<Page>
As filed with the Securities and Exchange Commission on April 4, 2002
File No. 333-46376
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT #2 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. [ ]
<Page>
<Table>
CRC-REGISTERED TRADEMARK- COMPOUND RATE CONTRACT
MODIFIED GUARANTEED ANNUITY CONTRACT
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
TELEPHONE: 1-800-862-6668 [LOGO]
</Table>
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This Prospectus describes participating interests in a group deferred annuity
Contract and individual deferred annuity Contracts. Both are designed and
offered to provide retirement programs for you if you are an eligible
individual. With respect to the group Contract, eligible individuals include
persons who have established accounts with certain broker-dealers which have
entered into a distribution agreement to offer participating interests in the
Contract, and members of other eligible groups. (See "Distribution of
Contracts"). An individual deferred annuity Contract is offered in certain
states and to certain trusts. Certain Qualified Plans may also purchase the
Contract. (See Appendix A).
For a description of individual Contracts issued in certain states where this
Contract has not been approved, see Appendix B. Participation in a group
Contract will be separately accounted for by the issuance of a Certificate
evidencing your interest under the Contract. Participation in an individual
Contract is evidenced by the issuance of an individual annuity Contract. The
Certificate and individual annuity Contract are hereafter referred to as the
"Contract."
A minimum single purchase payment of at least $5,000 for Non-Qualified Contracts
($2,000 for Qualified Contracts) must accompany the application for a Contract.
Hartford Life Insurance Company ("Hartford") reserves the right to limit the
maximum single purchase payment amount. No additional payment is permitted on a
Contract although eligible individuals may purchase more than one Contract. (See
"Application and Purchase Payment").
Purchase payments become part of the general assets of Hartford. Hartford
intends generally to invest proceeds from the Contracts in investment-grade
securities. (See "Investments by Hartford").
THIS PROSPECTUS IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
SECURITIES AND EXCHANGE COMMISSION DOESN'T APPROVE OR DISAPPROVE THESE
SECURITIES OR DETERMINE IF THE INFORMATION IS TRUTHFUL OR COMPLETE. ANYONE WHO
REPRESENTS THAT THE SECURITIES AND EXCHANGE COMMISSION DOES THESE THINGS MAY BE
GUILTY OF A CRIMINAL OFFENSE.
This prospectus can also be obtained from the Securities and Exchange
Commission's website: (WWW.SEC.GOV).
Annuity contracts ARE NOT:
- A bank deposit or obligation
- Federally insured
- Endorsed by any bank or governmental agency
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THE DATE OF THIS PROSPECTUS IS MAY 1, 2002
<Page>
2 HARTFORD LIFE INSURANCE COMPANY
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AVAILABLE INFORMATION
Hartford is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., and at the Commission's Regional Offices located
at 75 Park Place, New York, New York and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois. Copies of such materials also can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a WebSite that contains reports, proxy and information statements and
other information regarding Hartford, which files such documents electronically
with the Commission, at the following address: www.sec.gov.
Hartford has filed a registration statement (the "Registration Statement")
relating to the Contracts offered by this Prospectus with the Commission 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 set forth in
the Registration Statement and exhibits thereto, and reference is hereby made to
such Registration Statement and exhibits for further information relating to
Hartford and the Contracts. The Registration Statement and the exhibits thereto
may be inspected and copied, and copies can be obtained at prescribed rates, in
the manner set forth in the preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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The Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
previously filed by Hartford with the Commission under the 1934 Act is
incorporated herein by reference.
Hartford will provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon the written or oral request of such person,
a copy of the document referred to above which has been incorporated by
reference in this Prospectus, other than exhibits to such document. Requests for
such copies should be directed to Hartford Life Insurance Company, P.O. Box
5085, Hartford, Connecticut 06102-5085, telephone: 1-800-862-6668.
<Page>
HARTFORD LIFE INSURANCE COMPANY 3
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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SUMMARY 5
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GLOSSARY OF SPECIAL TERMS 6
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DESCRIPTION OF CONTRACTS 7
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A. Application and Purchase Payment 7
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B. Accumulation Period 7
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1. Initial and Subsequent Guarantee Periods 7
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2. Establishment of Guarantee Rates and Current Rates 8
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3. Surrenders 8
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(a) General 8
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(b) Surrender Charge 9
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(c) Market Value Adjustment 9
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(d) Special Surrenders 9
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4. Guarantee Period Exchange Option 10
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5. Premium Taxes 10
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6. Death Benefit 10
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7. Payment Upon Partial or Full Surrender 10
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C. Annuity Period 10
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1. Electing the Annuity Commencement Date and Form of
Annuity 10
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2. Change of Annuity Commencement Date or Annuity Option 11
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3. Annuity Options 11
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4. Annuity Payment 11
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5. Death of Annuitant After Annuity Commencement Date 11
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INVESTMENTS BY HARTFORD 12
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AMENDMENT OF CONTRACTS 12
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ASSIGNMENT OF CONTRACTS 12
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DISTRIBUTION OF CONTRACTS 12
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FEDERAL TAX CONSIDERATIONS 13
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A. General 13
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B. Taxation of Hartford 13
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C. Taxation of Annuities -- General Provisions Affecting
Purchasers Other than Qualified Retirement Plans 13
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1. Non-Natural Persons, Corporations, Etc. 13
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2. Other Contract Owners (Natural Persons) 13
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a. Distributions Prior to the Annuity Commencement
Date 13
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b. Distributions After Annuity Commencement Date 14
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c. Aggregation of Two or More Annuity Contracts 14
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d. 10% Penalty Tax -- Applicable to Certain Surrenders
and Annuity Payments 14
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e. Special Provisions Affecting Contracts Obtained
through a Tax-Free Exchange of Other Annuity or
Life Insurance Contracts Purchased Prior to
August 14, 1982 14
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f. Required Distributions 15
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</Table>
<Page>
4 HARTFORD LIFE INSURANCE COMPANY
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<Table>
<Caption>
PAGE
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D. Annuity Purchases by Nonresident Aliens and Foreign
Corporations 15
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E. Federal Income Tax Withholding 15
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F. Generation Skipping Transfer Tax 15
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G. Economic Growth and Tax Relief Reconciliation Act of
2001 15
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H. Information Regarding Tax-Qualified Retirement Plans 16
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1. Tax Qualified Pension or Profit-Sharing Plans 16
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2. Tax Sheltered Annuities Under Section 403(b) 16
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3. Deferred Compensation Plans Under Section 457 16
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4. Individual Retirement Annuities Under Section 408 16
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5. Federal Tax Penalties and Withholding 17
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a. Penalty Tax on Early Distribution 17
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b. Minimum Distribution Tax 17
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c. Withholding 18
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6. Rollover Distributions 18
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THE COMPANY 19
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Business of Hartford Life Insurance Company 19
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Selected Financial Data 24
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
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LEGAL OPINION 38
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EXPERTS 38
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APPENDIX A -- MODIFIED GUARANTEED ANNUITY FOR QUALIFIED
PLANS 39
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APPENDIX B -- SPECIAL PROVISIONS FOR INDIVIDUAL CONTRACTS
ISSUED IN THE STATES OF CALIFORNIA, MICHIGAN, MISSOURI,
NEW YORK, OREGON, SOUTH CAROLINA, TEXAS, VIRGINIA AND
WISCONSIN 40
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APPENDIX C -- MARKET VALUE ADJUSTMENT 41
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FINANCIAL STATEMENTS F-1
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</Table>
THIS CONTRACT IS NOT AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALES PERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED ON.
<Page>
HARTFORD LIFE INSURANCE COMPANY 5
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SUMMARY
Upon application, or purchase order, you select an initial Guarantee Period from
among those then offered by Hartford. (See "Initial and Subsequent Guarantee
Periods" and "Establishment of Guarantee Rates and Current Rates"). Your
purchase payment (less surrenders and less applicable premium taxes, if any)
will earn interest at the initial Guarantee Rate which is an Annual Effective
Rate of Interest. Interest is credited daily to your account using the Compound
Interest Method. (See "Accumulation Period -- Initial and Subsequent Guarantee
Periods").
At the end of each Guarantee Period, a subsequent Guarantee Period of the same
duration will begin unless, within the 30-day period preceding the end of such
Guarantee Period, you elect a different duration from among those offered by us
at that time. In no event may subsequent Guarantee Periods extend beyond the
Annuity Commencement Date then in effect.
The Account Value as of the first day of each subsequent Guarantee Period will
earn interest at the Subsequent Guarantee Rate. Hartford's management will make
the final determination as to guarantee rates to be declared. We cannot predict,
nor can we guarantee, future guarantee rates. (See "Initial and Subsequent
Guarantee Periods" and "Establishment of Guarantee Rates and Current Rates").
Subject to certain restrictions, partial and total surrenders are permitted.
However, such surrenders may be subject to a surrender charge and/or a Market
Value Adjustment. A full or partial surrender made preceding the end of a
Guarantee Period will be subject to a Market Value Adjustment. Except as
described below, the surrender charge will be deducted from any partial or full
surrender made before the end of the seventh Contract Year. The surrender charge
will be equal to seven percent of the Gross Surrender Value in the first
Contract Year, and be reduced by one percentage point for each of the next six
Contract Years.
For a surrender made at the end of the initial guarantee period, no surrender
charge will be applied, provided such surrender occurs on or after the end of
the third contract year. For a surrender made at the end of any other guarantee
period, no surrender charge will be applied, provided such surrender occurs on
or after the end of the fifth contract year. A request for surrender at the end
of a guarantee period must be received in writing within 30 days preceding the
end of the guarantee period. A Market Value Adjustment will not be applied.
No surrender charges will be applicable to the application of your Account Value
to purchase an annuity on the Annuity Commencement Date. A Market Value
Adjustment will be applied if the Annuity Commencement Date is not at the end of
a Guarantee Period. To elect an Annuity Option you must notify us at least 30
days before the Annuity Commencement Date.
In addition, we will send you any interest that has been credited during the
prior 12 months if you so request in writing. We will not impose any surrender
charge or Market Value Adjustment on such interest payments. Any such surrender
may, however, be subject to tax. (See "Surrenders" and "Federal Tax
Considerations").
The Market Value Adjustment reflects the relationship between the Current Rate
for the duration remaining in the Guarantee Period at the time you request the
surrender and the applicable Guarantee Rate being applied to your Account Value.
Since Current Rates may reflect, in part, the investment yields available to
Hartford (see "Investments By Hartford"), the effect of the Market Value
Adjustment will be closely related to the levels of such yields. It is possible,
therefore, that should such yields increase significantly from the time you
purchased your Contract, the amount you would receive upon a full surrender of
your Contract may be less than your original purchase payment. If such yields
should decrease significantly, the amount you would receive upon a full
surrender may be more than your original purchase payment.
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 written notice of surrender or
the period permitted by state insurance law, if less. Such a deferral of payment
will be for a period greater than 30 days only under highly unusual
circumstances. Interest of at least 4 1/2% per annum will be paid on any amounts
deferred for more than 30 days if Hartford chooses to exercise this deferral
right. (See "Payment Upon Partial or Full Surrender").
On the Annuity Commencement Date specified by you, Hartford will make a lump-sum
payment or start to pay a series of payments based on the Annuity Options
selected by you. (See "Annuity Period").
The Contract provides for a Death Benefit. If the Annuitant dies before the
Annuity Commencement Date and there is no designated Contingent Annuitant
surviving, or if the Participant dies before the Annuity Commencement Date, the
Death Benefit will be payable to the Beneficiary as determined under the
Contract Control Provisions. With regard to joint Participants, at the first
death of a joint Participant preceding the Annuity Commencement Date, the
Beneficiary will be the surviving Participant notwithstanding that the
designated Beneficiary may be different. The Death Benefit is calculated as of
the date we receive written notification of Due Proof of Death at the offices of
Hartford.
The Death Benefit will equal the Account Value. If the named Beneficiary is the
spouse of the Participant and the Annuitant is living, the spouse may elect, in
lieu of receiving the Death Benefit, to become the Participant and continue the
Contract. (See "Death Benefit").
A deduction will be made for premium taxes for Contracts sold in certain states.
(See "Premium Taxes").
Certain special provisions apply only with respect to Contracts issued in the
states of California, Michigan, Missouri, New York, Oregon, South Carolina,
Texas, Virginia and Wisconsin. These are set forth in detail in Appendix B.
For Contracts issued as individual retirement annuities, Hartford will refund
the purchase payment to the Participant if the Contract is returned to Hartford
within seven days after Contract delivery.
<Page>
6 HARTFORD LIFE INSURANCE COMPANY
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GLOSSARY OF SPECIAL TERMS
In this Prospectus, "we," "us," and "our" refer to Hartford Life Insurance
Company. With respect to a group deferred annuity Contract, "you," "yours," and
"Participant" refer to a person/ persons who has/have been issued a Certificate.
With respect to an individual annuity Contract, "you," "yours," and
"Participant" refer to a person/persons who has/have been issued a Contract.
In addition, as used in this Prospectus, the following terms have the indicated
meanings:
ACCOUNT VALUE: As of any date on which the New York Stock Exchange is open for
business, the Account Value is the sum of the purchase payment and all interest
earned to date less the sum of the Gross Surrender Value of any surrenders made
to that date.
ANNUAL EFFECTIVE RATE OF INTEREST: At the beginning of a year, the rate of
return an investment will earn during that year, where interest is not paid
until the end of the year (i.e., no surrenders or interest surrenders are made
during the year). If interest surrenders are taken more frequently than
annually, the total interest for a given year will be less than the Annual
Effective Rate of Interest times the Account Value at the beginning of the year.
ANNUITANT: The person upon whose life Annuity payments are based.
ANNUITY COMMENCEMENT DATE: The date designated in the Contract or otherwise by
the Participant on which annuity payments are to start.
BENEFICIARY: The person entitled to receive benefits per the terms of the
Contract in case of the death of the Annuitant or the Participant or Joint
Participant, as applicable.
COMPOUND INTEREST METHOD: The process of interest being reinvested to earn
additional interest on a daily basis. This method results in an exponential
calculation of daily interest.
CONTRACT: For a group annuity Contract, "Contract" means the Certificate
evidencing a participating interest in the group annuity Contract as set forth
in this Prospectus. Any reference in this Prospectus to "Contract" includes the
underlying group annuity Contract. For an individual annuity Contract,
"Contract" means that individual annuity contract.
CONTRACT DATE: The effective date of Participant's participation under the group
annuity Contract, as designated in the Contract, or the date of issue of an
individual annuity Contract.
CONTRACT YEAR: A continuous 12 month period commencing on the Contract Date and
each anniversary thereof.
CONTINGENT ANNUITANT: The person so designated by the Participant, who upon the
Annuitant's death, prior to the Annuity Commencement Date, becomes the
Annuitant.
CURRENT RATE: The applicable interest rate contained in a schedule of rates
established by us from time to time for various durations.
DUE PROOF OF DEATH: A certified copy of a death certificate, an order of a court
of competent jurisdiction, a statement from a physician who attended the
deceased or any other proof acceptable to Hartford.
GROSS SURRENDER VALUE: As of any date, that portion of the Account Value
specified by you for a full or a partial surrender.
GUARANTEE PERIOD: The period for which either an initial Guarantee Rate or
Subsequent Guarantee Rate is credited.
HARTFORD: Hartford Life Insurance Company.
GUARANTEE RATE: The rate of interest credited and compounded annually during the
Guarantee Period.
IN WRITING: A written form satisfactory to us and received at our offices,
Attn.: Individual Annuity Services, P.O. Box 5085, Hartford, Connecticut
06102-5085.
MARKET VALUE ADJUSTMENT: A positive or negative financial adjustment made in
connection with a full or partial surrender or annuitization during a Guarantee
Period. The adjustment will reflect the relationship between the Current Rate
for a new contract of the duration remaining in the Guarantee Period(s) at
surrender or upon annuitization during a Guarantee Period and the interest rate
for the Guarantee Period then applicable under the Contract.
NET SURRENDER VALUE: The amount payable to you on a full or partial surrender
under the Contract after the application of any Contract charges and/or Market
Value Adjustment.
NON-QUALIFIED CONTRACT: A Contract which is not classified as, or issued in
connection with, a tax-qualified retirement plan using pre-tax dollars under the
Internal Revenue Code of 1986, as amended (the "Code").
PURCHASE PAYMENT: The payment made to Hartford pursuant to the terms of the
Contract.
QUALIFIED CONTRACT: A Contract which qualifies as, or issued in connection with,
a tax-qualified retirement plan using pre-tax dollars under the Code, such as an
employer-sponsored Section 401(k) plan or an eligible state deferred
compensation plan under Section 457.
SUBSEQUENT GUARANTEE RATE: The rate of interest established by us for the
applicable subsequent Guarantee Period.
<Page>
HARTFORD LIFE INSURANCE COMPANY 7
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DESCRIPTION OF CONTRACTS
A. APPLICATION AND PURCHASE PAYMENT
To apply for a Contract, you must complete an application form or an order to
purchase. The application, along with your purchase payment, must be submitted
to Hartford for its approval.
The Contracts are issued within a reasonable time after the payment of a single
purchase payment. You may not contribute additional purchase payments to a
Contract in the future. You may, however, purchase additional Contracts, if you
are an eligible individual, at then-prevailing Guarantee Rates and terms.
The minimum purchase payment for a Contract is $5,000 for Non- Qualified
Contracts ($2,000 for Qualified Contracts). Hartford retains the right to limit
the amount of the maximum purchase payment.
Your purchase payment becomes part of our general assets and is credited to an
account we establish for you. We will generally confirm your purchase payment in
writing within five business days of receipt. You start earning interest on your
account the day the purchase payment is applied.
In the event that your application or an order to purchase is not properly
completed, we will attempt to contact you in writing or by telephone. We will
return the purchase payment three weeks after its receipt by us if the
application or an order to purchase has not, by that time, been properly
completed.
B. ACCUMULATION PERIOD
1. INITIAL AND SUBSEQUENT GUARANTEE PERIODS
Upon application, you will select the duration of your Initial Guarantee Period
from among those durations offered by us. The duration you select will determine
your initial Guarantee Rate. Your purchase payment (less surrenders and less
applicable premium taxes, if any) will earn interest at the initial Guarantee
Rate which is an Annual Effective Rate of Interest. Interest is credited daily
to your account using the Compound Interest Method. With compound interest, the
total investment of principal and interest earned to date is invested at all
times. You continue to earn interest on interest already earned. However, when
surrenders are made during the year, interest on the amount of the surrenders is
lost for the remainder of the year.
Set forth below is an illustration of how interest would be credited to your
Account Value during each Guarantee Period, using a five year Guarantee Period.
For the purpose of this example, we have made the assumptions.
No full or partial surrenders or pre-authorized distributions of interest during
the entire five year period. A Market Value Adjustment, surrender charge, or
both may apply to any such surrenders or distributions (see "Surrenders"). The
hypothetical interest rates are illustrative only and are not intended to
predict future interest rates to be declared under the contract. Actual interest
rates declared for any given time may be more or less than those shown.
EXAMPLE OF COMPOUNDING AT THE INITIAL GUARANTEE RATE
<Table>
Beginning Account Value: $50,000
Guarantee Period: 5 years
Guarantee Rate: 5.50% per annum
</Table>
<Table>
<Caption>
END OF CONTRACT YEAR:
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
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Beginning Account Value $50,000.00
(1+Guarantee Rate) 1.055
$52,750.00
Account Value at end of Contract Year 1 $52,750.00
X (1+Guarantee Rate) 1.055
$55,651.25
Account Value at end of Contract Year 2 $55,651.25
X (1+Guarantee Rate) 1.055
$58,712.07
Account Value at end of Contract Year 3 $58,712.07
X (1+Guarantee Rate) 1.055
$61,941.23
Account Value at end of Contract Year 4 $61,941.23
X (1+Guarantee Rate) 1.055
$65,348.00
Account Value at end of Guarantee Period $65,348.00
Total Interest Credited in Guarantee Period $65,348.00 - 50,000.00 = $15,348.00
Account Value at end of Guarantee Period $50,000.00 + 15,348.00 = $65,348.00
$50,000 X (1.055) TO THE POWER OF 180/365 =
Account Value after 180 days from the Contract Date $51,337.77
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</Table>
<Page>
8 HARTFORD LIFE INSURANCE COMPANY
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Unless you elect to make a surrender (see "Surrenders"), a subsequent Guarantee
Period will automatically commence at the end of a Guarantee Period. Each
subsequent Guarantee Period will be of the same duration as the previous
Guarantee Period unless you elect in writing, on any day within the 30 day
period preceding the end of the current Guarantee Period, a Guarantee Period of
a different duration from among those offered by us at that time. Under a
program currently offered by Hartford, this 30-day period is extended to 90
days, however a Market Value Adjustment will apply to your current Account Value
if you do not elect the subsequent Guarantee Period during the 30-day period
preceding the end of the current Guarantee Period. Hartford may discontinue this
program at any time.
In no event may subsequent Guarantee Periods extend beyond the Annuity
Commencement Date then in effect. For example, if you are age 62 upon the
expiration of a Guarantee Period and you have chosen age 65 as an Annuity
Commencement Date, we will provide a three year Guarantee Period to equal the
number of years remaining before your Annuity Commencement Date. Your Account
Value will then earn interest at a Guarantee Rate which we have declared for
that duration. The Guarantee Rate for the Guarantee Period automatically applied
in these circumstances may be higher or lower than the Guarantee Rate for longer
durations.
The Account Value at the beginning of any subsequent Guarantee Period will be
equal to the Account Value at the end of the Guarantee Period just ending. This
Account Value (less surrenders made after the beginning of the subsequent
Guarantee Period) will earn interest compounded annually at the Subsequent
Guarantee Rate.
Within 30 days preceding the end of a Guarantee Period, we will notify you that
the current rate Guarantee Period is expiring.
2. ESTABLISHMENT OF GUARANTEE RATES AND CURRENT RATES
You will know the initial Guarantee Rate for the Guarantee Period you choose at
the time you purchase your Contract. Current Rates will be established
periodically along with the Guarantee Rates which will be applicable to
subsequent Guarantee Periods. After the end of each Contract Year, we will send
you a statement which will show (a) your Account Value as of the end of the
preceding Contract Year, (b) all transactions regarding your Contract during the
Contract Year, (c) your Account Value at the end of the current Contract Year,
and (d) the rate of interest being credited to your Contract.
