<PAGE>
As filed with the Securities and Exchange Commission on August 4, 2000
File No. 333-37290
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE-EFFECTIVE AMENDMENT
#1 TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HARTFORD LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
6355
(Primary Standard Industrial Classification Code Number)
06-094148
(I.R.S. Employer Identification Number)
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(Address, Including Zip Code, and Telephone Number,
Including Area Code of Registrant's Principal Executive Office)
MARIANNE O'DOHERTY
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(860) 843-6733
(Name, address, including zip code, and telephone
number, including area code, of agent for
service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1)
of this form, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Class Amount to Offering Aggregate Amount of
of Securities to be be Price Offering Registration
Registered Registered per Unit Price Fee
------------------- ---------- -------- --------------- ------------
Deferred Annuity * * $1,000,000,000* $264,000*
Contracts &
Participating
Interests Therein
* Fee paid on May 18, 2000. The maximum aggregate offering price is estimated
solely for the purpose of determining the registration fee. The amount being
registered and the proposed maximum offering price per unit are not
applicable in that these contracts are not issued in predetermined amounts or
units.
The Registrant hereby amends this Registration Statement on such date or dated
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
PART I
<PAGE>
<TABLE>
<S> <C>
CRC SELECT
MODIFIED GUARANTEED ANNUITY CONTRACT
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
TELEPHONE: 1-800-862-6668 (CONTRACT OWNERS)
1-800-862-7155 (REGISTERED REPRESENTATIVES) [LOGO]
</TABLE>
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--------------------------------------------------------------------------------
This prospectus describes information you should know before you purchase CRC
Select. Please read it carefully.
CRC Select is a contract between you and Hartford Life Insurance Company where
you agree to make one Purchase Payment to us and we agree to pay you interest
for a Guarantee Period you select and we agree to make a series of Annuity
Payouts at a later date. This annuity is a single premium, tax-deferred,
modified guaranteed annuity offered to both individuals and groups. It is:
x Single premium, because you make a one-time Purchase Payment.
x Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
--------------------------------------------------------------------------------
It is a "modified guaranteed" annuity because Hartford guarantees to pay you
your Purchase Payment and the interest earned on that Purchase Payment unless
you cancel during the right to examine period, fully or partially Surrender your
Contract, transfer to a different Guarantee Period or request Annuity Payouts
before the end of your Guarantee Period.
Although we file this prospectus with the Securities and Exchange Commission
("SEC"), the SEC doesn't approve or disapprove of these securities or determine
if this prospectus is truthful or complete. Anyone who represents that the SEC
does these things may be guilty of a criminal offense.
This annuity IS NOT:
- A bank deposit or obligation
- Federally insured
- Endorsed by any bank or governmental agency
This annuity may not be available for sale in all states.
--------------------------------------------------------------------------------
PROSPECTUS DATED: AUGUST 11, 2000
<PAGE>
2 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
AVAILABLE INFORMATION
We are required by the Securities Exchange Act of 1934 to file reports and other
information with the SEC. You may read or copy these reports at the SEC's public
reference facilities at Room 1024, 450 Fifth Street, N.W., Washington, D.C., or
at the SEC's Regional Offices located at 75 Park Place, New York, New York and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois. You may also obtain copies, at prescribed rates, of our reports from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may also obtain reports, proxy and information statements and
other information about us at the SEC's website at: http://www.sec.gov.
One of the reports we file with the SEC is our Annual Report on Form 10-K for
the fiscal year ended December 31, 1999. The substance of the information
contained in the Annual Report appears in this prospectus. The entire Annual
Report is incorporated by reference into this prospectus. You may obtain a copy
of the Annual Report free of charge by calling the toll-free number or writing
to us at the address on the cover of this prospectus.
We filed a registration statement ("Registration Statement") relating to the
Contracts offered by this prospectus with the SEC under the Securities Act of
1933. This Prospectus has been filed as a part of the Registration Statement and
does not contain all of the information contained in the Registration Statement.
For more information about the Contracts and us, you may obtain a copy of the
Registration Statement in the manner set forth in the preceding paragraph.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 3
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------------------------------------------------------------------
<S> <C>
DEFINITIONS 4
----------------------------------------------------------------------
HIGHLIGHTS 5
----------------------------------------------------------------------
THE CONTRACT 6
----------------------------------------------------------------------
Annuity Payouts 12
----------------------------------------------------------------------
Miscellaneous Provisions 14
----------------------------------------------------------------------
Investments by Hartford 14
----------------------------------------------------------------------
Amendment of Contracts 14
----------------------------------------------------------------------
Assignment of Contracts 14
----------------------------------------------------------------------
Distribution of Contracts 14
----------------------------------------------------------------------
FEDERAL TAX CONSIDERATIONS 15
----------------------------------------------------------------------
THE COMPANY 20
----------------------------------------------------------------------
LEGAL OPINION 36
----------------------------------------------------------------------
EXPERTS 36
----------------------------------------------------------------------
APPENDIX A -- MODIFIED GUARANTEED ANNUITY FOR QUALIFIED
PLANS 37
----------------------------------------------------------------------
APPENDIX B -- MARKET VALUE ADJUSTMENT 38
----------------------------------------------------------------------
FINANCIAL STATEMENTS Q-1
----------------------------------------------------------------------
</TABLE>
<PAGE>
4 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
DEFINITIONS
These terms are capitalized when used throughout this prospectus. Please refer
to these defined terms if you have any questions as you read your prospectus.
ADMINISTRATIVE OFFICE OF THE COMPANY -- Our location and overnight mailing
address is: 200 Hopmeadow Street, Simsbury, Connecticut 06089. Our standard
mailing address is: Investment Product Services, P.O. Box 5085, Hartford, CT
06102-5085
ANNUITANT -- The person on whose life this Contract is based. The Annuitant may
not be changed.
ANNUITY COMMENCEMENT DATE -- The date we start to make Annuity Payouts.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT -- The person you designate to become the Annuitant if the
Annuitant dies prior to the Annuity Commencement Date.
CONTRACT -- The individual Annuity Contract and any endorsements or riders.
Group participants and some individuals will receive a certificate rather than a
Contract.
CONTRACT OWNER OR YOU -- The owner or holder of this Contract.
CONTRACT VALUE -- The sum of your Purchase Payment and all interest earned minus
any Surrenders and any applicable Premium Taxes.
CONTRACT YEAR -- The 12 months following the date you purchased your annuity and
then each subsequent year.
HARTFORD, WE, US OR OUR -- Hartford Life Insurance Company. Only Hartford is a
capitalized term in the prospectus.
JOINT ANNUITANT -- The person on whose life Annuity Payouts are based if the
Annuitant dies after the Annuity Calculation Date. You may name a Joint
Annuitant only if your Annuity Payout Option provides for a survivor. The Joint
Annuitant may not be changed.
MARKET VALUE ADJUSTMENT -- An adjustment that either increases or decreases the
amount we pay you under certain circumstances.
POWER OF ATTORNEY -- You may authorize another person to act on your behalf by
submitting a completed Power of Attorney form. Once we have the completed form
on file, we will accept instructions from your designated third party until we
receive instructions terminating the power of attorney in writing from you. You
may not be able to make changes to your Contract if you have authorized someone
else to act under a power of attorney.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 5
--------------------------------------------------------------------------------
HIGHLIGHTS
HOW DO I PURCHASE THIS ANNUITY?
You must complete our application or order request and submit it to us for
approval with your Purchase Payment. Your Purchase Payment must be at least
$5,000, unless this Contract is purchased as part of certain retirement plans.
- For a limited time, usually within ten days after you receive your annuity,
you may cancel it without paying a Surrender Charge. Your Purchase Payment
will be subject to a Market Value Adjustment.
WHAT IS A GUARANTEE PERIOD?
A Guarantee Period is the length of time you select for which Hartford
guarantees to pay you interest. The interest rate we credit depends on the
Guarantee Period you select. We currently offer Guarantee Periods of one year,
three years, five years, six years, seven years, eight years, nine years and ten
years.
WHAT HAPPENS AT THE END OF EACH GUARANTEE PERIOD?
We will notify you of your options before the end of your Guarantee Period.
These options currently include:
- Fully Surrendering your Contract,
- Having your Contract Value rollover to a Subsequent Guarantee Period of the
same length of time,
- Transferring to a Guarantee Period of a different duration,
- Asking us to begin making Annuity Payouts,
- Purchasing a variable annuity issued by Hartford, or
- Any other option that may become available.
UNLESS WE RECEIVE WRITTEN INSTRUCTIONS FROM YOU SELECTING A DIFFERENT OPTION,
HARTFORD WILL ROLL YOUR CONTRACT VALUE INTO A SUBSEQUENT GUARANTEE PERIOD FOR
THE SAME LENGTH OF TIME. YOUR CONTRACT WILL RECEIVE THE INTEREST RATE WE HAVE
ESTABLISHED FOR THAT NEW GUARANTEE PERIOD.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of your Contract Value or transfer to a different
Guarantee Period at any time before we start making Annuity Payouts. You may not
Surrender any of your Contract Value after we begin making Annuity Payouts.
- You may have to pay a Surrender Charge.
We may charge you a Surrender Charge when you partially or fully Surrender your
annuity. The percentage of the Surrender Charge assessed will depend on the
length of time that has lapsed from the beginning of the Guarantee Period in
effect at the time you request your Surrender to the date we receive your
request for Surrender. You may take out all or some of the interest we have
credited to your Contract Value in the 12 months prior to your request without a
Surrender Charge.
- You may have a Market Value Adjustment.
If you request a Surrender, cancel during the right to examine period, transfer
to a new Guarantee Period, or begin to take Annuity Payouts before the end of
your Guarantee Period, the amount you receive will be modified to include a
Market Value Adjustment. A Market Value Adjustment, which is described later,
may decrease or increase the amount you receive, depending on whether interest
rates have risen or fallen since the beginning of your Guarantee Period. You may
take out all or some of the interest we have credited to your Contract Value in
the 12 months prior to your request without a Market Value Adjustment.
- You may have to pay income tax on any money you take out and, if you
Surrender before you are age 59 1/2, you may have to pay an income tax
penalty.
WILL HARTFORD PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner, joint contract owner or
Annuitant die before we begin to make Annuity Payouts. This Death Benefit is
equal to the Contract Value on the date we receive a certified death certificate
or other proof of death acceptable to us.
Depending on the Annuity Payout Option you select, we may pay a Death Benefit
after we begin to make Annuity Payouts.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
You may choose one of the following Annuity Payout Options: Life Annuity, Life
Annuity with a Cash Refund, Life Annuity with Payments for a Period Certain,
Joint and Last Survivor Life Annuity, Joint and Last Survivor Life Annuity with
Payments for a Period Certain, and Payments for a Period Certain. We may make
other Annuity Payout Options available at any time.
You must begin to take Annuity Payouts by end of the Guarantee Period
immediately following the Annuitant's 90th birthday or the end of the 10th
Contract Year, whichever is later, unless you elect a later date to begin
receiving payments subject to the laws and regulations then in effect and our
approval.
If the end of your Guarantee Period occurs after the Annuity Commencement Date,
we begin Annuity Payouts on the Annuity Commencement Date, unless you change
that date to coincide with the end of the Guarantee Period. If we begin to make
Annuity Payouts before the end of your Guarantee Period, a Market Value
Adjustment will be made to your Contract Value.
If you do not tell us what Annuity Payout Option you want before the Annuity
Commencement Date, we will make payments under the Life Annuity with a 10-year
Period Certain Annuity Payout Option.
<PAGE>
6 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
THE CONTRACT
WHAT TYPES OF CONTRACTS ARE AVAILABLE?
The Contract is an individual tax-deferred modified guaranteed annuity contract.
It is designed for retirement planning purposes and may be purchased by any
individual, group or trust, including:
- IRAs adopted according to Section 408 of the Code;
- Annuity purchase plans adopted by public school systems and certain tax-exempt
organizations according to Section 403(b) of the Code;
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
If you are purchasing the Contract for use in an IRA or qualified retirement
plan, you should consider other features of the Contract besides tax deferral,
since any investment vehicle used within an IRA or qualified plan receives tax
deferred treatment under the Code.
This Contract is not available in Puerto Rico or Maryland.
HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract by completing and submitting an application or an
order request along with your Purchase Payment. For most Contracts, the minimum
Purchase Payment is $5,000, unless the Contract is purchased as part of certain
retirement plans. Prior approval is required for a Purchase Payment of
$1,000,000 or more.
You may not make additional Purchase Payments to this Contract, but you may
purchase a new contract. The new contracts may have different Guarantee Periods
and will earn interest at the rate set for those new contracts.
Neither you nor your Annuitant must have had your 86th birthday on the date that
your Contract is issued. You must be of legal age in the state where the
Contract is being purchased or a guardian must act on your behalf.
HOW IS THE PURCHASE PAYMENT APPLIED TO MY CONTRACT?
