EXHIBIT 99.1
PART I
ITEM 1. BUSINESS OF HARTFORD LIFE INSURANCE COMPANY
(DOLLAR AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)
GENERAL
Hartford Life Insurance Company and its subsidiaries ("Hartford Life Insurance
Company" or the "Company"), is a direct subsidiary of Hartford Life and Accident
Insurance Company ("HLA"), a wholly owned subsidiary of Hartford Life, Inc.
("Hartford Life"). Hartford Life is an indirect subsidiary of The Hartford
Financial Services Group, Inc. ("The Hartford"). The Company, together with HLA,
provides (i) investment products, including variable annuities, fixed market
value adjusted ("MVA") annuities, mutual funds and retirement plan services for
the savings and retirement needs of over 1.5 million customers, (ii) life
insurance for wealth protection, accumulation and transfer needs for
approximately 735,000 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 universal 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 the financial uncertainties associated with 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 acquired the
individual life insurance, annuity and mutual fund businesses of Fortis on April
2, 2001. (For additional information, see the Capital Resources and Liquidity
section of the MD&A and Note 15 of Notes to Consolidated Financial Statements).
In the past year, the Company's total assets, increased 21% to $171.9 billion at
December 31, 2003 from $142.1 billion at December 31, 2002. The Company
generated revenues of $4.9 billion, $3.9 billion and $4.5 billion in 2003, 2002
and 2001, respectively. Additionally, Hartford Life Insurance Company generated
net income of $626, $426 and $646 in 2003, 2002, and 2001, respectively.
CUSTOMER SERVICE, TECHNOLOGY AND ECONOMIES OF SCALE
The Company maintains advantageous economies of scale and operating efficiencies
due to its 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.
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 2003 Annuity Service Award by DALBAR Inc., a recognized
independent financial services research organization, for the eighth consecutive
year. Hartford Life Insurance Company is the only company to receive this
prestigious award in every year of the award's existence. Also, in 2003 the
Company earned its first DALBAR Award for Retirement Plan Service which
recognizes Hartford Life Insurance Company as the No. 1 service provider of
retirement plans in the industry. Additionally, the Company's Individual Life
segment won its third consecutive DALBAR award for service of life insurance
customers and its second DALBAR Intermediary Service Award in 2003.
RISK MANAGEMENT
The Company's product designs, prudent underwriting standards and risk
management techniques are structured to protect it against disintermediation
risk, greater than expected mortality and morbidity experience and, for certain
product features, specifically the guaranteed minimum death benefit ("GMDB") and
guaranteed minimum withdrawal benefit ("GMWB") offered with variable annuity
products, equity market volatility. As of December 31, 2003, the Company had
limited exposure to disintermediation risk on approximately 96% of its domestic
life insurance and annuity liabilities through the use of non-
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guaranteed separate accounts, MVA features, policy loans, surrender charges and
non-surrenderability provisions. The Company effectively utilizes prudent
underwriting to select and price insurance risks and regularly monitors
mortality and morbidity assumptions to determine if experience remains
consistent with these assumptions and to ensure that its product pricing remains
appropriate. The Company also enforces disciplined claims management to protect
itself against greater than expected morbidity experience. The Company uses
reinsurance structures and has modified benefit features to mitigate the
mortality exposure associated with guaranteed minimum death benefits. The
Company also uses reinsurance to minimize the volatility associated with the
GMWB liability.
REPORTING SEGMENTS
Hartford Life Insurance Company has changed its reportable operating segments
from Investment Products, Individual Life and Corporate Owned Life Insurance
("COLI") to Retail Products Group ("Retail"), Institutional Solutions Group
("Institutional") and Individual Life. The Company also includes, in an "Other"
category, net realized capital gains and losses other than periodic net coupon
settlements on non-qualifying derivatives and net realized capital gains and
losses related to guaranteed minimum withdrawal benefits; corporate items not
directly allocable to any of its reportable operating segments and intersegment
eliminations, 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 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 14 of Notes to Consolidated
Financial Statements.
Retail Products Group
The Retail Products Group 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. Retail
generated revenues of $1.8 billion in 2003, $1.6 billion in 2002 and $1.5
billion in 2001, of which individual annuities accounted for $1.7 billion, $1.5
billion and $1.4 billion in 2003, 2002 and 2001, respectively. Net income in the
Retail segment was $341, $280 and $319 in 2003, 2002 and 2001, respectively.