Hartford has no specific formula for determining the rate of interest that it
will declare as Current Rates or Guarantee Rates in the future. The
determination of Current Rates and Guarantee Rates may reflect, in part, the
income anticipated from the types of debt instruments in which Hartford intends
to invest the proceeds attributable to the Contracts. (See "Investments by
Hartford"). In addition, Hartford's management may also consider various other
factors in determining Current Rates and Guarantee Rates for given periods,
including regulatory and tax requirements; sales commissions and administrative
expenses borne by Hartford; general economic trends; and competitive factors.
Hartford's management will make the final determination as to Current Rates and
Guarantee Rates to be declared. We cannot predict, nor can we guarantee, future
current rates or guarantee rates.
Under a program currently offered by Hartford, you may exchange your Contract
for a new CRC Contract and receive an enhanced rate. You must elect for this
program in writing within the 90-day period preceding the end of the current
Guarantee Period. A Market Value Adjustment will apply to your current Account
Value if this election is not made within the 30-day period preceding the end of
the current Guarantee Period. A new surrender charge schedule will begin under
the new Contract. This program is not available if your Contract is less than
five years old unless this will be the first renewal of an initial three-year
Guarantee Period. Hartford may discontinue or modify this program at any time.
3. SURRENDERS
(a) GENERAL
Full surrenders may be made under a Contract at any time. Partial surrenders may
only be made if:
i. the Gross Surrender Value is at least $1,000; and
ii. the remaining Account Value after the Gross Surrender Value has been
deducted is at least $5,000.
In the case of all surrenders, the Account Value will be reduced by the Gross
Surrender Value on the Surrender Date and the Net Surrender Value will be
payable to you. The Net Surrender Value equals:
(A - B) X C, where:
A = the Gross Surrender Value;
B = the surrender charge plus any unpaid premium tax; and
C = the Market Value Adjustment.
Hartford will, upon request, inform you of the amount payable upon a full or
partial surrender.
Any full, partial or special surrender may be subject to tax. (See "Federal Tax
Considerations")
THERE ARE CERTAIN RESTRICTIONS ON SECTION 403(b) TAX-SHELTERED ANNUITIES. AS OF
DECEMBER 31, 1988, ALL SECTION 403(b) ANNUITIES HAVE LIMITS ON FULL AND PARTIAL
SURRENDERS. CONTRIBUTIONS TO THE CONTRACT MADE AFTER DECEMBER 31, 1988 AND ANY
INCREASES IN CASH VALUE AFTER DECEMBER 31, 1988 MAY NOTBE DISTRIBUTED UNLESS THE
CONTRACTOWNER/EMPLOYEE HAS: (A) ATTAINED AGE 59 1/2, (B) TERMINATED EMPLOYMENT,
(C) DIED, (D) BECOME DISABLED, OR (E) EXPERIENCED FINANCIAL HARDSHIP.
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HARTFORD LIFE INSURANCE COMPANY 9
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DISTRIBUTIONS DUE TO FINANCIAL HARDSHIP OR SEPARATION FROM SERVICE MAY STILL BE
SUBJECT TO A PENALTY TAX OF 10%.
HARTFORD WILL NOT ASSUME ANY RESPONSIBILITY IN DETERMINING WHETHER A SURRENDER
IS PERMISSIBLE, WITH OR WITHOUT TAX PENALTY, IN ANY PARTICULAR SITUATION OR IN
MONITORING SURRENDER REQUESTS REGARDING PRE- OR POST-JANUARY 1, 1989 ACCOUNT
VALUES.
(b) SURRENDER CHARGE
No deduction for a sales charge is made from the purchase payment when received.
A surrender charge, however, may be deducted from the Gross Surrender Value
(before application of any Market Value Adjustment) of any partial or full
surrender made before the end of the seventh Contract Year regardless of the
length of Guarantee Periods, as follows:
<Table>
<Caption>
SURRENDER CHARGE AS
CONTRACT YEAR IN WHICH PERCENTAGE OF GROSS
SURRENDER IS MADE SURRENDER VALUE
- -------------------------------------------
1 7%
- -------------------------------------------
2 6%
- -------------------------------------------
3 5%
- -------------------------------------------
4 4%
- -------------------------------------------
5 3%
- -------------------------------------------
6 2%
- -------------------------------------------
7 1%
- -------------------------------------------
Thereafter 0%
- -------------------------------------------
</Table>
No surrender charge will be made for surrenders after Contract Year 7 or certain
surrenders effective at the end of a Guarantee Period. (See "Special
Surrenders").
The surrender charge may be reduced if you are surrendering to purchase a
variable annuity contract issued by Hartford or an affiliate of Hartford.
For example, assume you select an initial Guarantee Period of five years and
then you take no action to change the duration of the second Guarantee Period,
resulting in a second Guarantee Period also with a duration of five years. Any
surrenders made during the sixth Contract Year will be subject to a two percent
surrender charge even though you could have made a surrender of up to the
Account Value at the end of the initial five year Guarantee Period which would
not have been subject to a surrender charge.
(c) MARKET VALUE ADJUSTMENT
The amount payable on a partial or full surrender made during any Guarantee
Period may be adjusted up or down by the application of the Market Value
Adjustment. Where applicable, the Market Value Adjustment is applied to Gross
Surrender Value, net of any surrender charge.
In the case of either a partial or full surrender, the Market Value Adjustment
will reflect the relationship between the Current Rate for the duration
remaining in the Guarantee Period at the time you request the surrender, and the
Guarantee Rate then applicable to your Contract.
Generally, if your Guarantee Rate is lower than the applicable Current Rate,
then the application of the Market Value Adjustment will reduce the payment upon
surrender.
Similarly, if your Guarantee Rate is higher than the applicable Current Rate,
the application of the Market Value Adjustment will increase the payment upon
surrender.
For example, assume you purchase a Contract and select an initial Guarantee
Period of ten years and our Guarantee Rate for that duration is 8% per annum.
Assume that at the end of seven years you make a partial surrender. If the three
year Current Rate is then 6%, the amount payable upon partial surrender will
increase after the application of the Market Value Adjustment. On the other
hand, if such Current Rate is higher than your Guarantee Rate (for example,
10%), the application of the Market Value Adjustment will cause a decrease in
the amount payable to you upon this partial surrender.
Since Current Rates 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.
The formula for calculating the Market Value Adjustment is set forth in Appendix
C, which also contains an additional illustration of the application of the
Market Value Adjustment.
(d) SPECIAL SURRENDERS
No surrender charge is imposed:
(1) Upon a surrender made at the end of the initial Guarantee Period, provided
such surrender occurs on or after the end of the third Contract Year.
(2) Upon a surrender made at the end of any subsequent Guarantee Period,
provided such surrender occurs on or after the end of the fifth Contract
Year.
A request for surrender at the end of a Guarantee Period pursuant to (1) and (2)
above must be received in writing by Hartford during the 30 day period preceding
the end of that Guarantee Period. Under a program currently offered by Hartford,
this period is extended to 90 days if you exchange your Contract for a variable
or other annuity issued by Hartford or an affiliate. Hartford may discontinue or
modify this program at any time.
(3) Upon the application of your Account Value to purchase an annuity on the
Annuity Commencement Date. A Market Value Adjustment will be applied if the
Annuity Commencement Date is not at the end of a Guarantee Period. To elect
an Annuity Option, Hartford must receive your notice in writing at least 30
days before the end of that Guarantee Period.
In addition, we will send you any interest that has been credited during the
prior 12 months if you so request in writing. No surrender charge or Market
Value Adjustment will apply to such interest payments. Any such surrender may,
however, be subject to tax.
<Page>
10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
For certain tax-qualified plans, we reserve the right to offer by rider an
extended surrender privilege, without imposing a surrender charge or Market
Value Adjustment.
4. GUARANTEE PERIOD EXCHANGE OPTION
Once each Contract Year you may elect to transfer from your current rate
Guarantee Period into a new rate Guarantee Period of a different duration. A
Market Value Adjustment will be applied to your current Account Value at the
time of transfer. There will be no surrender charge for this exchange. Surrender
charges will continue to be based on time elapsed from the original Contract
Date. While we currently do not impose a transfer charge, Hartford reserves the
right to charge a fee of up to $50 for each transfer.
5. PREMIUM TAXES
A deduction is also made for premium taxes, if applicable, imposed by a state or
other governmental entity, generally ranging up to 5.0%. Some states assess the
tax at the time purchase payments are made; others assess the tax when annuity
payments begin. Hartford will pay premium taxes at the time imposed under
applicable law. At its sole discretion, Hartford may deduct premium taxes at the
time Hartford pays such taxes to the applicable taxing authorities, upon
surrender, or when annuity payments commence.
6. DEATH BENEFIT
If the Annuitant dies before the Annuity Commencement Date and there is no
designated Contingent Annuitant surviving, or if the Participant dies before the
Annuity Commencement Date, the Death Benefit will be payable to the Beneficiary
as determined under the Contract Control Provisions. With regard to Joint
Participants, at the first death of a Joint Participant preceding the Annuity
Commencement Date, the Beneficiary will be the surviving Participant,
notwithstanding that the Designated Beneficiary may be different. The Death
Benefit is calculated as of the date we receive at the offices of Hartford
written notification of Due Proof of Death. The Death Benefit will equal the
Account Value.
The Death Benefit may be taken in one sum, to be paid within six months after
the date we receive Due Proof of Death, or under any of the Annuity Options
available under the Contract; provided, however, that: (a) in the event of the
death of a Participant prior to the Annuity Commencement Date, any Annuity
Option selected must provide that any amount payable as a Death Benefit will be
distributed within five years of the date of death; and (b) in the event of the
death of a Participant or Annuitant which occurs on or after the Annuity
Commencement Date, any remaining interest in the Contract will be paid at least
as rapidly as under the method of distribution in effect at the time of death,
or, if the benefit is payable over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary, such
distribution must commence within one year of the date of death. In the event of
the Participant's death, where the sole Beneficiary is the spouse of the
Participant and the Annuitant or Contingent Annuitant is living, such sole
Beneficiary may elect, in lieu of receiving the Death Benefit, to be treated as
the Participant.
If the Contract is owned by a corporation or other non-individual, the Death
Benefit payable upon the death of the Annuitant preceding the Annuity
Commencement Date will be payable only as one sum or under the same Annuity
Options and in the same manner as if an individual Contract Owner died on the
date of the Annuitant's death.
Proceeds from the Death Benefit may be left with Hartford for a period not to
exceed five years from the date of the Participant's death preceding the Annuity
Commencement Date. The proceeds will remain in the same Guarantee Period and
continue to earn the same interest rate as at the time of death. If the
Guarantee Period ends before the end of the five year period, the Beneficiary
may elect a new Guarantee Period with a duration closest to but not to exceed
the time remaining in the period of five years from the date of the
Participant's death. Full or partial surrenders may be made at any time. In the
event of surrenders, the remaining value will equal the proceeds left with
Hartford, minus any surrenders, plus any interest earned. A Market Value
Adjustment will be applied to all surrenders except those occurring at the end
of a Guarantee Period.
The Beneficiary of a non-qualified Contract or IRA may also elect the "Single
Life Expectancy Only" option. This option allows the Beneficiary to take the
Death Benefit in a series of payments spread over a period equal to the
Beneficiary's remaining life expectancy. Distributions are calculated based on
IRS life expectancy tables. This option is subject to different limitations and
conditions depending on whether the Contract is non-qualified or an IRA.
7. PAYMENT UPON PARTIAL OR FULL SURRENDER
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 30 days and, if we do, we will pay interest of at least 4 1/2%
per annum on the amount deferred. While all circumstances under which we could
defer payment upon surrender may not be foreseeable at this time, such
circumstances could include, for example, a time of an unusually high surrender
rate under the Contracts, accompanied by a radical shift in interest rates. If
we intend to withhold payment for more than 30 days, we will notify you in
writing. We will not, however, defer payment for more than 30 days as to any
surrender which is to be effective at the end of any Guarantee Period.
C. ANNUITY PERIOD
1. ELECTING THE ANNUITY COMMENCEMENT DATE AND
FORM OF ANNUITY
Upon application for a Contract, you select an Annuity Commencement Date. Within
30 days preceding your Annuity Commencement Date you may elect to have all or a
portion of your Net Surrender Value paid in a lump sum on your Annuity
Commencement Date. Alternatively, or with respect to any portion of your Net
Surrender Value not paid in a lump sum, you may elect, at least 30 days
preceding the Annuity Commencement Date, to have your Account Value with a
Market Value Adjustment, if applicable, or a portion thereof multiplied by the
Market Value Adjustment (less applicable premium taxes, if any) applied on the
Annuity Commencement Date under any of the Annuity Options described below. In
the absence of such election, Account Value with a Market Value Adjustment, if
applicable, will be applied on the Annuity Commencement Date under the Life
<Page>
HARTFORD LIFE INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
Annuity with 120 Monthly Payments Certain. This Contract may not be surrendered
for its Termination Value after the commencement of annuity payments, except
with respect to proceeds from the Death Benefit remaining at Hartford.
2. CHANGE OF ANNUITY COMMENCEMENT DATE OR
ANNUITY OPTION
You may change the Annuity Commencement Date and/or the Annuity Option from time
to time, but any such change must be made in writing and received by us at least
30 days preceding the scheduled Annuity Commencement Date. Once Annuity Payouts
begin, you cannot change the Annuity Payout Option. Also, the proposed Annuity
Commencement Date may not be beyond the Annuitant's 90th birthday.
3. ANNUITY OPTIONS
Any one of the following Annuity Options may be elected:
LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant, and terminating
with the last monthly payment due preceding the death of the Annuitant. It would
be possible under this Option for an Annuitant to receive only one Annuity
payment if he died preceding the due date of the second Annuity payment, two
payments if he died before the due date of the third Annuity payment, and so on.
LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS CERTAIN
An annuity providing monthly income to the Annuitant for a fixed period of 120
months, 180 months or 240 months (as selected), and for as long thereafter as
the Annuitant shall live.
CASH REFUND LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant, provided that,
at the death of the Annuitant, the Beneficiary will receive an additional
payment equal to (a) minus (b), where (a) is the Account Value applied on the
Annuity Commencement Date under this Option and (b) is the dollar amount of
annuity payments already paid.
JOINT AND LAST SURVIVOR LIFE ANNUITY
An annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor, ceasing with the last payment preceding the death of the survivor. It
would be possible under this Option for the Annuitant, and designated second
person in the event of the common or simultaneous death of the parties, to
receive only one payment in the event of death preceding the due date for the
second payment, and so on.
PAYMENTS FOR A DESIGNATED PERIOD
We will make Annuity Payments for the number of years that you select. You can
select any number of years between 5 and 100 years minus the Annuitant's age.
If, at the death of the Annuitant, Annuity Payments have been made for less than
the time period selected, then the Beneficiary may elect to continue the
remaining Annuity Payments or receive the commuted value in one sum.
The Tables in the Contract provide for guaranteed dollar amounts of monthly
payments for each $1,000 applied under the five Annuity Options. Under the
First, Second or Third Options, the amount of each payment will depend upon the
age and sex of the Annuitant at the time the first payment is due. Under the
Fourth Option, the amount of each payment will depend upon the sex of both
payees and their ages at the time the first payment is due.
The Tables for the First, Second, Third and Fourth Options are based on the
1983a Individual Annuity Mortality Table, with ages set back one year and a net
investment rate of 4% per annum. The table for the Fifth Option is based on a
net investment rate of 4% per annum.
We may, from time to time, at our discretion if mortality appears more favorable
and interest rates justify, apply other tables which will result in higher
monthly payments for each $1,000 applied under one or more of the five Annuity
Options.
IMPORTANT INFORMATION: YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYMENTS
BEGIN.
FOR QUALIFIED CONTRACTS, IF YOU ELECT AN ANNUITY OPTION WITH 120, 180 OR 240
MONTHLY PAYMENTS CERTAIN, THE GUARANTEED NUMBER OF YEARS MUST BE LESS THAN THE
LIFE EXPECTANCY OF THE ANNUITANT AT THE TIME THE ANNUITY PAYMENTS BEGIN. WE
COMPUTE LIFE EXPECTANCY USING THE IRS MORTALITY TABLES.
AUTOMATIC ANNUITY PAYMENTS. If you do not elect an Annuity Option, annuity
payments will automatically begin on the Annuity Commencement Date under the
Life Annuity with 120 Monthly Payments Certain.
4. ANNUITY PAYMENT
The first payment under any Annuity Option will be made following the Annuity
Commencement Date. Subsequent payments will be made on the same day in
accordance with the manner of payment selected.
The option elected must result in a payment of an amount at least equal to the
minimum payment amount according to Hartford's rules then in effect. If at any
time payments are less than the minimum payment amount, Hartford has the right
to change the frequency to an interval resulting in a payment at least equal to
the minimum. If any amount due is less than the minimum per year, Hartford may
make other arrangements that are equitable to the Annuitant.
Once annuity payments have commenced, no surrender of the annuity benefit
(including benefits under the Payments for a Designated Period Option) can be
made for the purpose of receiving a lump sum settlement in lieu thereof.
5. DEATH OF ANNUITANT AFTER ANNUITY
COMMENCEMENT DATE
In the event of the death of the Annuitant after the Annuity Commencement Date,
the present values on the date of death of the current dollar amount of any
remaining guaranteed payments will be paid in one sum to the Beneficiary unless
other provisions shall have been made and approved by us. Calculations of such
present value will be based on the interest rate that is used by us to determine
the amount of each certain payment.
<Page>
12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 "Establishment of Guarantee
Rates and Current Rate"). 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 reserve the right to amend the Contracts to meet the requirements of
applicable federal or state laws or regulations. We will notify you in writing
of any such amendments.
ASSIGNMENT OF CONTRACTS
- --------------------------------------------------------------------------------
Your rights as evidenced by a Contract may be assigned as permitted by
applicable law. An assignment will not be binding upon us until we receive
notice from you in writing. We assume no responsibility for the validity or
effect of any assignment. You should consult your tax adviser regarding the tax
consequences of an assignment.
DISTRIBUTION OF CONTRACTS
- --------------------------------------------------------------------------------
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.
The Contracts may also be sold directly to employees of Hartford and of Hartford
Fire Insurance Company, of which Hartford is a subsidiary. The Contracts will be
credited with an additional 2% of the employee's purchase payment by Hartford.
This additional percentage of purchase payment in no way affects present or
future charges, rights, benefits or current values of other Contract Owners.
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the Contracts. HSD is an affiliate of Hartford. Both HSD and
Hartford are ultimately controlled by The Hartford Financial Services Group,
Inc. 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.
Broker-dealers or financial institutions are compensated according to a schedule
set forth by HSD and any applicable rules or
<Page>
HARTFORD LIFE INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
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 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.
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 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"
<Page>
14 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 made under certain annuities issued in connection with
structured settlement agreements.
6. 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
(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
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HARTFORD LIFE INSURANCE COMPANY 15
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"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.
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 contract 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 and any required tax forms are submitted to
Hartford. 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 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 TRANSFER TAX
Under certain circumstances, the Code may impose a "generation skipping transfer
tax" when all or part of an Annuity Contract is transferred to, or a death
benefit is paid to, an individual two or more generations younger than the
owner. Regulations issued under the Code may require Hartford to deduct the tax
from your Contract, or from any applicable payment, and pay it directly to the
IRS.
G. ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA")
repealed the Federal estate tax and replaced it with a carryover basis income
tax regime effective for estates of decedents dying after December 31, 2009.
EGTRRA also repealed the generation skipping transfer tax, but not the gift tax,
for transfers made after December 31, 2009. EGTRRA contains a sunset provision,
which essentially returns the Federal estate, gift and generation skipping
transfer taxes to their pre-EGTRRA form, beginning in 2011. Congress may or may
not enact permanent repeal between now and then.
During the period prior to 2010, EGTRRA provides for periodic decreases in the
maximum estate tax rate coupled with periodic increases in the unified credit
exemption amount. For 2002, the maximum estate tax rate is 50% and the unified
credit exemption amount is $1,000,000.
The complexity of the new tax law, along with uncertainty as to how it might be
modified in coming years, underscores the importance of seeking guidance from a
qualified advisor to help ensure that your estate plan adequately addresses your
needs and that of your beneficiaries under all possible scenarios.
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16 HARTFORD LIFE INSURANCE COMPANY
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H. 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. 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 $11,000 or 100% of
the employee's compensation. The maximum elective deferral amount is equal to
$11,000 for 2002. The contribution limitation may be increased to allow certain
"catch-up" contributions for individuals who have attained age 50.
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 severance from employment;
- - 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 100% of a participant's includible compensation or, for 2002,
$11,000, 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. In addition, the contribution
limitation may be increased to allow certain "catch-up" contributions for
individuals who have attained age 50.
All of the assets and income of an eligible Deferred Compensation Plan for 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,
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HARTFORD LIFE INSURANCE COMPANY 17
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- - has a severance from employment,
- - dies, or
- - suffers an unforeseeable financial emergency as defined in the Code.
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 from an IRA.
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.
INFORMATION ABOUT DEATH BENEFITS AND IRAs. -- IRAs generally may not invest in
life insurance contracts. However, an annuity that is used as an IRA may provide
for a death benefit that equals the greater of the premiums paid and the
annuity's cash value. The Contract offers an Optional Death Benefit and an
Earnings Protection Benefit. The Optional Death Benefit and the Earnings
Protection Benefit may exceed the greater of the Contract Value and total
Premium Payments less prior surrenders. WE HAVE FILED THE CONTRACT WITH THE
OPTIONAL DEATH BENEFIT AND THE EARNINGS PROTECTION BENEFIT WITH THE INTERNAL
REVENUE SERVICE FOR APPROVAL FOR USE AS AN IRA. NO ASSURANCE IS GIVEN THAT THESE
BENEFITS MEET THE QUALIFICATION REQUIREMENTS FOR AN IRA.
Although we regard the Optional Death Benefit and the Earnings Protection
Benefit as investment protection features that should not have an adverse tax
effect, it is possible that the IRS could take a contrary position regarding
tax-qualification or resulting in certain deemed distributions and penalty
taxes. You should consult a qualified tax adviser if you are considering adding
the Optional Death Benefit or the Earnings Protection Benefit to your Contract
if it is an IRA.
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
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18 HARTFORD LIFE INSURANCE COMPANY
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- - 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 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.
The minimum distribution requirements apply to Roth IRAs after the Contract
owner dies, but not while the Contract owner is alive. In addition, if the owner
of a Traditional or Roth IRA dies and the Contract owner's spouse is the
designated beneficiary, the surviving spouse may elect to treat the Traditional
or Roth IRA as his or her own.