Your Contract will be issued after we receive your Purchase Payment. Your
Purchase Payment becomes part of a non-unitized separate account established by
Hartford. You have no priority claim on assets in this separate account. All
assets of Hartford, including those in this separate account, are available to
meet Hartford's guarantees under the Contract and are available to meet the
general obligations of Hartford.
If the request or other information accompanying the Purchase Payment is
incomplete when we receive it, we will hold the money in a non-interest bearing
account for up to three weeks while we try to obtain complete information. If we
cannot obtain the information within that time, we will either return the
Purchase Payment and explain why the Purchase Payment could not be processed or
keep the Purchase Payment if you authorize us to keep it until you provide the
necessary information.
We will send you a confirmation after we apply your Purchase Payment.
CAN I CANCEL MY CONTRACT AFTER I PURCHASE IT?
We want you to be satisfied with the Contract you have purchased. We urge you to
closely examine its provisions. If for any reason you are not satisfied with
your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states, you may be allowed more time to cancel your
Contract. We will not deduct any Surrender Charge during this time, however a
Market Value Adjustment, which is described later, may apply. We may require
additional information, including a signature guarantee, before we can cancel
your Contract.
The amount we pay you upon cancellation depends on the requirements of the state
where you purchased your Contract, the method of purchase, the type of Contract
you purchased and your age.
WHAT IS A GUARANTEE PERIOD?
A Guarantee Period is the length of time you select for which Hartford
guarantees to pay you interest. The interest rate we credit depends on the
Guarantee Period you select. We currently offer Guarantee Periods of one year,
three years, five years, six years, seven years, eight years, nine years and ten
years. We reserve the right to establish new Guarantee Periods, modify these
Guarantee Periods or eliminate some or all of these Guarantee Periods in the
future. You choose the length of your Guarantee Period when you purchase your
Contract. This is your Initial Guarantee Period. Your Initial Guarantee Period
will determine your Initial Guarantee Rate or the rate of interest credited to
your Purchase Payment. The Initial Guarantee Rate will never be less than 3% on
an annual basis.
If you transfer to a new Guarantee Period or reach the end of the Initial
Guarantee Period and allow this Contract to "rollover" to another Guarantee
Period of the same length of time, this is a Subsequent Guarantee Period.
Basically, any Guarantee Period that is not an Initial Guarantee Period is a
Subsequent Guarantee Period. During a Subsequent Guarantee Period, your Contract
earns interest at the Subsequent Guarantee Rate, which will never be less than
3% on an annual basis.
Hartford, in its sole discretion, determines the interest rates credited to each
Guarantee Period. These interest rates generally reflect prevailing interest
rates of other investments that are similar in nature and duration. In computing
our interest rates, we may also consider the impact of regulations, taxes, sales
commissions, administrative expenses, general economic trends and competitive
factors. Hartford or its agents cannot predict nor guarantee our future interest
rates.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 7
--------------------------------------------------------------------------------
CAN I TRANSFER INTO A DIFFERENT GUARANTEE PERIOD?
Once each Contract Year, beginning after the first Contract Year, you may
transfer from your Guarantee Period into a Guarantee Period of a different
duration, provided the new Guarantee Period you select is at least five years or
longer. There is no Surrender Charge for such a transfer. While we currently do
not impose a transfer charge, we reserve the right to charge a fee of up to $50
for each transfer. A Market Value Adjustment, which is described later, will be
applied to your Contract Value at the time of transfer, unless the transfer
occurs at the end of the Guarantee Period. The amount transferred into the new
Guarantee Period is equal to the Contract Value of the old Guarantee Period on
the date of the transfer minus or plus the Market Value Adjustment.
While you may transfer to a different Guarantee Period with a duration of 5
years or more, you cannot transfer into a Guarantee Period with a duration that
will take you past your Annuity Commencement Date. That means that if you
elected to begin Annuity Payouts on your Annuitant's 90th birthday and your
Annuitant is 87 years old, you would not be able to transfer into a new
Guarantee Period unless you extended your Annuity Commencement Date.
WHAT HAPPENS AT THE END OF EACH GUARANTEE PERIOD?
We will notify you of your options before the end of your Guarantee Period.
These options currently include:
- Fully Surrendering your Contract,
- Having your Contract Value rollover to a Subsequent Guarantee Period of the
same length of time,
- Transferring to a Guarantee Period of a different duration,
- Asking us to begin making Annuity Payouts,
- Purchase a variable annuity from Hartford, or
- Any other option that may become available.
Unless we receive written instructions from you selecting a different option,
Hartford will roll your Contract Value into a Subsequent Guarantee Period of the
same length of time. Your Contract will receive the interest rate we have
established for that new Guarantee Period. If we roll your Contract Value into a
Subsequent Guarantee Period because we have not received any other instructions
from you, Hartford will, for some period of time after the end of your Guarantee
Period, allow you to exercise a different option. Currently, we will allow 21
days after the end of a Guarantee Period to request a different option. However,
Hartford reserves the right to change or terminate this administrative
processing period. A request for a different option received during this time
will be treated as if it was received prior to the end of the current Guarantee
Period. However, a request to transfer to another Guarantee Period of a
different duration is processed as of the date we receive the request and
receives the interest rate credited to that Guarantee Period as of that date.
If you rollover into a Subsequent Guarantee Period or transfer to a Guarantee
Period of a different duration, you cannot rollover or transfer into a Guarantee
Period with a duration that will take you past your Annuity Commencement Date.
That means that if you elected to begin Annuity Payouts on your Annuitant's 90th
birthday and your Annuitant is 87 years old, you would not be able to rollover
or transfer into a new Guarantee Period with a duration longer than three years
unless you extended your Annuity Commencement Date.
In New York, we will notify you of your options at least 15 days, but no more
than 45 days, before the end of your Guarantee Period.
HOW IS THE VALUE OF MY CONTRACT CALCULATED BEFORE THE ANNUITY COMMENCEMENT DATE?
We calculate your Contract Value by deducting any applicable Premium Tax from
your Purchase Payment, or your rollover value, if you are in a Subsequent
Guarantee Period. We then credit your Contract Value on a daily basis with an
amount that is equivalent to your Guarantee Period's interest rate on an annual
basis and deduct any partial Surrenders.
The following example shows how interest would be credited to your Contract
Value. The example assumes you purchased a Contract with a five-year Guarantee
Period crediting a hypothetical Initial Guarantee Rate of 5% on an annual basis.
The example assumes no money is taken from the Contract during the Guarantee
Period. We are using a hypothetical interest rate of 5%. This interest rate is
for illustration only and is no indication of future interest rates. Actual
interest rates may be more or less than those shown.
<TABLE>
<S> <C> <C>
Year one $10,000 Purchase Payment or rollover value
$ 500 total year's interest payments
-------
$10,500 end of year Contract Value
Year two $10,500 beginning Contract Value
$ 525 total year's interest payments
-------
$11,025 end of year Contract Value
Year three $11,025 beginning Contract Value
$ 551 total year's interest payments
-------
$11,576 end of year Contract Value
</TABLE>
<PAGE>
8 HARTFORD LIFE INSURANCE COMPANY
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<TABLE>
<S> <C> <C>
Year four $11,576 beginning Contract Value
$ 578 total year's interest payments
-------
$12,155 end of year Contract Value
Year five $12,155 beginning Contract Value
$ 608 total year's interest payments
-------
$12,763 end of year Contract Value
</TABLE>
Once each Contract Year, we will send you a statement which shows
- your Contract Value as of the end of the preceding Contract Year,
- any money you take out of your Contract during the Contract Year,
- your Contract Value at the end of the current Contract Year, and
- the annual rate of interest being credited to your Contract.
FEES AND CHARGES
WHAT HAPPENS IF I REQUEST A SURRENDER BEFORE THE END OF THE GUARANTEE PERIOD?
We don't charge you a sales charge when you purchase this Contract or any annual
fees. However, if you want to take money out of the Contract before the end of
your Guarantee Period, there are two charges we may assess, plus a Market Value
Adjustment that may, at times, result in a deduction. The two charges are
Premium Tax and a Surrender Charge.
x PREMIUM TAXES
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Purchase Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are required by applicable
law, we may deduct them from your Contract when we pay the taxes, upon
Surrender, or on the Annuity Commencement Date. The Premium Tax rate varies by
state or municipality. Currently, the maximum rate charged by any state is 3.5%.
x SURRENDER CHARGE -- The Surrender Charge covers some of the expenses relating
to the sale and distribution of the Contract, including commissions paid to
registered representatives and the cost of preparing sales literature and
other promotional activities.
We assess a Surrender Charge when you request a full or partial Surrender,
unless your Surrender occurs at the end of a Guarantee Period. The percentage we
assess for the Surrender Charge varies according to the length of time between
the beginning of the Guarantee Period in effect at the time of your Surrender
and the date of your request for Surrender. When you request a Surrender, we
deduct the dollar amount you request from your Contract Value. Then we subtract
any interest we have credited to your Contract in the 12 months prior to the
request for Surrender that has not already been withdrawn from the amount
requested for Surrender. This difference is then the amount subject to a
Surrender Charge. We then determine the appropriate percentage of Surrender
Charge, if any, to be deducted by calculating the length of time the money has
been part of your present Guarantee Period. We deduct the percentage of the
amount Surrendered from the amount you requested, and, provided there is no
Market Value Adjustment, pay you that amount.
If you are in your Initial Guarantee Period, the percentage we deduct is equal
to:
<TABLE>
------------------------------------------
<CAPTION>
NUMBER OF YEARS FROM THE
BEGINNING OF THE INITIAL PERCENTAGE OF
GUARANTEE PERIOD SURRENDER CHARGE
<S> <C>
1 6%
------------------------------------------
2 6%
------------------------------------------
3 5%
------------------------------------------
4 4%
------------------------------------------
5 3%
------------------------------------------
6 2%
------------------------------------------
7 2%
------------------------------------------
8+ 2%
------------------------------------------
</TABLE>
If you are in a Subsequent Guarantee Period, the percentage we deduct is equal
to:
<TABLE>
<CAPTION>
NUMBER OF YEARS FROM THE
BEGINNING OF ANY
SUBSEQUENT GUARANTEE PERIOD SURRENDER CHARGE
<S> <C>
---------------------------------------------
1 4%
---------------------------------------------
2 3%
---------------------------------------------
3 2%
---------------------------------------------
4 2%
---------------------------------------------
5 2%
---------------------------------------------
6 2%
---------------------------------------------
7 2%
---------------------------------------------
8+ 2%
---------------------------------------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 9
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If you are in New York, and in your Initial Guarantee Period, the percentage we
deduct is equal to:
<TABLE>
<CAPTION>
NUMBER OF YEARS FROM THE
BEGINNING OF THE PERCENTAGE OF
INITIAL GUARANTEE PERIOD SURRENDER CHARGE
<S> <C>
------------------------------------------
1 6%
------------------------------------------
2 6%
------------------------------------------
3 5%
------------------------------------------
4 4%
------------------------------------------
5 3%
------------------------------------------
6 2%
------------------------------------------
7 2%
------------------------------------------
8 2%
------------------------------------------
9 2%
------------------------------------------
10 1%
------------------------------------------
</TABLE>
If you are in New York and in a Subsequent Guarantee Period, the percentage we
deduct is equal to:
<TABLE>
<CAPTION>
NUMBER OF YEARS
REMAINING IN ANY
SUBSEQUENT GUARANTEE PERIOD SURRENDER CHARGE
<S> <C>
---------------------------------------------
10 5%
---------------------------------------------
9 5%
---------------------------------------------
8 5%
---------------------------------------------
7 5%
---------------------------------------------
6 5%
---------------------------------------------
5 5%
---------------------------------------------
4 4%
---------------------------------------------
3 3%
---------------------------------------------
2 2%
---------------------------------------------
1 1%
---------------------------------------------
</TABLE>
THE FOLLOWING SITUATIONS ARE NOT SUBJECT TO A SURRENDER CHARGE:
- Surrenders made at the end of a Guarantee Period.
- Surrender of interest that has been credited to the Contract Value during the
12 months prior to the Surrender that has not previously been withdrawn.
- Upon death of the Annuitant, joint owner or Contract Owner.
- Upon Annuitization.
- Upon cancellation during the Right to Examine Period.
- Required Minimum Distributions from IRAs or 403(b) plans.
SURRENDERS MADE UNDER THE NURSING HOME WAIVER RIDER. We will waive any Surrender
Charge applicable to a partial or full Surrender if you, the joint owner or the
Annuitant, is confined for at least 180 calendar days to a: (a) hospital
recognized as a general hospital by the proper authority of the state in which
it is located; or (b) hospital recognized as a general hospital by the Joint
Commission on the Accreditation of Hospitals; or (c) facility certified by
Medicare as a hospital or long-term care facility; or (d) nursing home licensed
by the state in which it is located and offers the services of a registered
nurse 24 hours a day. If you, the joint owner or the Annuitant is confined when
you purchase the Contract, this waiver is not available. For the waiver to
apply, you must: (a) have owned the Contract continuously since it was issued,
(b) provide written proof of confinement satisfactory to us, and (c) request the
Surrender within 91 calendar days of the last day of confinement. Your
confinement must be at the recommendation of a physician for medically necessary
reasons. This waiver may not be available in all states. Please contact your
registered representative or us to determine if it is available for you.
