<Page>
As filed with the Securities and Exchange Commission on April 12, 2004.
File No. 333-
811-21433
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON
FORM N-8B-2
A. Exact name of trust: Separate Account Twelve
B. Name of depositor: Hartford Life Insurance Company
C. Complete address of depositor's principal executive offices:
P.O. Box 2999
Hartford, CT 06104-2999
D. Name and complete address of agent for service:
Marianne O'Doherty, Esq.
Hartford Life Insurance Company
P.O. Box 2999
Hartford, CT 06104-2999
It is proposed that this filing will become effective:
______ immediately upon filing pursuant to paragraph (b) of Rule 485
______ on __________ pursuant to paragraph (b) of Rule 485
______ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
______ on ___________ pursuant to paragraph (a)(1) of Rule 485
______ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
E. Title and amount of securities being registered: Pursuant to Rule 24f-2
under the Investment Company Act of 1940, the Registrant will register an
indefinite amount of securities.
F. Proposed maximum aggregate offering price to the public of the securities
being registered: Not yet determined.
G. Amount of filing fee: Not applicable.
H. Approximate date of proposed public offering: As soon as practicable after
the effective date of this registration statement.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall be come effective on such
date as the Commission, acting pursuant to Section 8(a) may determine.
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PART I
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GROUP VARIABLE FUNDING AGREEMENTS
SEPARATE ACCOUNT TWELVE [THE HARTFORD LOGO]
HARTFORD LIFE INSURANCE COMPANY
This prospectus describes information you should know before you purchase or
become a Participant under a group variable funding agreement (the "Contract" or
"Contracts"). Please read it carefully.
Hartford Life Insurance Company issues the Contracts for use as an investment
vehicle for certain employee retirement or welfare benefit plans and certain
other plans or programs.
You or Participants allocate your plan Contribution to "Sub-Accounts."
Sub-Accounts are subdivisions of our Separate Account that we establish to keep
your Contract assets separate from our company assets. The Sub-Accounts purchase
shares of mutual funds ("Funds") that have investment strategies ranging from
conservative to aggressive. You choose the Sub-Accounts that meet your
investment goals and risk tolerance.
The underlying Funds are retail mutual funds that are available to the public.
Because your Contributions purchase Sub-Accounts, YOU DO NOT INVEST DIRECTLY IN
ANY OF THE FUNDS. The Sub-Accounts and the Funds are listed below.
- THE HARTFORD ADVISERS FUND SUB-ACCOUNT which purchases Class A shares of
The Hartford Advisers Fund of The Hartford Mutual Funds, Inc.
- THE HARTFORD CAPITAL APPRECIATION FUND SUB-ACCOUNT which purchases
Class A shares of The Hartford Capital Appreciation Fund of The Hartford
Mutual Funds, Inc.
- THE HARTFORD DIVIDEND AND GROWTH FUND SUB-ACCOUNT which purchases Class A
shares of The Hartford Dividend and Growth Fund of The Hartford Mutual
Funds, Inc.
- THE HARTFORD GLOBAL HEALTH FUND SUB-ACCOUNT which purchases Class A shares
of The Hartford Global Health Fund of The Hartford Mutual Funds, Inc.
- THE HARTFORD GLOBAL TECHNOLOGY FUND SUB-ACCOUNT which purchases Class A
shares of The Hartford Global Technology Fund of The Hartford Mutual
Funds, Inc.
- THE HARTFORD MONEY MARKET FUND SUB-ACCOUNT which purchases Class A shares
of The Hartford Money Market Fund of The Hartford Mutual Funds, Inc.
- THE HARTFORD SMALL COMPANY FUND SUB-ACCOUNT which purchases Class A shares
of The Hartford Small Company Fund of The Hartford Mutual Funds, Inc.
- THE HARTFORD STOCK FUND SUB-ACCOUNT which purchases Class A shares of The
Hartford Stock Fund of The Hartford Mutual Funds, Inc.
You or Participants may also allocate some or all of your Contributions to the
General Account option which pays interest at a rate that is guaranteed for a
certain period of time. The General Account option has certain restrictions. The
General Account option and these restrictions are not described in this
prospectus. The General Account option is not required to be registered with the
Securities and Exchange Commission ("SEC"). Amounts allocated to the General
Account option are not segregated from our company assets like the assets of the
Separate Account.
If you decide to become a Contract Owner or a Participant, you should keep
this prospectus for your records.
Although we file the prospectus with the SEC, the SEC doesn't approve or
disapprove these securities or determine if the information in this prospectus
is truthful or complete. Anyone who represents that the SEC does these things
may be guilty of a criminal offense.
This prospectus can also be obtained from the SEC's website
(http://www.sec.gov).
This Contract IS NOT:
- - A bank deposit or obligation
- - Federally insured
- - Endorsed by any bank or governmental agency
This Contract is available for sale only in California, Connecticut and Texas.
- --------------------------------------------------------------------------------
Prospectus Dated: May 3, 2004
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TABLE OF CONTENTS
<Table>
<Caption>
SECTION PAGE
------- ----
DEFINITIONS............................................................. 3
FEE TABLES.............................................................. 4
SUMMARY................................................................. 7
PERFORMANCE RELATED INFORMATION......................................... 7
HARTFORD LIFE INSURANCE COMPANY......................................... 8
THE SEPARATE ACCOUNT.................................................... 8
THE FUNDS............................................................... 9
GENERAL ACCOUNT OPTION.................................................. 10
CONTRACT CHARGES........................................................ 11
Sales Charges......................................................... 11
Annual Maintenance Fee................................................ 11
Premium Taxes......................................................... 11
Charges of the Funds.................................................. 11
Plan Related Expenses................................................. 11
THE CONTRACTS........................................................... 11
The Contracts Offered................................................. 11
Pricing and Crediting of Contributions................................ 11
May I make changes in the amounts of my Contribution?................. 12
May I transfer assets between Sub-Accounts?........................... 12
How do I know what a Participant Account is worth?.................... 13
How are the underlying Fund shares valued?............................ 13
SURRENDERS.............................................................. 13
Full Surrenders....................................................... 13
Partial Surrenders.................................................... 14
Settlement Options.................................................... 14
How do I request a Surrender?......................................... 14
FEDERAL TAX CONSIDERATIONS.............................................. 14
A. General............................................................ 14
B. Hartford and the Separate Account.................................. 14
C. Contract Purchases by Foreign Entities............................. 15
MORE INFORMATION........................................................ 15
Can a Contract be modified?........................................... 15
Can Hartford waive any rights under a Contract?....................... 15
How are the Contracts sold?........................................... 15
Are there any material legal proceedings affecting the Separate
Account?............................................................. 17
GENERAL INFORMATION..................................................... 17
Safekeeping of Assets................................................. 17
Experts............................................................... 17
Non-Participating..................................................... 17
Principal Underwriter................................................. 17
PERFORMANCE RELATED INFORMATION......................................... 17
Total Return for all Sub-Accounts..................................... 17
Yield for Sub-Accounts................................................ 18
Money Market Sub-Accounts............................................. 18
Additional Materials.................................................. 18
Performance Comparisons............................................... 19
FINANCIAL STATEMENTS....................................................
</Table>
2
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DEFINITIONS
ACCUMULATION UNITS: If you allocate your Contribution to any of the
Sub-Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of Participant Accounts
invested in the Sub-Accounts.
ADMINISTRATIVE OFFICE: Located at 200 Hopmeadow Street, Simsbury, CT 06089. The
mailing address for correspondence concerning this Contract is P.O. Box 1583,
Hartford, CT 06144-1583, except for overnight or express mail packages, which
should be sent to: Attention: IPD/Retirement Plan Service Center, 200 Hopmeadow
Street, Simsbury, CT 06089.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT OWNER OR YOU: The Employer or entity owning the Contract.
CONTRACT YEAR: A period of 12 months beginning with the effective date of the
Contract or with any anniversary of the effective date.
CONTRIBUTIONS: Amounts paid to us by the Contract Owner for investment in a
Contract.
EMPLOYER: An employer maintaining a retirement or welfare benefit plan or
similar plan or program for its employees.