The Company sells both variable and fixed individual annuity products through a
wide distribution network of national and regional broker-dealer organizations,
banks and other financial institutions and independent financial advisors. The
Company is a market leader in the annuity industry with sales of $16.5 billion,
$11.6 billion, and $10.0 billion in 2003, 2002 and 2001, respectively. The
Company was the largest seller of individual retail variable annuities in the
United States with sales of $15.7 billion in 2003, $10.3 billion in 2002 and
$9.0 billion in 2001. In addition, the Company continues to be the largest
seller of individual retail variable annuities through banks in the United
States.
The Company's total account value related to individual annuity products was
$97.7 billion as of December 31, 2003. Of this total account value, $86.5
billion, or 89%, related to individual variable annuity products and $11.2
billion, or 11%, related primarily to fixed MVA annuity products. In 2002, the
Company's total account value related to individual annuity products was $74.9
billion. Of this total account value, $64.3 billion, or 86%, related to
individual variable annuity products and $10.6 billion, or 14%, related
primarily to fixed MVA annuity products.
In addition to its leading position in individual annuities, Hartford Life
Insurance Company is among the top providers of retirement products and
services, including asset management and plan administration sold to small and
medium size corporations pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended (referred to as "401(k)").
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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.
Additionally, the Investment Products segment sells variable annuity contracts
that offer various guaranteed death benefits. For certain guaranteed death
benefits, the Company pays the greater of (1) the account value at death; (2)
the sum of all premium payments less prior withdrawals; or (3) the maximum
anniversary value of the contract, plus any premium payments since the contract
anniversary, minus any withdrawals following the contract anniversary.
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 up to 8%
of the contract's deposit less withdrawals, and reduce to zero on a sliding
scale, usually within seven years from the deposit date. Individual variable
annuity account values of $86.5 billion as of December 31, 2003, have grown from
$64.3 billion as of December 31, 2002, due to strong net cash flow, resulting
from high levels of sales, low levels of surrenders and equity market
appreciation. Approximately 90% and 88% of the individual variable annuity
account values were held in non-guaranteed separate accounts as of December 31,
2003 and 2002, respectively.
In August 2002, the Company introduced Principal First, a new guaranteed
withdrawal benefit rider which is sold in conjunction with the Company's
variable annuity contracts. The Principal First rider provides the policyholder
with a guaranteed remaining balance ("GRB") if the account value is reduced to
zero through a combination of market declines and withdrawals. The GRB is
generally equal to premiums less withdrawals. However, annual withdrawals that
exceed 7% of the premiums paid may reduce the GRB by an amount greater than the
withdrawals and may also impact the guaranteed annual withdrawal amount that
subsequently applies after the excess annual withdrawals occur. The policyholder
also has the option, after a specified time period, to reset the GRB to the
then-current account value, if greater.
The assets underlying the Company's variable annuities are managed both
internally and by independent 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"); Hartford
Investment Management Company ("Hartford Investment Management"), a wholly-owned
subsidiary of The Hartford; Putnam Financial Services, Inc. ("Putnam"); American
Funds; MFS Investment Management ("MFS"); Franklin Templeton Group; and AIM
Investments ("AIM"). All have an interest in the continued growth in sales of
the Company's products and enhance the marketability of the Company's annuities
and the strength of its product offerings. Hartford Leaders, which is a
multi-manager variable annuity that combines the product manufacturing,
wholesaling and service capabilities of the Company with the investment
management expertise of four of the nation's most successful investment
management organizations: American Funds, Franklin Templeton Group, AIM and MFS,
has emerged as the industry leader in terms of retail sales. In addition, the
Director variable annuity, which is managed in part by Wellington, ranks second
in the industry in terms of retail sales.
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,
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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 four years. Account values of
fixed MVA annuities were $11.2 billion and $10.6 billion as of December 31, 2003
and 2002, respectively.
Corporate -- The Company sells retirement plan products and services to
corporations under Section 401(k) plans targeting the small and medium case
markets. The Company believes these markets are under-penetrated in comparison
to the large case market. As of December 31, 2003, the Company administered over
4,100 Section 401(k) plans.
Marketing and Distribution
The Retail Products Group 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 retail investment products to
customers is consummated).