MARKET VALUE ADJUSTMENT
If you request to Surrender, cancel during the right to examine period, transfer
to a new Guarantee Period or ask that we begin to make Annuity Payouts at any
time other than at the end of your Guarantee Period, we may apply a Market Value
Adjustment. That means that the amount we pay you for a Surrender or the
Contract Value we transfer to a new Guarantee Period or use to determine your
Annuity Payouts will be adjusted up or down.
The Market Value Adjustment reflects both the amount of time left in your
Guarantee Period, and, the difference between the Guarantee Rate credited to
your current Guarantee Period and the interest rate we are crediting to a new
Guarantee Period with a duration equal to the amount of time left in your
Guarantee Period. If your Guarantee Period's interest rate is lower than the
interest rate we are currently crediting the new Guarantee Period, then the
application of the Market Value Adjustment will reduce the amount you receive.
Conversely, if your Guarantee Period's interest rate is higher than the interest
rate we are crediting for the new Guarantee Period, then the application of the
Market Value Adjustment will increase the amount you receive.
For example, assume you purchase a Contract with an Initial Guarantee Period of
ten years crediting interest at an Initial Guarantee Rate of 8% on an annual
basis. You request a partial Surrender at the end of the seventh Contract Year.
At that time you request a Surrender, Hartford's interest rate was 6% on an
annual basis for Subsequent Guarantee Periods with a three-year duration, the
amount of time left in your Initial Guarantee Period. Then the amount payable
upon partial Surrender will increase after the application of the Market Value
Adjustment. On the other hand, if Hartford was crediting an interest rate higher
than your 8% Initial Guarantee Rate, then the application of the Market Value
Adjustment will decrease the amount payable to you upon partial Surrender.
The Market Value Adjustment will apply to any request to Surrender, cancel
during the right to examine period, transfer to a new Guarantee Period prior to
the end of a Guarantee Period, or if you ask us to begin Annuity Payouts prior
to the end of a Guarantee Period except:
<PAGE>
10 HARTFORD LIFE INSURANCE COMPANY
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- Previous 12 months' interest payments that you ask us to send to you that you
have not previously Surrendered.
- Distributions made due to death.
- Payments we make to you as part of your Annuity Payout.
The actual formula for calculating the Market Value Adjustment is set forth in
the Appendix that also contains an additional illustrations of the application
of the Market Value Adjustment.
Since the interest rates Hartford credits may reflect, in part, the investment
yields available to Hartford (see "Investments by Hartford"); the Market Value
Adjustment may also reflect, in part, the levels of such yields. It is possible,
therefore, that should such yields increase significantly from the time you
purchased your Contract, coupled with the application of the Surrender Charges,
the amount you would receive upon a full Surrender of your Contract could be
less than your original Purchase Payment.
WE MAY OFFER, IN OUR DISCRETION, REDUCED FEES AND CHARGES FOR CERTAIN CONTRACTS
THAT MAY RESULT IN DECREASED COSTS AND EXPENSES. REDUCTIONS IN THESE FEES AND
CHARGES WILL NOT BE UNFAIRLY DISCRIMINATORY AGAINST ANY CONTRACT OWNER.
SURRENDERS
ARE THERE ANY RESTRICTIONS ON PARTIAL SURRENDERS?
If you request a partial Surrender before we begin to make Annuity Payouts,
there are two restrictions:
- The amount you want to Surrender must be at least equal to $1,000, our current
minimum for partial Surrenders, and
- The Contract must have a minimum Contract Value of $5,000 after the Surrender.
The above restrictions do not apply if you Surrender interest that has been
credited to the Contract Value during the 12 months prior to Surrender.
We reserve the right to terminate your Contract and pay you the Contract Value
minus any applicable charges or adjustments if your Contract Value is under the
minimum after the Surrender.
HOW DO I REQUEST A SURRENDER?
Requests for Surrenders must be in writing. To request a full or partial
Surrender, complete a Surrender Form or send us a letter, signed by you,
stating:
- the dollar amount that you want to receive, either before or after we withhold
taxes and deduct for any applicable charges,
- your tax withholding amount or percentage, if any, and
- your mailing address.
If there are joint Contract Owners, both must authorize all Surrenders.
We may defer payment of any partial or full Surrender for a period not exceeding
six months from the date of our receipt of your notice of Surrender or the
period permitted by state insurance law, if less. We may defer a Surrender
payment more than 10 days and, if we do, we will pay interest of at least 3% per
annum on the amount deferred.
WHAT SHOULD BE CONSIDERED ABOUT TAXES?
There are certain tax consequences associated with Surrenders:
PRIOR TO AGE 59 1/2 -- If you make a Surrender prior to age 59 1/2, there may be
adverse tax consequences including a 10% federal income tax penalty on the
taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
WE DO NOT MONITOR SURRENDER REQUESTS. TO DETERMINE WHETHER A SURRENDER IS
PERMISSIBLE, WITH OR WITHOUT FEDERAL INCOME TAX PENALTY, PLEASE CONSULT YOUR
PERSONAL TAX ADVISER.
MORE THAN ONE CONTRACT ISSUED IN THE SAME CALENDAR YEAR -- If you own more than
one Contract issued by us or our affiliates in the same calendar year, then
these Contracts may be treated as one Contract for the purpose of determining
the taxation of distributions prior to the Annuity Commencement Date. Please
consult your tax adviser for additional information.
INTERNAL REVENUE CODE SECTION 403(b) ANNUITIES -- As of December 31, 1988, all
section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases in
cash value after December 31, 1988 may not be distributed unless you are: (a)
age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or
(e) experiencing a financial hardship (cash value increases may not be
distributed for hardships prior to age 59 1/2). Distributions prior to age
59 1/2 due to financial hardship; unemployment or retirement may still be
subject to a penalty tax of 10%.
WE ENCOURAGE YOU TO CONSULT WITH YOUR TAX ADVISER BEFORE MAKING ANY SURRENDERS.
PLEASE SEE THE "FEDERAL TAX CONSIDERATIONS" SECTION FOR MORE INFORMATION.
DEATH BENEFIT
WHAT IS THE DEATH BENEFIT AND HOW IS IT CALCULATED?
Before we begin to make Annuity Payouts, we will pay a Death Benefit upon the
death of the Contract Owner, joint owner, or the Annuitant, if there is no
surviving Contingent Annuitant. The Death Benefit is calculated when we receive
a certified death certificate or other legal document acceptable to us. The
Death Benefit we pay is equal to the Contract Value on the date we receive the
certified death certificate or other legal document.
HOW IS THE DEATH BENEFIT PAID?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive complete
instructions from the Beneficiary, we will compute the Death Benefit amount to
be paid out or applied to a selected Annuity Payout Option. When there is more
than one Beneficiary, we will calculate the Death Benefit amount for each
Beneficiary's portion of the proceeds and then pay it out or
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 11
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apply it to a selected Annuity Payout Option according to each Beneficiary's
instructions.
If the Contract Owner dies before we begin to make Annuity Payouts, the
Beneficiary may elect to leave proceeds from the Death Benefit with us for up to
five years from the date of the Contract Owner's death under the Annuity
Proceeds Settlement Option "Death Benefit Remaining with the Company". The
proceeds will remain in the same Guarantee Period in effect at the time of death
and receive the same interest rate credited to that Contract. If the Guarantee
Period has more than five years remaining, then Hartford will, before the
completion of the 5th Contract Year after the death of the Contract Owner,
terminate the Contract and waiving all Surrender Charges, pay the Contract Value
to the Beneficiary. A Market Value Adjustment will be applicable.
REQUIRED DISTRIBUTIONS -- If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years after
death. The Beneficiary can choose any Annuity Payout Option that results in
complete Annuity Payout within five years.
If the Contract Owner dies on or after the Annuity Commencement Date under an
Annuity Payout Option with a Payout upon Death Benefit, any remaining value must
be distributed at least as rapidly as under the Annuity Payout Option being used
as of the Contract Owner's death.
If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
WHAT SHOULD THE BENEFICIARY CONSIDER?
ALTERNATIVES TO THE REQUIRED DISTRIBUTIONS -- The selection of an Annuity Payout
Option and the timing of the selection will have an impact on the tax treatment
of the Death Benefit. To receive favorable tax treatment, the Annuity Payout
Option selected: (a) cannot extend beyond the Beneficiary's life or life
expectancy, and (b) must begin within one year of the date of death.
If these conditions are NOT met, the Death Benefit will be treated as a lump sum
payment for tax purposes. This sum will be taxable in the year in which it is
considered received.
SPOUSAL CONTRACT CONTINUATION -- If the Contract Owner dies, the Contract
Owner's spouse, if named as a Beneficiary, may elect to continue the Contract as
the new Contract Owner. This spousal continuation is available only once for
each Contract. The spouse may, in the alternative, elect to receive the Death
Benefit in one lump sum payment or have the Death Benefit paid under one of the
Annuity Payout Options.
WHO WILL RECEIVE THE DEATH BENEFIT?
The distribution of the Death Benefit is based on whether death is before, on or
after the Annuity Commencement Date.
IF DEATH OCCURS BEFORE THE ANNUITY COMMENCEMENT DATE:
<TABLE>
<CAPTION>
IF THE DECEASED IS THE . . . AND . . . AND . . . THEN THE . . .
<S> <C> <C> <C>
Contract Owner There is a surviving joint The Annuitant is living or Joint Contract Owner
Contract Owner deceased receives the Death
Benefit.
Contract Owner There is no surviving The Annuitant is living or Designated Beneficiary
joint Contract Owner deceased receives the Death
Benefit.
Contract Owner There is no surviving The Annuitant is living or Contract Owner's estate
joint Contract Owner or deceased receives the Death
surviving Beneficiary Benefit.
Annuitant The Annuitant is also the There is no named Designated Beneficiary
Contract Owner Contingent Annuitant receives the Death
Benefit.
Annuitant The Contract Owner is a There is no named Death Benefit is paid to
Corporation Contingent Annuitant the Contract Owner and not
the designated Beneficiary
Annuitant The Contract Owner is There is no named The Contract Owner is
living Contingent Annuitant presumed to be the
Contingent Annuitant and
the Contract continues.
Annuitant The Contract Owner is The Contingent Annuitant Contingent Annuitant
living is living becomes the Annuitant, and
the Contract continues.
</TABLE>
<PAGE>
12 HARTFORD LIFE INSURANCE COMPANY
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IF DEATH OCCURS ON OR AFTER THE ANNUITY COMMENCEMENT DATE:
<TABLE>
<CAPTION>
IF THE DECEASED IS THE . . . AND . . . THEN THE . . .
<S> <C> <C>
Contract Owner The Annuitant is living Designated Beneficiary becomes the
Contract Owner
Annuitant The Contract Owner is living Contract Owner receives the Death
Benefit.
Annuitant The Annuitant is also the Contract Owner Designated Beneficiary receives the
Death Benefit.
</TABLE>
THESE ARE THE MOST COMMON DEATH BENEFIT SCENARIOS, HOWEVER, THERE ARE OTHERS.
SOME OF THE ANNUITY PAYOUT OPTIONS MAY NOT RESULT IN THE PAYMENT OF A DEATH
BENEFIT. IF YOU HAVE QUESTIONS ABOUT THESE AND ANY OTHER SCENARIOS, PLEASE
CONTACT YOUR REGISTERED REPRESENTATIVE OR US.
ANNUITY PAYOUTS
This section describes what happens when we begin to make regular Annuity
Payouts from your Contract. You, as the Contract Owner, should answer five
questions:
1. When do you want Annuity Payouts to begin?
2. What Annuity Payout Option do you want to use?
3. How often do you want the Payee to receive Annuity Payouts?
4. How are Annuity Payouts calculated?
Please check with your financial adviser to select the Annuity Payout Option
that best meets your income needs.
1. WHEN DO YOU WANT ANNUITY PAYOUTS TO BEGIN?
You select an Annuity Commencement Date when you purchase your Contract or at
any time before we begin making Annuity Payouts. You may change the Annuity
Commencement Date by notifying us before we begin to make Annuity Payouts.
The Annuity Commencement Date cannot be deferred beyond the end of the Guarantee
Period immediately following the Annuitant's 90th birthday or the end of the
Guarantee Period immediately following the end of the 10th Contract Year,
whichever is later, unless you elect a later date to begin receiving payments,
subject to the laws and regulations then in effect and our approval. Unless you
elect an Annuity Payout Option before the Annuity Commencement Date, we will
begin to make Annuity Payouts under the Life Annuity with a 10-Year Period
Certain Annuity Payout Option.