On January 17, 2001, the Internal Revenue Service published a new set of
proposed regulations in the Federal Register relating to minimum required
distributions. The discussion above does not take these new proposed regulations
into account. Please consult with your tax or legal adviser with any questions
regarding the new proposed regulations.
(c) WITHHOLDING In general, regular wage withholding rules apply to
distributions from IRAs and non-governmental 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.
The withholding rules applicable to distributions from qualified plans and
section 403(b) plans apply generally to distributions from governmental 457(b)
plans.
Mandatory federal income tax withholding at a flat rate of 20% will generally
apply to other distributions from section 401, 403(b) or governmental 457(b)
plans unless such distributions are:
- - the non-taxable portion of the distribution;
- - required minimum distributions;
- - hardship distributions;
- - direct transfer distributions;
- - 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).
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.
6. ROLLOVER DISTRIBUTIONS -- Under present federal tax law, eligible rollover
distributions from qualified retirement plans, section 403(b) arrangements, and
governmental 457(b) plans generally can be rolled over to any of such plans or
arrangements. Similarly, distributions from an IRA generally are permitted to be
rolled over to a qualified plan, section 403(b) arrangement, or governmental
457(b) plan. After tax contributions may be rolled over from a qualified plan
into another qualified plan or an IRA. In the case of a rollover from a
qualified plan to another qualified plan, the rollover is permitted to be
accomplished only through a direct rollover. In addition, a qualified plan is
not permitted to accept rollovers of after tax contributions unless the plan
provides separate accounting for such contributions (and earnings thereon).
After tax contributions (including nondeductible contributions to an IRA) are
not permitted to be rolled over from an IRA into a qualified plan,
section 403(b) arrangement, or governmental 457(b) plan.
Separate accounting is required on amounts rolled from plans described under
Code sections 401, 403(b) or 408(IRA), when those amounts are rolled into plans
described under section 457(b) sponsored by governmental employers. These
amounts, when distributed from the governmental 457(b) plan, will be subject to
the 10% early withdrawal tax applicable to distributions from plans described
under sections 401, 403(b) or 408(IRA), respectively.
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HARTFORD LIFE INSURANCE COMPANY 19
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THE COMPANY
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 1.5 million customers, (ii) life insurance for income protection and estate
planning to approximately 750,000 customers, (iii) group benefits products such
as group life and group disability insurance for the benefit of millions of
individuals and (iv) corporate owned life insurance, which includes life
insurance policies purchased by a company on the lives of its employees. The
Company is one of the largest sellers of individual variable annuities, variable
life insurance and group disability insurance in the United States. The
Company's strong position in each of its core businesses provides an opportunity
to increase the sale of the Company's products and services as individuals
increasingly save and plan for retirement, protect themselves and their families
against disability or death and engage in estate planning. In an effort to
advance the Company's strategy of growing its life and asset accumulation
businesses, The Hartford Financial Services Group ("The Hartford") acquired the
individual life insurance, annuity and mutual fund businesses of Fortis, Inc.
("Fortis Financial Group" or "Fortis") on April 2, 2001. (For additional
information, see the Capital Resources and Liquidity section of the MD&A and
Note 4 of Notes to Consolidated Financial Statements).
In the past year, the Company's total assets increased 5% to $145.4 billion at
December 31, 2001 from $138.8 billion at December 31, 2000. The Company
generated revenues of $3.7 billion, $3.4 billion and $3.4 billion in 2001, 2000
and 1999 respectively. Additionally, Hartford Life Insurance Company generated
net income of $646, $487 and $361 in 2001, 2000, and 1999 respectively.
CUSTOMER SERVICE, TECHNOLOGY AND ECONOMIES OF SCALE
The Company maintains advantageous economies of scale and operating efficiencies
due to its continued growth, attention to expense and claims 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 segment. Operating expenses associated with the Company's
individual annuity products as a percentage of total individual annuity account
values reduced by nearly half since 1992, declining from 43 basis points to 22
basis points in 2001. 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 was awarded the 2001 Annuity Service Award by
DALBAR, Inc., a recognized independent financial services research organization,
for the sixth consecutive year. Hartford Life Insurance Company is the only
company to receive this prestigious award in every year of the award's
existence. Additionally, the Company's Individual Life division won the DALBAR
award for service of life insurance customers in 2001 and was the only life
insurance operation to be recognized with this prestigious award.
RISK MANAGEMENT
The 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, 2001, the
Company had limited exposure to disintermediation risk on approximately 97% of
its domestic life insurance and annuity 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 standards 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. The Company also enforces disciplined claims management to protect
itself against greater than expected morbidity experience.
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 group benefits, including group life
and group disability insurance that is directly written by the Company and is
substantially ceded to its parent, HLA. The following is a description of each
segment, including a discussion of principal products, methods of distribution
and competitive environments. Additional information on Hartford Life Insurance
Company's segments may be found in the MD&A and Note 16 of Notes to Consolidated
Financial Statements.
INVESTMENT PRODUCTS
The Investment Products segment focuses, through the sale of individual variable
and fixed annuities, retirement plan services and other investment products, on
the savings and retirement needs of the growing number of individuals who are
preparing for retirement or who have already retired. Investment Products
generated revenues of $2.1 billion in 2001 and 2000 and $1.9 billion in 1999, of
which individual annuities accounted for $1.4 billion in 2001 and 2000, and $1.3
billion in 1999. Net income in the Investment Products segment was $375, $354
and $300 in 2001, 2000 and 1999, respectively.
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20 HARTFORD LIFE INSURANCE COMPANY
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Hartford Life Insurance 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. The Company is a market leader in the annuity
industry with sales of $10.0 billion, $10.7 billion and $10.9 billion in 2001,
2000 and 1999, respectively. Hartford Life was among the largest sellers of
individual variable annuities in the United States for 2001, 2000 and 1999 with
sales of $9.0 billion, $9.0 billion and $10.3 billion, respectively. In
addition, the Company continues to be among the largest sellers of individual
variable annuities through banks in the United States.
In addition to its leading position in individual annuities, the Company
continues to emerge as a significant participant in the mutual fund business and
is among the top providers of retirement products and services, including asset
management and plan administration sold to corporations pursuant to Section 401
of the Internal Revenue Code of 1986, as amended (the Code) (referred to as
"401(k)") and to municipalities pursuant to Section 457 of the Code, as amended
(referred to as "Section 457"). The Company also provides structured settlement
contracts, terminal funding products and other investment products such as
guaranteed investment contracts ("GICs").
As previously mentioned, The Hartford acquired the individual annuity businesses
of Fortis, Inc. in 2001. This acquisition helped solidify the Company's strong
position in variable annuities.
PRINCIPAL PRODUCTS
INDIVIDUAL VARIABLE ANNUITIES -- Hartford Life Insurance Company earns fees,
based on policyholders' account values, for managing variable annuity assets and
maintaining policyholder accounts. The Company uses specified portions of the
periodic deposits paid by 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 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 continues to be popular with policyholders. Policyholders
may make deposits of varying amounts 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. Surrender charges range initially from 5% to 8% of the
contract's initial deposit less withdrawals and reduce to zero on a sliding
scale, usually within seven policy years. Volatility experienced by the equity
markets over the past few years did not cause a significant increase in variable
annuity surrenders, demonstrating that policyholders are generally aware of the
long-term nature of these products. Individual variable annuity account values
of $74.6 billion as of December 31, 2001, have grown significantly from $13.1
billion as of December 31, 1994, due to strong net cash flow, resulting from
high level of sales, low levels of surrenders and equity market appreciation.
Approximately 94% and 96% of the individual variable annuity account values were
held in non-guaranteed separate accounts as of December 31, 2001 and 2000,
respectively.
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, AIM Investments ("AIM") 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. The Company's Director
variable annuity, which is managed in part by Wellington, continues to be an
industry leader in terms of sales. In addition, The Hartford Leaders, which is a
multi-manager variable annuity that combines the product manufacturing,
wholesaling and service capabilities of Hartford Life with the investment
management expertise of four of the nations most successful investment
management organizations, American Funds, Franklin Templeton Group, AIM and MFS,
has quickly emerged as a strong selling product for the Company.
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 eight years. Account values of fixed MVA annuities were $9.6
billion and $9.0 billion as of December 31, 2001 and 2000, respectively.
GOVERNMENTAL -- The Company sells retirement plan products and services to
municipalities under Section 457 plans. 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. As of December 31, 2001, the Company administered
over 3,000 Section 457 plans.
<Page>
HARTFORD LIFE INSURANCE COMPANY 21
- --------------------------------------------------------------------------------
CORPORATE -- The Company sells retirement plan products and services to
corporations under Section 401(k) plans targeting the small and medium case
markets since the Company believes these markets are underpenetrated in
comparison to the large case market. As of December 31, 2001, the Company
administered over 2,400 Section 401(k) plans.
INSTITUTIONAL LIABILITIES -- The Company 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.
SECTION 529 PLANS -- The Company is introducing a tax advantaged college savings
product (529 Plan) in early 2002 called SMART 529. SMART 529 is a
state-sponsored education savings program established by the State of West
Virginia which offers an easy way for both the residents of West Virginia and
out-of-state participants to invest for a college education. In 1996, Congress
created a tax-advantaged college savings program (529 Plan) as part of
Section 529 of the Code. The 529 Plan is an investment plan operated by a state
designed to help families save for future college costs. On January 1, 2002, 529
Plans became federal tax exempt for qualified withdrawals.
SMART 529 is designed to be flexible by allowing investors to choose from a wide
variety of investment portfolios to match their risk preference to help
investors accumulate savings for college. An individual can open a SMART 529
account for anyone, at any age. The SMART 529 product complements the Company's
existing offering of investment products (mutual funds, variable annuities,
401(k), 457 and 403(b) plans). It also leverages the Company's capabilities in
distribution, service and fund performance. The Company believes this is a
significant market opportunity and the benefits of investing in 529 plans will
be well received by many Americans saving for college.
MARKETING AND DISTRIBUTION
The Investment Products distribution network is based on management's strategy
of utilizing multiple and competing distribution channels 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, quality of
customer service, and 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).
Hartford Life Insurance Company maintains a distribution network of
approximately 1,500 broker-dealers and approximately 500 banks. As of
September 30, 2001, the Company was selling products through 24 of the 25
largest retail banks in the United States, including proprietary relationships
with 10 of the top 25. 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. The
Company's primary wholesaler of its individual annuities is its wholly-owned
subsidiary, PLANCO Financial Services, Inc. and its affiliate, PLANCO,
Incorporated (collectively "PLANCO"). PLANCO is one of the nation's largest
wholesalers of individual annuities and has played a significant role in the
Company's growth over the past decade. As a wholesaler, PLANCO distributes the
Company's fixed and variable annuities, mutual funds, 401(k) 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. Owning PLANCO secures 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 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, mutual funds and other
retirement-oriented products. The 1999 Gramm-Leach-Bliley Act ("the Financial
Services Modernization Act"), which allows affiliations among banks, insurance
companies and securities firms, has not precipitated any significant changes in
bank ownership of insurance companies. (For additional information, see the
Regulatory Matters and Contingencies section of the MD&A.) Product sales are
affected by competitive factors such as investment performance ratings, product
design, visibility in the marketplace, financial strength ratings, distribution
capabilities, levels of charges and credited rates, reputation and customer
service.
INDIVIDUAL LIFE
The Individual Life segment sells a variety of products including variable life,
universal life, interest sensitive whole life and term life insurance primarily
to the high end estate and business planning markets. The individual life
business acquired from Fortis added significant scale to the Company's
Individual Life segment, contributing to the significant increase in life
insurance in force. Revenues were $774, $545 and $574 in 2001, 2000 and 1999,
respectively. Net income in the Individual Life segment was $106, $70 and $68 in
2001, 2000 and 1999, respectively.
PRINCIPAL PRODUCTS
The trend in the individual life insurance industry has been a shift away from
traditional products towards variable life (including variable universal life)
insurance products, in which the Company has been on the leading edge. In 2001,
of the Company's new sales of individual life insurance, 82% was variable life
and 15%
<Page>
22 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 death of both insureds. Second-to-die policies are frequently
used in estate planning, often to fund estate taxes for a married couple.
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. The Company also sells universal life
insurance policies with a second-to-die feature similar to that of the variable
life insurance product offered.
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 and casualty insurance
organizations. The primary organization used to wholesale the 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 Hartford Life who are managed through a regional sales office
system. The Company has grown this organization rapidly the past few years to
over 225 individuals and expects to continue to increase the number of
wholesalers in the future. The acquisition of the United States individual life
insurance business of Fortis has broadened the Company's reach in the emerging
affluent market with the addition of a retail broker-dealer consisting of
approximately 2,300 registered representatives.
COMPETITION
The Individual Life segment competes with approximately 1,800 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, pricing,
relationships with third-party distributors and the quality of underwriting and
customer service.
CORPORATE OWNED LIFE INSURANCE (COLI)
The 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
or a trust sponsored by the company named as the 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, 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, 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 postemployment benefit liabilities.
Variable COLI account values were $18.0 billion and $15.9 billion as of
December 31, 2001 and 2000, respectively. Leveraged COLI account values
decreased to $4.3 billion as of December 31, 2001 from $5.0 billion as of
December 31, 2000, primarily due to the continuing effects of the HIPA Act of
1996. COLI generated revenues of $717, $765 and $830 in 2001, 2000 and 1999,
respectively. COLI generated net income of $36, $35 and $28 in 2001, 2000 and
1999, respectively.
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 and
disability 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 in a manner that is comparable to direct insurance
reserves. Additional information on reserves may be found in the Deferred
Acquisition Costs (DAC) and Reserves section of the MD&A.
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
<Page>
HARTFORD LIFE INSURANCE COMPANY 23
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to, among other things, the standards of solvency that 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.
Most states have enacted legislation that regulates insurance holding company
systems such as Hartford Life Insurance Company. This legislation provides that
each insurance company in the system is required to register with the insurance
department of its state of domicile and furnish information concerning the
operations of companies within the holding company system which may materially
affect the operations, management or financial condition of the insurers within
the system. All transactions within a holding company system affecting insurers
must be fair and equitable. Notice to the insurance departments is required
prior to the consummation of transactions affecting the ownership or control of
an insurer and of certain material transactions between an insurer and any
entity in its holding company system. In addition, certain of such transactions
cannot be consummated without the applicable insurance department's prior
approval.
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, 2001, the maximum amount of life
insurance retained on any one life by any one of the Company's operations was
approximately $2.5.
INVESTMENT OPERATIONS
The Company's investment operations are managed by its investment strategy group
which reports directly to senior management of the Company. Hartford Life
Insurance 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 approach to managing risks, see the
Investments and Capital Markets Risk Management sections of the MD&A, as well as
Notes 2(d), 2(e) and 6 of Notes to Consolidated Financial Statements.
EMPLOYEES
Hartford Life had approximately 6,700 employees at February 28, 2002.
PROPERTIES
Hartford Life Insurance Company's principal executive offices are located in
Simsbury, Connecticut. The Company's home office complex consists of
approximately 655 thousand square feet, and is leased from a third party by
Hartford Fire Insurance Company (Hartford Fire), a direct subsidiary of The
Hartford. This lease expires in the year 2009. Expenses associated with these
offices are allocated on a direct basis to Hartford Life Insurance Company by
Hartford Fire. The Company believes its properties and facilities are suitable
and adequate for current operations.
LEGAL PROCEEDINGS
Hartford Life Insurance Company is involved or may become involved in various
legal actions, in the normal course of its business, in which claims for alleged
economic and punitive damages have been or may be asserted. Some of the pending
litigation has been filed as purported class actions and some actions have been
filed in certain jurisdictions that permit punitive damage awards that are
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 potential, pending or threatened legal actions,
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'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding shares are owned by Hartford Life and Accident
Insurance Company, which is ultimately a subsidiary of The Hartford. As of
February 28, 2002, the Company had issued and outstanding 1,000 shares of common
stock at a par value of $5,690 per share.
<Page>
24 HARTFORD LIFE INSURANCE COMPANY
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SELECTED FINANCIAL DATA
The following selected financial data for Hartford Life, 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,
2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
REVENUES
Premiums and other considerations $2,251 $2,206 $2,045 $2,218 $1,637
Net investment income 1,495 1,326 1,359 1,759 1,368
Net realized (losses) gains (91) (85) (4) (2) 4
------ ------ ------ ------ ------
Total Revenues 3,655 3,447 3,400 3,975 3,009
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,703 1,495 1,574 1,911 1,379
Amortization of deferred policy acquisition costs 566 604 539 431 335
Dividends to policyholders 68 67 104 329 240
Other insurance expenses 622 600 631 766 586
------ ------ ------ ------ ------
Total Benefits, Claims and Expenses 2,959 2,766 2,848 3,437 2,540
Income before income tax expense 696 681 552 538 469
Income tax expense 44 194 191 188 167
------ ------ ------ ------ ------
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 652 487 361 350 302
Cumulative effect of accounting changes, net of tax (6) -- -- -- --
NET INCOME $ 646 $ 487 $ 361 $ 350 $ 302
- ------------------------------------------------------------------------------------------------------------------
</Table>
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 Hartford Life Insurance
Company, and its subsidiaries ("Hartford Life Insurance Company" or the
"Company") as of December 31, 2001, compared with December 31, 2000, and its
results of operations for the years ended December 31, 2001, 2000 and 1999. This
discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes beginning on page F-1.
Certain of the statements contained herein or in Part I of the Company's Form
10-K, 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 Hartford Life Insurance Company's control and have been
made based upon management's expectations and beliefs concerning future
developments and their potential effect on 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 and business
conditions that are less favorable than anticipated, legislative developments,
changes in interest rates or the stock markets, stronger than anticipated
competitive activity and those factors described in such forward-looking
statements.
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 provides investment and retirement products such
as variable and fixed annuities, mutual funds and retirement plan services;
individual and corporate owned life insurance; and, group benefit products such
as group life and group 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) fee income, including
asset management fees on separate account and mortality and expense fees, as
well as cost of insurance charges; (b) fully insured premiums; (c) certain other
fees; and (d) net investment income on general account assets. 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 and variable life products and mutual funds. Cost of insurance
charges are assessed on the net amount at risk for investment-oriented life
insurance products. Premium revenues are derived primarily from the sale of
group life and group disability insurance products.
<Page>
HARTFORD LIFE INSURANCE COMPANY 25
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The 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.
The Company's profitability depends largely on the amount of assets under
management, the level of fully insured premiums, the adequacy of product pricing
and underwriting discipline, claims management and operating efficiencies, and
its ability to earn target spreads between earned investment rates on general
account assets and credited rates to customers. The level of assets under
management is generally impacted by equity market performance, persistency of
the in-force block of business, sales and other deposits, as well as any
acquired blocks of business.
OPERATING SUMMARY
<Table>
<Caption>
2001 2000 1999
- ---------------------------------------------------------------
Total revenues $3,655 $3,447 $3,400
- ---------------------------------------------------------------
Total expenses 3,003 2,960 3,039
- ---------------------------------------------------------------
Cumulative effect of
accounting changes, net of
tax (6) -- --
- ---------------------------------------------------------------
Net income $ 646 $ 487 $ 361
- ---------------------------------------------------------------
</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 group benefits, including group life and group
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 16 of Notes to Consolidated Financial Statements.
On April 2, 2001, The Hartford acquired the United States individual life
insurance, annuity and mutual fund businesses of Fortis. (For further
discussion, see "Acquisitions" in the Capital Resources and Liquidity section
and Note 4 of Notes to Consolidated Financial Statements.) This transaction was
accounted for as a purchase and, as such, the revenues and expenses generated by
this business from April 2, 2001 forward are included in the Company's
consolidated results of operations.
2001 COMPARED TO 2000 -- Revenues increased $208, or 6%, primarily related to
the growth across each of the Company's primary operating segments, particularly
the Individual Life segment, where revenues increased $229, or 42%. The revenue
growth in the Individual Life segment was primarily due to higher earned fee
income and net investment income resulting from the business acquired from
Fortis. Revenues related to the Company's Individual Annuity business were down
$55 or 4%, primarily due to lower fee income as a result of the lower equity
markets in 2001. Additionally, COLI revenues were below prior year due to a
decrease in variable COLI sales and the declining block of leveraged COLI
business.
Total expenses increased $43, or 1%, primarily associated with the growth in
revenues discussed above. Net income increased $159, or 33%, led by the
Individual Life where net income increased $36, or 51%, primarily as the result
of the business acquired from Fortis. In addition, the 2001 results include a
$130 federal income tax benefit primarily related to separate account investment
activity and a $9 charge associated with the impact of the September 11
terrorist attack. Additionally, 2000 results include a benefit of $32 also
related to favorable tax items. Excluding these tax items and the impact of the
September 11 terrorist attack, net income increased $70, or 15%, for the year
ended December 31, 2001, as each of the Company's operating segments experienced
growth from a year ago.
2000 COMPARED TO 1999 -- Revenues increased slightly, primarily related to the
growth in the Investment Products segment, due to higher fee income in the
individual annuity operation as related average account values in 2000 were
higher than 1999. Partially offsetting the growth in revenues was a decrease in
COLI revenues primarily related to the declining block of leveraged COLI
business.
Expenses decreased $79, or 3%, as increases in the Investment Products segment
were more than offset by declines in the Company's other operating segments,
particularly the COLI segment where expenses decreased consistent with revenues.
Net income increased $126, or 35%, led by the Investment Products segment where
net income increased $54, or 18%. Hartford Life Insurance Company also recorded
a benefit related to the settlement of certain federal tax matters of $24 in
2000. This benefit, along with an $8 benefit related to state income taxes,
resulted in $32 of tax benefits for the year ended December 31, 2000.
Additionally, net realized capital losses, after-tax, increased $55 due to
portfolio rebalancing. Excluding the tax items and net realized capital losses,
earnings increased $149, or 41%.
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.
<Page>
26 HARTFORD LIFE INSURANCE COMPANY
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SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<Table>
<Caption>
2001 2000 1999
- -------------------------------------------------------------------
Investment Products $375 $354 $300
- -------------------------------------------------------------------
Individual Life 106 70 68
- -------------------------------------------------------------------
Corporate Owned Life Insurance 36 35 28
- -------------------------------------------------------------------
Other 129 28 (35)
- -------------------------------------------------------------------
NET INCOME $646 $487 $361
- -------------------------------------------------------------------
</Table>
A description of each segment as well as an analysis of the operating results
summarized above is included on the following pages.