Hartford Life Insurance Company maintains a distribution network of
approximately 1,500 broker-dealers and approximately 500 banks. As of December
31, 2003, the Company was selling products through the 25 largest retail banks
in the United States. The Company periodically negotiates provisions and terms
of its relationships with unaffiliated parties, and there can be no assurance
that such terms will remain acceptable to the Company or such third parties. The
Company's primary wholesaler of its individual annuities is PLANCO Financial
Services, Inc. and its affiliate, PLANCO, Incorporated (collectively "PLANCO") a
wholly owned subsidiary of HLA. PLANCO is one of the nation's largest
wholesalers of individual annuities and has played a significant role in The
Hartford's growth over the past decade. As a wholesaler, PLANCO distributes the
Company's fixed and variable annuities, and 401(k) plans 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 401(k) market, to sell its products and services in
the retirement plan market.
Competition
The Retail segment competes with numerous other insurance companies as well as
certain banks, securities brokerage firms, independent financial advisors and
other financial intermediaries marketing annuities, mutual funds and other
retirement-oriented products. 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.
Regulatory Developments
Recently, there has been a significant increase in federal and state regulatory
activity relating to financial services companies, particularly mutual funds
companies. These regulatory inquiries have focused on a number of mutual fund
issues. The Company, like many others in the financial services industry, has
received requests for information from the Securities and Exchange Commission
and a subpoena from the New York Attorney General's Office, in each case
requesting documentation and other information regarding various mutual fund
regulatory issues. The Company continues to cooperate fully with these
regulatory agencies in responding to these requests. In addition,
representatives from the SEC's Office of Compliance Inspections and Examinations
recently concluded an on-site compliance examination of the Company's variable
annuity and mutual fund operations.
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Hartford Life's mutual funds are available for purchase by the separate accounts
of different variable life insurance policies, variable annuity products, and
funding agreements, and they are offered directly to certain qualified
retirement plans. Although existing products contain transfer restrictions
between subaccounts, some products, particularly older variable annuity
products, do not contain restrictions on the frequency of transfers. In
addition, as a result of the settlement of litigation against the Company with
respect to certain owners of older variable annuity products, the Company's
ability to restrict transfers by these owners is limited.
A number of companies recently have announced settlements of enforcement actions
with various regulatory agencies, primarily the Securities and Exchange
Commission and the New York Attorney General's Office. No such action has been
initiated against the Company. It is possible that one or more regulatory
agencies may pursue action against the Company in the future.
INSTITUTIONAL SOLUTIONS GROUP
Hartford Life Insurance Company is among the top providers of retirement
products and services, including asset management and plan administration sold
to municipalities pursuant to Section 457 and 403(b) of the Internal Revenue
Code of 1986, as amended (referred to as "Section 457" and "403(b)",
respectively). The Company also provides structured settlement contracts,
terminal funding products and stable value investment products such as
guaranteed investment contracts ("GICs").
Additionally, Hartford Life Insurance Company is a leader in the private
placement life insurance (formerly, COLI) ("PPLI") 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 passage of Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"), the Company sold two principal types of PPLI, leveraged
COLI and variable products.
The Company's total account values related to institutional investment products
were $12.4 billion and $9.4 billion as of December 31, 2003 and 2002,
respectively. Governmental account values were $9.0 billion and $7.2 billion as
of December 31, 2003 and 2002, respectively. Variable PPLI products account
values were $21.0 billion and $19.7 billion as of December 31, 2003 and 2002,
respectively. Leveraged COLI account values decreased to $2.5 billion as of
December 31, 2003 from $3.3 billion as of December 31, 2002, primarily due to
surrender activity. The Institutional Solutions Group generated revenues of $2.0
billion, $1.7 billion and $2.1 billion for the years ended December 31, 2003,
2002 and 2001, respectively and net income of $119, $94 and $92 in 2003, 2002
and 2001, respectively.
Principal Products
Institutional Investment Products -- The Company sells the following
institutional investment products; structured settlements, GICs and other short
term funding agreements, and other annuity contracts for special purposes such
as funding of terminated defined benefit pension plans (terminal funding
arrangements).
Structured Settlements -- Structured settlement annuity contracts 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.
Stable Value Products -- Guaranteed Interest Contracts (GICs) are group
annuity contracts issued to sponsors of qualified pension or profit-sharing
plans or stable value pooled fund managers. Under these contracts, the client
deposits a lump sum with the Hartford for a specified period of time (usually
1-7 years) for a guaranteed interest rate. At the end of the specified period,
the client receives principal plus interest earned. Funding agreements are
investment contracts that perform a similar function for non-qualified assets.