If the Annuity Commencement Date does not coincide with the end of a Guarantee
Period, a Market Value Adjustment will apply. In that case, Hartford will
determine the amount available for Annuity Payouts by taking your Contract
Value, deducting any applicable Premium Taxes and then multiplying that amount
by the Market Value Adjustment. No Market Value Adjustment will apply if the
Annuity Commencement Date coincides with the end of your Guarantee Period.
If you rollover into a Subsequent Guarantee Period or transfer to a Guarantee
Period of a different duration, you cannot rollover or transfer into a Guarantee
Period with a duration that will take you past your Annuity Commencement Date.
That means that if you elected to begin Annuity Payouts on your Annuitant's 90th
birthday and your Annuitant is 87 years old, you would not be able to rollover
or transfer into a new Guarantee Period with a duration longer than three years
unless you extended your Annuity Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of the
month as the Annuity Commencement Date.
Once you pass the Annuitant's 90th birthday or the end of your 10th Contract
Year, some Guarantee Period durations, may not be available.
In New York, you must give Hartford 30 days advance written notice of your
intent to change your Annuity Commencement Date, and cannot defer that date past
the Annuitant's 90th birthday.
2. WHICH ANNUITY PAYOUT OPTION DO YOU WANT TO USE?
Your Contract contains the Annuity Payout Options described below. We may at
times offer other Annuity Payout Options. Once Annuity Payouts begin, you cannot
change the Annuity Payout Option.
OPTION 1: LIFE ANNUITY -- We make Annuity Payouts as long as the Annuitant is
living. When the Annuitant dies, we stop making Annuity Payouts. A Payee would
receive only one Annuity Payout if the Annuitant dies after the first Payout,
two Annuity Payouts if the Annuitant dies after the second Payout, and so forth.
OPTION 2: LIFE ANNUITY WITH A CASH REFUND -- We make Annuity Payouts as long as
the Annuitant is living. When the Annuitant dies, we stop making Annuity
Payouts. At the death of the Annuitant, if the Contract Value on the Annuity
Commencement Date minus any Premium Tax is greater than the sum of all Annuity
Payouts already made, any difference will be paid to the Beneficiary.
OPTION 3: LIFE ANNUITY WITH PAYMENTS FOR A PERIOD CERTAIN -- We make Annuity
Payouts during the lifetime of the Annuitant but Annuity Payouts are at least
guaranteed for a period of time you select between 5 years and 100 years minus
the age of the Annuitant. If, at the death of the Annuitant, Annuity Payouts
have been made for less than the minimum elected number of years, then the
Beneficiary may elect to (a) continue
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 13
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Annuity Payouts for the remainder of the minimum elected number of years or (b)
receive the commuted value in one sum.
OPTION 4: JOINT AND LAST SURVIVOR LIFE ANNUITY -- We will make Annuity Payouts
as long as the Annuitant and Joint Annuitant are living. When one Annuitant
dies, we continue to make Annuity Payouts to the other Annuitant until that
second Annuitant dies. When choosing this option, you must decide what will
happen to the Annuity Payouts after the first Annuitant dies. You must select
Annuity Payouts that:
- Remain the same at 100%, or
- Decrease to 66.67%, or
- Decrease to 50%.
The percentages represent actual dollar amounts. The percentage will also impact
the Annuity Payout amount we pay while both Annuitants are living. If you pick a
lower percentage, your original Annuity Payouts will be higher while both
Annuitants are alive.
OPTION 5: JOINT AND LAST SURVIVOR LIFE ANNUITY WITH PAYMENTS FOR A PERIOD
CERTAIN -- We will make Annuity Payouts as long as the Annuitant and Joint
Annuitant are living, but Annuity Payouts are at least guaranteed for a period
of time you select between 5 years and100 years minus the age of the Annuitant.
If, at the death of the last Annuitant, Annuity Payouts have been made for less
than the minimum elected number of years, then the Beneficiary may elect to (a)
continue Annuity Payouts for the remainder of the minimum elected number of
years or (b) receive the commuted value in one sum. When one Annuitant dies, we
continue to make Annuity Payouts to the other Annuitant until that second
Annuitant dies. When choosing this option, you must decide what will happen to
the Annuity Payouts after the first Annuitant dies. You must select Annuity
Payouts that:
- Remain the same at 100%, or
- Decrease to 66.67%, or
- Decrease to 50%.
The percentages represent actual dollar amounts. The percentage will also impact
the Annuity Payout amount we pay while both Annuitants are living. If you pick a
lower percentage, your original Annuity Payouts will be higher while both
Annuitants are alive.
OPTION 6: PAYMENTS FOR A PERIOD CERTAIN -- We will make Annuity Payouts for the
number of years that you select. During the first Contract Year, you can select
any period of time between 10 years and 100 years minus the Annuitant's age.
After the first Contract Year, you can select any period of time between 5 and
100 years minus the Annuitant's age. If, at the death of the Annuitant, Annuity
Payouts have been made for less than the period certain, then the Beneficiary
may elect to (a) continue Annuity Payouts for the remainder of the minimum
elected number of years or (b) receive the commuted value in one sum.
IMPORTANT INFORMATION:
- YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYOUTS BEGIN.
- For Non-Qualified Contracts, if you do not elect an Annuity Payout Option,
Annuity Payouts will automatically begin on the Annuity Commencement Date
under the Life Annuity with 10 Years Period Certain Annuity Payout Option.
- For Qualified Contracts and Contracts issued in Texas, if you do not elect an
Annuity Payout Option, fixed Annuity Payouts will begin automatically on the
Annuity Commencement Date, under the Life Annuity Payout Option.
3. HOW OFTEN DO YOU WANT THE PAYEE TO RECEIVE ANNUITY PAYOUTS?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- monthly,
- quarterly,
- semi-annually, or
- annually.
Once you select a frequency, it cannot be changed after the Annuity Commencement
Date. If you do not make a selection, the Payee will receive monthly Annuity
Payouts. The first payment must be at least equal to the minimum payment amount
according to our rules then in effect. If at any time, payments become less than
the minimum payment amount, we have the right to change the payment frequency to
meet the minimum payment requirements. If any payment amount is less than the
minimum annual payment amount, we may make an alternative arrangement with you.
4. HOW ARE ANNUITY PAYOUTS CALCULATED?
The Tables in the Contract provide for guaranteed dollar amounts of monthly
payments for each $1,000 applied under the Annuity Payout Options. Under the
Life Annuity and Life Annuity with Cash Refund, the amount of each Annuity
Payout will depend upon the age and gender of the Annuitant at the time the
first Annuity Payout is due. Under the Joint and Last Survivor Life Annuity and
Joint and Last Survivor Life Annuity with Payments for a Period Certain, the
amount of the first Annuity Payout will depend upon the gender of both
Annuitants and their ages at the time the Annuity Payout is due.
Gender will not be used to determine the amount of the Annuity Payouts if the
Contract is issued to qualify under certain sections of the Code. If gender is
used to determine the amount of Annuity Payouts, the Annuity tables in the
Contract will provide rates of payment for male Annuitants and female
Annuitants.
The fixed payment Annuity tables for the Annuity Payout Options, except for
Payments for a Period Certain Annuity Payout Option are based on the 1983a
Individual Annuity Mortality
<PAGE>
14 HARTFORD LIFE INSURANCE COMPANY
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Table projected to the year 2000 using Projection Scale G and an interest rate
of 2.5%. The table for the Payments for a Period Certain Annuity Payout Option
is based on an interest rate of 2.5% per annum.
The Annuity tables for the Annuity Payout Options, except for Payments for a
Period Certain Annuity Payout Option are age dependent. For Annuity payments
beginning after 2000, the amount of the first payment will be based on an age a
specified number of years younger than the Annuitant's then attained age. The
age setback is as follows:
<TABLE>
<CAPTION>
DATE OF FIRST PAYMENT AGE SETBACK
<S> <C>
------------------------------------
Prior to 2005 1 year
------------------------------------
2005 - 2014 2 years
------------------------------------
2015 - 2019 3 years
------------------------------------
2020 - 2029 4 years
------------------------------------
2030 - 2039 5 years
------------------------------------
2040 or later 6 years
------------------------------------
</TABLE>
MISCELLANEOUS PROVISIONS
INVESTMENTS BY HARTFORD
Assets of Hartford must be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments.
Contract reserves will be accounted for in a non-unitized separate account.
Contract Owners have no priority claims on assets accounted for in this separate
account. All assets of Hartford, including those accounted for in this separate
account, are available to meet the guarantees under the Contracts and are
available to meet the general obligations of Hartford.
Nonetheless, in establishing Guarantee Rates and Current Rates, Hartford intends
to take into account the yields available on the instruments in which it intends
to invest the proceeds from the Contracts. (See "Guarantee Rates"). Hartford's
investment strategy with respect to the proceeds attributable to the Contracts
will generally be to invest in investment-grade debt instruments having
durations tending to match the applicable Guarantee Periods.
Investment-grade debt instruments in which Hartford intends to invest the
proceeds from the Contracts include:
Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government.
Debt securities which have an investment grade, at the time of purchase, within
the four highest grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A
or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other
nationally recognized rating service.
Other debt instruments, including, but not limited to, issues of or guaranteed
by banks or bank holding companies and corporations, which obligations, although
not rated by Moody's Investors Services, Inc. or Standard & Poor's Corporation
are deemed by Hartford's management to have an investment quality comparable to
securities which may be purchased as stated above.
While the foregoing generally describes our investment strategy with respect to
the proceeds attributable to the Contracts, we are not obligated to invest the
proceeds attributable to the Contract according to any particular strategy,
except as may be required by Connecticut and other state insurance laws.
AMENDMENT OF CONTRACTS
We may modify the Contract, but no modification will effect the amount or term
of any Contract unless a modification is required to conform the Contract to
applicable Federal or State law. No modification will effect the method by which
Contract Values are determined. We will notify you in writing of any
modifications.
ASSIGNMENT OF CONTRACTS
Ownership of this Contract is generally assignable. However, if the Contract is
issued to a tax qualified retirement plan, it is possible that the ownership of
the Contract may not be transferred or assigned. An assignment of a
Non-Qualified Contract may subject the Contract Values or Surrender Value to
income taxes and certain penalty taxes.
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the Contracts. HSD is a wholly owned subsidiary of Hartford. The
principal business address of HSD is the same as Hartford. HSD is registered
with the Commission under the 1934 Act as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.
The Contracts are sold by certain independent broker-dealers registered under
the 1934 Act to persons who have established an account with the broker-dealer.
In addition, the Contracts may be offered to members of certain other eligible
groups or certain individuals. Hartford will pay a maximum commission of 5% for
the sale of a Contract. From time to time, customers of certain broker-dealers
may be offered special initial Guarantee Rates and negotiated commissions.
Broker-dealers or financial institutions are compensated according to a schedule
set forth by HSD and any applicable rules or regulations for insurance
compensation. Compensation is generally based on premium payments made by
policyholders or contract owners.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 15
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the broker-dealer or financial institution of insurance products. These
payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the policyholders or contract
owners to purchase, hold or Surrender insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Hartford will credit the Contract with
an additional 2.0% of Premium Payment. This additional percentage of Premium
Payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of
Hartford; and (2) employees and registered representatives (and their families)
of registered broker-dealers (or their financial institutions) that have a sales
agreement with Hartford and its principal underwriter to sell the Contracts.
FEDERAL TAX CONSIDERATIONS
--------------------------------------------------------------------------------
A. GENERAL
Since federal tax law is complex, the tax consequences of purchasing this
contract will vary depending on your situation. You may need tax or legal advice
to help you determine whether purchasing this contract is right for you.
Our general discussion of the tax treatment of this contract is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this contract cannot be made in the prospectus. We also do not
discuss state, municipal or other tax laws that may apply to this contract. For
detailed information, you should consult with a qualified tax adviser familiar
with your situation.
B. TAXATION OF HARTFORD
Hartford is taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). The assets underlying the Contracts will be owned
by Hartford. The income earned on such assets will be Hartford's income.
C. TAXATION OF ANNUITIES -- GENERAL PROVISIONS AFFECTING PURCHASERS OTHER THAN
QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC.
Code Section 72 contains provisions for contract owners which are not natural
persons. Non-natural persons include corporations, trusts, limited liability
companies, partnerships and other types of legal entities. The tax rules for
contracts owned by non-natural persons are different from the rules for
contracts owned by individuals. For example, the annual net increase in the
value of the contract is currently includible in the gross income of a
non-natural person, unless the non-natural person holds the contract as an agent
for a natural person. There are additional exceptions from current inclusion
for:
- certain annuities held by structured settlement companies,
- certain annuities held by an employer with respect to a terminated qualified
retirement plan and
- certain immediate annuities.
A non-natural person which is a tax-exempt entity for federal tax purposes will
not be subject to income tax as a result of this provision. If the contract
owner is a non-natural person, the primary annuitant is treated as the contract
owner in applying mandatory distribution rules. These rules require that certain
distributions be made upon the death of the contract owner. A change in the
primary annuitant is also treated as the death of the contract owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS).