INVESTMENT PRODUCTS
OPERATING SUMMARY
<Table>
<Caption>
2001 2000 1999
- ---------------------------------------------------------------
Total revenues $2,114 $2,068 $1,884
- ---------------------------------------------------------------
Total expenses 1,739 1,714 1,584
- ---------------------------------------------------------------
NET INCOME $ 375 $ 354 $ 300
- ---------------------------------------------------------------
</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 variable and fixed annuities,
mutual funds, retirement plan services and other investment products. The
Company is both a leading writer of individual variable annuities and a top
seller of individual variable annuities through banks in the United States.
2001 COMPARED TO 2000 -- Revenues in the Investment Products segment increased
$46, or 2%, driven primarily by other investment products. Revenues from other
investment products increased $101, or 16%, principally due to growth in net
investment income. Net investment income in other investment products increased
$110, or 20%, due mostly to growth in the institutional business, where account
values were $9.1 billion at December 31, 2001, an increase of $1.4 billion, or
18%, from a year ago. The increase in revenues from other investment products
was partially offset by individual annuity revenues, which decreased $55 or 4%.
Fee income and net investment income from the individual annuity business
acquired from Fortis helped to partially offset lower revenues in the individual
annuity operation, which was primarily associated with decreased account values
resulting from the lower equity markets as compared to the prior year.
Total expenses increased $25, or 1%, driven by higher interest credited and
insurance operating expenses related to other investment products consistent
with the revenue growth described above. Interest credited related to other
investment products increased $78, or 18%. Also, individual annuity benefits and
claims expenses increased $37, or 15%, principally due to the business acquired
from Fortis and higher death benefits resulting from the lower equity markets in
2001. Individual annuity's insurance operating costs increased $13, or 5% also
due to the business acquired from Fortis. Partially offsetting the increase in
benefits, claims, and insurance operating costs was a decrease in amortization
of deferred policy acquisition costs of $64, or 13% resulting from the lower
gross profits associated with the individual annuity business. In addition,
income tax expense for the twelve months ended December 31, 2001 was $111, a $39
or 26% decrease due to lower pretax operating income and the ongoing tax impact
related to separate account investment activity.
Net income increased $21, or 6%. These increases were driven by the growth in
revenues in other investment products described above, the favorable impact of
Fortis and the lower effective tax rate related to the individual annuity
business.
2000 COMPARED TO 1999 -- Revenues increased $184, or 10%, primarily due to
higher fee income in the individual annuity operations. Fee income generated by
individual annuities increased $175, or 16%, while related average account
values grew $8.2 billion, or 10%, to $88.1 billion. The growth in average
account values was due, in part, to strong sales of $10.7 billion in 2000, and
the significant equity market performance in 1999, partially offset by
surrenders. Although average individual annuity account values in 2000 were
higher than 1999, account values at December 31, 2000 declined $1.7 billion, or
2%, as compared to December 31, 1999, as strong sales were not sufficient to
offset surrenders and the impact of the retreating equity markets.
Due to the continued growth in this segment, expenses increased $130, or 8%.
This increase was driven by amortization of deferred policy acquisition costs
and operating costs, which grew $66, or 16%, and $39, or 14%, respectively,
primarily related to growth in the individual annuity operation.
Net income increased $54, or 18%, primarily due to the growth in revenues
discussed above. Additionally, the Investment Products segment continued to
maintain its profit margins related to its primary businesses, thus contributing
to the segment's earnings growth. In particular, its individual annuity
operation's operating expenses as a percentage of average individual annuity
account values remained consistent with the prior year at 21 basis points.
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 income 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, new companies are continually entering the
market, aggressively seeking distribution channels 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 permits affiliations among banks, insurance companies and securities
firms.
<Page>
HARTFORD LIFE INSURANCE COMPANY 27
- --------------------------------------------------------------------------------
Management believes that it has developed and implemented strategies to maintain
and enhance its position as a market leader in the financial services industry.
For example, Hartford Life Insurance Company is introducing a tax advantaged
college savings product (529 plan) in early 2002 called SMART 529. SMART 529 is
a state-sponsored education savings program established by the State of West
Virginia, which offers an easy way for both the residents of West Virginia and
out-of-state participants to invest for a college education. SMART 529 will
allow investors to choose from a wide variety of investment portfolios to match
their risk preference to help investors accumulate savings for college. The
SMART 529 product complements the Company's existing offering of investment
products (mutual funds, variable annuities, 401(k), 457 and 403(b) plans). It
also leverages the Company's capabilities in distribution, service and fund
performance. The Company believes this is a significant market opportunity and
the benefits of investing in 529 plans will be well received by many Americans
saving for college.
INDIVIDUAL LIFE
OPERATING SUMMARY
<Table>
<Caption>
2001 2000 1999
- --------------------------------------------------------------------
Total revenues $774 $545 $574
- --------------------------------------------------------------------
Total expenses 668 475 506
- --------------------------------------------------------------------
NET INCOME $106 $ 70 $ 68
- --------------------------------------------------------------------
</Table>
The Individual Life segment sells a variety of life insurance products,
including variable life, universal life, interest sensitive whole life and term
life insurance primarily to the high end estate and business planning markets.
Additionally, the Fortis transaction, through the addition of a retail broker
dealer, which has been renamed Woodbury Financial Services, Inc. has allowed the
Individual Life segment to increase its reach in the emerging affluent market.
2001 COMPARED TO 2000 -- Revenues in the Individual Life segment increased $229,
or 42%, primarily due to the business acquired from Fortis. Fee income,
including cost of insurance charges, increased $161, or 41%, driven principally
by growth in the variable life business. In addition, net investment income on
general account business (universal life, interest sensitive whole life and term
life) increased $62, or 44%, consistent with the growth in related account
values.
Benefits, claims and expenses increased $177, or 41%, due principally to the
growth in revenues described above. Although death benefits were higher in 2001
than the prior year as a result of the increase in life insurance in force,
year-to-date mortality experience (expressed as death claims as a percentage of
net amount at risk) for 2001 was within pricing assumptions.
Net income increased $36, or 51% primarily due to the revenue growth described
above. Individual Life incurred an after-tax loss of $3 related to the September
11 terrorist attack. Excluding this loss, operating income increased $39, or
56%, primarily due to the growth factors described above.
2000 COMPARED TO 1999 -- Revenues decreased $29, or 5%, and expenses decreased
$31, or 6%, 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 12 of the Consolidated Financial
Statements.)
Excluding the recapture described above, revenues increased $58, or 12%. This
increase in revenues is attributed to higher fee income associated with the
growing block of variable life insurance. Fee income increased $58, or 17%, as
variable life account values increased $352, or 14%, and variable life insurance
in force increased $9.6 billion, or 40%.
Excluding the recapture described above, expenses increased $53, or 13%. The
increase in expenses were primarily due to a $22, or 11%, increase in benefits,
claims and claim adjustment expenses and a $13, or 11%, increase in amortization
of deferred policy acquisition costs mostly associated with the growth in this
segment's variable business. Additionally, insurance costs and other increased
$15, or 19%, directly associated with the growth in this segment as previously
described. Excluding the recapture described above, net income increased $5, or
8%, primarily due to higher fee income as mortality experience was consistent
with prior year.
OUTLOOK -- Management believes that the Company's strong market position will
provide opportunities for growth in this segment as individuals increasingly
focus on estate planning. The Hartford's acquisition of the United States
individual life insurance business of Fortis has increased its scale while
broadening its distribution capabilities as described above.
CORPORATE OWNED LIFE INSURANCE (COLI)
OPERATING SUMMARY
<Table>
<Caption>
2001 2000 1999
- --------------------------------------------------------------------
Total revenue $717 $765 $830
- --------------------------------------------------------------------
Total expenses 681 730 802
- --------------------------------------------------------------------
Net income $ 36 $ 35 $ 28
- --------------------------------------------------------------------
</Table>
Hartford Life Insurance Company is a leader in the COLI market, which includes
life insurance policies purchased by a company on the lives of its employees,
with the company or a trust sponsored by 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.
2001 COMPARED TO 2000 -- COLI revenues decreased $48, or 6%, mostly due to lower
fee income and net investment income. Fee income and other decreased $34, or 8%,
due to a
<Page>
28 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
decline in variable COLI sales and deposits which were approximately $1.5
billion in 2001 as compared to $2.9 billion in 2000. In addition, net investment
income decreased $14, or 4% due primarily to lower interest rates, and the
decline in leveraged COLI account values.
Benefits, claims and expenses decreased $47, or 7%, directly related to the
decrease in revenue discussed above.
Net income increased $1 or 3% primarily due to the overall growth in variable
COLI business and earnings associated with the leveraged COLI business
recaptured in 1998. COLI incurred an after-tax charge of $2 related to the
September 11 terrorist attack; excluding this charge, net income increased $3,
or 9%.
2000 COMPARED TO 1999 -- Revenues in the COLI segment decreased $65, or 8%, due
to a decline in net investment income of $65, or 15%. This decline was
principally due to the leveraged COLI block of business, as related account
values decreased $751, or 13%, as a result of the continued downsizing caused by
the HIPA Act of 1996.
Expenses decreased $72, or 9%, primarily due to the factor described above. Net
income increased $7, or 25%, principally due to the variable COLI business where
related account values increased $3.6 billion, or 29%, as well as earnings
associated with a block of leveraged COLI business recaptured in 1998.
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 from
leveraged COLI is expected to decline. COLI is subject to a changing legislative
and regulatory environment that could have a material adverse effect on its
business.
DEFERRED ACQUISITION COSTS (DAC) AND RESERVES
Management is required to make estimates and assumptions that affect the
reported amounts of 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 policyholder benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
DEFERRED ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain other expenses
that vary with and are primarily associated with acquiring business, are
deferred and amortized over the estimated lives of the contracts, usually 20
years.
Deferred policy acquisition costs related to investment contracts and universal
life type contracts 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 investment,
mortality and expense margins and surrender charges. Actual gross profits can
vary from management's estimates, resulting in increases or decreases in the
rate of amortization. Management periodically reviews these estimates 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. The
average rate of assumed future investment yield used in estimating expected
gross profits related to variable annuity and variable life business was 9.0% at
December 31, 2001 and for all other products including fixed annuities and other
universal life type contracts the average assumed investment yield ranged from
5.0-8.5%.
Deferred policy acquisition costs related to traditional policies are amortized
over the premium paying period of the related policies in proportion to the
ratio of the present value of annual expected premium income to the present
value of total expected premium income. Adjustments are made each year to
recognize actual experience as compared to assumed experience for the current
period.
To date, our experience has generally been consistent or favorable to the
assumptions used in determining DAC amortization. However, if we were to
experience a material adverse deviation in certain critical assumptions,
including surrender rates, mortality experience, or investment performance,
there could be a negative affect to the Company's reported earnings and
shareholder's equity.
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 their future obligations. Reserves for life insurance and disability
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 in a manner that
is comparable to direct insurance reserves.
The liability for policy benefits for universal life-type contracts and
interest-sensitive whole life policies is equal to the balance that accrues to
the benefit of policyholders, including credited interest, amounts that have
been assessed to compensate the
<Page>
HARTFORD LIFE INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
Company for services to be performed over future periods, and any amounts
previously assessed against policyholders that are refundable on termination of
the contract. For investment contracts, policyholder liabilities are equal to
the accumulated policy account values, which consist of an accumulation of
deposit payments plus credited interest, less withdrawals and amounts assessed
through the end of the period. For the Company's group disability policies, the
level of reserves is based on a variety of factors including particular
diagnoses, termination rates and benefit levels.
The persistency of the 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 either the accumulation value
or considerations received, 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.
INVESTMENTS
Hartford Life Insurance 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 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) as discussed in the Capital Markets Risk Management
section under "Market Risk -- Interest Rate Risk".
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 $23.6 billion as of
December 31, 2001 and were comprised of $19.1 billion of fixed maturities, $3.3
billion of policy loans, equity securities of $64 and other investments of $1.1
billion. As of December 31, 2000, general account invested assets totaled $18.7
billion and were comprised of $14.3 billion of fixed maturities, $3.6 billion of
policy loans, equity securities of $48 and other investments of $784. The
decrease in policy loans was primarily due to the decline in leveraged COLI
business (as discussed in the COLI section). Policy loans are secured by the
cash value of the underlying life policy and do not mature in a conventional
sense, but expire in conjunction with the related policy liabilities. The
increase in other investments primarily reflects an increase in limited
partnership investments.
The following table sets forth by type the fixed maturity securities held in the
Company's general account as of December 31, 2001 and 2000.
<Table>
<Caption>
2001 2000
------------------------- -------------------------
FIXED MATURITIES BY TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------------------------------------------------------------------------------------------------------------------
Corporate $10,443 54.5% $ 6,692 46.8%
Asset backed securities 3,131 16.4% 2,778 19.5%
Commercial mortgage backed securities 2,534 13.2% 2,304 16.2%
Collateralized mortgage obligations 591 3.1% 740 5.2%
Mortgage backed securities -- agency 800 4.2% 440 3.1%
Government/Government agencies -- Foreign 327 1.7% 268 1.9%
Government/Government agencies -- U.S. 260 1.4% 201 1.4%
Municipal -- taxable 47 0.2% 83 0.6%
Short-term 1,008 5.3% 750 5.3%
Redeemable preferred stock 1 -- 1 --
------- ------- ------- -------
TOTAL FIXED MATURITIES $19,142 100.0% $14,257 100.0%
- -------------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
30 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
During 2001, corporate and ABS fixed maturity investments increased due to the
Fortis acquisition.
As of December 31, 2001 and 2000, approximately 22% and 25%, respectively, of
the Company's fixed maturity portfolio was invested in private placement
securities (including 13% and 15% of Rule 144A offerings as of December 31, 2001
and 2000, respectively). Private placement securities are generally less liquid
than public securities. However, private placements generally have covenants
designed to compensate for liquidity risk. Most of the private placement
securities in the operation's portfolio are rated by nationally recognized
rating agencies. (For further discussion of the Company's investment credit
policies, see the Capital Markets Risk Management section under "Credit Risk".)
INVESTMENT RESULTS -- The table below summarizes Hartford Life Insurance
Company's investment results.
<Table>
<Caption>
(BEFORE-TAX) 2001 2000 1999
- ---------------------------------------------------------------
Net investment income --
excluding policy loan
income $1,191 $1,021 $ 968
- ---------------------------------------------------------------
Policy loan income 304 305 391
- ---------------------------------------------------------------
Net investment income --
total $1,495 $1,326 $1,359
- ---------------------------------------------------------------
Yield on average invested
assets (1) 7.1% 7.1% 6.8%
- ---------------------------------------------------------------
Net realized capital
losses $ (91) $ (85) $ (4)
- ---------------------------------------------------------------
</Table>
(1) Represents net investment income (excluding net realized capital losses)
divided by average invested assets at cost (fixed maturities at amortized
cost).
2001 COMPARED TO 2000 -- Net investment income, excluding policy loan income,
increased $170, or 17%. The increase was primarily due to income earned on the
previously discussed increase in fixed maturity investments, partially offset by
lower yields on fixed maturities in the third and fourth quarters of 2001.
Yields on overall average invested assets were flat.
Net realized capital losses increased $6 compared to 2000. Included in 2001 net
realized capital losses were write-downs for other than temporary impairments on
fixed maturities of $93, including a $37 loss related to securities issued by
Enron Corporation. Also included in net realized capital losses is a $10 loss
recognized on the sale of the Company's interest in an Argentine joint venture,
in addition to losses associated with the credit deterioration of certain
investments in which the Company has an indirect economic interest. These losses
were partially offset by gains from the sale of fixed maturities.
2000 COMPARED TO 1999 -- Net investment income, excluding policy loan income,
increased $53, or 5%. The increase was primarily due to higher yields earned on
the investment cash flow from operations and reinvestment of proceeds from sales
and maturities of fixed maturity securities in a higher interest rate
environment. Policy loan income decreased $86, or 22%, due to the decrease in
leveraged COLI business. Yield on average invested assets increased to 7.1%, as
a result of an increase in the policy loan weighted average interest rate to
8.5% in 2000 from 7.5% in 1999. Net realized capital losses increased $81
compared to 1999 primarily as a result of portfolio rebalancing in a higher
interest rate environment.
SEPARATE ACCOUNT PRODUCTS -- Separate account products are those for which a
separate investment and liability account is maintained on behalf of the
policyholder. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $104.2 billion and $104.1 billion as
of December 31, 2001 and 2000, respectively, wherein the policyholder assumes
substantially all the investment risk and reward, and guaranteed separate
accounts totaling $10.1 billion and $9.6 billion as of December 31, 2001 and
2000, respectively, wherein Hartford Life Insurance Company contractually
guarantees either a minimum return or account value to the policyholder. The
primary investment objective of the Company's guaranteed separate account 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) as discussed in the Capital Market Risk
Management section under "Market Risk -- Interest Rate Risk".
Investment objectives for non-guaranteed separate accounts vary by fund type, as
outlined in the applicable fund prospectus or separate account plan of
operations. 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 and surrender charges to mitigate the risk of disintermediation.
CAPITAL MARKETS RISK MANAGEMENT -- Hartford Life Insurance Company is exposed to
two primary sources of investment risk and asset/liability management risk:
credit risk, relating to the uncertainty associated with an obligor's continued
ability to make timely payment of principal and/or interest, and market risk,
relating to the market price and/or cash flow variability associated with
changes in interest rates, security prices, market indices, yield curves or
currency exchange rates. The Company does not hold any financial instruments
purchased for trading purposes. The following discussion identifies the
Company's policies and procedures for managing these risks and monitoring the
results of the Company's risk management activities.
CREDIT RISK -- Hartford Life Insurance Company has established investment credit
policies that focus on the credit quality of obligors and counterparties, limit
credit concentrations, encourage diversification and require frequent
creditworthiness reviews. Investment activity, including setting of policy and
defining acceptable risk levels, is subject to regular review and approval by
senior management.
The Company invests primarily in securities which are rated investment grade and
has established exposure limits, diversification standards and review procedures
for all credit risks including borrower, issuer and counterparty.
Creditworthiness of specific
<Page>
HARTFORD LIFE INSURANCE COMPANY 31
- --------------------------------------------------------------------------------
obligors is determined by an internal credit evaluation supplemented by
consideration of external determinants of creditworthiness, typically ratings
assigned by nationally recognized ratings agencies. Obligor, asset sector and
industry concentrations are subject to established limits and monitored on a
regular interval.
The Company's derivatives counterparty exposure policy 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 generally quantified weekly and netted, and
collateral is pledged to and held by, or on behalf of, the Company to the extent
the current value of derivatives exceeds exposure policy thresholds.
Hartford Life Insurance Company is not exposed to any significant credit
concentration risk of a single issuer.
The following table identifies fixed maturity securities, including guaranteed
separate accounts, for the Company's operations by credit quality. The ratings
referenced in the tables are based on the ratings of nationally recognized
rating organizations or, if not rated, assigned based on the Company's internal
analysis of such securities.
As of December 31, 2001 and 2000, over 96% and 97%, respectively, of the fixed
maturity portfolio was invested in securities rated investment grade (BBB and
above). During 2001, the percentage of BBB rated fixed maturity investments
increased due to the Fortis acquisition and the continued active management of
the general account portfolios.
<Table>
<Caption>
2001 2000
------------------------- -------------------------
FIXED MATURITIES BY CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government/Government agencies $ 2,197 7.6% $ 1,969 8.2%
AAA 3,818 13.2% 3,594 15.2%
AA 2,884 9.9% 2,883 12.2%
A 10,794 37.2% 8,798 37.1%
BBB 7,027 24.2% 5,030 21.2%
BB & below 1,031 3.6% 631 2.7%
Short-term 1,233 4.3% 801 3.4%
------- ------- ------- -------
TOTAL FIXED MATURITIES $28,984 100.0% $23,706 100.0%
- -------------------------------------------------------------------------------------------------------------------------
</Table>
The Company also maintains credit policies regarding the financial stability and
credit standing of its major derivatives' counterparties and typically requires
credit enhancement provisions to further reduce its credit risk. Credit risk for
derivative contracts are limited to the amounts calculated to be due to the
Company on such contracts based on current market conditions and potential
payment obligations between the Company and its counterparties. Credit exposures
are generally quantified weekly and netted. Collateral is pledged to and held
by, or on behalf of, the Company to the extent the current value of derivatives
exceeds exposure policy thresholds.
MARKET RISK -- Hartford Life Insurance Company's general and guaranteed separate
account exposure to market risk relates to the market price and/or cash flow
variability associated with changes in market interest rates. The following
discussion focuses on the Company's exposure to interest rate risk, asset/
liability management strategies utilized to manage this risk, and
characteristics of the Company's insurance liabilities and their sensitivity to
movements in interest rates.
Downward movement in market interest rates during 2001 resulted in a significant
increase in the unrealized appreciation of the fixed maturity security portfolio
from 2000. However, the Company's asset allocation and its exposure to market
risk as of December 31, 2001 have not changed materially from its position at
December 31, 2000.
DERIVATIVE INSTRUMENTS -- Hartford Life Insurance Company utilizes a variety of
derivative instruments, including swaps, caps, floors, forwards and exchange
traded futures and options, in compliance with Company policy and regulatory
requirements 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 transaction costs. The Company
does not make a market or trade derivatives for the express purpose of earning
trading profits.
Interest rate swaps involve the periodic exchange of payments with other
parties, at specified intervals, calculated using the agreed upon rates and
notional principal amounts. Generally, no cash is exchanged at the inception of
the contract and no principal payments are exchanged. Typically, at the time a
swap is entered into, the cash flow streams exchanged by the counterparties are
equal in value.
Foreign currency swaps exchange an initial principal amount in two currencies,
agreeing to re-exchange the currencies at a future date, at an agreed exchange
rate. There is also periodic exchange of payments at specified intervals
calculated using the agreed upon rates and exchanged principal amounts.
Interest rate cap and floor contracts entitle the purchaser to receive from the
issuer at specified dates, the amount, if any, by which a specified market rate
exceeds the cap strike rate or falls below the floor strike rate, applied to a
notional principal amount. A premium payment is made by the purchaser of the
contract at its inception, and no principal payments are exchanged.
<Page>
32 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Forward contracts are customized commitments to either purchase or sell
designated financial instruments, at a future date, for a specified price and
may be settled in cash or through delivery of the underlying instrument.