GENERAL ACCOUNT: Our General Account that consists of all of our company assets,
including any money you have invested in the General Account option. The assets
in the General Account are available to the creditors of Hartford.
HARTFORD, WE OR US: Hartford Life Insurance Company.
INVESTMENT CHOICE: Any of the Sub-Accounts or the General Account option.
PARTICIPANT: Any employee or former employee of an Employer or other individual
with a Participant Account under a Contract.
PARTICIPANT ACCOUNT: An account under a Contract to which General Account values
and Sub-Account Accumulation Units are allocated on behalf of a Participant.
PLAN: An employee benefit plan or similar program that invests in a Contract.
PREMIUM TAX: The tax or amount of tax, if any, charged by a state, federal, or
other governmental entity on Contributions or Contract values.
SURRENDER: Any withdrawal of Contract values.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. Values
of the Separate Account are determined as of the close of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time).
VALUATION PERIOD: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
3
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FEE TABLES
THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY WHEN
PURCHASING, OWNING AND SURRENDERING THE CONTRACT.
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME
THAT YOU PURCHASE THE CONTRACT OR SURRENDER THE CONTRACT. CHARGES FOR STATE
PREMIUM TAXES MAY ALSO BE DEDUCTED WHEN YOU MAKE CONTRIBUTIONS TO THE CONTRACT
OR UPON SURRENDER.
<Table>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases (as a percentage of
Contributions).................................................. None
Contingent Deferred Sales Charge (as a percentage of amounts
Surrendered).................................................... None
</Table>
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY
AND ON A DAILY BASIS DURING THE TIME THAT YOU OWN THE CONTRACT OR HAVE A
PARTICIPANT ACCOUNT UNDER THE CONTRACT, NOT INCLUDING FEES AND EXPENSES OF THE
UNDERLYING FUNDS.
<Table>
ANNUAL MAINTENANCE FEE............................................ None
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily
Sub-Account Value).............................................. None
Total Separate Account Annual Expenses........................ None
</Table>
4
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THIS TABLE SHOWS THE MINIMUM AND MAXIMUM TOTAL FUND OPERATING EXPENSES
CHARGED BY THE UNDERLYING FUNDS THAT YOU MAY PAY ON A DAILY BASIS DURING THE
TIME THAT YOU OWN THE CONTRACT OR HAVE A PARTICIPANT ACCOUNT UNDER THE CONTRACT.
MORE DETAIL CONCERNING EACH FUND'S FEES AND EXPENSES IS CONTAINED IN THE
PROSPECTUS FOR EACH FUND.
<Table>
<Caption>
MINIMUM MAXIMUM
- ---------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES
(these are expenses that are deducted from Fund
assets, including management fees, Rule 12b-1
distribution and/or service fees, and other expenses) 1.28% 1.77%
- ---------------------------------------------------------------------------------
</Table>
THIS TABLE SHOWS THE TOTAL ANNUAL FUND OPERATING EXPENSES FOR EACH
UNDERLYING FUND AS OF ITS YEAR END. ACTUAL FEES AND EXPENSES FOR THE UNDERLYING
FUNDS VARY DAILY. BECAUSE OF THIS, THE FEES AND EXPENSES FOR ANY GIVEN DAY MAY
BE GREATER THAN OR LESS THAN THE TOTAL ANNUAL FUND OPERATING EXPENSES LISTED
BELOW.
ANNUAL FUND OPERATING EXPENSES
As of the Fund's Year End
(As a percentage of net assets)
<Table>
<Caption>
TOTAL FUND
OPERATING
EXPENSES (BEFORE
12B-1 CONTRACTUAL FEE CONTRACTUAL FEE
DISTRIBUTION WAIVERS OR WAIVERS OR TOTAL FUND
MANAGEMENT AND/OR SERVICING OTHER EXPENSE EXPENSE OPERATING
FUND FEES FEES (1) EXPENSES REIMBURSEMENTS) REIMBURSEMENTS EXPENSES
---- ---------- ---------------- ------------- ---------------- --------------- ------------
The Hartford Advisers Fund --
Class A......................... 0.64% 0.30% 0.46% 1.40% N/A 1.40%
The Hartford Capital Appreciation
Fund -- Class A................. 0.68% 0.30% 0.47% 1.45% N/A 1.45%
The Hartford Dividend and Growth
Fund -- Class A................. 0.67% 0.30% 0.44% 1.41% N/A 1.41%
The Hartford Global Health
Fund -- Class A (2)............. 1.00% 0.30% 0.46% 1.76% N/A 1.76%
The Hartford Global Technology
Fund -- Class A (2)............. 1.00% 0.30% 0.47% 1.77% N/A 1.77%
The Hartford Money Market Fund --
Class A (2)..................... 0.50% 0.30% 0.48% 1.28% N/A 1.28%
The Hartford Small Company
Fund -- Class A (2)............. 0.85% 0.30% 0.48% 1.63% N/A 1.63%
The Hartford Stock Fund --
Class A......................... 0.71% 0.30% 0.46% 1.47% N/A 1.47%
</Table>
- ---------
(1) The Fund's Rule 12b-1 plan applicable to Class A shares of the Fund provides
for payment of a Rule 12b-1 fee of up to 0.35%. However, the Fund's board of
directors has currently authorized Rule 12b-1 payments of only up to 0.30%.
(2) Hartford Investment Financial Services, LLC, the Fund's investment manager,
has voluntarily agreed to limit the total operating expenses (exclusive of
taxes, interest, brokerage commissions and extraordinary expenses) of Class
A shares of The Hartford Global Health Fund, The Hartford Global Technology
Fund, The Hartford Money Market Fund, and The Hartford Small Company Fund to
1.65%, 1.65%, 1.00%, and 1.45% respectively. This voluntary limitation may
be discontinued at any time.
5
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EXAMPLE
THESE EXAMPLES ARE INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
CONTRACT WITH THE COST OF INVESTING IN OTHER VARIABLE CONTRACTS. THE EXAMPLES
REFLECT A DEDUCTION FOR THE HIGHEST TOTAL ANNUAL FUND OPERATING EXPENSES OF THE
UNDERLYING FUNDS. THE EXAMPLES DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE
PREMIUM TAXES.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. IN THE
FOLLOWING EXAMPLE TABLE, HARTFORD ASSUMES A PARTICIPANT ACCOUNT VALUE OF $25,000
TO ILLUSTRATE THE CHARGES THAT WOULD BE DEDUCTED.
THE EXAMPLES ASSUME THAT YOU INVEST $10,000 IN THE CONTRACT FOR THE TIME
PERIODS INDICATED. THE EXAMPLES ALSO ASSUME THAT YOUR INVESTMENT HAS A 5% RETURN
EACH YEAR AND ASSUMES THE HIGHEST TOTAL ANNUAL FUND OPERATING EXPENSES. ALTHOUGH
YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS, YOUR COSTS
WOULD BE:
(1) If you Surrender your Contract at the end of the applicable time period:
<Table>
1 year $ 186
- ---------------------------------------------------------------------
3 years $ 574
- ---------------------------------------------------------------------
5 years $ 988
- ---------------------------------------------------------------------
10 years $2,141
- ---------------------------------------------------------------------
</Table>
(2) If you do not Surrender your Contract:
<Table>
1 year $ 186
- ---------------------------------------------------------------------
3 years $ 574
- ---------------------------------------------------------------------
5 years $ 988
- ---------------------------------------------------------------------
10 years $2,141
- ---------------------------------------------------------------------
</Table>
6
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SUMMARY
WHAT ARE THE CONTRACTS?
The Contracts are group variable funding agreements. They are issued for use
as an investment vehicle for:
- certain employee retirement or welfare benefit plans,
- plans or programs of governmental entities,
- the activities of certain organizations exempt from tax under section
501(c) of the Code, or
- programs of certain institutions with assets in excess of 25 million
dollars.
WHAT TYPE OF SALES CHARGE WILL I PAY?
You don't pay a sales charge at the time Contributions are made to the
Contract and we don't charge you a Contingent Deferred Sales Charge when you
partially or fully Surrender the Contract.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
You pay the following charges each year:
- ANNUAL FUND OPERATING EXPENSES -- These are charges for the Funds. See the
Annual Fund Operating Expenses table for more complete information and the
Fund's prospectuses accompanying this prospectus.