In general, and with certain exceptions, interest or earnings credited under the
Contract are not included in the Contract Owner's income for tax purposes until
actually distributed from the Contract.
The provisions of Section 72 of the Code concerning distributions are summarized
briefly below. Also summarized are special rules affecting distributions from
Contracts obtained in a tax-free exchange for other annuity contracts or life
insurance contracts which were purchased prior to August 14, 1982.
a. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not includable in
gross income equal the "investment in the contract" under Section 72 of the
Code.
ii. To the extent that the value of the Contract (ignoring any surrender
charges except on a full surrender) exceeds the "investment in the
contract," such excess constitutes the "income on the contract."
iii. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any
such "income on the contract" and then from "investment in the contract,"
and for these purposes such "income on the contract" shall be computed by
reference to any aggregation rule in subparagraph 2.c. below. As a result,
any such amount received or deemed received (1) shall be includable in
gross income to the extent that such amount does not exceed any such
"income on the contract," and (2) shall not be includable in gross income
to the extent that such amount does exceed
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16 HARTFORD LIFE INSURANCE COMPANY
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any such "income on the contract." If at the time that any amount is
received or deemed received there is no "income on the contract" (e.g.,
because the gross value of the Contract does not exceed the "investment in
the contract" and no aggregation rule applies), then such amount received
or deemed received will not be includable in gross income, and will simply
reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or the assignment or
pledge of any portion of the value of the Contract shall be treated as an
amount received for purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not
apply, however, to certain transfers of property between spouses or incident
to divorce.
b. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE.
Annuity payments made periodically after the Annuity Commencement Date are
excluded from gross income to the extent that part of the amount of the payment
bears the same ratio to the payment as the investment in the contract bears to
the expected return under the Contract ("exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the
Annuity Commencement Date, any additional payments (including surrenders)
will be entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from gross
income by the exclusion ratio does not exceed the investment in the
contract as of the Annuity Commencement Date, then the remaining portion of
unrecovered investment shall be allowed as a deduction for the last taxable
year of the Annuitant.
iii. Generally, nonperiodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and
shall be fully includable in gross income. However, upon a full surrender
after the Annuity Commencement Date, only the excess of the amount
received (after any surrender charge) over the remaining "investment in
the contract" shall be includable in gross income (except to the extent
that the aggregation rule referred to in the next subparagraph c. may
apply).
iv. For annuity payments made under a qualified plan, the portion of each
annuity payment that represents nontaxable return of basis is generally
equal to the total investment in the Contract as of the Annuity
Commencement Date, divided by the number of anticipated payments, which is
determined by reference to the age of the Annuitant under a table in
Section 72(d) of the Code.
c. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS.
Contracts issued after October 21, 1988 by the same insurer (or affiliated
insurer) to the same Contract Owner within the same calendar year (other than
certain contracts held in connection with a tax-qualified retirement
arrangement) will be treated as one annuity Contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new Contract for this
purpose. Hartford believes that for any annuity subject to such aggregation, the
values under the Contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement Date. Withdrawals
will first be treated as withdrawals of income until all of the income from all
such Contracts is withdrawn. As of the date of this Prospectus, there are no
regulations interpreting this provision.
d. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY PAYMENTS.
i. If any amount is received or deemed received on the Contract (before or
after the Annuity Commencement Date), the Code applies a penalty tax equal
to ten percent of the portion of the amount includable in gross income,
unless an exception applies.
ii. In general, the 10% penalty tax will not apply to the following
distributions (exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments (not less frequently than annually) for the life (or
life expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's designated
Beneficiary).
5. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
e. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A TAX-FREE EXCHANGE
OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS PURCHASED PRIOR TO AUGUST 14,
1982.
If the Contract was obtained by a tax-free exchange of a life insurance or
annuity Contract purchased prior to August 14, 1982, then any amount received or
deemed received prior to the Annuity Commencement Date shall be deemed to come
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HARTFORD LIFE INSURANCE COMPANY 17
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(1) first from the amount of the "investment in the contract" prior to August
14, 1982 ("pre-8/14/82 investment") carried over from the prior Contract, (2)
then from the portion of the "income on the contract" (carried over to, as well
as accumulating in, the successor Contract) that is attributable to such
pre-8/14/82 investment, (3) then from the remaining "income on the contract" and
(4) last from the remaining "investment in the contract." As a result, to the
extent that such amount received or deemed received does not exceed such
pre-8/14/82 investment, such amount is not includable in gross income., In
addition, to the extent that such amount received or deemed received does not
exceed the sum of (a) such pre-8/14/82 investment and (b) the "income on the
contract" attributable thereto, such amount is not subject to the 10% penalty
tax. In all other respects, amounts received or deemed received from such post-
exchange Contracts are generally subject to the rules described in this
subparagraph 3.
f. REQUIRED DISTRIBUTIONS
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary provisions in ii. or
iii. below:
1. If any Contract Owner dies on or after the Annuity Commencement Date and
before the entire interest in the Contract has been distributed, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution being used as of the date of
such death;
2. If any Contract Owner dies before the Annuity Commencement Date, the
entire interest in the Contract will be distributed within 5 years after
such death; and
3. If the Contract Owner is not an individual, then for purposes of 1. or
2. above, the primary annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The primary annuitant is the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of a Contract Owner described in i. above is
payable to or for the benefit of a designated beneficiary, such beneficiary may
elect to have the portion distributed over a period that does not extend beyond
the life or life expectancy of the beneficiary. Distributions must begin within
a year of the Contract Owner's death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or for the
benefit of his or her spouse, and the Annuitant or Contingent Annuitant is
living, such spouse shall be treated as the Contract Owner of such portion for
purposes of section i. above. This spousal continuation shall apply only once
for this contract.
D. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may be
imposed by the purchaser's country of citizenship or residence. Prospective
purchasers are advised to consult with a qualified tax adviser regarding U.S.,
state, and foreign taxation with respect to an annuity purchase.
E. FEDERAL INCOME TAX WITHHOLDING
Any portion of a distribution that is (or is deemed to be) current taxable
income to the Contract Owner will be subject to federal income tax withholding
and reporting under the Code. Generally, however, a Contract Owner may elect not
to have income taxes withheld or to have income taxes withheld at a different
rate by filing a completed election form with us. Election forms will be
provided at the time distributions are requested.
F. GENERATION-SKIPPING TRANSFERS
Under certain circumstances, the Internal Revenue Code may impose a "generation
skipping transfer tax" when all or part of an annuity is transferred to, or a
death benefit is paid to, an individual two or more generations younger than the
owner. Federal tax law may require us to deduct the tax from your contract, or
from any applicable payment, and pay it directly to the Internal Revenue
Service.
G. INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
This summary does not attempt to provide more than general information about the
federal income tax rules associated with use of a Contract by a tax-qualified
retirement plan. Because of the complexity of the federal tax rules, owners,
participants and beneficiaries are encouraged to consult their own tax advisors
as to specific tax consequences.
The federal tax rules applicable to owners of Contracts under tax-qualified
retirement plans vary according to the type of plan as well as the terms and
conditions of the plan itself. Contract owners, plan participants and
beneficiaries are cautioned that the rights and benefits of any person may be
controlled by the terms and conditions of the tax-qualified retirement plan
itself, regardless of the terms and conditions of a Contract. We are not bound
by the terms and conditions of such plans to the extent such terms conflict with
a Contract, unless we specifically consent to be bound.
Some tax-qualified retirement plans are subject to distribution and other
requirements that are not incorporated into our administrative procedures.
Contract owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions comply with applicable
law.
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18 HARTFORD LIFE INSURANCE COMPANY
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Tax penalties may apply to transactions with respect to tax-qualified retirement
plans if applicable federal income tax rules and restrictions are not carefully
observed.
We do not currently offer the Contracts in connection with all of the types of
tax-qualified retirement plans discussed below and may not offer the Contracts
for all types of tax-qualified retirement plans in the future.
1. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS
Eligible employers can establish certain tax-qualified pension and
profit-sharing plans under section 401 of the Code. Rules under section 401(k)
of the Code govern certain "cash or deferred arrangements" under such plans.
Rules under section 408(k) govern "simplified employee pensions". Tax-qualified
pension and profit-sharing plans are subject to limitations on the amount that
may be contributed, the persons who may be eligible to participate and the time
when distributions must commence. Employers intending to use the Contracts in
connection with tax-qualified pension or profit-sharing plans should seek
competent tax and other legal advice.
2. TAX SHELTERED ANNUITIES UNDER SECTION 403(B)
Public schools and certain types of charitable, educational and scientific
organizations, as specified in section 501(c)(3) of the Code, can purchase
tax-sheltered annuity contracts for their employees. Tax-deferred contributions
can be made to tax-sheltered annuity contracts under section 403(b) of the Code,
subject to certain limitations. Generally, such contributions may not exceed the
lesser of $10,500 (indexed) or 20% of the employee's includable compensation for
such employee's most recent full year of employment, subject to other
adjustments. Special provisions under the Code may allow some employees to elect
a different overall limitation.
Tax-sheltered annuity programs under section 403(b) are subject to a PROHIBITION
AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO CONTRIBUTIONS MADE
PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such distribution is made:
- after the participating employee attains age 59 1/2;
- upon separation from service;
- upon death or disability; or
- in the case of hardship (and in the case of hardship, any income attributable
to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable to
cash values or other amounts held under a section 403(b) contract as of December
31, 1988.
3. DEFERRED COMPENSATION PLANS UNDER SECTION 457
A governmental employer or a tax-exempt employer other than a governmental unit
can establish a Deferred Compensation Plan under section 457 of the Code. For
these purposes, a "governmental employer" is a State, a political subdivision of
a State, or an agency or an instrumentality of a State or political subdivision
of a State. Employees and independent contractors performing services for a
governmental or tax-exempt employer can elect to have contributions made to a
Deferred Compensation Plan of their employer in accordance with the employer's
plan and section 457 of the Code.
Deferred Compensation Plans that meet the requirements of section 457(b) of the
Code are called "eligible" Deferred Compensation Plans. Section 457(b) limits
the amount of contributions that can be made to an eligible Deferred
Compensation Plan on behalf of a participant. Generally, the limitation on
contributions is 33 1/3% of a participant's includable compensation (typically
25% of gross compensation) or, for 2000, $8,000 (indexed), whichever is less.
The plan may provide for additional catch-up contributions during the three
taxable years ending before the year in which the participant attains normal
retirement age.
All of the assets and income of an eligible Deferred Compensation Plan of a
governmental employer must be held in trust for the exclusive benefit of
participants and their beneficiaries. For this purpose, custodial accounts and
certain annuity contracts are treated as trusts. The requirement of a trust does
not apply to amounts under a Deferred Compensation Plan of a tax-exempt
(non-governmental) employer. In addition, the requirement of a trust does not
apply to amounts under a Deferred Compensation Plan of a governmental employer
if the Deferred Compensation Plan is not an eligible plan within the meaning of
section 457(b) of the Code. In the absence of such a trust, amounts under the
plan will be subject to the claims of the employer's general creditors.
In general, distributions from an eligible Deferred Compensation Plan are
prohibited under section 457 of the Code unless made after the participating
employee:
- attains age 70 1/2,
- separates from service,
- dies, or
- suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Deferred Compensation
Plan under section 457 of the Code cannot be transferred or rolled over on a
tax-deferred basis except for certain transfers to other Deferred Compensation
Plans under section 457 in limited cases.
4. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS") UNDER SECTION 408
TRADITIONAL IRAS -- Eligible individuals can establish individual retirement
programs under section 408 of the Code through the purchase of an IRA. Section
408 imposes limits with respect to IRAs, including limits on the amount that may
be contributed to an IRA, the amount of such contributions that may be deducted
from taxable income, the persons who may be eligible to contribute to an IRA,
and the time when distributions commence
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HARTFORD LIFE INSURANCE COMPANY 19
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from an IRA. Distributions from certain tax-qualified retirement plans may be
rolled-over to an IRA on a tax-deferred basis.
SIMPLE IRAS -- Eligible employees may establish SIMPLE IRAs in connection with a
SIMPLE IRA plan of an employer under section 408(p) of the Code. Special
rollover rules apply to SIMPLE IRAs. Amounts can be rolled over from one SIMPLE
IRA to another SIMPLE IRA. However, amounts can be rolled over from a SIMPLE IRA
to a Traditional IRA only after two years have expired since the employee first
commenced participation in the employer's SIMPLE IRA plan. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a Traditional IRA. Hartford
is a non-designated financial institution for purposes of the SIMPLE IRA rules.
ROTH IRAS -- Eligible individuals may establish Roth IRAs under section 408A of
the Code. Contributions to a Roth IRA are not deductible. Subject to special
limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA. However, a
conversion or a rollover from a Traditional IRA to a Roth IRA is not excludable
from gross income. If certain conditions are met, qualified distributions from a
Roth IRA are tax-free.