Terminal Funding -- Terminal funding arrangements are group annuity contracts
used to fund pension liabilities that exist when a qualified retirement plan
sponsor decides to terminate an existing defined benefit pension plan. Group
annuity contracts are very long-term in nature, since they must pay the pension
liabilities typically on a monthly basis to all participants covered under the
pension plan which is being terminated.
Governmental -- The Company sells retirement plan products and services to
municipalities under Section 457 plans. The Company offers a number of different
investment products, including variable annuities and fixed products, to the
employees in Section 457 plans. Generally, with the variable products, 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, 2003, the Company administered over 3,000 plans
under Sections 457 and 403(b).
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Leveraged COLI - Leveraged COLI is a fixed premium life insurance policy owned
by a company or a trust sponsored by a company. HIPAA 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 products - Variable products continue to be used by employers to fund
non-qualified benefits or other post-employment benefit liabilities.
Marketing and Distribution
In the Section 457 market, the Institutional Solutions Group distribution
network uses internal personnel with extensive experience to sell its products
and services in the retirement plan and institutional markets. The success of
the Company's marketing and distribution system depends on its product
offerings, fund performance, quality of customer service, and relationships with
brokers, banks and other financial institutions.
In the structured settlement market, the Institutional Solutions Group sells
individual fixed immediate annuity products through a small number of specialty
brokerage firms that work closely with The Hartford's property and casualty
claim operations. The Company also works directly with the brokerage firms on
cases that do not involve The Hartford's property/casualty operations.
In the stable value marketplace, the Institutional Solutions Group sells its
GICs and funding agreements to retirement plan sponsors either through
investment management firms or directly, using Hartford employees.
In the terminal funding market, the Company sells its group annuity products to
retirement plan sponsors through three different channels - (1) a small number
of specialty brokers, (2) large benefits consulting firms and (3) directly,
using Hartford employees.
Competition
The Institutional segment competes with numerous other insurance companies as
well as certain banks, securities brokerage firms, independent financial
advisors and other financial intermediaries marketing annuities, mutual funds
and other retirement-oriented products. 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.
For institutional product lines offering fixed annuity products (i.e., terminal
funding, structured settlements and stable value), financial strength,
stability and credit ratings are key buying factors. As a result, the
competitors in those marketplaces tend to be other large, long-established
insurance companies.
INDIVIDUAL LIFE
The Individual Life segment provides life insurance solutions to a wide array of
partners to solve the wealth protection, accumulation and transfer needs of
their affluent, emerging affluent and business insurance clients. The individual
life business acquired from Fortis in 2001 added significant scale to the
Company's Individual Life segment, contributing to a significant increase in
life insurance in force in that year. Revenues were $893, $858, and $774 for the
years ended December 31, 2003, 2002 and 2001, respectively. Net income in the
Individual Life segment was $134, $116, and $106 for the years ended December
31, 2003, 2002 and 2001, respectively.
Principal Products
Hartford Life Insurance Company holds a significant market share in the variable
universal life product market. In 2003, the Company's new sales of individual
life insurance were 54% variable universal life, 41% universal life and other,
and 5% term life insurance.
Variable universal life -- Variable universal 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,
the surrender value of the variable universal life policy will increase or
decrease, and, under certain policyholder options or market conditions, the
death benefit may also increase or decrease. 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 for a
married couple. Variable universal life account values were $4.7 billion and
$3.6 billion as of December 31, 2003 and 2002, respectively.
Universal Life and Interest Sensitive Whole Life -- Universal life and interest
sensitive whole life insurance coverages provide life insurance with adjustable
rates of return based on current interest rates. The Company offers both
flexible and fixed premium policies and provides policyholders with flexibility
in the available coverage, the timing and amount of premium payments and the
amount of the death benefit, provided there are sufficient policy funds to cover
all policy charges for the coming period. The Company
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also sells universal life insurance policies with a second-to-die feature
similar to that of the variable universal 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, financial planners, certified public
accountants and property and casualty insurance organizations. The primary
organization used to wholesale Hartford Life's products to these outlets is a
group of highly qualified life insurance professionals with specialized training
in sophisticated life insurance sales. These individuals are generally employees
of the Company who are managed through a regional sales office system.
Additional distribution is provided through Woodbury Financial Services, a
subsidiary retail broker dealer and other marketing relationships.
