall be
subject to an annual limit. The maximum number of shares of Class A Common Stock
which may be granted under the Plan in each year shall be 1.5% of the total
issued and outstanding shares of Hartford Life Class A and Class B Common Stock
and treasury stock as reported in the Annual Report on Hartford Life's Form 10-K
of the Company for the preceding year plus unused portions of such limit from
prior years.
In addition, no more than 5 million shares of Class A Common Stock shall be
cumulatively available for awards of incentive stock options under the Plan, and
no more than 20% of the total number of shares on a cumulative basis shall be
available for restricted stock and performance shares awards. Performance shares
awards of common stock granted under the Plan become payable upon the attainment
of specific performance goals achieved over a three year period.
All options granted have an exercise price equal to the market price of the
Company's stock on the date of grant and an option's maximum term is ten years.
Certain non-performance based options become exercisable upon the attainment of
specified market price appreciation of Hartford Life's common shares or at seven
years after the date of grant, while the remaining non-performance based options
become exercisable over a three year period commencing with the date of grant.
During the second quarter of 1997, Hartford Life established the Hartford Life,
Inc. Employee Stock Purchase Plan (ESPP). Under this plan, eligible employees of
Hartford Life and the Company may purchase Class A Common Stock of Hartford Life
at a 15% discount from the lower of the market price at the beginning or end of
the quarterly offering period. Hartford Life may sell up to 2,700,000 shares of
stock to eligible employees. Hartford Life sold 120,694, 121,943 and 54,316
shares under the ESPP in 1999, 1998 and 1997, respectively. The weighted average
fair value of the discount under the ESPP was $7.48 per share in 1999, $13.74
per share in 1998 and $9.63 per share in 1997.
F-16
<PAGE> 40
8. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(a) PENSION PLANS
Hartford Life Insurance Company's employees are included in The Hartford's
noncontributory defined benefit pension plans. These plans provide pension
benefits that are based on years of service and the employee's compensation
during the last ten years of employment. The Company's funding policy is to
contribute annually an amount between the minimum funding requirements set forth
in the Employee Retirement Income Security Act of 1974, as amended, and the
maximum amount that can be deducted for U.S. federal income tax purposes.
Generally, pension costs are funded through the purchase of the Company's group
pension contracts. The cost to the Company was approximately $6 in both 1999 and
1998, and $5 in 1997.
The Company also provides, through The Hartford, certain health care and life
insurance benefits for eligible retired employees. A substantial portion of the
Company's employees may become eligible for these benefits upon retirement. The
Company's contribution for health care benefits will depend on the retiree's
date of retirement and years of service. In addition, the plan has a defined
dollar cap which limits average Company contributions. The Company has prefunded
a portion of the health care and life insurance obligations through trust funds
where such prefunding can be accomplished on a tax effective basis.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was immaterial to the results of operations for 1999, 1998 and 1997.
The assumed rate in the per capita cost of health care (the health care trend
rate) was 7.1% for 1999, decreasing ratably to 5.0% in the year 2003. Increasing
or decreasing the health care trend rates by one percent per year would have an
immaterial impact on the accumulated postretirement benefit obligation and the
annual expense. To the extent that the actual experience differs from the
inherent assumptions, the effect will be amortized over the average future
service of covered employees.
(b) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in The
Hartford's Investment and Savings Plan. Under this plan, designated
contributions, which may be invested in Class A Common Stock of Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to Hartford Life Insurance Company for the above-mentioned
plan was approximately $4 in both 1999 and 1998, and $2 in 1997.
9. REINSURANCE
Hartford Life Insurance Company cedes insurance to other insurers in order to
limit its maximum losses. Such transfer does not relieve Hartford Life Insurance
Company of its primary liability. Failure of reinsurers to honor their
obligations could result in losses to Hartford Life Insurance Company. Hartford
Life Insurance Company reduces this risk by evaluating the financial condition
of reinsurers, and monitoring for possible concentrations of credit risk.
Hartford Life Insurance Company has no significant reinsurance related
concentrations of credit risk.
The Company records a receivable for the portion of reinsured benefits paid and
insurance liabilities. Reinsurance recoveries on ceded reinsurance contracts
were $397, $300 and $418 for the years ended December 31, 1999, 1998 and 1997,
respectively. Hartford Life Insurance Company also assumes insurance from other
insurers.