5. FEDERAL TAX PENALTIES AND WITHHOLDING
Distributions from tax-qualified retirement plans are generally taxed as
ordinary income under section 72 of the Code. Under these rules, a portion of
each distribution may be excludable from income. The excludable amount is the
portion of the distribution that bears the same ratio as the after-tax
contributions bear to the expected return.
(a) PENALTY TAX ON EARLY DISTRIBUTIONS
Section 72(t) of the Code imposes an additional penalty tax equal to 10% of the
taxable portion of a distribution from certain tax-qualified retirement plans.
However, the 10% penalty tax does not apply to a distributions that is:
- Made on or after the date on which the employee reaches age 59 1/2;
- Made to a beneficiary (or to the estate of the employee) on or after the death
of the employee;
- Attributable to the employee's becoming disabled (as defined in the Code);
- Part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary;
- Except in the case of an IRA, made to an employee after separation from
service after reaching age 55; or
- Not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an IRA
that is:
- Made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
- Not in excess of the amount of certain qualifying higher education expenses,
as defined by section 72(t)(7) of the Code; or
- A qualified first-time homebuyer distribution meeting the requirements
specified at section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware that the 10%
penalty tax is increased to 25% with respect to non-exempt early distributions
made from your SIMPLE IRA during the first two years following the date you
first commenced participation in any SIMPLE IRA plan of your employer.
(b) MINIMUM DISTRIBUTION PENALTY TAX
If the amount distributed is less than the minimum required distribution for the
year, the Participant is subject to a 50% penalty tax on the amount that was not
properly distributed.
An individual's interest in a tax-qualified retirement plan generally must be
distributed, or begin to be distributed, not later than the Required Beginning
Date. Generally, the Required Beginning Date is April 1 of the calendar year
following the later of:
- the calendar year in which the individual attains age 70 1/2; or
- the calendar year in which the individual retires from service with the
employer sponsoring the plan.
The Required Beginning Date for an individual who is a five (5) percent owner
(as defined in the Code), or who is the owner of an IRA, is April 1 of the
calendar year following the calendar year in which the individual attains age
70 1/2.
The entire interest of the Participant must be distributed beginning no later
than the Required Beginning Date over:
- the life of the Participant or the lives of the Participant and the
Participant's designated beneficiary, or
- over a period not extending beyond the life expectancy of the Participant or
the joint life expectancy of the Participant and the Participant's designated
beneficiary.
Each annual distribution must equal or exceed a minimum distribution amount
which is determined by dividing the account balance by the applicable life
expectancy. This account balance is generally based upon the account value as of
the close of business on the last day of the previous calendar year. In
addition, minimum distribution incidental benefit rules may require a larger
annual distribution.
If an individual dies before reaching his or her Required Beginning Date, the
individual's entire interest must generally be distributed within five years of
the individual's death. However, this rule will be deemed satisfied, if
distributions begin before the close of the calendar year following the
individual's death to a designated beneficiary and distribution is over the life
of such designated beneficiary (or over a period not extending beyond the life
expectancy of the beneficiary). If the beneficiary is the
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individual's surviving spouse, distributions may be delayed until the individual
would have attained age 70 1/2.
If an individual dies after reaching his or her Required Beginning Date or after
distributions have commenced, the individual's interest must generally be
distributed at least as rapidly as under the method of distribution in effect at
the time of the individual's death.
(c) WITHHOLDING
In general, regular wage withholding rules apply to distributions from IRAs and
plans described in section 457 of the Code. Periodic distributions from other
tax-qualified retirement plans that are made for a specified period of 10 or
more years or for the life or life expectancy of the participant (or the joint
lives or life expectancies of the participant and beneficiary) are generally
subject to federal income tax withholding as if the recipient were married
claiming three exemptions. The recipient of periodic distributions may generally
elect not to have withholding apply or to have income taxes withheld at a
different rate by providing a completed election form.
Mandatory federal income tax withholding at a flat rate of 20% will generally
apply to other distributions from such other tax-qualified retirement plans
unless such distributions are:
- the non-taxable portion of the distribution;
- required minimum distributions; or
- direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
Certain states require withholding of state taxes when federal income tax is
withheld.
THE COMPANY
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A. 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 1999, 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. On
June 27, 2000, a merger became effective whereby Hartford Life became ultimately
owned by The Hartford through a cash tender offer of shares not already owned by
The Hartford.
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
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HARTFORD LIFE INSURANCE COMPANY 21
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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-Registered Trademark-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.
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
<PAGE>
22 HARTFORD LIFE INSURANCE COMPANY
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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.
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-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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 23
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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 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
<PAGE>
24 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
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.
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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 25
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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 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.
EMPLOYEES
Hartford Life Insurance Company's parent (Hartford Life) had approximately 5,000
employees at February 29, 2000.
<PAGE>
26 HARTFORD LIFE INSURANCE COMPANY
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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.
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.
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.
B. SELECTED FINANCIAL DATA
The following selected financial data for Hartford, its subsidiaries and
affiliated companies should be read in conjunction with the consolidated
financial statements and notes thereto included in this Prospectus.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
REVENUES
Premiums and other considerations $2,045 $2,218 $1,637 $1,705 $1,487
Net investment income 1,359 1,759 1,368 1,397 1,328
Net realized (losses) gains (4) (2) 4 (213) (11)
Total Revenues 3,400 3,975 3,009 2,889 2,804
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,574 1,911 1,379 1,535 1,422
Amortization of deferred policy acquisition costs 539 431 335 234 199
Dividends to policyholders 104 329 240 635 675
Other insurance expenses 631 766 586 427 317
Total Benefits, Claims and Expenses 2,848 3,437 2,540 2,831 2,613
Income before income tax expense 552 538 469 58 191
Income tax expense 191 188 167 20 62
NET INCOME $ 361 $ 350 302 $ 38 $ 129
------------------------------------------------------------------------------------------------------------------
</TABLE>
C. 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.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 27
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Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
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> <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.
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> <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.
<PAGE>
28 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
INVESTMENT PRODUCTS
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
<S> <C> <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 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> <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.
CORPORATE OWNED LIFE INSURANCE (COLI)
OPERATING SUMMARY
<TABLE>
<CAPTION>
1999 1998
<S> <C> <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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 29
--------------------------------------------------------------------------------
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 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-
<PAGE>
30 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
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> <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.
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.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 31
--------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER 1999 TOTAL 1998 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>
<PAGE>
32 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
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.
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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 33
--------------------------------------------------------------------------------
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
vehicles $4.7 $0.6 $0.5 $0.3 $0.3 $3.7 $10.1 $10.7
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.
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>
A.M. DUFF & STANDARD &
INSURANCE RATINGS 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.
<PAGE>
34 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
CASH FLOW
<TABLE>
<CAPTION>
1999 1998
<S> <C> <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.
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,
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 35
--------------------------------------------------------------------------------
including broker-dealers, banks, wholesalers, its own internal sales force and
other third party marketing organizations. The Company periodically negotiates
provisions and renewals of these relationships and there can be no assurance
that such terms will remain acceptable to the Company or such service providers.
An interruption in the Company's continuing relationship with certain of these
third parties could materially affect the Company's ability to market its
products. During the first quarter of 1999, the Company modified its contract
with Putnam Mutual Funds Corp. (Putnam) to eliminate the exclusivity provision,
which will allow both parties to pursue new market opportunities. Putnam is
contractually obligated to support and service the related annuity in force
block of business and to market, support and service new business. However,
there can be no assurance that this contract modification will not adversely
impact the Company's ability to distribute Putnam-related products.
YEAR 2000
IN GENERAL -- The Year 2000 issue relates to the ability or inability of
computer hardware, software and other information technology (IT) systems, as
well as non-IT systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the Year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the Year 2000 as "1900," or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford Life Insurance Company's IT systems,
as well as the reliability of its non-IT systems, are integral aspects of
Hartford Life Insurance Company's business. Hartford Life Insurance Company
issues insurance policies, annuities, mutual funds and other financial products
to individual and business customers, nearly all of which contain date sensitive
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.
There were no changes in, or disagreements with, accountants on accounting and
financial disclosure in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
<PAGE>
36 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
LEGAL OPINION
The validity of the interests in the Contracts described in this Prospectus will
be passed upon for Hartford by Lynda Godkin, General Counsel and Secretary of
Hartford.
EXPERTS
--------------------------------------------------------------------------------
The audited financial statements and financial statement schedules included in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report. The principal business address of Arthur Andersen
LLP is One Financial Plaza, Hartford, Connecticut 06103.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 37
--------------------------------------------------------------------------------
APPENDIX A -- MODIFIED GUARANTEED ANNUITY FOR QUALIFIED PLANS
The CRC-Registered Trademark- (Compound Rate Contract) Annuity for Qualified
Plans is a group deferred annuity Contract under which one or more purchase
payments may be made. Plans eligible to purchase the Contract are pension and
profit-sharing plans qualified under Section401(a) of the Internal Revenue Code
(the "Code"), Keogh Plans and eligible state deferred compensation plans under
Section457 of the Code ("Qualified Plans").
To apply for a Group Annuity Contract, the trustee or other applicant need only
complete an application for the Group Annuity Contract and make its initial
purchase payment. A Group Annuity Contract will then be issued to the applicant
and subsequent Purchase Payments may be made, subject to the same $2,000 minimum
applicable to qualified purchasers of Certificates. While no Certificates are
issued, each purchase payment, and the Account established thereby, are
confirmed to the Contract Owner. The initial and subsequent purchase payments
operate to establish Accounts under the Group Annuity Contract in the same
manner as non-qualified purchases. Each Account will have its own Initial and
Subsequent Guarantee Periods and Guaranteed Rates. Surrenders under the Group
Annuity Contract may be made, at the election of the Contract Owner, from one or
more of the Accounts established under the Contract. Account surrenders are
subject to the same limitations, adjustments and charges as surrenders made
under a certificate (see "Surrenders"). Net Surrender Values may be surrendered
or applied to purchase annuities for the Contract Owners' Qualified Plan
Participants.
Because there are no individual participant accounts, the Qualified Group
Annuity Contract issued in connection with a Qualified Plan does not provide for
death benefits. Annuities purchased for Qualified Plan Participants may provide
for a payment upon the death of the Annuitant, depending on the option chosen
(see "Annuity Options"). Additionally, since there are no Annuitants prior to
the actual purchase of an Annuity by the Contract Owner, the provisions
regarding the Annuity Commencement Date are not applicable.
If you are purchasing the Contract for use in an IRA or other qualified
retirement plan, you should consider other features of the Contract besides tax
deferral, since any investment vehicle used within an IRA or other qualified
plan receives tax deferred treatment under the Code.
<PAGE>
38 HARTFORD LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
APPENDIX B -- MARKET VALUE ADJUSTMENT
The formula that will be used to determine the Market Value Adjustment is: [(1 +
i)/(1 + j)](n/12), where
<TABLE>
<C> <C> <S>
i = The Guarantee Rate in effect for the Current Guarantee
Period (expressed as a decimal, e.g., 1% = .01).
j = The Current Rate (expressed as a decimal, e.g., 1% = .01) in
effect for durations equal to the number of years remaining
in the current Guarantee Period (years are rounded to next
highest number of years).
n = The number of complete months from the surrender date to the
end of the current Guarantee Period.