IS THERE A DEDUCTION FOR PREMIUM TAXES?
We deduct for the payment of any Premium Taxes levied against us by a state
of other government entity. Premium Tax rates vary by state or municipality. The
range is generally up to 3.5%.
CAN I WITHDRAW MONEY FROM THE CONTRACT?
The Contract Owner can withdraw all or part of the amounts invested under
the Contract at any time. We call withdrawals from the Contract "Surrenders".
X We pay Surrenders under the available Settlement Options.
WHAT ARE THE AVAILABLE SETTLEMENT OPTIONS?
We call the available forms of payment in which you can take a Surrender
"Settlement Options". We will pay Surrenders according to the Settlement Option
that you choose. The following Settlement Options are available:
- Payment in a single sum.
- Installment payments for a designated period. The frequency of payments
and the length of the designated period are determined by mutual agreement
between you and us.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance related information
concerning its Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance. The Funds available through this Separate Account are retail mutual
funds that publish performance related information in newspapers, magazines, the
internet and other media. Performance information published by a retail mutual
fund will be the same as the performance published by the Separate Account when
there are no fees or expenses charged by the Separate Account.
When a Sub-Account advertises its STANDARDIZED TOTAL RETURN, it will usually
be calculated since the date of the Sub-Account's inception for one year, five
years, and ten years or some other relevant periods if the Sub-Account has not
been in existence for at least ten years. Total return is measured by comparing
the value of an investment in the Sub-Account at the beginning of the relevant
period to the value of the investment at the end of the period. Total return
calculations reflect a deduction for Total Fund Operating Expenses.
7
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A Separate Account may also advertise NON-STANDARD TOTAL RETURNS THAT
PRE-DATE THE INCEPTION DATE OF THE SEPARATE ACCOUNT. These non-standardized
total returns are calculated by assuming that the Sub-Accounts have been in
existence for the same periods as the underlying Funds. This figure will usually
be calculated for one year, five years, and ten years or other periods.
Non-standardized total return calculations reflect a deduction for Total Fund
Operating Expenses.
If applicable, a Sub-Account may advertise YIELD IN ADDITION TO TOTAL
RETURN. The yield will be computed in the following manner: the net investment
income per unit earned during a recent 30 day period is divided by the unit
value on the last day of the period.
A money market Sub-Account may advertise YIELD AND EFFECTIVE YIELD. The
yield of the Sub-Account is based upon the income earned by the Sub-Account over
a seven-day period and then annualized, i.e. the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but when
annualized, the income earned by the investment is assumed to be reinvested in
Sub-Account units and thus compounded in the course of a 52-week period.
We may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in tax-deferred
and taxable arrangements, customer profiles and hypothetical purchase scenarios,
financial management and tax and retirement planning, and other investment
alternatives, including comparisons between the Contracts and the
characteristics of and market for such alternatives.
HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company is a stock life insurance company engaged in
the business of writing life insurance and annuities, both individual and group,
in all states of the United States and the District of Columbia. We were
originally incorporated under the laws of Massachusetts on June 5, 1902, and
subsequently redomiciled to Connecticut. Our offices are located in Simsbury,
Connecticut; however, our mailing address is P.O. Box 1583, Hartford, CT
06144-1583. We are ultimately controlled by The Hartford Financial Services
Group, Inc., one of the largest financial service providers in the United
States.
HARTFORD'S RATINGS
<Table>
<Caption>
RATING AGENCY EFFECTIVE DATE OF RATING RATING BASIS OF RATING
- ------------- -------------------------- -------- ----------------------------------------
A.M. Best and Company, Inc. 7/17/03 A+ Financial strength
Standard & Poor's 12/01/03 AA- Financial strength
Fitch 1/09/04 AA Financial strength
</Table>
These ratings apply to Hartford's ability to meet its obligations under the
Contract. The ratings do not apply to the Separate Account or the underlying
Funds.
THE SEPARATE ACCOUNT
We set aside and invest assets of the Contracts in the Separate Account. The
Separate Account is registered as a unit investment trust under the Investment
Company Act of 1940. This registration does not involve supervision by the
Commission of the management or the investment practices of the Separate Account
or Hartford. The Separate Account meets the definition of "separate account"
under federal securities law. The Separate Account holds only assets for
variable funding agreements. The Separate Account:
- Holds assets for the benefit of Contract Owners, and the persons entitled
to the payments described in the Contract.
- Is not subject to the liabilities arising out of any other business
Hartford may conduct. However, all obligations under the Contract are
general corporate obligations of Hartford.
- Is not affected by the rate of return of Hartford's General Account or by
the investment performance of any of Hartford's other separate accounts.
8
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- May be subject to liabilities from a Sub-Account of the Separate Account
that holds assets of other contracts offered by the Separate Account which
are not described in this prospectus.
- Is credited with income and gains, and takes losses, whether or not
realized, from the assets it holds.
WE DO NOT GUARANTEE THE INVESTMENT RESULTS OF THE SEPARATE ACCOUNT. THERE IS
NO ASSURANCE THAT THE VALUE OF YOUR PARTICIPANT ACCOUNT WILL EQUAL THE TOTAL OF
THE CONTRIBUTIONS MADE TO YOUR PARTICIPANT ACCOUNT.
Separate Account Twelve was established on September 15, 2003.
THE FUNDS
The Funds are retail mutual funds that are also directly available to the
public without a Separate Account.
Hartford Investment Financial Services, LLC ("HIFSCO") is the investment
manager to each series of The Hartford Mutual Funds, Inc. The day-to-day
portfolio management of the funds is provided by an investment sub-adviser --
either Wellington Management Company, LLP ("Wellington Management") or Hartford
Investment Management Company ("Hartford Investment Management").
The Hartford Advisers Fund, The Hartford Capital Appreciation Fund, The
Hartford Dividend and Growth Fund, The Hartford Global Health Fund, The Hartford
Global Technology Fund, The Hartford Money Market Fund, The Hartford Small
Company Fund, and The Hartford Stock Fund are series of The Hartford Mutual
Funds, Inc., a Maryland corporation registered with the SEC as an open-end
management investment company.
The shares of each series of The Hartford Mutual Funds, Inc. have been
divided into Class A, Class B, Class C and Class Y. Only Class A shares are
available in this Contract.
We do not guarantee the investment results of any of the underlying Funds.
Since each underlying Fund has different investment objectives, each is subject
to different risks. These risks and the Funds' expenses are more fully described
in the accompanying Funds' prospectus, and the Funds' Statement of Additional
Information which may be ordered from us. The Funds' prospectus should be read
in conjunction with this prospectus before investing.
The Funds may not be available in all states.
The investment goals of the each of the Funds are as follows:
THE HARTFORD ADVISERS FUND -- Seeks maximum long-term total return.
Sub-advised by Wellington Management
THE HARTFORD CAPITAL APPRECIATION FUND -- Seeks growth of capital.
Sub-advised by Wellington Management.
THE HARTFORD DIVIDEND AND GROWTH FUND -- Seeks a high level of current
income consistent with growth of capital. Sub-advised by Wellington
Management.
THE HARTFORD GLOBAL HEALTH FUND -- Seeks long-term capital appreciation.
Sub-advised by Wellington Management.
THE HARTFORD GLOBAL TECHNOLOGY FUND -- Seeks long-term capital appreciation.
Sub-advised by Wellington Management.
THE HARTFORD MONEY MARKET FUND -- Seeks maximum current income consistent
with liquidity and preservation of capital. Sub-advised by Hartford
Investment Management.
THE HARTFORD SMALL COMPANY FUND -- Seeks growth of capital. Sub-advised by
Wellington Management.
THE HARTFORD STOCK FUND -- Seeks long-term growth of capital, with income as
a secondary consideration. Sub-advised by Wellington Management.