The effect of reinsurance on premiums and other considerations is summarized as
follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Direct premiums and other considerations $ 2,660 $ 2,722 $ 2,164
Reinsurance assumed 95 150 159
Reinsurance ceded (710) (654) (686)
------- ------- -------
PREMIUMS AND OTHER CONSIDERATIONS $ 2,045 $ 2,218 $ 1,637
------- ------- -------
</TABLE>
Hartford Life Insurance Company maintains certain reinsurance agreements with
HLA, whereby the Company cedes both group life and group accident and health
risk. Under these treaties, the Company ceded group life premium of $119, $132
and $80 in 1999, 1998 and 1997, respectively, and accident and health premium of
$430, $379, and $335, respectively, to HLA.
Pursuant to a reinsurance agreement dating back to 1992, the Company assumed
100% of certain blocks of individual life insurance from HLA. Under this
reinsurance agreement Hartford Life Insurance Company assumed $9, $13 and $18 of
premium from HLA in
F-17
<PAGE> 41
1999, 1998 and 1997, respectively. On December 1, 1999, HLA recaptured this in
force block of individual life insurance previously ceded to the Company. This
commutation resulted in a reduction in the Company's assets of $666, consisting
of $556 of invested assets, $99 of deferred policy acquisition costs and $11 of
other assets. Liabilities decreased $650, consisting of $543 of other
policyholder funds, $60 of future policy benefits and $47 of other liabilities.
As a result, the Company recognized an after-tax loss relating to this
transaction of $16.
In 1998, the Hartford Life recaptured an in force block of Corporate Owned Life
Insurance (COLI) business previously ceded to MBL Assurance Co. of New Jersey
(MBL Life). The transaction was consummated through an assignment of a
reinsurance arrangement between Hartford Life and MBL Life to a Hartford Life
subsidiary. Hartford Life originally assumed the life insurance block in 1992
from Mutual Benefit Life, which was placed in court-supervised rehabilitation in
1991, and reinsured a portion of those policies back to MBL Life. This recapture
was effective January 1, 1998 and resulted in a decrease in ceded premiums and
other considerations of $163 in 1998. Additionally, this transaction resulted in
a decrease in reinsurance recoverables of $4.8 billion, which was exchanged for
the fair value of assets comprised of $4.3 billion in policy loans and $443 in
other net assets.
10. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement under
which each member in the consolidated U.S. federal income tax return will make
payments between them such that, with respect to any period, the amount of taxes
to be paid by the Company, subject to certain adjustments, generally will be
determined as though the Company were filing separate federal, state and local
income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of Hartford Life,
the Company will be included for federal income tax purposes in the affiliated
group of which The Hartford is the common parent. It is the intention of The
Hartford and its non-life subsidiaries to file a single consolidated federal
income tax return. The life insurance companies will file a separate
consolidated federal income tax return for 1997 and 1998 and intend to file a
separate consolidated federal income tax return for 1999. The Company's
effective tax rate was 35%, 35% and 36% in 1999, 1998 and 1997, respectively.
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Current $ (50) $ 307 $ 162
Deferred 241 (119) 5
----- ----- -----
INCOME TAX EXPENSE $ 191 $ 188 $ 167
===== ===== =====
</TABLE>
A reconciliation of the tax provision at the U.S. federal statutory rate to the
provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tax provision at the U.S. federal statutory rate $ 193 $ 188 $ 164
Other (2) -- 3
----- ----- -----
TOTAL $ 191 $ 188 $ 167
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) include the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Tax basis deferred policy acquisition costs $ 720 $ 751
Financial statement deferred policy acquisition costs and reserves 11 103
Employee benefits (3) 4
Net unrealized capital losses (gains) on securities 138 (98)
Investments and other (407) (296)
----- -----
TOTAL $ 459 $ 464
===== =====
</TABLE>
F-18
<PAGE> 42
Hartford Life Insurance Company had a current tax receivable of $56 as of
December 31, 1999 and a current tax payable of $65 as of December 31, 1998.
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax Act
of 1959 permitted the deferral from taxation of a portion of statutory income
under certain circumstances. In these situations, the deferred income was
accumulated in a "Policyholders' Surplus Account" and, based on current tax law,
will be taxable in the future only under conditions which management considers
to be remote; therefore, no federal income taxes have been provided on the
balance in this account, which for tax return purposes was $104 as of December
31, 1999.