Financial futures are standardized commitments to either purchase or sell
designated financial instruments, at a future date, for a specified price and
may be settled in cash or through delivery of the underlying instrument. Futures
contracts trade on organized exchanges. Margin requirements for futures are met
by pledging securities, and changes in the futures' contract values are settled
daily in cash.
Option contracts grant the purchaser, for a premium payment, the right to either
purchase from or sell to the issuer a financial instrument at a specified price,
within a specified period or on a stated date.
The Company uses derivative instruments in its management of market risk
consistent with four risk management strategies: hedging anticipated
transactions, hedging liability instruments, hedging invested assets and hedging
portfolios of assets and/or liabilities. (For additional information on these
strategies along with tables reflecting outstanding derivative instruments, see
the Company's discussion below.)
Derivative activities are monitored by an internal compliance unit, reviewed
frequently by senior management and reported to The Hartford's Finance Committee
of the Board of Directors. The notional amounts of derivative contracts
represent the basis upon which pay or receive amounts are calculated and are not
reflective of credit risk. Notional amounts pertaining to derivative instruments
for both general and guaranteed separate accounts at December 31, 2001 and 2000
totaled $8.4 billion and $7.1 billion, respectively.
INTEREST RATE RISK -- Changes in interest rates can potentially impact Hartford
Life Insurance Company's profitability. Under certain circumstances of interest
rate volatility, the Company could be exposed to disintermediation risk and
reduction in net interest rate spread or profit margins. The Company analyzes
interest rate risk using various models including multi-scenario cash flow
projection models that forecast cash flows of the liabilities and their
supporting investments, including derivative instruments. For non-guaranteed
separate accounts, the Company's exposure is not significant, as the
policyholder assumes substantially all the investment risk.
The Company's general account and guaranteed separate account investment
portfolios primarily consist of investment grade, fixed maturity securities,
including corporate bonds, asset backed securities, collateralized mortgage
obligations and mortgage backed securities. The fair value of these and the
Company's other invested assets fluctuates depending on the interest rate
environment and other general economic conditions. During periods of declining
interest rates, paydowns on mortgage backed securities and collateralized
mortgage obligations increase as the underlying mortgages are prepaid. During
such periods, the Company generally will not be able to reinvest the proceeds of
any such prepayments at comparable yields. Conversely, during periods of rising
interest rates, the rate of prepayments generally declines, exposing the Company
to the possibility of asset/liability cash flow and yield mismatch. For a
discussion of the Company's risk management techniques to manage this market
risk, see "Asset/Liability Management Strategies Used to Manage Market Risk"
below.
As described above, the Company holds a significant fixed maturity portfolio,
which includes both fixed and variable rate features. The following table
reflects the principal amounts of the general and guaranteed separate account
fixed and variable rate fixed maturity portfolios, along with the respective
weighted average coupons by estimated maturity year as of December 31, 2001.
Comparative totals are included for December 31, 2000. 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, 2001 and 2000, 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 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>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES -- CALLABLE
FIXED RATE
Par value $ 17 $ 33 $ 9 $ 52 $ 11 $1,462 $ 1,584 $ 465
Weighted average coupon 6.5% 5.1% 6.7% 8.2% 8.4% 2.6% 2.9% 5.7%
Fair value $ 1,113 $ 424
VARIABLE RATE
Par value $ 11 $ 24 $ 3 $ 37 $ 8 $ 870 $ 953 $ 1,043
Weighted average coupon 4.0% 3.2% 3.8% 4.2% 5.7% 3.3% 3.4% 7.1%
Fair value $ 873 $ 968
</Table>
<Page>
HARTFORD LIFE INSURANCE COMPANY 33
- --------------------------------------------------------------------------------
<Table>
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
BONDS AND NOTES -- OTHER
FIXED RATE
Par value $2,165 $1,471 $1,241 $1,607 $1,786 $8,164 $16,434 $12,531
Weighted average coupon 5.9% 6.7% 6.1% 7.4% 6.1% 6.2% 6.3% 6.1%
Fair value $15,769 $11,436
VARIABLE RATE
Par value $ 220 $ 221 $ 74 $ 247 $ 73 $ 282 $ 1,117 $ 1,295
Weighted average coupon 4.5% 3.8% 5.1% 4.2% 7.7% 6.0% 4.9% 7.4%
Fair value $ 1,023 $ 1,176
ASSET BACKED SECURITIES
FIXED RATE
Par value $ 434 $ 336 $ 460 $ 254 $ 153 $ 438 $ 2,075 $ 2,132
Weighted average coupon 6.9% 6.7% 6.3% 6.9% 6.4% 7.7% 6.9% 6.9%
Fair value $ 2,068 $ 2,132
VARIABLE RATE
Par value $ 262 $ 299 $ 360 $ 321 $ 195 $ 827 $ 2,264 $ 2,022
Weighted average coupon 2.4% 2.8% 2.7% 2.7% 2.8% 2.9% 2.8% 7.3%
Fair value 2,201 $ 1,998
COLLATERALIZED MORTGAGE OBLIGATIONS
FIXED RATE
Par value $ 79 $ 90 $ 90 $ 84 $ 78 $ 367 $ 788 $ 908
Weighted average coupon 6.8% 6.2% 6.2% 6.2% 6.2% 6.5% 6.4% 6.4%
Fair value $ 784 $ 900
VARIABLE RATE
Par value $ 4 $ 3 $ 3 $ 2 $ 1 $ 2 $ 15 $ 112
Weighted average coupon 7.9% 6.7% 6.6% 6.7% 6.7% 6.4% 6.9% 5.3%
Fair value $ 16 $ 101
COMMERCIAL MORTGAGE BACKED SECURITIES
FIXED RATE
Par value $ 67 $ 62 $ 94 $ 64 $ 146 $2,258 $ 2,691 $ 2,263
Weighted average coupon 6.9% 6.8% 7.1% 6.9% 7.2% 7.1% 7.0% 7.3%
Fair value $ 2,789 $ 2,325
VARIABLE RATE
Par value $ 254 $ 273 $ 187 $ 130 $ 106 $ 499 $ 1,449 $ 1,574
Weighted average coupon 4.1% 4.0% 4.5% 5.6% 7.0% 8.0% 5.8% 7.9%
Fair value $ 1,338 $ 1,581
MORTGAGE BACKED SECURITIES
FIXED RATE
Par value $ 136 $ 148 $ 134 $ 108 $ 88 $ 376 $ 990 $ 631
Weighted average coupon 7.0% 6.9% 6.8% 6.8% 6.7% 6.6% 6.8% 7.2%
Fair value $ 1,008 $ 638
VARIABLE RATE
Par value $ -- $ -- $ -- $ -- $ -- $ 2 $ 2 $ 3
Weighted average coupon -- -- -- -- -- 5.3% 5.3% 7.0%
Fair value $ 2 $ 3
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
ASSET/LIABILITY MANAGEMENT STRATEGIES USED TO MANAGE MARKET RISK -- The Company
employs several risk management tools to quantify and manage market risk arising
from their 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 reduction 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. As
an end-user of derivatives, the Company's 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. At
December 31, 2001, notional amounts pertaining to derivatives totaled $8.4
billion ($6.9 billion related to insurance investments and $1.5 billion related
to life insurance liabilities). Notional amounts pertaining to derivatives
totaled $7.1 billion at December 31, 2000 ($5.2 billion related to insurance
investments and $1.9 billion related to life insurance liabilities).
The economic objectives and strategies for which the Company utilized
derivatives have not changed as a result of SFAS 133 and are categorized as
follows:
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 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
<Page>
34 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
taking a long position (purchase) in interest rate futures or entering into an
interest rate swap with duration characteristics equivalent to the associated
liabilities or anticipated investments. The notional amounts of anticipatory
hedges as of December 31, 2001 and 2000 were $78 and $144 million, respectively.
LIABILITY HEDGING -- Several products obligate the Company to credit a return to
the contract holder 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 the operation's asset/ liability matching policy. In addition,
interest rate swaps are used to convert certain variable contract rates to
different variable rates, thereby allowing them to be appropriately matched
against variable rate assets. Finally, interest rate caps and option contracts
are used to hedge against the risk of contract holder disintermediation in a
rising interest rate environment. The notional amounts of derivatives used for
liability hedging as of December 31, 2001 and 2000 were $1.5 and $1.9 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 amounts of
asset hedges as of December 31, 2001 and 2000, were $6.4 billion and $4.9
billion, respectively.
PORTFOLIO HEDGING -- The Company periodically compares the duration and
convexity of its portfolios of assets to its corresponding liabilities and
enters into portfolio hedges to reduce any difference to desired levels.
Portfolio hedges reduce the duration and convexity mismatch between assets and
liabilities and offset the potential impact to cash flows caused by changes in
interest rates. The notional amounts of portfolio hedges as of December 31, 2001
and 2000, were $353 and $223 million, respectively.
The following tables provide information as of December 31, 2001 with
comparative totals for December 31, 2000 on derivative instruments used in
accordance with the aforementioned hedging strategies. For interest rate swaps,
caps and floors, the tables present notional amounts with weighted average pay
and receive rates for swaps and weighted average strike rates for caps and
floors by maturity year. For interest rate futures, the table presents contract
amount and weighted average settlement price by expected maturity year. For
option contracts, the table presents contract amount by expected maturity year.
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS (1)
PAY FIXED/RECEIVE VARIABLE
Notional value $ 90 $ 198 $ 35 $ 37 $ 50 $ 465 $ 875 $ 602
Weighted average pay rate 5.9% 5.1% 6.1% 6.6% 6.7% 6.2% 5.8% 5.9%
Weighted average receive rate 2.1% 2.3% 2.2% 2.4% 2.4% 2.0% 2.2% 6.8%
Fair value $ (17) $ (8)
PAY VARIABLE/RECEIVE FIXED
Notional value $ 112 $ 518 $1,299 $ 832 $ 797 $ 801 $ 4,359 $ 4,453
Weighted average pay rate 2.1% 2.0% 2.2% 2.1% 2.0% 2.0% 2.1% 7.0%
Weighted average receive rate 6.4% 5.4% 5.6% 6.0% 5.7% 6.3% 5.8% 6.7%
Fair value $ 178 $ 76
PAY VARIABLE/RECEIVE DIFFERENT
VARIABLE
Notional value $ 5 $ 2 $ 20 $ 5 $ -- $ 251 $ 283 $ 115
Weighted average pay rate 5.4% 2.2% .1% 5.5% -- 3.1% 3.1% 6.6%
Weighted average receive rate 3.0% 1.9% -7.4% 2.6% -- 5.5% 4.8% 5.7%
Fair value $ (50) $ 1
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Negative weighted average receive rate in 2005 results when payments are
required on both sides of an index swap.
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE CAPS -- LIBOR BASED
PURCHASED
Notional value $ 10 $ 43 $ -- $ 77 $ -- $ 15 $ 145 $ 146
Weighted average strike rate
(8.0 -- 9.9%) 8.9% 8.5% -- 8.4% -- 8.3% 8.5% 8.5%
Fair value $ 1 $ --
Notional value $ 19 $ -- $ -- $ -- $ -- $ -- $ 19 $ 19
Weighted average strike rate
(10.0 -- 11.9%) 10.1% -- -- -- -- -- 10.1% 10.1%
Fair value $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
HARTFORD LIFE INSURANCE COMPANY 35
- --------------------------------------------------------------------------------
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE CAPS -- CMT BASED (1)
PURCHASED
Notional value $ -- $ 250 $ -- $ 250 $ -- $ -- $ 500 $ 500
Weighted average strike rate
(8.0 -- 9.9%) -- 8.7% -- 8.7% -- -- 8.7% 8.7%
Fair value $ 3 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) CMT represents the Constant Maturity Treasury Rate.
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE FLOORS -- LIBOR BASED
PURCHASED
Notional value $ -- $ -- $ 27 $ -- $ -- $ -- $ 27 $ 27
Weighted average strike rate
(6.0 -- 7.9%) -- -- 7.9% -- -- -- 7.9% 7.9%
Fair value $ 3 $ 2
ISSUED
Notional value $ 28 $ 43 $ 20 $ 77 $ -- $ -- $ 168 $ 168
Weighted average strike rate
(4.0 -- 5.9%) 5.3% 5.5% 5.3% 5.3% -- -- 5.3% 5.3%
Fair value $ (7) $ (2)
Notional value $ -- $ -- $ 27 $ -- $ -- $ -- $ 27 $ 27
Weighted average strike rate
(6.0 -- 7.9%) -- -- 7.8% -- -- -- 7.8% 7.8%
Fair value $ (3) $ (2)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE FLOORS -- CMT BASED (1)
PURCHASED
Notional value $ -- $ 150 $ -- $ -- $ -- $ -- $ 150 $ 150
Weighted average strike rate
(4.0 -- 5.9%) -- 5.5% -- -- -- -- 5.5% 5.5%
Fair value $ 5 $ 3
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) CMT represents the Constant Maturity Treasury Rate.
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE FUTURES
LONG
Contract amount/notional $ 266 $ -- $ -- $ -- $ -- $ -- $ 266 $ 198
Weighted average settlement price $ 105 $ -- $ -- $ -- $ -- $ -- $ 105 $ 105
SHORT
Contract amount/notional $ 25 $ -- $ -- $ -- $ -- $ -- $ 25 $ 59
Weighted average settlement price $ 105 $ -- $ -- $ -- $ -- $ -- $ 105 $ 105
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
2001 2000
2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
OPTION CONTRACTS
LONG
Contract amount/notional $ -- $ 119 $ 107 $ -- $ 280 $ 20 $ 526 $ 308
FAIR VALUE $ 16 $ 0
SHORT
Contract amount/notional $ 39 $ 177 $ 427 $ 93 $ 225 $ 30 $ 991 $ 362
FAIR VALUE $ (52) $ (40)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
CURRENCY EXCHANGE RISK -- As of December 31, 2001, the Company had immaterial
currency exposures resulting from its international operations.
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 asset
accumulation 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/
<Page>
36 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 the 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, 2001 are reflected in the table below
by expected maturity year. Comparative totals are included for December 31,
2000.
(DOLLARS IN BILLIONS)
<Table>
<Caption>
2001 2000
DESCRIPTION (1) 2002 2003 2004 2005 2006 THEREAFTER TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed rate asset accumulation vehicles $1.0 $1.3 $2.9 $3.0 $2.3 $5.2 $15.7 $10.3
Weighted average credited rate 5.3% 5.5% 6.5% 6.1% 5.7% 5.8% 5.9% 6.7%
Indexed asset accumulation vehicles $0.6 $ -- $ -- $ -- $ -- $0.1 $ 0.7 $ 0.5
Weighted average credited rate 6.5% -- -- -- -- 6.5% 6.5% 6.2%
Interest credited asset accumulation
vehicles $4.7 $0.5 $0.5 $0.2 $0.2 $1.4 $ 7.5 $ 9.7
Weighted average credited rate 6.1% 4.6% 4.5% 5.5% 5.5% 5.5% 5.8% 5.9%
Long-term pay out liabilities $0.4 $0.4 $0.4 $0.4 $0.3 $4.0 $ 5.9 $ 3.7
Short-term pay out liabilities $0.3 $ -- $ -- $ -- $ -- $ -- $ 0.3 $ 0.2
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) As of December 31, 2001 and 2000, the fair value of the Company's investment
contracts including guaranteed separate accounts was $25.7 billion and $20.9
billion, respectively.
<Page>
HARTFORD LIFE INSURANCE COMPANY 37
- --------------------------------------------------------------------------------
SENSITIVITY TO CHANGES IN INTEREST RATES -- For liabilities whose cash flows are
not substantially affected by changes in interest rates ("fixed liabilities")
and where investment experience is substantially absorbed by the Company, the
sensitivity of the net economic value (discounted present value of asset cash
flows less the discounted present value of liability cash flows) of those
portfolios to 100 basis point shifts in interest rates are shown in the
following table.
<Table>
<Caption>
CHANGE IN NET ECONOMIC VALUE
------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------
Basis point shift -100 + 100 -100 + 100
Amount $ 6 $ (31) $ (15) $ (27)
Percent of liability value 0.03% (0.16)% (0.09)% (0.16)%
- --------------------------------------------------------------------------------------------------------
</Table>
These fixed liabilities represented about 61% and 60% of the Company's general
and guaranteed separate account liabilities at December 31, 2001 and 2000,
respectively. The remaining liabilities generally allow the Company significant
flexibility to adjust credited rates to reflect actual investment experience and
thereby pass through a substantial portion of actual investment experience to
the policyholder. The fixed liability portfolios are managed and monitored
relative to defined objectives and are analyzed regularly by management for
internal risk management purposes using scenario simulation techniques, and are
evaluated on an annual basis, in compliance with regulatory requirements.
CAPITAL RESOURCES AND LIQUIDITY
RATINGS -- The following table summarizes the Company's financial ratings from
the major independent rating organizations as of February 28, 2002:
<Table>
<Caption>
A.M. STANDARD &
INSURANCE RATINGS BEST FITCH(1) MOODY'S POOR'S
- -------------------------------------------------------------------------
Hartford Life Insurance
Company A+ AA+ Aa3 AA
- -------------------------------------------------------------------------
Hartford Life and Annuity A+ AA+ Aa3 AA
- -------------------------------------------------------------------------
</Table>
(1) Formerly Duff & Phelps.
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.
As a result of the September 11 terrorist attack and subsequent reviews by major
independent rating agencies, all insurance financial strength and debt ratings
of the Company were reaffirmed. However, negative outlooks were placed upon the
debt ratings of the Company by Moody's. All other ratings were reaffirmed with
stable outlooks.
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, 2001, which are greater
than the minimum threshold.
CASH FLOW
<Table>
<Caption>
2001 2000 1999
- ------------------------------------------------------------------------
Cash provided by operating
activities $ 1,105 $ 1,333 $ 325
- ------------------------------------------------------------------------
Cash (used for) provided by
investing activities (3,658) (44) 2,423
- ------------------------------------------------------------------------
Cash provided by (used for)
financing activities 2,586 (1,288) (2,710)
- ------------------------------------------------------------------------
Cash--end of year $ 87 $ 56 $ 55
- ------------------------------------------------------------------------
</Table>
2001 COMPARED TO 2000 -- The decrease in cash provided by operating activities
was primarily the result of the timing of the settlement of receivables,
payables and other related liabilities. The increase in cash (used for) provided
by investing activities and the decrease in cash provided by (used for)
financing activities primarily relates to the purchase of Fortis Financial
Group. Operating cash flows in the periods presented have been more than
adequate to meet liquidity requirements.
2000 COMPARED TO 1999 -- The increase in cash provided by operating activities
was primarily the result of the timing of the settlement of receivables,
payables and other related liabilities, as well as increased net income
associated with growth in the business. The decrease in cash (used for) provided
by investing activities and the decrease in cash used for financing activities
primarily relates to the significant downsizing of the leveraged COLI block of
business during 1999 as compared to 2000. Operating cash flows in the periods
presented have been more than adequate to meet liquidity requirements.
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. The 1999 Gramm-Leach-Bliley Act
("the Financial Services Modernization Act" or "the Act"), which allows
affiliations among banks, insurance companies and securities firms, did not
precipitate any significant changes in ownership in 2000. The provisions of the
Act requiring the development of a formal privacy policy by each financial
institution had created a number of administrative issues, but the enforcement
date was delayed until July 1, 2001. Insurance companies are subject to privacy
regulation issued by the federal regulators and by state regulators who adopted
and implemented privacy regulations during 2001.
The enactment of the Financial Services Modernization Act has focused renewed
attention on state regulation of insurance. Life
<Page>
38 HARTFORD LIFE INSURANCE COMPANY
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insurers are working with state insurance regulators to improve and centralize
the process for agent licensing and form filing. Both of these areas of
regulation are critical to the development of new business. In addition,
Congress may consider legislation providing for optional federal regulation of
insurance in the future. These measures, state and federal, may lead to improved
regulation and reduced transaction costs.
Federal measures which have been previously considered by Congress and which, if
adopted, could affect the insurance business include tax law changes pertaining
to the tax treatment of insurance companies and life insurance products, as well
as changes in individual income tax rates and the estate tax, a number of which
could impact the relative desirability of various personal investment vehicles.
Other proposals pertain to medical testing for insurability, and the use of
gender in determining insurance and pension rates and benefits. It is too early
to determine whether any of these 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.
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. Part of the assessments paid
by the Company's insurance subsidiaries pursuant to these laws may be used as
credits for a portion of the Company's insurance subsidiaries' premium taxes.
There were no guaranty fund assessment payments (net of refunds) in 2001 and
2000. The Company paid guaranty fund assessments (net of refunds) of
approximately $2 in 1999, of which $1 was estimated to be creditable against
future premium taxes.
NAIC CODIFICATION -- The NAIC adopted the Codification of Statutory Accounting
Principles ("Codification") in March 1998. The effective date for the statutory
accounting guidance was January 1, 2001. Each of the Company's domiciliary
states has adopted Codification, and the Company has made the necessary changes
in its statutory accounting and reporting required for implementation. The
overall impact of applying the new guidance resulted in a one-time statutory
cumulative transition benefit of $38 in statutory surplus for the Company.
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS -- Hartford Life Insurance
Company distributes its annuity and life insurance products through a variety of
distribution channels, including broker-dealers, banks, wholesalers, its own
internal sales force and other third party marketing organizations. The Company
periodically negotiates provisions and renewals of these relationships and there
can be no assurance that such terms will remain acceptable to the Company or
such service providers. An interruption in the Company's continuing relationship
with certain of these third parties could materially affect the Company's
ability to market its products. During the first quarter of 1999, the Company
modified its contract with Putnam Mutual Funds Corp. (Putnam) to eliminate the
exclusivity provision, which will allow both parties to pursue new market
opportunities. Putnam is contractually obligated to support and service the
related annuity in force block of business and to market, support and service
new business. However, there can be no assurance that this contract modification
will not adversely impact the Company's ability to distribute Putnam-related
products.
EFFECT OF INFLATION
The rate of inflation as measured by the change in the average consumer price
index has not had a material effect on the revenues or operating results of
Hartford Life Insurance Company during the fiscal years presented.
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, 2001.