9
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VOTING RIGHTS: We are the legal owners of all Fund shares held in the
Separate Account and we have the right to vote at the Fund's shareholder
meetings. To the extent required by federal securities laws or regulations, we
will:
- Notify the Contract Owner of any Fund shareholders' meeting if the shares
held for the Contract may be voted;
- Send proxy materials and a form of instructions to the Contract Owner that
may be used to tell us how to vote the Fund shares held for the Contract;
- Arrange for the handling and tallying of proxies received from Contract
Owners;
- Vote all Fund shares attributable to a Contract according to instructions
received from the Contract Owner; and
- Vote all Fund shares for which no voting instructions are received in the
same proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present
interpretation, change to permit us to vote Fund shares on our own, we may
decide to do so. Contract Owners may attend any shareholder meeting at which
shares held for their Contract may be voted.
SUBSTITUTIONS, ADDITIONS, OR DELETIONS OF FUNDS -- We may, subject to any
applicable law, make certain changes to the Funds offered under your Contract.
We may, in our sole discretion, establish new Funds. New Funds will be made
available to existing Contract Owners as we determine appropriate. We may also
close one or more Funds to additional Contributions or transfers from existing
Sub-Accounts.
We may eliminate the shares of any of the Funds from the Contract for any
reason and we may substitute shares of another registered investment company for
the shares of any Fund already purchased or to be purchased in the future by the
Separate Account. To the extent required by the Investment Company Act of 1940
(the "1940 Act"), substitutions of shares attributable to your interest in a
Fund will not be made until we have the approval of the Commission and we have
notified you of the change.
In the event of any substitution or change, we may, by appropriate
endorsement, make any changes in the Contract necessary or appropriate to
reflect the substitution or change. If we decide that it is in the best interest
of the Contract Owners, the Separate Account may be operated as a management
company under the 1940 Act or any other form permitted by law, may be
de-registered under the 1940 Act in the event such registration is no longer
required, or may be combined with one or more other Separate Accounts.
ADMINISTRATIVE AND DISTRIBUTION SERVICES -- Hartford has entered into
agreements with the investment advisers or distributors of many of the Funds.
Under the terms of these agreements, Hartford provides administrative and
distribution related services and the Funds pay fees to Hartford that are
usually based on an annual percentage of the average daily net assets of the
Funds. These agreements may be different for each Fund or each Fund family and
may include fees paid under a distribution and/or servicing plan adopted by a
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940.
GENERAL ACCOUNT OPTION
IMPORTANT INFORMATION YOU SHOULD KNOW: THE PORTION OF THE CONTRACT RELATING
TO THE GENERAL ACCOUNT OPTION IS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933
("1933 ACT") AND THE GENERAL ACCOUNT OPTION IS NOT REGISTERED AS AN INVESTMENT
COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"). NEITHER THE
GENERAL ACCOUNT OPTION NOR ANY INTEREST IN THE GENERAL ACCOUNT OPTION IS SUBJECT
TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT, AND THE STAFF
OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE
REGARDING THE GENERAL ACCOUNT OPTION.
The General Account option is part of our General Account that includes our
company assets. Contributions and Contract values allocated to the General
Account are available to our general creditors.
DECLARED RATE OF INTEREST: We credit interest on Contributions made to the
General Account at a rate we declare for any period of time that we determine.
We may change the declared interest rate from time to time at our discretion.
GUARANTEED RATE OF INTEREST: We guarantee a minimum rate of interest. The
declared interest rate will not be less than the minimum guaranteed rate of
interest.
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SURRENDERS AND TRANSFERS: We generally process Surrenders and transfers from
the General Account option within a reasonable period of time after we receive a
Surrenders request at our Administrative Office. However, under certain
conditions, transfers from the General Account option may be limited or
deferred. Surrenders may be subject to a contingent deferred sales charge or a
market value adjustment and may be deferred.
CONTRACT CHARGES
SALES CHARGES
We do not assess any sales charges. This means you don't pay a sales charge
at the time Contributions are made to the Contract and we don't charge you a
Contingent Deferred Sales Charge when you partially or fully Surrender the
Contract.
PREMIUM TAXES
We deduct a charge for Premium Tax, if applicable, imposed by a state or
other governmental entity. Certain states and municipalities impose a Premium
Tax, generally ranging up to 3.50%. In some cases, Premium Taxes are deducted at
the time purchase payments are made; in other cases Premium Tax is assessed at
the time of Surrender. We will pay Premium Taxes at the time imposed under
applicable law. At our sole discretion, we may deduct Premium Taxes at the time
we pay such taxes to the applicable taxing authorities, or at the time the
Contract is Surrendered.
CHARGES AGAINST THE FUNDS
The Separate Account purchases shares of the Funds at net asset value. The
net asset value of the Fund reflects investment advisory fees and administrative
expenses already deducted from the assets of the Funds. These charges are
described in the Funds' prospectuses accompanying this prospectus.
PLAN RELATED EXPENSES
The Contract Owner may direct us to deduct amounts from the assets under a
Contract to pay certain administrative expenses or other Plan related expenses
including, but not limited to, fees to consultants, auditors and other Plan
service providers. We will deduct and pay such amounts to the Contract Owner or
as directed by the Contract Owner.
THE CONTRACTS
THE CONTRACTS OFFERED
The Contracts are group variable funding agreements. They are issued for use
as an investment vehicle for:
- certain employee retirement or welfare benefit plans,
- plans or programs of governmental entities,
- the activities of certain organizations exempt from tax under section
501(c) of the Code, or
- programs of certain institutions with assets in excess of 25 million
dollars.
The Contracts invest in publicly available Funds through the Separate
Account. The Contracts provide no additional tax benefits and do not provide tax
deferral with respect to any earnings of the underlying Funds.
PRICING AND CREDITING OF CONTRIBUTIONS
We credit initial Contributions to a Participant Account within two
Valuation Days of our receipt of a properly completed application or an order
request and the initial Contribution at our Administrative Office.
If the application or other information accompanying the initial
Contribution is incomplete when received, we will hold the money in a
non-interest bearing account for up to five Valuation Days while we try to
obtain
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complete information. If we cannot obtain the information within five Valuation
Days, we will either return the Contribution and explain why it could not be
processed or keep the Contribution if you authorize us to keep it until the
necessary information is provided.
Subsequent Contributions properly designated for a Participant Account are
priced on the Valuation Day that we receive the Contribution at our
Administrative Office.
MAY I MAKE CHANGES IN THE AMOUNTS OF MY CONTRIBUTION?
Yes. There is a $30 minimum amount for initial Contributions or subsequent
Contributions that may be made on behalf of a Participant Account under a
Contract, unless the Employer's plan provides otherwise, in which case the
minimum amount shall not be less than $10. If the Plan adopted by the Contract
Owner so provides, the Contract permits the allocation of Contributions in
multiples of 1% among the Sub-Accounts. The minimum amount that may be allocated
to any Sub-Account shall not be less than $10. Such changes must be requested in
the form and manner prescribed by us.
MAY I TRANSFER ASSETS BETWEEN SUB-ACCOUNTS?
Yes, you, and Participants if permitted by the Plan, can transfer the values
of your Sub-Account allocations between or among the Sub-Accounts or the General
Account option. You can make these transfers and changes in allocations by:
- written request,
- by calling 1-800-528-9009, or
- where available, electronically by Internet through our web site at
retire.hartfordlife.com.
Any transfers or changes will be effected as of the Valuation Day we receive
your request in good order at our Administrative Office.
You can transfer Participant Account values between or among the
Sub-Accounts or General Account option up to 12 times per calendar year.
Transfers of assets presently held in the General Account Option, or which
were held in the General Account option at any time during the preceding three
months, to any account that we determine is a competing account, are prohibited.
Similarly, transfers of assets presently held in any account during the
preceding three months, that we determine is a competing account, to the General
Account Option, are prohibited.
In addition, we may restrict transfers and Surrenders from the General
Account option if the amount of any transfer or Surrender from the General
Account option, when added to the sum of all transfers and Surrenders from the
General Account option during the preceding 12 months, exceeds 12 percent of the
General Account values 12 months earlier. This restriction does not apply to
Benefit Payments.
We, or our agents and affiliates will not be responsible for losses
resulting from acting upon telephone or electronic requests reasonably believed
to be genuine. We will employ reasonable procedures to confirm that instructions
communicated by telephone or electronically are genuine. The procedures we
follow for transactions initiated by telephone include requirements that callers
provide certain information for identification purposes. All transfer
instructions by telephone are tape-recorded. Transfer requests initiated
electronically require a personal identification number.