11. RELATED PARTY TRANSACTIONS
Transactions of the Company with its affiliates relate principally to tax
settlements, reinsurance, insurance coverage, rental and service fees, payment
of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which, depending on type, are allocated based on either a
percentage of direct expenses or on utilization. Indirect expenses allocated to
the Company by The Hartford were $47 in both 1999 and 1998 and $39 in 1997.
12. 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 alleged economic and
punitive damages have been asserted. Some of these cases have been filed as
purported class actions and some cases have been filed in certain jurisdictions
that permit punitive damage awards disproportionate to the actual damages
incurred. 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 estimated
losses and costs of defense, will have a material adverse effect on the
financial condition or operating results of the Company.
(b) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company paid guaranty
fund assessments of approximately $2, $9 and $15 in 1999, 1998 and 1997,
respectively, of which $1 in 1999 and $4 in both 1998 and 1997 were estimated to
be creditable against premium taxes.
(c) LEASES
The rent paid to Hartford Fire for space occupied by the Company was $9 in 1999
and $7 in both 1998 and 1997. Future minimum rental commitments are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 14
2001 14
2002 13
2003 12
2004 12
Thereafter 62
----
TOTAL $127
====
</TABLE>
F-19
<PAGE> 43
The principal executive offices of Hartford Life Insurance Company, together
with its parent, are located in Simsbury, Connecticut. Rental expense is
recognized on a level basis over the term of the primary sublease for the
facility located in Simsbury, Connecticut, which expires on December 31, 2009,
and amounted to approximately $9 in each of the years ended December 31, 1999,
1998 and 1997.
(d) TAX MATTERS
Hartford Life's federal income tax returns are routinely audited by the Internal
Revenue Service. Hartford Life's 1996-1997 federal income tax returns are
currently under audit by the Internal Revenue Service. Management believes that
sufficient provision has been made in the financial statements for issues that
may result from tax examinations and other tax related matters for all open tax
years.
13. SEGMENT INFORMATION
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 fixed and variable
annuities, mutual funds, retirement plan services other investment products.
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, HLA.
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2.
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 realized capital gains
and losses through net investment income utilizing the duration of the segment's
investment portfolios. The Company's revenues are primarily derived from
customers within the United States. The Company's long-lived assets primarily
consist of deferred policy acquisition costs and deferred tax assets from within
the United States. The following tables outlines summarized financial
information concerning the Company's segments.
<TABLE>
<CAPTION>
Investment Individual
1999 Products Life COLI Other Total
- ---- -------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,884 $ 574 $ 830 $ 112 $ 3,400
Net investment income 699 169 431 60 1,359
Amortization of deferred policy
acquisition costs 411 128 -- -- 539
Income tax expense (benefit) 159 37 15 (20) 191
Net income (loss) 300 68 28 (35) 361
Assets 106,352 5,962 20,198 2,453 134,965
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Investment Individual
1998 Products Life COLI Other Total
- ---- -------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,779 $ 543 $ 1,567 $ 86 $ 3,975
Net investment income 736 181 793 49 1,759
Amortization of deferred policy
acquisition costs 326 105 -- -- 431
Income tax expense (benefit) 145 35 12 (4) 188
Net income (loss) 270 64 24 (8) 350
Assets 87,207 5,228 22,631 3,197 118,263
-------- -------- -------- -------- --------
</TABLE>
F-20
<PAGE> 44
<TABLE>
<CAPTION>
Investment Individual
1997 Products Life COLI Other Total
- ---- -------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,510 $ 487 $ 980 $ 32 $ 3,009
Net investment income 739 164 429 36 1,368
Amortization of deferred policy
acquisition costs 250 83 -- 2 335
Income tax expense 111 30 15 11 167
Net income 206 55 27 14 302
Assets 72,288 4,914 17,800 2,743 97,745
------- ------- ------- ------- -------
</TABLE>