LEGAL OPINION
- --------------------------------------------------------------------------------
The validity of the interests in the Contracts described in this Prospectus will
be passed upon for Hartford by Christine Hayer Repasy, Senior Vice President,
General Counsel & Corporate 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 39
- --------------------------------------------------------------------------------
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 Section 401(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>
40 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
APPENDIX B -- SPECIAL PROVISIONS FOR INDIVIDUAL CONTRACTS ISSUED IN THE STATE OF
CALIFORNIA, MICHIGAN, MISSOURI, NEW YORK, OREGON, SOUTH CAROLINA, TEXAS,
VIRGINIA AND WISCONSIN
The following provision, among others, applies only to individual Contracts
issued in the States of California, Michigan, Missouri, New York, Oregon, South
Carolina, Texas, Virginia and Wisconsin:
(1) The Contract Owner has the right to request, in writing, a surrender of the
Contract within ten (10) days after it was purchased. In such event, in
California, Michigan, Missouri, New York, Oregon, Texas, Virginia and
Wisconsin, Hartford will pay the Contract Owner an amount equal to the sum
of (a) the Account Value on the date the written request for surrender was
received multiplied by the Market Value Adjustment formula and (b) any
charges deducted from the Purchase Payment. In Missouri and South Carolina,
the Contract will be cancelled and any premium paid will be refunded in
full.
<Page>
HARTFORD LIFE INSURANCE COMPANY 41
- --------------------------------------------------------------------------------
APPENDIX C -- MARKET VALUE ADJUSTMENT
The formula which will be used to determine the Market Value Adjustment is: [(1
+ I)/(1 + J)](n/12)
<Table>
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 the
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
<Table>
Beginning Account Value: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3
</Table>
EXAMPLE 1:
<Table>
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 - (0.05) X 57,161.18]
X Market Value Adjustment
= $54,303.12 X Market Value Adjustment
</Table>
<Table>
Market Value Adjustment
I = 0.055
J = 0.061
N = 30
Market Value Adjustment = [(1 + I)/(1 + J)] TO THE POWER OF n/12
= (1.055/1.061) TO THE POWER OF 30/12
= 0.985922
Net Surrender Value at middle of Contract Year 3 = $54,303.12 x 0.985922
= $53,538.64
</Table>
EXAMPLE OF MARKET VALUE ADJUSTMENT
<Table>
Beginning Account Value: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3
</Table>
EXAMPLE 2:
<Table>
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 - (0.05) X 57,161.18]
X Market Value Adjustment
= $54,303.12 x Market Value Adjustment
</Table>
<Table>
Market Value Adjustment
I = .055
J = 0.050
N = 30
Market Value Adjustment = [(1 + I)/(1 + J)] TO THE POWER OF n/12
= (1.055/1.05) TO THE POWER OF 30/12
= 1.011947
Net Surrender Value at middle of Contract Year 3 = $54,303.12 X 1.011947
= $54,951.88
</Table>
This example does not include any applicable taxes.
<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, 2001 and 2000, 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, 2001.
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, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
As explained in Note 2(b) to the financial statements, effective January 1,
2001, the Company changed its method of accounting for derivatives and hedging
activities. Effective April 1, 2001, the Company changed its method of
accounting for recognition of interest income and impairment on purchased and
retained beneficial interests in securitized financial assets.
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 28, 2002 ARTHUR ANDERSEN LLP
F-1
<Page>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------------------------------------------
<Caption>
2001 2000 1999
-----------------------------------------------------------------------------
(In millions)
REVENUES
Fee income $2,157 $2,109 $1,935
Earned premiums and other 94 97 110
Net investment income 1,495 1,326 1,359
Net realized capital losses (91) (85) (4)
-----------------------------------------------------------------------------
TOTAL REVENUES 3,655 3,447 3,400
-----------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,703 1,495 1,574
Insurance expenses and other 622 600 631
Amortization of deferred policy acquisition
costs and present value of future profits 566 604 539
Dividends to policyholders 68 67 104
-----------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 2,959 2,766 2,848
-----------------------------------------------------------------------------
Income before income tax expense 696 681 552
Income tax expense 44 194 191
Income before cumulative effect of accounting
changes 652 487 361
Cumulative effect of accounting changes, net of
tax (6) -- --
-----------------------------------------------------------------------------
NET INCOME $ 646 $ 487 $ 361
-----------------------------------------------------------------------------
</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,
------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------
(In millions,
except for share
data)
ASSETS
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $18,933 and $14,219) $ 19,142 $ 14,257
Equity securities, available for sale, at fair
value 64 48
Policy loans, at outstanding balance 3,278 3,573
Other investments 1,136 784
------------------------------------------------------------------------
TOTAL INVESTMENTS 23,620 18,662
------------------------------------------------------------------------
Cash 87 56
Premiums receivable and agents' balances 10 15
Reinsurance recoverables 1,215 1,257
Deferred policy acquisition costs and present
value of future profits 5,338 4,325
Deferred income tax (11) 239
Goodwill 189 --
Other assets 724 537
Separate account assets 114,261 113,744
------------------------------------------------------------------------
TOTAL ASSETS $145,433 $138,835
------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 6,050 $ 4,828
Other policyholder funds 18,412 14,947
Other liabilities 1,952 2,124
Separate account liabilities 114,261 113,744
------------------------------------------------------------------------
TOTAL LIABILITIES 140,675 135,643
------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES, NOTE 15
STOCKHOLDER'S EQUITY
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690 6 6
Capital surplus 1,806 1,045
Accumulated other comprehensive income (loss)
Net unrealized capital gains (losses) on
securities, net of tax 177 16
Cumulative translation adjustments (2) --
------------------------------------------------------------------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS) 175 16
------------------------------------------------------------------------
Retained earnings 2,771 2,125
------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 4,758 3,192
------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $145,433 $138,835
------------------------------------------------------------------------
</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)
----------------------------------------
Net Gain
Net Unrealized on Cash
Capital Gains Flow
(Losses) on Hedging Cumulative Total
Common Capital Securities, Instruments Translation Retained Stockholder's
Stock Surplus Net of Tax Net of Tax Adjustments Earnings Equity
-----------------------------------------------------------------
(In millions)
2001
Balance, December 31, 2000 $6 $1,045 $ 16 $ -- -- $2,125 $3,192
Comprehensive income
Net income 646 646
Other comprehensive income, net of
tax (1)
Cumulative effect of accounting
change (2) (18) 21 3
Net change in unrealized capital
gains (losses) on securities (3) 116 116
Net gain on cash flow hedging
instruments 42 42
Cumulative translation adjustments (2) (2)
Total other comprehensive income 159
Total comprehensive income 805
Capital contribution from parent 761 761
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $6 $1,806 $ 114 $ 63 (2) $2,771 $4,758
------------------------------------------------------------------------------------------
2000
Balance, December 31, 1999 $6 $1,045 $(255) $ -- -- $1,823 $2,619
Comprehensive income
Net income 487 487
Other comprehensive income, net of
tax (1)
Net change in unrealized capital
gains (losses) on securities (3) 271 271
Total other comprehensive income 271
Total comprehensive income 758
Dividends declared (185) (185)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $6 $1,045 $ 16 $ -- -- $2,125 $3,192
------------------------------------------------------------------------------------------
1999
Balance, December 31, 1998 $6 $1,045 $ 184 $ -- -- $1,462 $2,697
Comprehensive income (loss)
Net income 361 361
Other comprehensive income, net of
tax (1)
Net change in unrealized capital
gains (losses) on securities (3) (439) (439)
Total other comprehensive loss (439)
Total comprehensive income (loss) (78)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $6 $1,045 $(255) $ -- -- $1,823 $2,619
------------------------------------------------------------------------------------------
</Table>
(1) Net change in unrealized capital gain (losses) on securities is reflected
net of tax provision (benefit) of $62, $147 and $(236) for the years ended
December 31, 2001, 2000 and 1999, respectively. Cumulative effect of
accounting change is net of tax benefit of $2 for the year ended
December 31, 2001. Net gain on cash flow hedging instruments is net of tax
provision of $23 for the year ended December 31, 2001. There is no tax
effect on cumulative translation adjustments.
(2) Net change in unrealized capital gain (losses), net of tax, includes
cumulative effect of accounting change of $(3) to net income and $21 to net
gain on cash flow hedging instruments.
(3) There were reclassification adjustments for after-tax (losses) realized in
net income of $(59), $(55) and $(2) for the years ended December 31, 2001,
2000 and 1999, 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,
-------------------------
<Caption>
2000 1999
-------------------------
(In millions)
OPERATING ACTIVITIES
Net income $ 646 $ 487 $ 361
Adjustments to reconcile net income to
net cash provided by operating
activities
Net realized capital losses 92 85 4
Amortization of deferred policy
acquisition costs and present value
of future profits 566 604 539
Additions to deferred policy
acquisition costs and present value
of future profits (975) (916) (899)
Depreciation and amortization (18) (28) (18)
Cumulative effect of adoption of SFAS
133 4 -- --
Cumulative effect of adoption of EITF
99-20 2 -- --
Loss due to commutation of reinsurance
(See Note 9) -- -- 16
Decrease (increase) in premiums
receivable and agents' balances 5 14 (18)
Increase (decrease) in other
liabilities (84) 375 (303)
Change in receivables, payables, and
accruals (72) 53 165
Increase (decrease) in accrued taxes 115 34 (163)
Decrease (increase) in deferred income
tax 7 73 241
Increase in future policy benefits 871 496 797
Decrease (increase) in reinsurance
recoverables 21 32 (318)
Other, net (75) 24 (79)
-------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,105 1,333 325
-------------------------
INVESTING ACTIVITIES
Purchases of investments (9,766) (5,800) (5,753)
Sales of investments 4,564 4,230 6,383
Maturity and principle paydowns of
fixed maturity investments 2,227 1,521 1,818
Purchase of Fortis Financial Group (683) -- --
Purchases of affiliates and other -- 5 (25)
-------------------------
NET CASH (USED FOR) PROVIDED BY
INVESTING ACTIVITIES (3,658) (44) 2,423
-------------------------
FINANCING ACTIVITIES
Capital Contributions 761 -- --
Dividends paid -- (185) --
Net receipts from (disbursements for)
investment and universal life-type
contracts charged against
policyholder accounts 1,825 (1,103) (2,710)
-------------------------
Net cash provided by (used for)
financing activities 2,586 (1,288) (2,710)
-------------------------
Net increase (decrease) in cash 33 1 38
Impact of foreign exchange (2) -- --
Cash -- beginning of year 56 55 17
-------------------------
Cash -- end of year $ 87 $ 56 $ 55
-------------------------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Year for:
Income taxes $ (69) $ 173 $ 111
</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"), Hartford
International Life Reassurance Corporation ("HLRe") and Servus Life Insurance
Company, formerly Royal Life Insurance Company of America. 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 Fire Insurance Company ("Hartford
Fire"), a direct 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 to the public 26 million shares of Class A Common Stock at $28.25 per
share and received proceeds, net of offering expenses, of $687. The 26 million
shares sold in the IPO represented approximately 18.6% of the equity ownership
in Hartford Life. On June 27, 2000, The Hartford acquired all of the outstanding
common shares of Hartford Life not already owned by The Hartford (The Hartford
Acquisition). As a result of The Hartford Acquisition, Hartford Life became a
direct subsidiary of Hartford Fire.
Along with its parent, HLA, the Company is a leading financial services and
insurance group 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) individual life
insurance for income protection and estate planning; (c) group benefits products
such as group life and group 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 September 2001, the Company adopted Emerging Issues Task Force
("EITF") Issue 01-10 "Accounting for the Impact of the Terrorist Attacks of
September 11, 2001". Under the consensus, costs related to the terrorist acts
should be reported as part of income from continuing operations and not as an
extraordinary item. The Company has recognized and classified all direct and
indirect costs associated with the attack of September 11 in accordance with the
consensus. (For a discussion of the impact of the September 11 terrorist attack,
see Note 3.)
Effective April 1, 2001, the Company adopted EITF Issue 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets". Under the consensus, investors in certain
asset-backed securities are required to record changes in their estimated yield
on a prospective basis and to evaluate these securities for an other than
temporary decline in value. If the fair value of the asset-backed security has
declined below its carrying amount and the decline is determined to be other
than temporary, the security is written down to fair value. Upon adoption of
EITF 99-20, the Company recorded a $3 charge in net income as a net of tax
cumulative effect of accounting change.
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS Nos. 137 and 138. 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 a hedge of either the fair
value or the variability of the cash flow of a qualified asset or liability, or
forecasted transaction. Special accounting for qualifying hedges provides for
matching the timing of gain or loss
F-6
<Page>
recognition on the hedging instrument with the recognition of the corresponding
changes in value of the hedged item. The Company's policy prior to adopting SFAS
No. 133 was to carry its derivative instruments on the balance sheet in a manner
similar to the hedged item(s).
Upon adoption of SFAS No. 133, the Company recorded a $3 charge in net income as
a net of tax cumulative effect of accounting change. The transition adjustment
was primarily comprised of gains and losses on derivatives that had been
previously deferred and not adjusted to the carrying amount of the hedged item.
Also included in the transition adjustment were offsetting gains and losses
related to recognizing at fair value all derivatives that are designated as
fair-value hedging instruments offset by the difference between the book values
and fair values of related hedged items attributable to the hedged risks. The
entire transition amount was previously recorded in Accumulated Other
Comprehensive Income ("OCI") -- Unrealized Gain/Loss on Securities in accordance
with SFAS No. 115. Gains and losses on derivatives that were previously deferred
as adjustments to the carrying amount of hedged items were not affected by the
implementation of SFAS No. 133.
Upon adoption, the Company also reclassified $20, net of tax, to Accumulated
OCI -- Net Gain on Cash Flow Hedging Instruments from Accumulated OCI --
Unrealized Gain/Loss on Securities. This reclassification reflects the
January 1, 2001 net unrealized gain of all derivatives that are designated as
cash-flow hedging instruments. (For further discussion of the Company's
derivative-related accounting policies, see Note 2(e).)
In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125". SFAS
No. 140 revises the accounting for securitizations, other financial asset
transfers and collateral arrangements. SFAS No. 140 was effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. For recognition and disclosure of collateral and for
additional disclosures related to securitization transactions, SFAS No. 140 was
effective for the Company's December 31, 2000 financial statements. Adoption of
SFAS No. 140 did not have a material impact on the Company's financial condition
or results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation -- an Interpretation of APB Opinion
No. 25" ("FIN 44" or "the Interpretation"). FIN 44 clarifies the application of
APB Opinion No. 25 regarding the definition of employee, the criteria for
determining a non-compensatory plan, the accounting for changes to the terms of
a previously fixed stock option or award, the accounting for an exchange of
stock compensation awards in a business combination, and other stock
compensation related issues. FIN 44 became effective July 1, 2000, with respect
to new awards, modifications to outstanding awards, and changes in grantee
status that occur on or after that date. The adoption of FIN 44 did not have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 2000, Hartford Life 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.
Adoption of this SOP did not have a material impact on the Company's financial
condition or results of operations.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides that if registrants have not applied the
accounting therein, they should implement the SAB and report a change in
accounting principle. SAB 101, as subsequently amended, became effective for the
Company in the fourth quarter of 2000. The adoption of SAB 101 did not have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 1999, the Company adopted SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". This SOP
provides guidance on accounting for costs of internal use software and in
determining whether software is for internal use. The SOP defines internal use
software as software that is acquired, internally developed, or modified solely
to meet internal needs and identifies stages of software development and
accounting for the related costs incurred during the stages. Adoption of this
SOP did not have a material impact on the Company's financial condition or
results of operations.
Effective January 1, 1999, the 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 adopting these changes in
accounting principles.
(c) FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 establishes an accounting model for
long-lived assets to be disposed of by sale by requiring those long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. The
provisions of Statement 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 will
not have a material impact on the Company's financial condition or results of
operations.
F-7
<Page>
In June 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS No.
141 eliminates the pooling-of-interests method of accounting for business
combinations requiring all business combinations to be accounted for under the
purchase method. Accordingly, net assets acquired are recorded at fair value
with any excess of cost over net assets assigned to goodwill.
SFAS No. 141 also requires that certain intangible assets acquired in a business
combination be recognized apart from goodwill. The provisions of SFAS No. 141
apply to all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method of accounting for those transactions is prohibited.
Adoption of SFAS No. 141 will not have a material impact on the Company's
financial condition or results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". Under SFAS No. 142, amortization of goodwill is precluded; however, its
fair value is periodically (at least annually) reviewed and tested for
impairment. Goodwill must be tested for impairment in the year of adoption,
including an initial test performed within six months. If the initial test
indicates a potential impairment, then a more detailed analysis to determine the
extent of impairment must be completed by the end of the year.
SFAS No. 142 requires that useful lives for intangibles other than goodwill be
reassessed and remaining amortization periods be adjusted accordingly. The
reassessment must be completed prior to the end of the first quarter of 2002.
All provisions of SFAS No. 142 will be applied beginning January 1, 2002 to
goodwill and other intangible assets. Goodwill amortization totaled $4,
after-tax, in 2001. Application of the non-amortization provisions of the
statement are expected to result in an increase in net income of $6, after tax,
in 2002. The Company is in the process of assessing the impacts from the
implementation of the other provisions of SFAS No. 142.
(d) INVESTMENTS
Hartford Life'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 the outstanding balance which approximates fair value. Other
invested assets primarily consist of partnership investments, which are
accounted for by the equity method, and mortgage loans, whereby the carrying
value approximates fair value.
Net realized capital gains (losses) on security transactions associated with the
Company's immediate participation guaranteed contracts are recorded and
effectively offset by amounts owed to policyholders and were $(1), $(9) and $2
for the years ended December 31, 2001, 2000 and 1999, respectively. Under the
terms of the contracts, the realized capital 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.
In general, the Company's investments are adjusted for other than temporary
impairments when it is determined that the Company is unable to recover its cost
basis in the security. Impairment charges are included in net realized capital
gains (losses). Factors considered in evaluating whether a decline in value is
other than temporary include: (a) the length of time and the extent to which the
fair value has been less than cost, (b) the financial conditions and near-term
prospects of the issuer, and (c) the intent and ability of the Company to retain
the investment for a period of time sufficient to allow for any anticipated
recovery. 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
appropriate valuation on an ongoing basis.
(e) DERIVATIVE INSTRUMENTS
OVERVIEW
The Company utilizes a variety of derivative instruments, including swaps, caps,
floors, forwards and exchange traded futures and options, 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 transaction costs. The Company is considered an "end-user" of derivative
instruments and as such does not make a market or trade in these instruments for
the express purpose of earning trading profits.
ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION OF DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES
Effective January 1, 2001, and in accordance with SFAS No. 133, all derivatives
are recognized on the balance sheet at their fair value. On the date the
derivative contract is entered into, the Company designates the derivative as
(1) a hedge of the fair value of a recognized asset or liability ("fair-value"
hedge), (2) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability
("cash-flow" hedge), (3) a foreign-currency, fair-value or cash-flow hedge
("foreign-currency" hedge), (4) a hedge of a net investment in a foreign
operation, or (5) held for other risk management activities, which primarily
involve managing asset or liability related risks which do not qualify for hedge
accounting under SFAS No. 133. Changes in the fair value of a derivative that is
designated and qualifies as a fair-value hedge, along with
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the loss or gain on the hedged asset or liability that is attributable to the
hedged risk, are recorded in current period earnings as realized capital gains
or losses. Changes in the fair value of a derivative that is designated and
qualifies as a cash-flow hedge are recorded in OCI and are reclassified into
earnings when earnings are impacted by the variability of the cash flow of the
hedged item. Changes in the fair value of derivatives that are designated and
qualify as foreign-currency hedges, are recorded in either current period
earnings or OCI, depending on whether the hedge transaction is a fair-value
hedge or a cash-flow hedge. If, however, a derivative is used as a hedge of a
net investment in a foreign operation, its changes in fair value, to the extent
effective as a hedge, are recorded in the cumulative translation adjustments
account within stockholder's equity. Changes in the fair value of derivative
instruments held for other risk management purposes are reported in current
period earnings as realized capital gains or losses. As of December 31, 2001,
the Company carried $113 of derivative assets in other invested assets and $72
of derivative liabilities in other liabilities.
HEDGE DOCUMENTATION AND EFFECTIVENESS TESTING
At hedge inception, the Company formally documents all relationships between
hedging instruments and hedged items, as well as its risk-management objective
and strategy for undertaking each hedge transaction. In connection with the
implementation of SFAS No. 133, the Company designated anew all existing hedge
relationships. The documentation process includes linking all derivatives that
are designated as fair-value, cash flow or foreign-currency hedges to specific
assets and liabilities on the balance sheet or to specific forecasted
transactions. The Company also formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items. At inception, and on a quarterly basis, the change in
value of the hedging instrument and the change in value of the hedged item are
measured to assess the validity of maintaining special hedge accounting. Hedging
relationships are considered highly effective if the changes in the fair value
or discounted cash flows of the hedging instrument are within a ratio of 80-120%
of the inverse changes in the fair value or discounted cash flows of the hedged
item. High effectiveness is calculated using a cumulative approach. If it is
determined that a derivative is no longer highly effective as a hedge, the
Company discontinues hedge accounting prospectively, as discussed below under
discontinuance of hedge accounting.
CREDIT RISK
The Company's derivatives counterparty exposure policy establishes market-based
credit limits, favors long-term financial stability and creditworthiness, and
typically requires credit enhancement/credit risk reducing agreements. By using
derivative instruments, the Company is exposed to credit risk which is measured
as the amount owed to the Company based on current market conditions and
potential payment obligations between the Company and its counterparties. When
the fair value of a derivative contract is positive, this indicates that the
counterparty owes the Company, and, therefore, exposes the Company to credit
risk. Credit exposures are generally quantified weekly and netted, and
collateral is pledged to and held by, or on behalf of, the Company to the extent
the current value of derivatives exceeds exposure policy thresholds. The Company
also minimizes the credit risk in derivative instruments by entering into
transactions with high quality counterparties that are reviewed periodically by
the Company's internal compliance unit, reviewed frequently by senior management
and reported to the Company's Finance Committee. The Company also maintains a
policy of requiring that all derivative contracts be governed by an
International Swaps and Derivatives Association Master Agreement which is
structured by legal entity and by counterparty and permits right of offset.
EMBEDDED DERIVATIVES
The Company occasionally purchases or issues financial instruments that contain
a derivative instrument that is embedded in the financial instrument. When it is
determined that (1) the embedded derivative possesses economic characteristics
that are not clearly and closely related to the economic characteristics of the
host contract, and (2) a separate instrument with the same terms would qualify
as a derivative instrument, the embedded derivative is separated from the host
contract, carried at fair value, and designated as a fair-value, cash-flow, or
foreign-currency hedge, or as held for other risk management purposes. However,
in cases where (1) the host contract is measured at fair value, with changes in
fair value reported in current earnings or (2) the Company is unable to reliably
identify and measure an embedded derivative for separation from its host
contract, the entire contract is carried on the balance sheet at fair value and
is not designated as a hedging instrument.