IT IS YOUR RESPONSIBILITY TO VERIFY THE ACCURACY OF ALL CONFIRMATIONS OF
TRANSFERS AND TO PROMPTLY ADVISE US AT OUR ADMINISTRATIVE OFFICE OF ANY
INACCURACIES WITHIN 30 DAYS OF THE DATE YOU RECEIVE YOUR CONFIRMATION.
The right to reallocate Contract values is subject to modification by us if
we determine, in our sole opinion, that the exercise of that right by one or
more Participants or Contract Owners is, or would be, to the disadvantage of
other Participants or Contract Owners. Any modification could be applied to
transfers to or from some or all of the Sub-Accounts and could include, but not
be limited to, the requirement of a minimum time period between each transfer,
not accepting transfer requests of an agent acting under a power of attorney on
behalf of more than one Participant or Contract Owner, or limiting the dollar
amount that may be transferred between the Sub-Accounts by you at any one time.
We will notify you in writing prior to any such modification. SUCH RESTRICTIONS
MAY BE APPLIED IN ANY MANNER REASONABLY DESIGNED TO PREVENT ANY USE OF THE
TRANSFER RIGHT WHICH WE CONSIDER TO BE TO THE DISADVANTAGE OF OTHER CONTRACT
OWNERS OR PARTICIPANTS.
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HOW DO I KNOW WHAT A PARTICIPANT ACCOUNT IS WORTH?
The Participant Account value reflects the sum of the amounts under the
Participant Account allocated to the General Account option and the
Sub-Accounts.
There are two things that affect the Sub-Account value: (1) the number of
Accumulation Units and (2) the Accumulation Unit value. The Sub-Account value is
determined by multiplying the number of Accumulation Units by the Accumulation
Unit value. Therefore, on any Valuation Day the portion of a Participant Account
allocated to the Sub-Accounts will reflect the investment performance of the
Sub-Accounts and will fluctuate with the performance of the underlying Funds.
Contributions made or Contract values allocated to a Sub-Account are
converted into Accumulation Units by dividing the amount of the Contribution or
allocation, minus any Premium Taxes, by the Accumulation Unit value for that
Valuation Day. The more Contributions or Contract values allocated to the
Sub-Accounts under a Participant Account, the more Accumulation Units will be
reflected under the Participant Account. The number of Accumulation Units in a
Sub-Account will be decreased under a Participant Account by Surrenders or
transfers of money out of a Sub-Account.
To determine the current Accumulation Unit value, we take the prior
Valuation Day's Accumulation Unit value and multiply it by the Net Investment
Factor for the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Contract Owner chooses one
of the following two methods to calculate the Net Investment Factor at the time
the Contract Owner purchases the Contract:
Method One
The Net Investment Factor for each Sub-Account equals:
- The net asset value per share plus applicable distributions per share of
each Fund held in the Sub-Account at the end of the current Valuation Day;
divided by
- The net asset value per share of each Fund held in the Sub-Account at the
end of the prior Valuation Day.
Method Two
The Net Investment Factor for each Sub-Account equals:
- The net asset value per share of each Fund held in the Sub-Account at the
end of the current Valuation Day; divided by
- The net asset value per share of each Fund held in the Sub-Account at the
end of the prior Valuation Day.
Under Method Two, the value of any applicable Fund distributions per share
creates additional Accumulation Units.
We will send Participants a statement for each calendar quarter, that tells
how many Accumulation Units they have, their value and their total Participant
Account value. Participants can also call 1-800-528-9009 to obtain their
Participant Account value or, where available, may access their account
information through our website at retire.hartfordlife.com.
HOW ARE THE UNDERLYING FUND SHARES VALUED?
The shares of the Fund are valued at net asset value on a daily basis. A
complete description of the valuation method used in valuing Fund shares may be
found in the accompanying prospectus of each Fund.
SURRENDERS
FULL SURRENDERS
If you request a full Surrender of your Contract, we will pay you the
Surrender Value. The Surrender Value is the Contract value minus any applicable
Premium Taxes. The Surrender Value may be more or less than the amount of the
Contributions made to the Contract.
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PARTIAL SURRENDERS
You may request a partial Surrender of Contract values at any time before
you terminate your Contract.
SETTLEMENT OPTIONS
We call the available forms of payment in which you can take a Surrender
"Settlement Options". We will pay Surrenders according to the Settlement Option
that you choose. The following Settlement Options are available:
- Payment in a single sum.
- Installment payments for a designated period. The frequency of payments
and the length of the designated period are determined by mutual agreement
between you and us.
HOW DO I REQUEST A SURRENDER?
Requests for full Surrenders must be in writing. You can request a partial
Surrender in writing or by electronic file in a format agreed to by us.
We pay Surrenders of amounts in the Sub-Accounts within seven days of
receiving your request with complete instructions. However, we may postpone
payment of Surrenders invested in the Sub-Accounts whenever (a) the New York
Stock Exchange is closed, (b) trading on the New York Stock Exchange is
restricted by the SEC, (c) the SEC permits and orders postponement or (d) the
SEC determines that an emergency exists to restrict valuation.
We pay the portion of your Surrender Value invested in the General Account
option according to the termination provisions in your Contract.
Partial Surrenders from the General Account option may be subject to certain
restrictions described in your Contract.
FEDERAL TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSEQUENCES THAT AFFECT THESE CONTRACTS?
A. GENERAL
Since the 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 and
may apply to this contract. 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. Nor do we discuss the tax treatment of distributions
from or benefits paid by the plans and organizations that may invest in this
contract. For detailed tax information, a prospective purchaser should consult
with a qualified tax adviser familiar with its situation.
B. HARTFORD AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Hartford, which is taxed as a life
insurance company under Subchapter L of Chapter 1 of the Code. The Sub-Accounts
among which the Contract Owner may allocate its Contract Contributions are
retail mutual funds that also are directly available to the public without a
Separate Account. The Internal Revenue Service has ruled that, for federal
income tax purposes, a variable contract owner will be treated as the owner of
the mutual funds shares when the mutual funds used for sub-accounts for the
variable contract are publicly available. SEE, E.G., Rev. Rul. 2003-91, 2003-33
I.R.B. 347. As a result, even though investment income and any realized capital
gains on the assets held in the Separate Account may be reinvested
automatically, such investment income and capital gain income may be taxable
directly to the Contract Owner. A prospective purchaser should consult with a
qualified tax adviser familiar with its situation.
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C. CONTRACT PURCHASES BY FOREIGN ENTITIES
Purchasers that are not U.S. residents or entities engaged in a trade or
business in the United States generally will be subject to U.S. federal income
tax and withholding on U.S. source taxable 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 applicable U.S. 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 a contract
purchase.
MORE INFORMATION
CAN A CONTRACT BE MODIFIED?
Subject to any federal and state regulatory restrictions, we may modify the
Contracts at any time by written agreement between the Contract Owner and us.
On or after the fifth anniversary of any Contract we may change, from time
to time, any or all of the terms of the Contracts by giving 90 days advance
written notice to the Contract Owner, except that the minimum guaranteed
interest rate which are applicable at the effective date of a Contract, will
continue to be applicable.
We may modify the Contract at any time if such modification: (i) is
necessary to make the Contract or the Separate Account comply with any law or
regulation issued by a governmental agency to which we are subject; or (ii) is
necessary to assure continued qualification of the Contract under the Code or
other federal or state laws relating to the Contracts; or (iii) is necessary to
reflect a change in the operation of the Separate Account or the Sub-Account(s);
or (iv) provides additional Separate Account options; or (v) withdraws Separate
Account options. In the event of any such modification we will provide notice to
the Contract Owner. Hartford may also make appropriate endorsement in the
Contract to reflect such modification.
CAN HARTFORD WAIVE ANY RIGHTS UNDER A CONTRACT?
We may, at our sole discretion, elect not to exercise a right or reservation
specified in this Contract. If we elect not to exercise a right or reservation,
we are not waiving it. We may decide to exercise a right or a reservation that
we previously did not exercise.
HOW ARE THE CONTRACTS SOLD?
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account. 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 that of Hartford.