14. QUARTERLY RESULTS FOR 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 838 $ 915 $ 853 $ 721 $ 846 $ 826 $ 863 $1,513
Benefits, claims and expenses 703 787 722 591 695 688 728 1,371
Net income 88 83 85 85 100 89 88 93
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
F-21
<PAGE> 45
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
(In millions) As of December 31, 1999
-------------------------------------------------
Amount at which
shown on Balance
Type of Investment Cost Fair Value Sheet
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds and Notes
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 180 $ 182 $ 182
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset backed 1,094 1,064 1,064
States, municipalities and political subdivisions 155 156 156
Foreign governments 289 281 281
Public utilities 865 833 833
All other corporate, including international 5,646 5,420 5,420
All other corporate - asset backed 4,103 3,985 3,985
Short-term investments 1,156 1,156 1,156
Certificates of deposit 434 422 422
Redeemable preferred stock 1 -- --
------- ------- -------
TOTAL FIXED MATURITIES 13,923 13,499 13,499
------- ------- -------
EQUITY SECURITIES
Common Stocks
Industrial and miscellaneous 49 56 56
------- ------- -------
TOTAL EQUITY SECURITIES 49 56 56
------- ------- -------
TOTAL FIXED MATURITIES AND EQUITY SECURITIES 13,972 13,555 13,555
------- ------- -------
POLICY LOANS 4,187 4,187 4,187
------- ------- -------
OTHER INVESTMENTS
Mortgage loans on real estate 198 198 198
Other invested assets 127 150 144
------- ------- -------
TOTAL OTHER INVESTMENTS 325 348 342
------- ------- -------
TOTAL INVESTMENTS $18,484 $18,090 $18,084
======= ======= =======
</TABLE>
S-1
<PAGE> 46
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(In millions)
Deferred Other
Policy Policy- Premiums Net Net Realized
Acquisition Future Policy holder and Other Investment Capital Gains
Segment Costs Benefits Funds Considerations Income (Losses)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Investment Products $ 3,099 $ 2,744 $ 8,859 $ 1,185 $ 699 $ --
Individual Life 914 270 1,880 405 169 --
Corporate Owned Life
Insurance -- 321 5,244 399 431 --
Other -- 997 21 56 60 (4)
-------- -------- -------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 4,013 $ 4,332 $ 16,004 $ 2,045 $ 1,359 $ (4)
======== ======== ======== ======== ======== ========
1998
Investment Products $ 2,823 $ 2,407 $ 9,194 $ 1,043 $ 736 $ --
Individual Life 931 466 2,307 363 181 (1)
Corporate Owned Life
Insurance -- 225 8,097 774 793 --
Other -- 497 17 38 49 (1)
-------- -------- -------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 3,754 $ 3,595 $ 19,615 $ 2,218 $ 1,759 $ (2)
======== ======== ======== ======== ======== ========
1997
Investment Products $ 2,478 $ 2,070 $ 9,620 $ 771 $ 739 $ --
Individual Life 837 392 2,182 323 164 --
Corporate Owned Life
Insurance -- 56 9,259 551 429 --
Other -- 541 (27) (8) 36 4
-------- -------- -------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 3,315 $ 3,059 $ 21,034 $ 1,637 $ 1,368 $ 4
======== ======== ======== ======== ======== ========
(In millions)
Benefits, Amortization
Claims and of Deferred
Claim Policy
Adjustment Acquisition Dividends to Other
Segment Expenses Costs Policyholders Expenses
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Investment Products $ 660 $ 411 $ -- $ 354
Individual Life 254 128 -- 87
Corporate Owned Life
Insurance 621 -- 104 62
Other 39 -- -- 128
-------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 1,574 $ 539 $ 104 $ 631
======== ======== ======== ========
1998
Investment Products $ 670 $ 326 $ -- $ 368
Individual Life 262 105 -- 77
Corporate Owned Life
Insurance 924 -- 329 278
Other 55 -- -- 43
-------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 1,911 $ 431 $ 329 $ 766
======== ======== ======== ========
1997
Investment Products $ 677 $ 250 $ -- $ 266
Individual Life 242 83 -- 77
Corporate Owned Life
Insurance 439 -- 240 259
Other 21 2 -- (16)
-------- -------- -------- --------
CONSOLIDATED OPERATIONS $ 1,379 $ 335 $ 240 $ 586
======== ======== ======== ========
</TABLE>
S-2
<PAGE> 47
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
Ceded to Assumed Percentage of
Gross Other From Other Net Amount Assumed
(In millions) Amount Companies Companies Amount to Net
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999
Life insurance in force $307,970 $131,162 $ 11,785 $188,593 6.2%
======== ======== ======== ======== =====
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 2,212 $ 275 $ 84 $ 2,021 4.2%