</TABLE>
EXAMPLE OF MARKET VALUE ADJUSTMENT (MVA)
<TABLE>
<S> <C>
Beginning Account Value: $50,000
Guarantee Period: 5 years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of contract year 3
Last 12 months interest: 2,980
</TABLE>
EXAMPLE 1 (FEATURING A CURRENT RATE THAT IS HIGHER THAN THE GUARANTEE RATE):
<TABLE>
<S> <C> <C>
Gross surrender value at middle of Contract Year = $50,000 (1.055) to the power of 2.5 = $57,161.18
3:
Net surrender value at middle of Contract Year 3: = ($57,161.18 - $2980 - (.05)($57,161.18 -- $2980))
X MVA + $2980
= $51,472.12 X MVA + $2980
</TABLE>
<TABLE>
<S> <C> <C>
Market Value Adjustment Calculation:
i = .055
j = .061
n = 30
MVA = [(1.055)/(1.061)] to the power of 30/12
= .985922299
Net Surrender Value at middle of Contract Year 3: = $51,472.12 X MVA + $2980
= $51,472.12 X .985922299 + $2980
= $53,727.51
</TABLE>
EXAMPLE 2: (FEATURING A CURRENT RATE THAT IS LOWER THAN THE GUARANTEE RATE):
<TABLE>
<S> <C> <C>
Gross surrender value at middle of Contract Year = $50,000 (1.055) to the power of 2.5 = $57,161.18
3:
Net surrender value at middle of Contract Year 3: = ($57,161.18 - $2980 - (.05)($57,161.18 - $2980))
X MVA + $2980
= $51,472.12 X MVA + $2980
</TABLE>
<TABLE>
<S> <C> <C>
Market Value Adjustment Calculation:
i = .055
j = .050
n = 30
MVA = [(1.055)/(1.050)] to the power of 30/12
= 1.011947313
Net Surrender Value at middle of Contract Year 3: = $51,472.12 X MVA + $2980
= $51,472.12 X 1.011947313 + $2980
= $55,067.07
</TABLE>
Note: These examples do not include any applicable taxes
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
(IN MILLIONS) (UNAUDITED) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Premiums and other considerations........................... $522 $487
Net investment income....................................... 321 352
Net realized capital losses................................. (5) (1)
----------------------------------------------------------------------------------
TOTAL REVENUES.......................................... 838 838
----------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses.............. 329 393
Amortization of deferred policy acquisition costs........... 153 119
Dividends to policyholders.................................. 41 17
Other expenses.............................................. 122 174
----------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES..................... 645 703
----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE........................ 193 135
Income tax expense.......................................... 65 47
----------------------------------------------------------------------------------
NET INCOME.............................................. $128 $ 88
----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Q-1
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN MILLIONS, EXCEPT FOR SHARE DATA) 2000 1999
-----------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities, available for sale, at fair value
(amortized cost of $13,807 and $13,923)................. $ 13,392 $ 13,499
Equity securities, at fair value.......................... 42 56
Policy loans, at outstanding balance...................... 3,513 4,187
Other investments......................................... 420 342
-----------------------------------------------------------------------------------------
Total investments....................................... 17,367 18,084
Cash...................................................... 64 55
Premiums receivable and agents' balances.................. 15 29
Reinsurance recoverables.................................. 1,260 1,274
Deferred policy acquisition costs......................... 4,085 4,013
Deferred income tax....................................... 388 459
Other assets.............................................. 532 654
Separate account assets................................... 116,286 110,397
-----------------------------------------------------------------------------------------
TOTAL ASSETS............................................ $139,997 $134,965
-----------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits.................................... $ 4,423 $ 4,332
Other policyholder funds.................................. 14,789 16,004
Other liabilities......................................... 1,750 1,613
Separate account liabilities.............................. 116,286 110,397
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES....................................... 137,248 132,346
-----------------------------------------------------------------------------------------
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 loss
Net unrealized losses on securities, net of tax....... (253) (255)
---------------------------
Total accumulated other comprehensive loss.............. (253) (255)
---------------------------
Retained earnings......................................... 1,951 1,823
-----------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY.............................. 2,749 2,619
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............ $139,997 $134,965
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Q-2
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-------------------
NET UNREALIZED
CAPITAL GAINS
(LOSSES) ON TOTAL
COMMON CAPITAL SECURITIES, NET OF RETAINED STOCKHOLDER'S
(IN MILLIONS) (UNAUDITED) STOCK SURPLUS TAX EARNINGS EQUITY
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999................................ $6 $1,045 $(255) $1,823 $2,619
COMPREHENSIVE INCOME (LOSS)
Net income................................................ 128 128
------
Other comprehensive income (loss), net of tax (1)
Net unrealized capital gains (losses)on securities
(2)................................................. 2 2
------
Total other comprehensive income (loss)................... 2
------
TOTAL COMPREHENSIVE INCOME (LOSS)..................... 130
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000............................... $6 $1,045 $(253) $1,951 $2,749
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-------------------
NET UNREALIZED
CAPITAL GAINS
(LOSSES) ON TOTAL
COMMON CAPITAL SECURITIES, NET OF RETAINED STOCKHOLDER'S
(IN MILLIONS) (UNAUDITED) STOCK SURPLUS TAX EARNINGS EQUITY
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998................................ $6 $1,045 $ 184 $1,462 $2,697
COMPREHENSIVE INCOME (LOSS)
Net income................................................ 88 88
------
Other comprehensive income (loss), net of tax (1)
Net unrealized capital gains (losses) on securities
(2)................................................. (101) (101)
------
Total other comprehensive income (loss)................... (101)
------
TOTAL COMPREHENSIVE INCOME (LOSS)..................... (13)
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999............................... $6 $1,045 $ 83 $1,550 $2,684
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) NET UNREALIZED CAPITAL GAINS (LOSSES) ON SECURITIES ARE REFLECTED NET OF TAX
PROVISION (BENEFIT) OF $1 AND $(54) FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND 1999, RESPECTIVELY.
(2) THERE WERE RECLASSIFICATION ADJUSTMENTS FOR AFTER-TAX LOSSES REALIZED IN NET
INCOME OF $(3) AND $(1) FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999,
RESPECTIVELY.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Q-3
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
(IN MILLIONS) (UNAUDITED) 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 128 $ 88
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation and amortization............................. (4) (3)
Net realized capital losses............................... 5 1
Decrease (increase) in premiums receivable and agents'
balances................................................ 14 (1)
Decrease in other liabilities............................. (29) (106)
Change in receivables, payables and accruals.............. 21 46
Increase (decrease) in accrued tax........................ 64 (49)
Decrease in deferred income tax........................... 70 21
Increase in deferred policy acquisition costs............. (72) (87)
Increase in future policy benefits........................ 91 73
Decrease in reinsurance recoverables...................... 29 4
Other, net................................................ 24 (26)
---------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES.... 341 (39)
---------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments.................................. (1,498) (1,541)
Sales of investments...................................... 2,082 3,414
Maturities and principal paydowns of fixed maturity
investments............................................. 310 523
---------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES............... 894 2,396
---------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net disbursements for investment and universal life-type
contracts charged against policyholder accounts......... (1,226) (2,343)
---------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES.................. (1,226) (2,343)
---------------------------------------------------------------------------------
Net increase in cash...................................... 9 14
Cash -- beginning of period............................... 55 17
---------------------------------------------------------------------------------
CASH -- END OF PERIOD................................... $ 64 $ 31
---------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH (RECEIVED) PAID DURING THE PERIOD FOR
Income taxes................................................ $ (79) $ 25
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Q-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)
(UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Hartford Life
Insurance Company and subsidiaries ("Hartford Life Insurance Company" or the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
which are normally included in financial statements prepared on the basis of
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to those rules and regulations, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of management, these statements include
all adjustments which were normal recurring adjustments necessary to present
fairly the financial position, results of operations and cash flows for the
periods presented. For a description of significant accounting policies, see
Note 2 of Notes to Consolidated Financial Statements in Hartford Life Insurance
Company's 1999 Form 10-K Annual Report.
Certain reclassifications have been made to prior year financial information to
conform to the current year classification of transactions and accounts.
(b) ADOPTION OF NEW ACCOUNTING STANDARDS
Effective January 1, 2000, Hartford Life Insurance Company adopted Statement of
Position (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. Adoption of this SOP
did not have a material impact on the Company's financial condition or results
of operations.
2. 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) 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
years.
3. 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, retirement plan services and 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, Hartford Life and Accident
Insurance Company, a wholly-owned subsidiary of Hartford Life, Inc. (Hartford
Life).
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2 of
Notes to Consolidated Financial Statements in Hartford Life Insurance Company's
1999 Form 10-K Annual Report. Hartford Life Insurance Company evaluates
performance of its segments based on revenues, net income and the segment's
return on allocated capital. The Company charges direct operating expenses to
the appropriate segment and allocates the majority of indirect expenses to the
segments based on an intercompany expense arrangement. Intersegment revenues are
not significant and primarily occur between corporate and the operating
segments. These amounts include interest income on allocated surplus and the
allocation of
Q-5
<PAGE>
net realized capital gains and losses through net investment income utilizing
the duration of the segment's investment portfolios. The following tables
present summarized financial information concerning the Company's segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INVESTMENT INDIVIDUAL
MARCH 31, 2000 PRODUCTS LIFE COLI OTHER TOTAL
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues.............................................. $515 $132 $165 $ 26 $838
Net income.................................................. 83 18 8 19 128
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED INVESTMENT INDIVIDUAL
MARCH 31, 1999 PRODUCTS LIFE COLI OTHER TOTAL
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues.............................................. $461 $133 $224 $ 20 $838
Net income.................................................. 78 15 6 (11) 88
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Q-6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) addresses the financial condition of the Company as of March
31, 2000, compared with December 31, 1999, and its results of operations for the
three months ended March 31, 2000 compared with the equivalent period in 1999.
This discussion should be read in conjunction with the MD&A included in the
Company's 1999 Form 10-K Annual Report.
Certain statements contained in this discussion, other than statements of
historical fact, are forward-looking statements. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking statements are
subject to change and uncertainty which are, in many instances, beyond the
Company's control and have been made based upon management's expectations and
beliefs concerning future developments and their potential effect on Hartford
Life Insurance Company and subsidiaries ("Hartford Life Insurance Company" or
the "Company"). There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on Hartford Life Insurance Company will be those anticipated by
management. Actual results could differ materially from those expected by the
Company, depending on the outcome of certain factors, including 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.
INDEX
<TABLE>
<S> <C> <C> <C>
Consolidated Results of Operations............... 9 Corporate Owned Life Insurance (COLI)............ 11
Investment Products.............................. 10 Regulatory Initiatives and Contingencies......... 11
Individual Life.................................. 10 Accounting Standards............................. 11
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
OPERATING SUMMARY
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................... $838 $838
Expenses.................................................... 710 750
----------------------------------------------------------------------------------
NET INCOME.............................................. $128 $ 88
----------------------------------------------------------------------------------
</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, Hartford Life and Accident Insurance Company
(HLA).
Revenues were consistent with prior year, however revenues increased $59, or
10%, excluding the COLI segment where revenues decreased primarily due to the
declining block of leveraged COLI business. The increase in revenues was
primarily attributable to growth in the Investment Products segment which was,
for the most part, due to higher fee income related to the individual annuity
operation which is directly attributable to increased assets under management.
Expenses decreased $40, or 5%, however expenses increased $21, or 4%, when
excluding the COLI segment where expenses decreased primarily due to the
declining block of leveraged COLI business. The increase in expenses was lower
than the growth in revenues as the Company continues to be able to create
operating leverage by expanding its distribution platform to accelerate sales
volume while utilizing technology and prudent expense management to increase
productivity. For example, operating expenses as a percentage of average assets
under management in the individual annuity operation declined to 18 basis points
from 20 basis points in the first quarter of 1999.
Net income increased $40, or 45%, driven by growth across each of the Company's
reportable segments. The Company also reported a one-time benefit relating to
state income taxes of $8. Excluding this item, net income was up $32, or 36%.
Q-7
<PAGE>
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Investment Products......................................... $ 83 $ 78
Individual Life............................................. 18 15
Corporate Owned Life Insurance (COLI)....................... 8 6
Other....................................................... 19 (11)
----------------------------------------------------------------------------------
NET INCOME.............................................. $128 $ 88
----------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segment's results.
INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................... $515 $461
Expenses.................................................... 432 383
----------------------------------------------------------------------------------
NET INCOME.............................................. $ 83 $ 78
----------------------------------------------------------------------------------
</TABLE>
Revenues in the Investment Products segment increased $54, or 12%, primarily due
to higher fee income in the individual annuity operation. Fee income generated
by individual annuities increased $54, or 21%, as related account values grew
$19.5 billion, or 26%. The growth in individual annuity account values was
mostly due to significant net cash flow, resulting primarily from strong
individual annuity sales (including $2.9 billion for the first three months of
2000) and equity market appreciation.
Due to the continued growth in this segment's individual annuity operation,
expenses increased $49, or 13%. This increase was primarily driven by
amortization of deferred policy acquisition costs, which grew $22, or 22%, and
other expenses which increased $11, or 13%. The segment's operating expenses as
a percentage of average assets under management declined versus the equivalent
prior year period.
Net income increased $5, or 6%, primarily due to the growth in revenues
associated with the increase in assets under management.
INDIVIDUAL LIFE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 30,
--------------------
2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................... $132 $133
Expenses.................................................... 114 118
----------------------------------------------------------------------------------
NET INCOME.............................................. $ 18 $ 15
----------------------------------------------------------------------------------
</TABLE>
The slight decrease in revenues and expenses in the Individual Life segment is
primarily due to HLA's December 1, 1999 recapture of an in force block of
individual life insurance previously ceded to the Company. (For a discussion of
the recapture, see Note 9 of Notes to Consolidated Financial Statements in
Hartford Life Insurance Company's 1999 Form 10-K Annual Report.)
Excluding the recapture described above, revenues in the Individual Life segment
increased $22, or 20%, resulting primarily from higher fee income associated
with the growing block of variable life insurance. Fee income increased $23, or
32%, as variable life account values increased $943, or 50%, and variable life
insurance in force increased $8.1 billion, or 46%. Excluding the recapture
described above, expenses increased $19, or 20%, principally due to a $13, or
68%, increase in amortization of deferred policy acquisition costs associated
with the growth in this segment. Net income increased $3, or 20%, primarily due
to the higher fee income previously discussed and favorable mortality
experience.