The securities will be sold by salespersons of HSD who represent Hartford as
insurance and variable annuity agents and who are registered representatives or
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Commission under the Securities Exchange Act of
1934 as a Broker-Dealer and is a member of the National Association of
Securities Dealers, Inc.
Commissions will be paid by Hartford and will not be more than 1% of
Contributions. Sales compensation may be reduced. Hartford may pay or permit
other promotional incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments made
by policyholders or contract owners. This compensation is usually paid from the
sales charges described in this prospectus.
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 variable insurance products.
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ARE THERE ANY MATERIAL LEGAL PROCEEDINGS AFFECTING THE SEPARATE ACCOUNT?
There are no material legal proceedings pending to which the Separate
Account is a party.
Hartford Life Insurance Company ("Hartford Life"), which is the parent
company of Hartford Life and Annuity, is or may become involved in various kinds
of legal actions, some of which assert claims for substantial amounts. These
actions may include, among others, putative state and federal class actions
seeking certification of a state or national class. Hartford Life also is
involved in individual actions in which punitive damages are sought, such as
claims alleging bad faith in the handling of insurance claims. Hartford Life's
management expects that the ultimate liability, if any, with respect to such
lawsuits, after consideration of provisions made for potential losses and costs
of defense, will not be material to the consolidated financial condition of
Hartford Life. Nonetheless, given the large or indeterminate amounts sought in
certain of these actions, and the inherent unpredictability of litigation, it is
possible that an adverse outcome in certain matters could, from time to time,
have a material adverse effect on Hartford Life's consolidated results of
operations or cash flows in particular quarterly or annual periods.
In the third quarter of 2003, Hartford Life and its affiliate International
Corporate Marketing Group, LLC ("ICMG") settled their intellectual property
dispute with Bancorp Services, LLC ("Bancorp"). The dispute concerned, among
other things, Bancorp's claims for alleged patent infringement, breach of a
confidentiality agreement, and misappropriation of trade secrets related to
certain stable value corporate-owned life insurance products. The dispute was
the subject of litigation in the United States District Court for the Eastern
District of Missouri, in which Bancorp obtained in 2002 a judgment exceeding
$134 million against Hartford Life and ICMG after a jury trial on the trade
secret and breach of contract claims, and Hartford Life and ICMG obtained
summary judgment on the patent infringement claim. Based on the advice of legal
counsel following entry of the judgment, Hartford Life recorded an $11 million
after-tax charge in the first quarter of 2002 to increase litigation reserves.
Both components of the judgment were appealed.
Under the terms of the settlement, Hartford Life and ICMG will pay a minimum
of $70 million and a maximum of $80 million, depending on the outcome of the
patent appeal, to resolve all disputes between the parties. The appeal from the
trade secret and breach of contract judgment will be dismissed. The settlement
resulted in the recording of a $9 million after-tax benefit in the third quarter
of 2003, to reflect Hartford Life's portion of the settlement.
On March 16, 2003, a final decision and award was issued in the previously
disclosed reinsurance arbitration between Hartford Life and one of their primary
reinsurers relating to policies with guaranteed death benefits written from 1994
to 1999. The arbitration involved alleged breaches under the reinsurance
treaties. Under the terms of the final decision and award, the reinsurer's
reinsurance obligations to Hartford Life were unchanged and not limited or
reduced in any manner. The award was confirmed by the Connecticut Superior Court
on May 5, 2003.
Counsel with respect to Federal laws and regulations applicable to the issue
and sale of the contracts and with respect to Connecticut law is Christine Hayer
Repasy, General Counsel, Hartford Life Insurance Company, P.O. Box 2999,
Hartford, CT 06104-2999.
HOW MAY I GET ADDITIONAL INFORMATION?
Inquiries will be answered by calling 1-800-528-9009 or your sales
representative or by writing to:
Hartford Life Insurance Company
P.O. Box 1583
Hartford, CT 06144-1583
You can also send inquiries to us electronically by Internet through our
website at retire.hartfordlife.com.
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GENERAL INFORMATION
SAFEKEEPING OF ASSETS
Hartford holds title to the assets of the Separate Account. The assets are
kept physically segregated and are held separate and apart from Hartford's
general corporate assets. Records are maintained of all purchases and
redemptions of the underlying fund shares held in each of the Sub-Accounts.
EXPERTS
The consolidated balance sheets of Hartford Life Insurance Company (the
"Company") as of December 31, 2003 and 2002, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2003 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report dated
February 25, 2004 (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the changes in our method of accounting for
(a) goodwill and indefinite-lived intangible assets in 2002, (b) derivative
instruments and hedging activities in 2001, and (c) the recognition of interest
income and impairment on purchased retained beneficial interests in securitized
financial assets in 2001) which are included in this prospectus and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. The principal business address of
Deloitte & Touche LLP is City Place, 33rd Floor, 185 Asylum Street, Hartford,
Connecticut 06103-3402.
NON-PARTICIPATING
The Contract is non-participating and we pay no dividends.
PRINCIPAL UNDERWRITER
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account. HSD
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a Broker-Dealer and is a member of the National
Association of Securities Dealers, Inc. HSD is an affiliate of ours. Both HSD
and Hartford are ultimately controlled by The Hartford Financial Services Group,
Inc. The principal business address of HSD is the same as ours.
Hartford currently pays HSD underwriting commissions for its role as
Principal Underwriter of all variable contracts associated with this Separate
Account. For 2002, the aggregate dollar amount of underwriting commissions paid
to HSD in its role as Principal Underwriter was $0. There were no underwriting
commissions paid to HSD in its role as Principal Underwriter prior to that time.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance-related information
concerning the Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
TOTAL RETURN FOR ALL SUB-ACCOUNTS
When a Sub-Account advertises its standardized total return, it will usually
be calculated from the date of the inception of the Sub-Account for one, five
and ten year periods or some other relevant periods if the Sub-Account has not
been in existence for at least ten years. Total return is measured by comparing
the value of an investment in the Sub-Account at the beginning of the relevant
period to the value of the investment at the end of the period. To calculate
standardized total return, Hartford uses a hypothetical initial premium payment
of $1,000.00.
The formula Hartford uses to calculate standardized total return is P(1+T)TO
THE POWER OF n = ERV. In this calculation, "P" represents a hypothetical initial
premium payment of $1,000.00, "T" represents the average annual total return,
"n" represents the number of years and "ERV" represents the redeemable value at
the end of the period.
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In addition to the standardized total return, the Sub-Account may advertise
a non-standardized total return. These figures will usually be calculated from
the date of inception of the underlying fund for one, five and ten year periods
or other relevant periods. Non-standardized total return is measured in the same
manner as the standardized total return described above.
YIELD FOR SUB-ACCOUNTS
If applicable, the Sub-Accounts may advertise yield in addition to total
return. At any time in the future, yields may be higher or lower than past
yields and past performance is no indication of future performance.
The standardized yield will be computed for periods beginning with the
inception of the Sub-Account in the following manner. The net investment income
per Accumulation Unit earned during a one-month period is divided by the
Accumulation Unit Value on the last day of the period.
The formula Hartford uses to calculate yield is YIELD = 2[(a-b/cd +1) TO THE
POWER OF 6 -1]. In this calculation, "a" represents the net investment income
earned during the period by the underlying fund, "b" represents the expenses
accrued for the period, if any, "c" represents the average daily number of
Accumulation Units outstanding during the period and "d" represents the maximum
offering price per Accumulation Unit on the last day of the period.
MONEY MARKET SUB-ACCOUNTS
A money market fund Sub-Account may advertise yield and effective yield. At
any time in the future, current and effective yields may be higher or lower than
past yields and past performance is no indication of future performance.
Current yield of a money market fund Sub-Account is calculated for a
seven-day period or the "base period" without taking into consideration any
realized or unrealized gains or losses on shares of the underlying fund. The
first step in determining yield is to compute the base period return. Hartford
takes a hypothetical account with a balance of one Accumulation Unit of the
Sub-Account and calculates the net change in its value from the beginning of the
base period to the end of the base period. Hartford then subtracts an amount
equal to the total deductions for the Contract, if any, and then divides that
number by the value of the account at the beginning of the base period. The
result is hte base period return or "BPR". Once the base period return is
calculated, Hartford then multiplies it by 365/7 to compute the current yield.