Accident and health insurance 448 435 11 24 45.8%
-------- -------- -------- -------- -----
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 2,660 $ 710 $ 95 $ 2,045 4.6%
======== ======== ======== ======== =====
FOR THE YEAR ENDED DECEMBER 31, 1998
Life insurance in force $326,400 $200,782 $ 18,289 143,907 12.7%
======== ======== ======== ======== =====
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 2,329 $ 271 142 $ 2,200 6.5%
Accident and health insurance 393 383 8 18 44.4%
-------- -------- -------- -------- -----
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 2,722 $ 654 150 $ 2,218 6.8%
======== ======== ======== ======== =====
FOR THE YEAR ENDED DECEMBER 31, 1997
Life insurance in force $245,487 $178,771 $ 33,156 $ 99,872 33.2%
======== ======== ======== ======== =====
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 1,818 $ 340 $ 157 $ 1,635 9.6%
Accident and health insurance 346 346 2 2 100.0%
-------- -------- -------- -------- -----
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 2,164 $ 686 $ 159 $ 1,637 9.7%
======== ======== ======== ======== =====
</TABLE>
S-3
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /S/ Mary Jane B. Fortin
---------------------------
Mary Jane B. Fortin
Vice President and Chief Accounting Officer
Date: March 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ Lowndes A. Smith Chief Executive Officer March 24, 1999
- ---------------------------------------- and Director
Lowndes A. Smith
/S/ Thomas M. Marra President and Director March 24, 1999
- ----------------------------------------
Thomas M. Marra
/S/ David T. Foy Senior Vice President, March 24, 1999
- ---------------------------------------- Chief Financial Officer and Director
David T. Foy
/S/ Mary Jane B. Fortin Vice President March 24, 1999
- ---------------------------------------- and Chief Accounting Officer
Mary Jane B. Fortin
/S/ Lynda Godkin Director March 24, 1999
- ----------------------------------------
Lynda Godkin
/S/ Raymond P. Welnicki Director March 24, 1999
- ----------------------------------------
Raymond P. Welnicki
/S/ Lizabeth H. Zlatkus Director March 24, 1999
- ----------------------------------------
Lizabeth H. Zlatkus
/S/ David M. Znamierowski Director March 24, 1999
- ----------------------------------------
David M. Znamierowski
</TABLE>
II-1
<PAGE> 49
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT #
- ---------
<S> <C>
3.01 Restated Certificate of Incorporation of Hartford Life Insurance
Company filed March 1985 (File No. 2-89516) is incorporated herein by
reference.
3.02 By-Laws of Hartford Life Insurance Company filed March 1985 (File No.
2-89516) is incorporated herein by reference.
4.01 Restated Certificate of Incorporation and By-Laws of Hartford Life
Insurance Company (included as Exhibits 3.01 and 3.02, respectively).
10.1 Tax Sharing Agreement among Hartford Life Insurance Company, The
Hartford Financial Services Group, Inc. and certain of their affiliates
was filed as Exhibit 10.2 to Hartford Life, Inc.'s Form 10-Q filed for
the quarter ended June 30, 1997 (File No. 1-12749) and is incorporated
herein by reference.
10.2 Management Agreement among Hartford Life Insurance Company, certain of
its affiliates and Hartford Investment Services, Inc. was filed as
Exhibit 10.4 to Hartford Life, Inc.'s Form 10-Q filed for the quarter
ended June 30, 1997 (File No. 1-12749) and is incorporated herein by
reference.
10.3 Management Agreement between Hartford Life Insurance Company and The
Hartford Investment Management Company was filed as Exhibit 10.3 to
Hartford Life, Inc.'s Form 10-Q filed for the quarter ended June 30,
1997 (File No. 1-12749) and is incorporated herein by reference.
27 Financial Data Schedule is filed herewith.
</TABLE>
II-2
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 13,499
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 56
<MORTGAGE> 198
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,084
<CASH> 55
<RECOVER-REINSURE> 1,274
<DEFERRED-ACQUISITION> 4,013
<TOTAL-ASSETS> 134,965
<POLICY-LOSSES> 4,332
<UNEARNED-PREMIUMS> 2
<POLICY-OTHER> 16,004
<POLICY-HOLDER-FUNDS> 110,397
<NOTES-PAYABLE> 0
0
0
<COMMON> 6
<OTHER-SE> 2,613
<TOTAL-LIABILITY-AND-EQUITY> 134,965
2,045
<INVESTMENT-INCOME> 1,359
<INVESTMENT-GAINS> (4)
<OTHER-INCOME> 0
<BENEFITS> 1,574
<UNDERWRITING-AMORTIZATION> 539
<UNDERWRITING-OTHER> 622
<INCOME-PRETAX> 552
<INCOME-TAX> 191
<INCOME-CONTINUING> 361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361
<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>