Competition
The Individual Life segment competes with approximately 1,200 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, effectiveness of wholesaling
support, pricing and availability of reinsurance and the quality of underwriting
and customer service.
RESERVES
In accordance with applicable insurance regulations under which the Company
operates, life insurance subsidiaries of Hartford Life 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 disability or 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 Hartford Life Insurance Company reserves may be found in the
Critical Accounting Estimates section of the MD&A under "Reserves".
CEDED REINSURANCE
In accordance with normal industry practice, the Company is involved in both the
cession and assumption of insurance with other insurance and reinsurance
companies. As of December 31, 2003, the largest amount of life insurance
retained on any one life by any one of the life operations was approximately
$2.5. In addition, the Company has reinsured the majority of the minimum death
benefit guarantees and the guaranteed minimum withdrawal benefits offered in
connection with its variable annuity contracts. The majority of variable annuity
contracts issued since August 2002 include a guaranteed minimum withdrawal
benefit ("GMWB") rider. The GMWB represents an embedded derivative in the
variable annuity contract that is required to be reported separately from the
host variable annuity contract. For all contracts in effect through July 6,
2003, the Company entered into a third party reinsurance arrangement to offset
its exposure to the GMWB for the remaining lives of those contracts. As of July
6, 2003, the Company exhausted all but a small portion of the reinsurance
capacity for new business under this current arrangement and will be ceding only
a very small number of new contracts subsequent to July 6, 2003. Substantially
all new contracts with the GMWB are covered by a reinsurance arrangement with a
related party. See Note 13 "Transactions with Affiliates" for information on
this arrangement. Ceded reinsurance does not relieve the Company of its primary
liability and, as such, failure of reinsurers to honor their obligations could
result in losses to the Company. The Company also assumes reinsurance from other
insurers. The Company
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evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk. For the years ended December 31, 2003, 2002 and 2001, the
Company did not make any significant changes in the terms under which
reinsurance is ceded to other insurers except for the Company's recapture of a
block of business previously reinsured with an unaffiliated reinsurer. For
further discussion see Note 10 in "Notes to Consolidated Financial Statements".
INVESTMENT OPERATIONS
An important element of the financial results of Hartford Life Insurance Company
is return on invested assets. The investment portfolios are managed based on the
underlying characteristics and nature of each operation's respective liabilities
and within established risk parameters.
The investment portfolios of the Company are managed by Hartford Investment
Management, a wholly-owned subsidiary of The Hartford. Hartford Investment
Management is responsible for monitoring and managing the asset/liability
profile, establishing investment objectives and guidelines and determining,
within specified risk tolerances and investment guidelines, the appropriate
asset allocation, duration, convexity and other characteristics of the
portfolios. Security selection and monitoring are performed by asset class
specialists working within dedicated portfolio management teams.
The primary investment objective of the Company's general account and guaranteed
separate accounts is to maximize after-tax returns consistent with acceptable
risk parameters, including the management of the interest rate sensitivity of
invested assets and the generation of sufficient liquidity, relative to that of
policyholder and corporate obligations.
For a further discussion of Hartford Life Insurance Company's approach to
managing risks, including derivative utilization, see the Investments and
Capital Markets Risk Management sections, of the MD&A, as well as Note 2 of
Notes to Consolidated Financial Statements.
REGULATION AND PREMIUM RATES
Although there has been some deregulation with respect to large commercial
insurers in recent years, insurance companies, for the most part, are still
subject to comprehensive and detailed regulation and supervision throughout the
United States. The extent of such regulation varies, but generally has its
source in statutes which delegate regulatory, supervisory and administrative
powers to state insurance departments. Such powers relate to, among other
things, the standards of solvency that must be met and maintained; the licensing
of insurers and their agents; the nature of and limitations on investments;
establishing 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 the 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.
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RATINGS
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Ratings".
RISK-BASED CAPITAL
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Risk-Based Capital".
LEGISLATIVE AND REGULATORY INITIATIVES
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Legislative Initiatives".
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INSOLVENCY FUND
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Guaranty Fund".
NAIC PROPOSALS
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "NAIC Codification".
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Reference is made to the Regulatory Matters and Contingencies section of the
MD&A under "Dependence on Certain Third Party Relationships".
EMPLOYEES
Hartford Life Insurance Company had approximately 3,800 employees at December
31, 2003.
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