Current yield is calculated to the nearest hundredth of one percent.
The formula for this calculation is YIELD = BPR X (365/7), where BPR =
(A)/C. "A" is equal to the net change in value of a hypothetical account with a
balance of one Accumulation Unit of the Sub-Account from the beginning of the
base period to the end of the base period. "C" represents the value of the
Sub-Account at the beginning of the base period.
Effective yield is also calculated using the base period return. The
effective yield is calculated by adding 1 to the base period return and raising
that result to a power equal to 365 divided by 7 and subtracting 1 from the
result. The calculation Hartford uses is:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) TO THE POWER OF 365/7] - 1.
ADDITIONAL MATERIALS
We may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in tax-deferred
and taxable arrangements, customer profiles and hypothetical purchase scenarios,
financial management and tax and retirement planning, and other investment
alternatives, including comparisons between the Contracts and the
characteristics of and market for any alternatives.
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PERFORMANCE COMPARISONS
Each Sub-Account may from time to time include in advertisements the ranking
of its performance figures compared with performance figures of other annuity
contract's sub-accounts with the same investment objectives which are created by
Lipper Analytical Services, Morningstar, Inc. or other recognized ranking
services.
Hartford may also compare the performance of the Sub-Accounts against
certain widely acknowledged outside standards or indices for stock and bond
market performance, such as:
- The Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") is a
stock market index that includes common stocks of 500 companies from
several industrial sectors representing a significant portion of the
market value of all stocks publicly traded in the United States, most of
which are traded on the New York Stock Exchange. Stocks in the S&P 500 are
weighted according to their market capitalization (the number of shares
outstanding multiplied by the stock's current price).
- The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on The Nasdaq Stock Market. The Index is market-value
weighted. This means that each company's security affects the Index in
proportion to its market value. The market value, the last sale price
multiplied by total shares outstanding, is calculated throughout the
trading day, and is related to the total value of the Index. The Nasdaq
Composite includes over 5,000 companies. On February 5, 1971, the Nasdaq
Composite Index began with a base of 100.00.
- The Morgan Stanley Capital International Eafe Index (the "EAFE Index") of
major markets in Europe, Australia and the Far East is a benchmark of
international stock performance. The EAFE Index is "capitalization
weighted," which means that a company whose securities have a high market
value will contribute proportionately more to the EAFE Index's performance
results than a company whose securities have a lower market value.
- The Lehman Brothers High Yield Corporate Index is a broad-based
market-value-weighted index that tracks the total return performance of
non-investment grade, fixed-rate, publicly placed, dollar denominated and
nonconvertible debt registered with the SEC.
- The Lehman Brothers Government/Corporate Bond Index is a broad based
unmanaged, market-value-weighted index of all debt obligations of the U.S.
Treasury and U.S. Government agencies (excluding mortgage-backed
securities) and all publicly-issued fixed-rate, nonconvertible, investment
grade domestic corporate debt.
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INDEPENDENT AUDITORS' REPORT
-------------------------------------
To the Board of Directors and Stockholder of
Hartford Life Insurance Company
Hartford, Connecticut
We have audited the accompanying consolidated balance sheets of Hartford Life
Insurance Company and its subsidiaries (collectively, "the Company") as of
December 31, 2003 and 2002, 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, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Hartford Life Insurance Company and
its subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2 of the consolidated financial statements, the Company
changed its method of accounting for goodwill and indefinite-lived intangible
assets in 2002. In addition, the Company changed its method of accounting for
derivative instruments and hedging activities and its method of accounting for
the recognition of interest income and impairment on purchased and retained
beneficial interests in securitized financial assets in 2001.
Deloitte & Touche LLP
Hartford, Connecticut
February 25, 2004
F-1
<Page>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
2003 2002 2001
------------------------
(In millions)
REVENUES
Fee income $2,169 $2,079 $2,157
Earned premiums and other 934 574 927
Net investment income 1,764 1,572 1,491
Net realized capital gains (losses) 1 (276) (87)
------------------------
TOTAL REVENUES 4,868 3,949 4,488
------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 2,726 2,275 2,536
Insurance expenses and other 625 650 621
Amortization of deferred policy acquisition
costs and present value of future profits 660 531 566
Dividends to policyholders 63 65 69
------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 4,074 3,521 3,792
------------------------
Income before income tax expense and cumulative
effect of accounting changes 794 428 696
Income tax expense 168 2 44
Income before cumulative effect of accounting
changes 626 426 652
Cumulative effect of accounting changes, net of
tax -- -- (6)
------------------------
NET INCOME $ 626 $ 426 $ 646
------------------------
</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,
-------------------------
2003 2002
-------------------------
(In millions, except for
share data)
ASSETS
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $28,511 and $23,675) $ 30,085 $ 24,786
Equity securities, available for sale, at fair
value (cost of $78 and $137) 85 120
Policy loans, at outstanding balance 2,470 2,895
Other investments 639 918
-------------------------
TOTAL INVESTMENTS 33,279 28,719
-------------------------
Cash 96 79
Premiums receivable and agents' balances 17 15
Reinsurance recoverables 1,297 1,477
Deferred policy acquisition costs and present
value of future profits 6,088 5,479
Deferred income taxes (486) (243)
Goodwill 186 186
Other assets 1,238 1,073
Separate account assets 130,225 105,316
-------------------------
TOTAL ASSETS $171,940 $142,101
-------------------------
LIABILITIES
Reserve for future policy benefits $ 6,518 $ 5,724
Other policyholder funds 25,263 23,037
Other liabilities 3,330 2,207
Separate account liabilities 130,225 105,316
-------------------------
TOTAL LIABILITIES 165,336 136,284
-------------------------
COMMITMENTS AND CONTINGENT LIABILITIES, NOTE 12
STOCKHOLDER'S EQUITY
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690 6 6
Capital surplus 2,240 2,041
Accumulated other comprehensive income
Net unrealized capital gains on securities,
net of tax 711 574
Foreign currency translation adjustments (1) (1)
-------------------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 710 573
-------------------------
Retained earnings 3,648 3,197
-------------------------
TOTAL STOCKHOLDER'S EQUITY 6,604 5,817
-------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $171,940 $142,101
-------------------------
</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 Net (Loss)
Unrealized Gain on
Capital Gains Cash Flow Foreign
(Losses) on Hedging Currency Total
Common Capital Securities, Instruments, Translation Retained Stockholder's
Stock Surplus Net of Tax Net of Tax Adjustments Earnings Equity
----------------------------------------------------------------------------------------
(In millions)
2003
Balance, December 31, 2002 $6 $2,041 $463 $111 $(1) $3,197 $5,817
Comprehensive income
Net income 626 626
Other comprehensive income,
net of tax (1)
Net change in unrealized
capital gains (losses) on
securities (3) 265 265
Net loss on cash flow
hedging instruments (128) (128)
Cumulative translation
adjustments --
Total other comprehensive
income 137
Total comprehensive income 763
Capital contribution from
parent 199 199
Dividends declared (175) (175)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 $6 $2,240 $728 $(17) $(1) $3,648 $6,604
----------------------------------------------------------------------------------------
2002
Balance, December 31, 2001 $6 $1,806 $114 $ 63 $(2) $2,771 $4,758
Comprehensive income
Net income 426 426
Other comprehensive income,
net of tax (1)
Net change in unrealized
capital gains (losses) on
securities (3) 349 349
Net gain on cash flow
hedging instruments 48 48
Cumulative translation
adjustments 1 1
Total other comprehensive
income 398
Total comprehensive income 824
Capital contribution from
parent 235 235
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 $6 $2,041 $463 $111 $(1) $3,197 $5,817
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
</Table>
(1) Net change in unrealized capital gain (losses) on securities is reflected
net of tax and other items of $143, $188 and $62 for the years ended
December 31, 2003, 2002 and 2001, respectively. Cumulative effect of
accounting change is net of tax benefit of $2 for the year ended
December 31, 2001. Net (loss) gain on cash flow hedging instruments is net
of tax (benefit) provision of $(69) and $26 for the years ended
December 31, 2003 and 2002, respectively. 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 no reclassification adjustments for after-tax losses realized in
net income for the year ended December 31, 2003. There were reclassification
adjustments for after-tax losses realized in net income of $(170) and $(40)
for the years ended December 31, 2002 and 2001, 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,
---------------------------
2003 2002 2001
---------------------------
(In millions)
OPERATING ACTIVITIES
Net income $ 626 $ 426 $ 646