DISCONTINUANCE OF HEDGE ACCOUNTING
The Company discontinues hedge accounting prospectively when (1) it is
determined that the derivative is no longer highly effective in offsetting
changes in the fair value or cash flows of a hedged item; (2) the derivative
expires or is sold, terminated, or exercised; or (3) the derivative is
dedesignated as a hedge instrument, because it is unlikely that a forecasted
transaction will occur. When hedge accounting is discontinued because it is
determined that the derivative no longer qualifies as an effective fair-value
hedge, the derivative continues to be carried at fair value on the balance sheet
with changes in its fair value recognized in current period earnings. The
changes in the fair value of the hedged asset or liability are no longer
recorded in earnings. When hedge accounting is discontinued because the Company
becomes aware that it is probable that a forecasted transaction will not occur,
the derivative continues to be carried on the balance sheet at its fair value,
and gains and losses that were accumulated in OCI are recognized immediately in
earnings. In all other situations in which hedge accounting is discontinued on a
cash-flow hedge, including those where the derivative is sold, terminated or
exercised, amounts previously deferred
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in OCI are amortized into earnings when earnings are impacted by the variability
of the cash flow of the hedged item.
SFAS NO. 133 CATEGORIZATION OF THE COMPANY'S HEDGING ACTIVITIES
CASH-FLOW HEDGES
General
For the year ended December 31, 2001, the Company's gross gains and losses
representing the total ineffectiveness of all cash-flow hedges essentially
offset, with the net impact reported as realized capital gains/losses. All
components of each derivative's gain or loss are included in the assessment of
hedge effectiveness.
Gains and losses on derivative contracts that are reclassified from OCI to
current period earnings are included in the line item in the statement of income
in which the hedged item is recorded. As of December 31, 2001, $1.9 billion of
after-tax deferred net gains on derivative instruments accumulated in OCI are
expected to be reclassified to earnings during the next twelve months. This
expectation is based on the anticipated interest payments on hedged investments
in fixed maturity securities that will occur over the next twelve months, at
which time the Company will recognize the deferred net gains/ losses as an
adjustment to interest income over the term of the investment cash flows. The
maximum term over which the Company is hedging its exposure to the variability
of future cash flows (for all forecasted transactions, excluding interest
payments on variable-rate debt) is twelve months. As of December 31, 2001, the
Company held $2.2 billion in derivative notional value related to strategies
categorized as cash-flow hedges. There were no reclassifications from OCI to
earnings resulting from the discontinuance of cash-flow hedges during the year
ended December 31, 2001.
Specific Strategies
The Company's primary use of cash flow hedging is to use interest-rate swaps as
an "asset hedging" strategy, in order to convert interest receipts on
floating-rate fixed maturity investments to fixed rates. When multiple assets
are designated in a hedging relationship under SFAS No. 133, a homogeneity test
is performed to ensure that the assets react similarly to changes in market
conditions. To satisfy this requirement, at inception of the hedge, fixed
maturity investments with identical variable rates are grouped together (for
example: 1-month LIBOR or 3-month LIBOR, not both).
The Company enters into "receive fixed/pay variable" interest rate swaps to
hedge the variability in the first LIBOR-based interest payments received on
each pool of eligible variable rate fixed maturity investments. Effectiveness is
measured by comparing the present value of the variable rate pay side of the
swaps to the present value of the first anticipated variable rate interest
receipts on the hedged fixed maturity investments. At December 31, 2001, the
Company held $1.9 billion in derivative notional value related to this strategy.
The Company also uses cash-flow hedges, in its anticipated purchase of fixed
maturity investments.
FAIR-VALUE HEDGES
General
For the year ended December 31, 2001, the Company's gross gains and losses
representing the total ineffectiveness of all fair-value hedges essentially
offset, with the net impact reported as realized capital gains/losses. All
components of each derivative's gain or loss are included in the assessment of
hedge effectiveness. As of December 31, 2001, the Company held $215 in
derivative notional value related to strategies categorized as fair-value
hedges.
Specific Strategies
The Company purchases interest rate caps and sells interest rate floor contracts
in an "asset hedging" strategy utilized to offset corresponding interest rate
caps and floors that exist in certain of its variable-rate fixed maturity
investments. The standalone interest rate cap and floor contracts are structured
to exactly offset those embedded in the hedged investment. The calculation of
ineffectiveness involves a comparison of the present value of the cumulative
change in the expected future cash flows on the interest rate cap/floor and the
present value of the cumulative change in the expected future interest cash
flows that are hedged on the fixed maturity investment. If hedge ineffectiveness
exists, it is recorded as realized capital gain or loss. All hedges involving
variable rate bonds with embedded interest rate caps and floors are perfectly
matched with respect to notional values, payment dates, maturity, index, and the
hedge relationship does not contain any other basis differences. No component of
the hedging instrument's fair value is excluded from the determination of
effectiveness. At December 31, 2001, the Company held $149 in derivative
notional value related to this strategy.
OTHER RISK MANAGEMENT ACTIVITIES
General
The Company's other risk management activities relate to strategies used to meet
the following Company approved objectives: to hedge risk arising from interest
rate, price or currency exchange rate volatility; to manage liquidity; or to
control transaction costs. For the year ended December 31, 2001, the Company
recognized an after-tax net loss of $14 (reported as realized capital losses in
the statement of income), which represented the total change in value for other
derivative-based strategies which do not qualify for hedge accounting under SFAS
No. 133. As of December 31, 2001, the Company held $2.7 billion in derivative
notional value related to strategies categorized as Other Risk Management
Activities.
Risk Management Strategies
The Company issues liability contracts in which policyholders have the option to
surrender their policies at book value and that guarantee a minimum credited
rate of interest. Typical products with these features include Whole Life,
Universal Life and Repetitive Premium Variable
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Annuities. The Company uses interest rate cap and swaption contracts as an
economic hedge, classified for internal purposes as a "liability hedge", thereby
mitigating the Company's loss in a rising interest rate environment. The Company
is exposed to the situation where interest rates rise and the Company is not
able to raise its credited rates to competitive yields. The policyholder can
then surrender at book value while the underlying bond portfolio may be at a
loss. The increase in yield in a rising interest rate environment due to the
interest rate cap and swaption contracts may be used to raise credited rates,
increasing the Company's competitiveness and reducing the policyholder's
incentive to surrender. In accordance with Company policy, the amount of
notional value will not exceed the book value of the liabilities being hedged
and the term of the derivative contract will not exceed the average maturity of
the liabilities. As of December 31, 2001, the Company held $1.0 billion in
derivative notional value related to this strategy.
When terminating certain hedging relationships, the Company will enter a
derivative contract with terms and conditions that directly offset the original
contract, thereby offsetting its changes in value from that date forward. The
Company dedesignates the original contract and records the changes in value of
both the original contract and the new offsetting contract through realized
capital gains and losses. At December 31, 2001, the Company held $1.0 billion in
derivative notional value related to this strategy.
Other
Periodically, the Company enters into swap agreements that have cash flows based
upon the results of a referenced index or asset pool. These arrangements are
entered into to modify portfolio duration or to increase diversification while
controlling transaction costs. At December 31, 2001, the Company held $230 in
derivative notional value related to this strategy.
The Company will issue an option in an "asset hedging" strategy utilized to
monetize the option embedded in certain of its fixed maturity investments. The
Company will receive a premium for issuing the freestanding option. The
structure is designed such that the fixed maturity investment and freestanding
option have identical expected lives, typically 3-5 years. At December 31, 2001,
the Company held $803 in derivative notional value related to this strategy.
(f) 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 and investment income and gains and losses
accrue directly to the policyholder. Separate accounts reflect two categories of
risk assumption: non-guaranteed separate accounts, wherein the policyholder
assumes the investment risk, and guaranteed separate accounts, wherein Hartford
Life Insurance Company contractually guarantees either a minimum return or
account value to the policyholder.
(g) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain other expenses
that vary with and are primarily associated with acquiring business, are
deferred and amortized over the estimated lives of the contracts, usually 20
years.
Deferred policy acquisition costs related to investment contracts and universal
life type contracts 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 investment,
mortality and expense margins and surrender charges. Actual gross profits can
vary from management's estimates, resulting in increases or decreases in the
rate of amortization. Management periodically reviews these estimates 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. The
average rate of assumed future investment yield used in estimating expected
gross profits related to variable annuity and variable life business was 9.0% at
December 31, 2001 and for all other products including fixed annuities and other
universal life type contracts the average assumed investment yield ranged from
5.0-8.5%.
Deferred policy acquisition costs related to traditional policies are amortized
over the premium paying period of the related policies in proportion to the
ratio of the present value of annual expected premium income to the present
value of total expected premium income. Adjustments are made each year to
recognize actual experience as compared to assumed experience for the current
period.
Acquisition costs and their related deferral are included in the Company's
insurance expenses and other as follows:
<Table>
<Caption>
2001 2000 1999
-----------------------------
Commissions $ 976 $ 929 $ 887
Deferred acquisition costs (957) (916) (899)
General insurance expenses and other 603 587 643
-----------------------------
INSURANCE EXPENSES AND OTHER $ 622 $ 600 $ 631
-----------------------------
</Table>
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(h) 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.
(i) OTHER POLICYHOLDER FUNDS
Other policyholder funds include reserves for investment contracts without life
contingencies, corporate owned life insurance and universal life insurance
contracts. Of the amounts included in other policyholder funds, $18.4 billion
and $14.9 billion for the years ended December 31, 2001 and 2000, respectively,
represent policyholder obligations.
The liability for policy benefits for universal life-type contracts is equal to
the balance that accrues to the benefit of policyholders, including credited
interest, amounts that have been assessed to compensate the Company for services
to be performed over future periods, and any amounts previously assessed against
policyholders that are refundable on termination of the contract. For investment
contracts, policyholder liabilities are equal to the accumulated policy account
values, which consist of an accumulation of deposit payments plus credited
interest, less withdrawals and amounts assessed through the end of the period.
(j) REVENUE RECOGNITION
For investment and universal life-type contracts, the amounts collected from
policyholders are considered deposits and are not included in revenue. Fee
income for investment and universal life-type contracts consists of policy
charges for policy administration, cost of insurance charges and surrender
charges assessed against policyholders' account balances and are recognized in
the period in which services are provided. Traditional life and the majority of
the Company's accident and health products are long duration contracts and
premiums are recognized as revenues when due from policyholders. Retrospective
and contingent commissions and other related expenses are incurred and recorded
in the same period that the retrospective premiums are recorded or other
contract provisions are met.
(k) FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses are reflected in stockholder's
equity as a component of accumulated other comprehensive income. Balance sheet
accounts are translated at the exchange rates in effect at each year-end and
income statement accounts are translated at the average rates of exchange
prevailing during the year. The national currencies of international operations
are generally their functional currencies.
(l) DIVIDENDS TO POLICYHOLDERS
Policyholder dividends are accrued using an estimate of the amount to be paid
based on underlying contractual obligations under participating policies and
applicable state laws. If limitations exist on the amount of net income from
participating life insurance contracts that may be distributed to stockholders,
the policyholders' share of net income on those contracts that cannot be
distributed is excluded from stockholder's equity by a charge to operations and
a credit to a liability.
Participating life insurance in force accounted for 14%, 18% and 24% as of
December 31, 2001, 2000 and 1999, respectively, of total life insurance in
force. Dividends to policyholders were $68, $67 and $104 for the years ended
December 31, 2001, 2000 and 1999, respectively. There were no additional amounts
of income allocated to participating policyholders.
3. SEPTEMBER 11 TERRORIST ATTACK
As a result of the September 11 terrorist attack, the Company recorded an
estimated loss amounting to $9, net of taxes and reinsurance, in the third
quarter of 2001. The Company based the loss estimate upon a review of insured
exposures using a variety of assumptions and actuarial techniques, including
estimated amounts for unknown and unreported policyholder losses and costs
incurred in settling claims. Also included was an estimate of amounts
recoverable under the Company's ceded reinsurance programs. As a result of the
uncertainties involved in the estimation process, final claims settlement may
vary from present estimates.
4. FORTIS ACQUISITION
On April 2, 2001, Hartford Life acquired the individual life insurance, annuity
and mutual fund businesses of Fortis, Inc. ("Fortis Financial Group" or
"Fortis") for $1.12 billion in cash. Hartford Life Insurance Company effected
the acquisition through several reinsurance agreements with subsidiaries of
Fortis. The purchase of 100% of the stock of Fortis Advisers, Inc. and Fortis
Investors, Inc., wholly-owned subsidiaries of Fortis, Inc was made by Hartford
Life and Accident Insurance Company, the Company's parent. The acquisition was
accounted for using the purchase method and, as such, the revenues and expenses
generated by this business from April 2, 2001 forward are included in the
Company's Consolidated Statements of Income.
The assets and liabilities acquired in this transaction were generally recorded
at estimated fair values as prescribed by applicable purchase accounting rules.
In addition, an intangible asset representing the present value of future
profits ("PVP") of the acquired business was established in the amount of $605.
The PVP is amortized to expense in relation to the estimated gross profits of
the underlying insurance contracts, and interest is accreted on the unamortized
balance. For the year ended December 31, 2001, amortization of PVP amounted to
$66. Goodwill of $169, representing the excess of the purchase price over the
amount of net assets (including PVP) acquired, also has been recorded and was
being amortized on a straight-line basis until January 1, 2002. (See
Note 2(c)).
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The following is detail of the PVP activity as of December 31, 2001:
<Table>
<Caption>
2001
----
BEGINNING PVP BALANCE $ --
Acquisition costs 605
Accretion of interest 29
Amortization (66)
----
ENDING PVP BALANCE $568
----
</Table>
5. SALE OF SUDAMERICANA HOLDING S.A.
On September 7, 2001, Hartford Life completed the sale of its ownership interest
in an Argentine subsidiary, Sudamericana Holding S.A. The Company recognized an
after-tax net realized capital loss of $11 related to the sale.
6. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(a) COMPONENTS OF NET INVESTMENT INCOME
<Table>
<Caption>
For the years ended
December 31,
--------------------------------
2001 2000 1999
--------------------------------
Interest income from fixed maturities $1,105 $ 959 $ 934
Interest income from policy loans 304 305 391
Income from other investments 99 75 48
--------------------------------
Gross investment income 1,508 1,339 1,373
Less: Investment expenses 13 13 14
--------------------------------
NET INVESTMENT INCOME $1,495 $1,326 $1,359
--------------------------------
</Table>
(b) COMPONENTS OF NET REALIZED CAPITAL (LOSSES) GAINS
<Table>
<Caption>
For the years ended
December 31,
---------------------------
2001 2000 1999
---------------------------
Fixed maturities $(52) $(106) $(5)
Equity securities (17) 3 2
Real estate and other (23) 9 1
Change in liability to policyholders for net realized
capital losses (gains) 1 9 (2)
---------------------------
NET REALIZED CAPITAL LOSSES $(91) $ (85) $(4)
---------------------------
</Table>
(c) NET CHANGE IN UNREALIZED CAPITAL (LOSSES) GAINS ON EQUITY SECURITIES
<Table>
<Caption>
For the years ended
December 31,
--------------------------
2001 2000 1999
--------------------------
Gross unrealized capital gains $ 1 $ 2 $ 9
Gross unrealized capital losses (9) (5) (2)
--------------------------
Net unrealized capital (losses) gains (8) (3) 7
Deferred income taxes (2) (1) 2
--------------------------
Net unrealized capital (losses) gains, net of tax (6) (2) 5
Balance -- beginning of year (2) 5 1
--------------------------
NET CHANGE IN UNREALIZED CAPITAL (LOSSES) GAINS ON EQUITY
SECURITIES $(4) $(7) $ 4
--------------------------
</Table>
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<Page>
(d) NET CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<Table>
<Caption>
For the years ended
December 31,
-----------------------------
2001 2000 1999
-----------------------------
Gross unrealized capital gains $ 497 $ 269 $ 48
Gross unrealized capital losses (288) (231) (472)
Unrealized capital (gains) losses credited to policyholders (24) (10) 24
-----------------------------
Net unrealized capital gains (losses) 185 28 (400)
Deferred income taxes 65 10 (140)
-----------------------------
Net unrealized capital gains (losses), net of tax 120 18 (260)
Balance -- beginning of year 18 (260) 183
-----------------------------
NET CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED
MATURITIES $ 102 $ 278 $(443)
-----------------------------
</Table>
(e) FIXED MATURITY INVESTMENTS
<Table>
<Caption>
As of December 31, 2001
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 247 $ 15 $ (2) $ 260
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) -- asset backed 1,179 26 (3) 1,202
States, municipalities and political subdivisions 44 4 (1) 47
International governments 312 18 (3) 327
Public utilities 994 14 (26) 982
All other corporate, including international 8,829 266 (129) 8,966
All other corporate -- asset backed 5,816 142 (104) 5,854
Short-term investments 1,008 -- -- 1,008
Certificates of deposit 503 12 (20) 495
Redeemable preferred stock 1 -- -- 1
--------------------------------------------
TOTAL FIXED MATURITIES $18,933 $497 $(288) $19,142
--------------------------------------------
</Table>
<Table>
<Caption>
As of December 31, 2000
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 185 $ 16 $ -- $ 201
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) -- asset backed 895 20 (9) 906
States, municipalities and political subdivisions 79 5 (1) 83
International governments 269 7 (8) 268
Public utilities 557 4 (10) 551
All other corporate, including international 5,816 102 (153) 5,765
All other corporate -- asset backed 5,284 112 (39) 5,357
Short-term investments 750 -- -- 750
Certificates of deposit 383 3 (11) 375
Redeemable preferred stock 1 -- -- 1
--------------------------------------------
TOTAL FIXED MATURITIES $14,219 $269 $(231) $14,257
--------------------------------------------
</Table>
The amortized cost and estimated fair value of fixed maturity investments as of
December 31, 2001 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including mortgage backed securities and
collateralized mortgage obligations, are distributed to maturity year based on
the Company's estimates of the rate of future prepayments of principal over the
remaining lives of the securities. These estimates are developed using
prepayment speeds provided in broker consensus data. Such estimates are derived
from prepayment speeds experienced at the interest rate levels projected for the
applicable underlying collateral and can be expected to vary from actual
experience.
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<Page>
<Table>
<Caption>
Amortized Fair
Cost Value
----------------------------
MATURITY
One year or less $ 2,516 $ 2,528
Over one year through five years 6,762 6,856
Over five years through ten years 5,229 5,277
Over ten years 4,426 4,481
----------------------------
TOTAL $18,933 $19,142
----------------------------
</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, 2001, 2000 and 1999 resulted in proceeds of $4.6 billion,
$3.0 billion and $3.4 billion, gross realized capital gains of $83, $29 and
$153, and gross realized capital losses (including writedowns) of $135, $126 and
$160, respectively. Sales of equity security investments for the years ended
December 31, 2001, 2000 and 1999 resulted in proceeds of $42, $15 and $7,
respectively. Sales of equity security investments for the years ended
December 31, 2000 and 1999 resulted in gross realized capital gains of $5 and
$2, respectively. There were no realized gains on sales of equity securities for
the year ended December 31, 2001. Sales of equity security investments for the
years ended December 31, 2001 and 2000 resulted in gross realized capital losses
of $17 and $2, respectively. There were no realized capital losses on sales of
equity security investments in 1999.
(g) CONCENTRATION OF CREDIT RISK
The Company is not exposed to any concentration of credit risk in fixed
maturities of a single issuer greater than 10% of stockholder's equity.
(h) DERIVATIVE INSTRUMENTS
The notional amounts of derivative contracts represent the basis upon which pay
or receive amounts are calculated and are not reflective of credit risk.
Notional amounts pertaining to derivative instruments (excluding guaranteed
separate accounts) totaled $5.1 billion at December 31, 2001 and $3.7 billion at
December 31, 2000.
The Company uses derivative instruments in its management of market risk
consistent with four risk management strategies: hedging anticipated
transactions, hedging liability instruments, hedging invested assets and hedging
portfolios of assets and/or liabilities.
A reconciliation between notional amounts as of December 31, 2001 and 2000 by
derivative type and strategy is as follows:
<Table>
<Caption>
BY DERIVATIVE TYPE
-------------------------------------------------------------------------------
December 31, 2000 Maturities/ December 31, 2001
Notional Amount Additions Terminations (1)(2) Notional Amount
-------------------------------------------------------------------------------
Caps $ 577 $ -- $ -- $ 577
Floors 295 -- -- 295
Swaps/Forwards 2,618 1,553 869 3,302
Futures 144 153 220 77
Options 75 869 50 894
-------------------------------------------------------------------------------
TOTAL $3,709 $2,575 $1,139 $5,145
-------------------------------------------------------------------------------
BY STRATEGY
-------------------------------------------------------------------------------
Liability $ 661 $ 17 $ 1 $ 677
Anticipatory 144 153 220 77
Asset 2,764 2,405 918 4,251
Portfolio 140 -- -- 140
-------------------------------------------------------------------------------
TOTAL $3,709 $2,575 $1,139 $5,145
-------------------------------------------------------------------------------
</Table>
(1) During 2001, the Company had no significant gain or loss on terminations
of hedge positions using derivative financial instruments.
(2) When terminating certain hedging relationships, the Company will enter
into a derivative contract with terms and conditions that directly offset the
original contract, thereby offsetting its changes in value from that date
forward. As of December 31, 2001 and 2000, the Company had notional values for
offsetting portfolio strategies of $140 and offsetting asset strategies of $879.
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<Page>
(i) COLLATERAL ARRANGEMENTS
Hartford Life Insurance Company entered into various collateral arrangements
which require both the pledging and accepting of collateral in connection with
its derivative instruments and repurchase agreements. As of December 31, 2001
and 2000, collateral pledged has not been separately reported in the
Consolidated Balance Sheet. The classification and carrying amounts of
collateral pledged at December 31, 2001 and 2000 were as follows:
<Table>
<Caption>
2001 2000
------------------
ASSETS
U.S. Gov't and Gov't agencies and authorities
(guaranteed and sponsored) $ 1 $3
U.S. Gov't and Gov't agencies and authorities
(guaranteed and sponsored -- asset backed) 53 4
------------------
$54 $7
------------------
</Table>
At December 31, 2001 and 2000, Hartford Life Insurance Company had accepted
collateral consisting of cash and U.S. Government securities with a fair value
of $142 and $252, respectively. At December 31, 2001 and 2000, only cash
collateral of $58 and $31, respectively, was recorded on the balance sheet in
short-term investments and other liabilities. While Hartford Life Insurance
Company is permitted by contract to sell or repledge the noncash collateral,
none of the collateral has been sold or repledged at December 31, 2001 and 2000.