Q-8
<PAGE>
CORPORATE OWNED LIFE INSURANCE (COLI)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................... $165 $224
Expenses.................................................... 157 218
----------------------------------------------------------------------------------
NET INCOME.............................................. $ 8 $ 6
----------------------------------------------------------------------------------
</TABLE>
COLI revenues decreased $59, or 26%, mostly due to lower net investment income
on the leveraged COLI block of business, where related account values decreased
$1.5 billion, or 24%, due to the block's downsizing caused by the Health
Insurance Portability and Accountability Act of 1996. COLI expenses decreased
$61, or 28%, also primarily due to the downsizing of the leveraged COLI
business.
Net income increased $2, or 33%, driven primarily by growth in the variable COLI
business where account values increased $840, or 7%. In addition, the segment
recaptured an in force block of leveraged COLI business in 1998 which also
contributed to the increase in net income. (For a discussion of the MBL
Recapture, see the Capital Resources and Liquidity section in Hartford Life
Insurance Company's 1999 Form 10-K Annual Report.)
REGULATORY INITIATIVES AND CONTINGENCIES
NAIC PROPOSALS
The NAIC adopted the Codification of Statutory Accounting Principles (SAP) in
March 1998. The effective date for the statutory accounting guidance is
January 1, 2001. It is expected that Hartford Life Insurance Company and its
subsidiaries' 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 subsidiaries.
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Hartford Life Insurance Company distributes its annuity and life insurance
products through a variety of distribution channels, including broker-dealers,
banks, wholesalers, its own internal sales force and other third party marketing
organizations. The Company periodically negotiates provisions and renewals of
these relationships and there can be no assurance that such terms will remain
acceptable to the Company or such service providers. An interruption in the
Company's continuing relationship with certain of these third parties could
materially affect the Company's ability to market its products.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 of Notes to Consolidated
Financial Statements.
Q-9
<PAGE>
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.
Hartford, Connecticut
January 31, 2000 ARTHUR ANDERSEN LLP
F-1
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in millions)
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-2
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
<S> <C> <C>
------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------------
(in millions, except
for share data)
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-3
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Income (Loss)
-----------------
<S> <C> <C> <C> <C> <C>
Net Unrealized
Capital Gains
(Losses) on Total
Common Capital Securities, Retained Stockholder's
Stock Surplus Net of Tax Earnings Equity
-------------------------------------------------------------------------------------------------------------
(in millions)
1999
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-4
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in millions)
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
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.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
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 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
F-6
<PAGE>
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 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
F-7
<PAGE>
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.
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.
F-8
<PAGE>
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.
3. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1999 1998 1997
<S> <C> <C> <C>
--------------------------------
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
--------------------------------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1999 1998 1997
<S> <C> <C> <C>
--------------------------
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
--------------------------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1999 1998 1997
<S> <C> <C> <C>
--------------------------
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
--------------------------
</TABLE>
F-9
<PAGE>
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1999 1998 1997
<S> <C> <C> <C>
----------------------------
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>
(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
F-10
<PAGE>
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>
Amortized
Cost Fair Value
<S> <C> <C>
----------------------------
MATURITY
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) 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:
F-11
<PAGE>
<TABLE>
<CAPTION>
1999 -- Amount Hedged (Notional Amounts)
----------------------------------------------------------------------------------
Total Issued Purchased Interest Rate Foreign Total
Carrying Caps & Caps, Floors Swaps & Currency Notional
ASSETS HEDGED Value Floors & Options Futures (1) Forwards Swaps (2) Amount
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Asset backed securities (excluding
anticipatory) $ 5,049 $ -- $ -- $ -- $ 911 $-- $ 911
Anticipatory (3) -- -- -- 5 112 -- 117
Other bonds and notes 7,294 494 611 -- 1,676 80 2,861
Short-term investments 1,156 -- -- -- -- -- --
----------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 13,499 494 611 5 2,699 80 3,889
Equity securities, policy loans and
other investments 4,585 -- -- -- -- -- --
----------------------------------------------------------------------------------
TOTAL INVESTMENTS $18,084 494 611 5 2,699 80 3,889
----------------------------------------------------------------------------------
OTHER POLICYHOLDER FUNDS $16,004 -- 1,150 -- 430 -- 1,580
----------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS --
NOTIONAL VALUE $ 494 $1,761 $ 5 $3,129 $80 $5,469
----------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS --
FAIR VALUE $ (22) $ 8 $ -- $ (30) $ 2 $ (42)
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 -- Amount Hedged (Notional Amounts)
-------------------------------------------------------------------------------
Total Issued Purchased Interest Rate Foreign Total
Carrying Caps & Caps & Swaps & Currency Notional
ASSETS HEDGED Value Floors Floors Futures (1) Forwards Swaps (2) Amount
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
Asset backed securities (excluding
anticipatory) $ 5,187 $ 44 $ 243 $ 3 $ 885 $-- $1,175
Anticipatory (3) -- -- -- -- 235 -- 235
Other bonds and notes 7,683 461 597 18 1,300 90 2,466
Short-term investments 1,948 -- -- -- -- -- --
-------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 14,818 505 840 21 2,420 90 3,876
Equity securities, policy loans and
other investments 6,979 -- -- -- -- -- --
-------------------------------------------------------------------------------
TOTAL INVESTMENTS $21,797 505 840 21 2,420 90 3,876
-------------------------------------------------------------------------------
OTHER POLICYHOLDER FUNDS $19,615 -- 1,150 -- 1,195 -- 2,345
-------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS --
NOTIONAL VALUE $ 505 $1,990 $21 $3,615 $90 $6,221
-------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS --
FAIR VALUE $ (6) $ 19 $-- $ 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.
F-12
<PAGE>
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
BY DERIVATIVE TYPE
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1998 Maturities/ December 31, 1999
Notional Amount Additions Terminations (1) Notional Amount
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
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 Fair Carrying Fair
Amount Value Amount 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.
F-13
<PAGE>
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
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.
F-14
<PAGE>
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.
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>
F-15
<PAGE>
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 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> <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-16
<PAGE>
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>
<S> <C>
2000 $ 14
2001 14
2002 13
2003 12
2004 12
Thereafter 62
--------
TOTAL $ 127
--------
</TABLE>
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.
F-17
<PAGE>
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>
<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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------------------------------------------------------------------------------
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-18
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
Amount at
Fair which shown
Type of Investment Cost Value on Balance 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>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
Net Benefits,
Deferred Realized Claims and
Policy Future Other Premiums Net Capital Claim
Acquisition Policy Policyholder and Other Investment Gains Adjustment
Segment Costs Benefits Funds Considerations Income (Losses) Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
1999
Investment Products $3,099 $2,744 $ 8,859 $1,185 $ 699 $-- $ 660
Individual Life 914 270 1,880 405 169 -- 254
Corporate Owned Life Insurance -- 321 5,244 399 431 -- 621
Other -- 997 21 56 60 (4) 39
-------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $4,013 $4,332 $16,004 $2,045 $1,359 $(4) $1,574
-------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------------------------
Investment Products $2,823 $2,407 $ 9,194 $1,043 $ 736 $-- $ 670
Individual Life 931 466 2,307 363 181 (1) 262
Corporate Owned Life Insurance -- 225 8,097 774 793 -- 924
Other -- 497 17 38 49 (1) 55
-------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $3,754 $3,595 $19,615 $2,218 $1,759 $(2) $1,911
-------------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------------------------
Investment Products $2,478 $2,070 $ 9,620 $ 771 $ 739 $-- $ 677
Individual Life 837 392 2,182 323 164 -- 242
Corporate Owned Life Insurance -- 56 9,259 551 429 -- 439
Other -- 541 (27) (8) 36 4 21
-------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $3,315 $3,059 $21,034 $1,637 $1,368 $ 4 $1,379
-------------------------------------------------------------------------------------------
<CAPTION>
Amortization
of Deferred
Policy
Acquisition Dividends to Other
Segment Costs Policyholders Expenses
<S> <C> <C> <C>
---------------------------------------
1999
Investment Products $411 $ -- $354
Individual Life 128 -- 87
Corporate Owned Life Insurance -- 104 62
Other -- -- 128
---------------------------------------
CONSOLIDATED OPERATIONS $539 $104 $631
---------------------------------------
1998
---------------------------------------
Investment Products $326 $ -- $368
Individual Life 105 -- 77
Corporate Owned Life Insurance -- 329 278
Other -- -- 43
---------------------------------------
CONSOLIDATED OPERATIONS $431 $329 $766
---------------------------------------
1997
---------------------------------------
Investment Products $250 $ -- $266
Individual Life 83 -- 77
Corporate Owned Life Insurance -- 240 259
Other 2 -- (16)
---------------------------------------
CONSOLIDATED OPERATIONS $335 $240 $586
---------------------------------------
</TABLE>
S-2
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
Percentage
Gross Ceded to Assumed From Net of Amount
Amount Other Companies Other Companies Amount Assumed 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>
PART II
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 33-770 to 33-778, inclusive, of the Connecticut General Statutes
("CGS") provide that a corporation may provide indemnification of or
advance expenses to a director, officer, employee or agent. Reference is
hereby made to Section 33-771(e) of CGS regarding indemnification of
directors and Section 33-776(d) of CGS regarding indemnification of
officers, employees and agents of Connecticut corporations. These statutes
provide, in general, that Connecticut corporations incorporated prior to
January 1, 1997 shall, except to the extent that their certificate of
incorporation expressly provides otherwise, indemnify their directors,
officers, employees and agents against "liability" (defined as the
obligation to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a proceeding) when (1) a determination is
made pursuant to Section 33-775 that the party seeking indemnification has
met the standard of conduct set forth in Section 33-771 or (2) a court has
determined that indemnification is appropriate pursuant to Section 33-774.
Under Section 33-775, the determination of and the authorization for
indemnification are made (a) by the disinterested directors, as defined in
Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d)
in the case of indemnification of an officer, agent or employee of the
corporation, by the general counsel of the corporation or such other
officer(s) as the board of directors may specify. Also, Section 33-772
provides that a corporation shall indemnify an individual who was wholly
successful on the merits or otherwise against reasonable expenses incurred
by him in connection with a proceeding to which he was a party because he
was a director of the corporation. In the case of a proceeding by or in the
right of the corporation or with respect to conduct for which the director,
officer, agent or employee was adjudged liable on the basis that he
received a financial benefit to which he was not entitled, indemnification
is limited to reasonable expenses incurred in connection with the
proceeding against the corporation to which the individual was named a
party.
Under the Depositor's bylaws, the Depositor must indemnify both directors
and officers of the Depositor for (1) any claims and liabilities to which
they become subject by reason of being or having been directors or officers
of the Depositor and (2) legal and other expenses incurred in defending
against such claims, in each case, to the extent such is consistent with
statutory provisions.
<PAGE>
Section 33-777 of CGS specifically authorizes a corporation to procure
indemnification insurance on behalf of an individual who was a director,
officer, employer or agent of the corporation. Consistent with the statute,
the directors and officers of the Depositor and Hartford Securities
Distribution Company, Inc. ("HSD") are covered under a directors and
officers liability insurance policy issued to The Hartford Financial
Services Group, Inc. and its subsidiaries.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
1 Underwriting Agreement Incorporated by reference to Registration
Statement File No. 333-24885, dated May 1,
1997.
3(a) Articles of Incorporation Incorporated by reference to Post-Effective
Amendment No. 19 to the Registration Statement
File No.33-73570, dated April 14, 1997.
3(b) By-laws Incorporated by reference to Amendment No. 1
to the Registration Statement File No.
33-88786, dated April 28, 1995.
4 Group Annuity Contract Filed herewith.
5 Opinion re: legality Filed herewith.
<PAGE>
23(a) Legal Consent Filed herewith as Exhibit 5.
23(b) Consent of Arthur Andersen Filed herewith.
LLP Independent Public
Accountants
24 Power of Attorney Filed herewith.
27 Financial Data Schedules Filed herewith.
</TABLE>
Item 18. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Simsbury, State of
Connecticut on this 4th day of August, 2000.
HARTFORD LIFE INSURANCE COMPANY
By: Thomas M. Marra* *By: /s/ Marianne O'Doherty
------------------------------------------- ----------------------
Thomas M. Marra, President Marianne O'Doherty
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on this 4th day of August, 2000.
Gregory A. Boyko, Senior Vice President,
Director *
Lynda Godkin, Senior Vice President, General
Counsel & Corporate Secretary, Director* *By: /s/ Marianne O'Doherty
Thomas M. Marra, President, Director* ----------------------
Lowndes A. Smith, Chief Executive Officer, Marianne O'Doherty
Director * Attorney-In-Fact
David M. Znamierowski, Senior Vice
President, Director* Dated: August 4, 2000
<PAGE>
EXHIBIT INDEX
4 Group Single Premium Deferred Annuity Contract
5 Opinion and Consent of Lynda Godkin, Senior Vice President, General
Counsel and Corporate Secretary regarding legality of securities to
be issued.
23(a) Legal Consent filed as part of Exhibit 5
23(b) Consent of Arthur Andersen LLP
Independent Public Accountants
24 Power of Attorney
27 Financial Data Schedule