As of December 31, 2001 and 2000 all collateral accepted was held in separate
custodial accounts.
7. 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 other than
financial guarantees and investment 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.
Fair value of other investments, which primarily consist of partnership
investments, is based on external market valuations from partnership management.
Other investments also include 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. Derivative instruments are
reported below as a component of other investments.
The carrying amount and fair values of Hartford Life Insurance Company's
financial instruments as of December 31, 2001 and 2000 were as follows:
<Table>
<Caption>
2001 2000
------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------
ASSETS
Fixed maturities $19,142 $19,142 $14,257 $14,257
Equity securities 64 64 48 48
Policy loans 3,278 3,278 3,573 3,573
Other investments 1,136 1,136 784 785
LIABILITIES
Other policyholder funds (1) 15,648 15,514 11,676 11,305
------------------------------------
</Table>
(1) Excludes universal life insurance contracts, including corporate owned
life insurance.
8. SEPARATE ACCOUNTS
Hartford Life Insurance Company maintained separate account assets and
liabilities totaling $114.3 billion and $113.7 billion as of December 31, 2001
and 2000, 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 $104.2 billion and
$104.1 billion as of December 31, 2001 and 2000,
F-16
<Page>
respectively, wherein the policyholder assumes substantially all the investment
risks and rewards, and guaranteed separate accounts totaling $10.1 and $9.6
billion as of December 31, 2001 and 2000, 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 $575 and $697 as of December 31, 2001 and 2000,
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 $1.2 billion, $1.3 billion, $1.1 billion
in 2001, 2000 and 1999, 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 6.4%
and 6.6% as of December 31, 2001 and 2000, respectively. The assets that support
these liabilities were comprised of $9.8 billion and $9.4 billion in fixed
maturities as of December 31, 2001 and 2000, respectively, and $243 of other
invested assets as of December 31, 2001. 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 $37 and
$3 in carrying value and $3.2 billion and $3.5 billion in notional amounts as of
December 31, 2001 and 2000, respectively.
9. STATUTORY RESULTS
<Table>
<Caption>
For the years ended December 31,
------------------------------------
2001 2000 1999
------------------------------------
Statutory net income $ (485) $ 283 $ 151
------------------------------------
Statutory capital and
surplus $2,412 $1,972 $1,905
------------------------------------
</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
2002, without prior regulatory approval, is estimated to be $241.
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
("Codification") in March 1998. The effective date for the statutory accounting
guidance is January 1, 2001. Each of Hartford Life Insurance Company's
domiciliary states has adopted Codification and the Company has made the
necessary changes in its statutory reporting required for implementation. The
overall impact of applying the new guidance resulted in a one-time statutory
cumulative transition benefit of approximately $38 in statutory surplus.
10. STOCK COMPENSATION PLANS
The Company's employees are included in The Hartford 2000 Incentive Stock Plan
and The Hartford Employee Stock Purchase Plan. Prior to The Hartford
Acquisition, eligible employees of Hartford Life were included in Hartford
Life's stock based compensation plans, the 1997 Hartford Life, Inc. Incentive
Stock Plan and the Hartford Life, Inc. Employee Stock Purchase Plan. As a result
of the The Hartford Acquisition, all eligible participants of Hartford Life's
stock based compensation plans were converted to The Hartford's stock based
compensation plans. For the year ended December 31, 2001 and 2000, Hartford Life
Insurance Company's compensation expense related to The Hartford's two stock
based compensation plans and Hartford Life's two stock based compensation plans
was not material to Hartford Life Insurance Company's results of operations. For
the year ended December 31, 1999, Hartford Life Insurance Company's compensation
expense related to Hartford Life's two stock based compensation plans was not
material.
11. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(a) PENSION PLANS
The Company's employees are included in the Company's non-contributory defined
benefit pension and postretirement health care and life insurance benefit plans.
Defined benefit pension expense, allocated by The Hartford to Hartford Life
Insurance Company, was $11, $5 and $6 in 2001, 2000 and 1999, respectively.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was not material to the results of operations for 2001, 2000 and 1999.
(b) INVESTMENT AND SAVINGS PLAN
Substantially all the Company's U.S. employees are eligible to participate in
The Hartford's Investment and Savings Plan. The cost to Hartford Life Insurance
Company for this plan was approximately $6, $5 and $4 in 2001, 2000 and 1999,
respectively.
12. 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 and, as such, 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
F-17
<Page>
credit risk. As of December 31, 2001, Hartford Life Insurance Company had no
significant concentrations of credit risk related to reinsurance greater than
10% of stockholder's equity.
The Company records a receivable for reinsured benefits paid and the portion of
insurance liabilities that are reinsured. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account for
the underlying policies. Reinsurance recoveries on ceded reinsurance contracts
recognized in the Consolidated Statements of Income were $693, $578 and $397 for
the years ended December 31, 2001, 2000 and 1999, respectively. Hartford Life
Insurance Company also assumes insurance from other insurers.
The effect of reinsurance on fee income, earned premiums and other is summarized
as follows:
<Table>
<Caption>
For the years ended December 31,
------------------------------------
FEE INCOME, EARNED PREMIUMS AND OTHER 2001 2000 1999
------------------------------------
Gross $3,152 $2,885 $2,660
Reinsurance assumed 79 44 95
Reinsurance ceded (980) (723) (710)
------------------------------------
NET $2,251 $2,206 $2,045
------------------------------------
</Table>
Hartford Life Insurance Company maintains certain reinsurance agreements with
HLA, whereby the Company cedes both group life and group accident and health
risk. Under these treaties, the Company ceded group life premium of $178, $101
and $119 in 2001, 2000 and 1999, respectively, and accident and health premium
of $418, $429 and $430, 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 of premium from
HLA in 1999. 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.
13. INCOME TAX
Hartford Life Insurance Company 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 a separate
federal income tax return.
Beginning in 2000, the Company was included in The Hartford's consolidated
Federal income tax return. The life insurance companies filed a separate
consolidated Federal income tax return for 1999. The Company's effective tax
rate was 6%, 28% and 35% in 2001, 2000 and 1999, respectively.
Income tax expense (benefit) is as follows:
<Table>
<Caption>
For the years ended December 31,
----------------------------------
2001 2000 1999
----------------------------------
Current $(202) $121 $(50)
Deferred 246 73 241
----------------------------------
INCOME TAX EXPENSE $ 44 $194 $191
----------------------------------
</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,
----------------------------------
2001 2000 1999
----------------------------------
Tax provision at the U.S. federal statutory rate $244 $238 $193
Municipal bond and other tax-exempt income (60) (24) --
IRS audit settlement (See Note 12(c)) -- (24) --
Tax adjustment (144) -- --
Other 4 4 (2)
----------------------------------
TOTAL $ 44 $194 $191
----------------------------------
</Table>
F-18
<Page>
Deferred tax assets (liabilities) include the following as of December 31:
<Table>
<Caption>
2001 2000
-----------------------------
Tax basis deferred policy acquisition costs $ 737 $ 749
Financial statement deferred policy acquisition costs and
reserves (494) (112)
Employee benefits 12 (1)
Net unrealized capital losses (gains) on securities (102) (9)
Investments and other (164) (388)
-----------------------------
TOTAL $ (11) $ 239
-----------------------------
</Table>
Hartford Life Insurance Company had a current tax receivable of $144 and $96 as
of December 31, 2001 and 2000, respectively.
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, 2001.
14. 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 $55, $56 and $47 in 2001, 2000 and 1999,
respectively.
15. COMMITMENTS AND CONTINGENT LIABILITIES
(a) LITIGATION
Hartford Life Insurance Company is involved or may become involved in various
legal actions, in the normal course of its business, in which claims for alleged
economic and punitive damages have been or may be asserted. Some of the pending
litigation has been filed as purported class actions and some actions have been
filed in certain jurisdictions that permit punitive damage awards that are
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 potential, pending or threatened legal actions,
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) LEASES
The rent paid to Hartford Fire for space occupied by the Company was $15, $14
and $9 in 2001, 2000 and 1999, respectively. Future minimum rental commitments
are as follows:
<Table>
2002 $ 15
2003 13
2004 13
2005 13
2006 13
Thereafter 41
--------
TOTAL $ 108
--------
</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 $11, $10 and $9 in 2001, 2000 and 1999,
respectively.
(c) TAX MATTERS
The Company's Federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"). In August 2001, the Company recorded a $130 benefit,
primarily the result of the favorable treatment of certain tax matters related
to separate account investment activity arising during the 1996-2000 tax years.
During 2000, the Company recorded a $24 tax benefit as a result of a settlement
with the IRS with respect to certain similar tax matters for the 1993-1995 tax
years.
Management believes that adequate provisions have been made in the financial
statements for any potential assessments that may result from tax examination
and other tax related matters for all open tax years.
(d) UNFUNDED COMMITMENTS
At December 31, 2001, Hartford Life Insurance Company has outstanding
commitments to fund limited partnership investments totaling $189. These capital
commitments can be called by the partnerships during a 3-6 year commitment
period to fund working capital needs or the purchase of new investments. If the
commitment period expires and the commitment has not been fully funded, Hartford
Life Insurance Company is not required to fund the remaining unfunded
commitment.
F-19
<Page>
16. 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 group benefit products
including group life and group 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 allocation 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 present summarized financial information
concerning the Company's segments as well as the Company's revenues by product.
F-20
<Page>
<Table>
<Caption>
For the years ended December 31,
----------------------------------
2001 2000 1999
----------------------------------
TOTAL REVENUES
Investment Products $ 2,114 $ 2,068 $ 1,884
Individual Life 774 545 574
COLI 717 765 830
Other 50 69 112
----------------------------------
TOTAL REVENUES $ 3,655 $ 3,447 $ 3,400
----------------------------------
NET INVESTMENT INCOME
Investment Products $ 867 $ 724 $ 699
Individual Life 204 142 169
COLI 352 366 431
Other 72 94 60
----------------------------------
TOTAL NET INVESTMENT INCOME $ 1,495 $ 1,326 $ 1,359
----------------------------------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS AND
PVP
Investment Products $ 413 $ 477 $ 411
Individual Life 153 127 128
COLI -- -- --
Other -- -- --
----------------------------------
TOTAL AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
AND PRESENT VALUE OF FUTURE PROFITS $ 566 $ 604 $ 539
----------------------------------
INCOME TAX EXPENSE (BENEFIT)
Investment Products $ 111 $ 150 $ 159
Individual Life 54 38 37
COLI 17 19 15
Other (138) (13) (20)
----------------------------------
TOTAL INCOME TAX EXPENSE $ 44 $ 194 $ 191
----------------------------------
NET INCOME (LOSS)
Investment Products $ 375 $ 354 $ 300
Individual Life 106 70 68
COLI 36 35 28
Other 129 28 (35)
----------------------------------
TOTAL NET INCOME $ 646 $ 487 $ 361
----------------------------------
ASSETS
Investment Products $106,497 $106,553 $106,352
Individual Life 9,248 6,558 5,962
COLI 26,835 23,384 20,198
Other 2,853 2,340 2,453
----------------------------------
TOTAL ASSETS $145,433 $138,835 $134,965
----------------------------------
REVENUES BY PRODUCT
Investment Products
Individual Annuities $ 1,392 $ 1,447 $ 1,313
Other 722 621 571
----------------------------------
TOTAL INVESTMENT PRODUCTS 2,114 2,068 1,884
----------------------------------
Individual Life 774 545 574
COLI 717 765 830
----------------------------------
</Table>
17. QUARTERLY RESULTS FOR 2001 AND 2000 (UNAUDITED)
<Table>
<Caption>
Three Months Ended
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------------
2001 2000 2001 2000 2001 2000 2001 2000
------------------------------------------------------------------------------
Revenues $879 $838 $931 $831 $917 $919 $928 $ 859
Benefits, claims and expenses 685 645 746 682 759 730 769 709
Net income 135 128 129 130 265 129 117 100
------------------------------------------------------------------------------
</Table>
F-21
<Page>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 2001
(IN MILLIONS)
<Table>
<Caption>
Amount at
Fair which shown
Type of Investment Cost Value on Balance Sheet
----------------------------------
FIXED MATURITIES
Bonds and Notes
U. S. Government and Government agencies
and authorities (guaranteed and sponsored) $ 247 $ 260 $ 260
U.S. Government and Government agencies and
authorities (guaranteed and sponsored) --
asset backed 1,179 1,202 1,202
States, municipalities and political
subdivisions 44 47 47
International governments 312 327 327
Public utilities 994 982 982
All other corporate, including
international 8,829 8,966 8,966
All other corporate -- asset backed 5,816 5,854 5,854
Short-term investments 1,008 1,008 1,008
Certificates of deposit 503 495 495
Redeemable preferred stock 1 1 1
----------------------------------
TOTAL FIXED MATURITIES 18,933 19,142 19,142
----------------------------------
EQUITY SECURITIES
Common Stocks
Industrial and miscellaneous 71 64 64
----------------------------------
TOTAL EQUITY SECURITIES 71 64 64
----------------------------------
TOTAL FIXED MATURITIES AND EQUITY SECURITIES 19,004 19,206 19,206
----------------------------------
Policy Loans 3,278 3,278 3,278
----------------------------------
OTHER INVESTMENTS
Mortgage loans on real estate 256 256 256
Investment in partnerships and trusts 701 721 721
Futures, options and miscellaneous 84 159 159
----------------------------------
TOTAL OTHER INVESTMENTS 1,041 1,136 1,136
----------------------------------
TOTAL INVESTMENTS $23,323 $23,620 $23,620
----------------------------------
</Table>
S-1
<Page>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN MILLIONS)
<Table>
<Caption>
Deferred
Policy Future Other Earned Net
Acquisition Policy Policyholder Policy Premiums Investment
Segment Costs Benefits Funds Fees and Other Income
--------------------------------------------------------------------------
2001
Investment Products $3,592 $4,211 $11,106 $1,249 $ (2) $ 867
Individual Life 1,170 506 2,945 555 15 204
Corporate Owned Life Insurance 8 321 4,120 353 12 352
Other -- 1,012 241 -- 69 72
--------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $4,770 $6,050 $18,412 $2,157 $ 94 $1,495
--------------------------------------------------------------------------
2000
--------------------------------------------------------------------------
Investment Products $3,292 $3,293 $ 8,287 $1,325 $ 19 $ 724
Individual Life 1,033 274 1,984 394 9 142
Corporate Owned Life Insurance -- 283 4,645 390 9 366
Other -- 978 31 -- 60 94
--------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $4,325 $4,828 $14,947 $2,109 $ 97 $1,326
--------------------------------------------------------------------------
1999
--------------------------------------------------------------------------
Investment Products $3,099 $2,744 $ 8,859 $1,148 $ 37 $ 699
Individual Life 914 270 1,880 388 17 169
Corporate Owned Life Insurance -- 321 5,244 399 -- 431
Other -- 997 21 -- 56 60
--------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $4,013 $4,332 $16,004 $1,935 $ 110 $1,359
--------------------------------------------------------------------------
<Caption>
Benefits, Amortization
Net Claims and Insurance of Deferred
Realized Claim Expenses Policy
Capital Adjustment and Acquisition Dividends to
Segment Losses Expenses Other Costs Policyholders
-----------------------------------------------------------
2001
Investment Products $ -- $ 801 $ 415 $413 $ --
Individual Life -- 330 128 153 2
Corporate Owned Life Insurance -- 514 84 -- 66
Other (91) 58 (5) -- --
-----------------------------------------------------------
CONSOLIDATED OPERATIONS $(91) $1,703 $ 622 $566 $ 68
-----------------------------------------------------------
2000
-----------------------------------------------------------
Investment Products $ -- $ 686 $ 401 $477 $ --
Individual Life -- 216 94 127 --
Corporate Owned Life Insurance -- 545 99 -- 67
Other (85) 48 6 -- --
-----------------------------------------------------------
CONSOLIDATED OPERATIONS $(85) $1,495 $ 600 $604 $ 67
-----------------------------------------------------------
1999
-----------------------------------------------------------
Investment Products $ -- $ 660 $ 354 $411 $ --
Individual Life -- 254 87 128 --
Corporate Owned Life Insurance -- 621 62 -- 104
Other (4) 39 128 -- --
-----------------------------------------------------------
CONSOLIDATED OPERATIONS $ (4) $1,574 $ 631 $539 $104
-----------------------------------------------------------
</Table>
S-2
<Page>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<Table>
<Caption>
Percentage of
Gross Ceded to Other Assumed From Net Amount
Amount Companies Other Companies Amount Assumed to Net
-------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001
Life insurance in force $354,961 $170,359 $43,374 $227,976 19.0%
FEE INCOME, EARNED PREMIUMS AND OTHER
Life insurance and annuities $ 2,637 $ 486 $ 63 $ 2,214 2.8%
Accident and health insurance 515 494 16 37 43.2%
-------------------------------------------------------------------
TOTAL FEE INCOME, EARNED
PREMIUMS AND OTHER $ 3,152 $ 980 $ 79 $ 2,251 3.5%
-------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000
Life insurance in force $348,605 $145,529 $10,219 $213,295 4.8%
FEE INCOME, EARNED PREMIUMS AND OTHER
Life insurance and annuities $ 2,414 $ 271 $ 35 $ 2,178 1.6%
Accident and health insurance 471 452 9 28 32.1%
-------------------------------------------------------------------
TOTAL FEE INCOME, EARNED
PREMIUMS AND OTHER $ 2,885 $ 723 $ 44 $ 2,206 2.0%
-------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999
Life insurance in force $307,970 $131,162 $11,785 $188,593 6.2%
FEE INCOME, EARNED PREMIUMS AND OTHER
Life insurance and annuities $ 2,212 $ 275 $ 84 $ 2,021 4.2%
Accident and health insurance 448 435 11 24 45.8%
-------------------------------------------------------------------
TOTAL FEE INCOME, EARNED
PREMIUMS AND OTHER $ 2,660 $ 710 $ 95 $ 2,045 4.6%
-------------------------------------------------------------------
</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
<Page>
Sections 33-770 to 33-778, inclusive, of the Connecticut General Statutes
("CGS") provide the standards under which a corporation may indemnify an
individual for liability, including legal expenses, incurred because such
individual is a party to a proceeding because the individual was a director,
officer, employee, or agent of the corporation. Specifically, Section
33-771(a)(2) permits a corporation to indemnify a director if the corporation,
pursuant to Section 33-636(5)(b), obligated itself under its certificate of
incorporation to indemnify a director for liability except for certain
liability involving conduct described in Section 33-636(5)(b). Section 33-776
permits a corporation to indemnify an officer, employee, or agent of the
corporation to the same extent as a director as may be provided by the
corporation's bylaws, certificate of incorporation, or resolution of the board
of directors.
Consistent with the statutes referenced above, under the Depositor's
Certificate of Incorporation, the Depositor must indemnify directors for
liability except liability that:
(a) involved a knowing and culpable violation of law by the director;
(b) enabled the director or an associate to receive an improper personal gain;
(c) showed a lack of good faith and a conscious disregard for the duty of the
director of the corporation under circumstances in which the director was
aware that his conduct or omission created an unjustifiable risk of serious
injury to the corporation;
(d) constituted a sustained and unexcused pattern of inattention that amounted
to an abdication of the director's duty to the corporation or
(e) created liability under section 33-757 relating to unlawful distributions.
The Depositor's Certificate of Incorporation also permits the Depositor, at the
discretion of the board of directors, to indemnify any current or former
director, officer, employee or agent of the corporation to the fullest extent
permitted by law. Accordingly, under the Depositor's bylaws, the Depositor
must, to the fullest extent permitted by applicable law, indemnify directors
and officers of the Depositor against all expenses, including attorney's fees,
in connection with any proceeding by reason of the fact that such person was a
director or officer of the Depositor.
Section 33-777 permits a corporation to procure insurance on behalf of an
individual who was a director or officer 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.
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.
<Page>
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
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. 6 to the Registration Statement
File No. 333-66343, dated February 8, 2001.
3(b) By-laws Incorporated by reference to Post-Effective
Amendment No. 6 to the Registration Statement
File No. 333-66343, dated February 8, 2001.
4(a) Group Annuity Contract Incorporated by reference to Amendment No. 1 to
the Registration Statement File No. 33-88786,
dated April 28, 1995.
4(b) Group Annuity Certificate Incorporated by reference to Amendment No. 1 to
the Registration Statement File No. 33-88786,
dated April 28, 1995.
4(c) Individual Annuity Contract Incorporated by reference to Amendment No. 1 to
the Registration Statement File No. 33-88786,
dated April 28, 1995.
5 Opinion re: legality Filed herewith.
23(a) Legal Consent Filed herewith as Exhibit 5.
23(b) Consent of Arthur Andersen Filed herewith.
LLP, Independent Public
Accountants
24 Copy of Power of Attorney Filed herewith.
</Table>
<Page>
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 reasonable grounds to believe that it meets all the requirements for
filing this Post-Effective Amendment on Form S-2 and 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 April, 2002.
HARTFORD LIFE INSURANCE COMPANY
*By: Thomas M. Marra *By: /s/ Michael Stobart
------------------------------- ----------------------
Thomas M. Marra, President, Michael Stobart
Chief Executive Officer and Attorney-In-Fact
Chairman of the Board*
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 April, 2002.
David T. Foy, Senior Vice President, Chief
Financial Officer & Treasurer, Director*
Thomas M. Marra, President, Chief Executive
Officer and Chairman of the Board*
Christine Hayer Repasy, Senior Vice President,
General Counsel & Corporate Secretary, By: /s/ Michael Stobart
Director* -----------------------
John C. Walters, Executive Vice President, Michael Stobart
Director* Attorney-in-Fact
Lizabeth H. Zlatkus, Executive Vice President,
Director* Date: April 4, 2002
David M. Znamierowski, Senior Vice President &
Chief Investment Officer, Director*
333-46376
<Page>
EXHIBIT INDEX
5 Opinion and Consent of Christine Hayer Repasy, 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