Adjustments to reconcile net income to net cash
provided by operating activities
Net realized capital (gains) losses (1) 276 87
Cumulative effect of accounting changes, net of
tax -- -- 6
Amortization of deferred policy acquisition
costs and present value of future profits 660 531 566
Additions to deferred policy acquisition costs
and present value of future profits (1,319) (987) (975)
Depreciation and amortization 117 19 (18)
(Increase) decrease in premiums receivable and
agents' balances (2) (5) 5
Increase (decrease) in other liabilities 299 (61) (84)
Change in receivables, payables, and accruals 227 2 (72)
(Decrease) increase in accrued tax (67) 76 115
Decrease in deferred income tax 65 23 7
Increase in future policy benefits 794 560 837
(Increase) decrease in reinsurance recoverables (1) (127) 21
Increase in other assets (177) (122) (74)
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,221 611 1,067
---------------------------
INVESTING ACTIVITIES
Purchases of investments (13,628) (12,470) (9,766)
Sales of investments 6,676 5,781 4,568
Maturity and principal paydowns of fixed
maturity investments 3,233 2,266 2,227
Purchase of business/affiliate, net of cash
acquired -- -- (683)
Other 85 -- --
---------------------------
NET CASH USED FOR INVESTING ACTIVITIES (3,634) (4,423) (3,654)
---------------------------
FINANCING ACTIVITIES
Capital contributions 199 235 761
Dividends paid (175) -- --
Net receipts from investment and universal
life-type contracts charged against
policyholder accounts 2,406 3,567 1,859
---------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,430 3,802 2,620
---------------------------
Net increase (decrease) in cash 17 (10) 33
Impact of foreign exchange -- 2 (2)
Cash -- beginning of year 79 87 56
---------------------------
Cash -- end of year $ 96 $ 79 $ 87
---------------------------
Supplemental Disclosure of Cash Flow Information:
Net Cash Paid (Received) During the Year for:
Income taxes $ 35 $ (2) $ (69)
</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, 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 Holdings, Inc., a direct subsidiary of
The Hartford Financial Services Group, Inc. ("The Hartford"), the Company's
ultimate parent company.
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 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. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the basis of
accounting principles generally accepted in the United States, which differ
materially from the accounting prescribed by various insurance regulatory
authorities. All material intercompany transactions and balances between
Hartford Life Insurance Company and its subsidiaries and affiliates have been
eliminated.
USE OF ESTIMATES
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 reserves,
deferred policy acquisition costs, valuation of investments and derivative
instruments, income taxes and contingencies.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial information to
conform to the current year classifications.
ADOPTION OF NEW ACCOUNTING STANDARDS
Effective December 31, 2003, the Company adopted the disclosure requirements of
Emerging Issues Task Force ("EITF") Issue No. 03-01, "The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments". Under the
consensus, disclosures are required for unrealized losses on fixed maturity and
equity securities accounted for under SFAS No. 115, "Accounting for Certain
Investment in Debt and Equity Securities," and SFAS No. 124, "Accounting for
Certain Investments Held by Not-for-Profit Organizations," that are classified
as either available-for-sale or held-to-maturity. The disclosure requirements
include quantitative information regarding the aggregate amount of unrealized
losses and the associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments have been in an
unrealized loss position. The consensus also requires certain qualitative
disclosures about the unrealized holdings in order to provide additional
information that the Company considered in concluding that the unrealized losses
were not other-than-temporary. For further discussion, see disclosures in Note
3.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Generally, SFAS No. 150 requires
liability classification for two broad classes of financial instruments:
(a) instruments that represent, or are indexed to, an obligation to buy back the
issuer's shares regardless of whether the instrument is settled on a net-cash or
gross physical basis and (b) obligations that (i) can be settled in shares but
derive their value predominately from another underlying instrument or index
(e.g., security prices, interest rates, and currency rates), (ii) have a fixed
value, or (iii) have a value inversely related to the issuer's shares.
Mandatorily redeemable equity and written options requiring the issuer to buy
back shares are examples of financial instruments that should be reported as
liabilities under this new guidance.
SFAS No. 150 specifies accounting only for certain freestanding financial
instruments and does not affect whether an embedded derivative must be
bifurcated and accounted for in accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 150 is effective for
instruments entered into or modified after May 31, 2003 and for all other
F-6
<Page>
instruments beginning with the first interim reporting period beginning after
June 15, 2003. Adoption of this Statement did not have a material impact on the
Company's consolidated financial condition or results of operations.
In April 2003, the FASB issued guidance in Statement 133 Implementation Issue
No. B36, "Embedded Derivatives: Modified Coinsurance Arrangements and Debt
Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only
Partially Related to the Creditworthiness of the Obligor of Those Instruments",
("DIG B36") that addresses the instances in which bifurcation of an instrument
into a debt host contract and an embedded derivative is required. The effective
date of DIG B36 was October 1, 2003. DIG B36 indicates that bifurcation is
necessary in a modified coinsurance arrangement when the yield on the receivable
and payable is based on a specified proportion of the ceding company's return on
either its general account assets or a specified block of those assets, rather
than the overall creditworthiness of the ceding company. The Company has
evaluated its modified coinsurance and funds withheld agreements and believes
all but one are not impacted by the provisions of DIG B36. The one modified
coinsurance agreement that requires the separate recording of an embedded
derivative contains two total return swap embedded derivatives that virtually
offset each other. Due to the offsetting nature of these total return swaps, the
net value of the embedded derivatives in the modified coinsurance agreement had
no material effect on the consolidated financial statements upon adoption of DIG
B36 on October 1, 2003 and at December 31, 2003.
DIG B36 is also applicable to corporate issued debt securities that incorporate
credit risk exposures that are unrelated or only partially related to the
creditworthiness of the obligor. The adoption of DIG B36, as it relates to
corporate issued debt securities, did not have a material effect on the
Company's consolidated financial condition or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities". The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 amends SFAS No. 133 for decisions made as part of the
Derivatives Implementation Group (DIG) process that effectively required
amendments to SFAS No. 133, in connection with other FASB projects dealing with
financial instruments. SFAS No. 149 also clarifies under what circumstances a
contract with an initial net investment and purchases and sales of when-issued
securities that do not yet exist meet the characteristic of a derivative as
discussed in SFAS No. 133. In addition, it clarifies when a derivative contains
a financing component that warrants special reporting in the statement of cash
flows. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, except as stated below and for hedging relationships designated
after June 30, 2003. The provisions of this statement should be applied
prospectively, except as stated below.
The provisions of SFAS No. 149 that relate to SFAS No. 133 DIG issues that have
been effective for fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective effective dates. In
addition, the guidance in SFAS No. 149 related to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after
June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on
the Company's financial condition or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"), which
requires an enterprise to assess whether consolidation of an entity is
appropriate based upon its interests in a variable interest entity ("VIE"). A
VIE is an entity in which the equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. The initial determination of whether an entity is a
VIE shall be made on the date at which an enterprise becomes involved with the
entity. An enterprise shall consolidate a VIE if it has a variable interest that
will absorb a majority of the VIEs expected losses if they occur, receive a
majority of the entity's expected residual returns if they occur or both. FIN 46
was effective immediately for new VIEs established or purchased subsequent to
January 31, 2003. For VIEs established or purchased subsequent to January 31,
2003, the adoption of FIN 46 did not have a material impact on the Company's
consolidated financial condition or results of operations as there were no
material VIEs identified which required consolidation.
In December 2003, the FASB issued a revised version of FIN 46 ("FIN 46R"), which
incorporates a number of modifications and changes made to the original version.
FIN 46R replaces the previously issued FIN 46 and, subject to certain special
provisions, is effective no later than the first reporting period that ends
after December 15, 2003 for entities considered to be special-purpose entities
and no later than the end of the first reporting period that ends after
March 15, 2004 for all other VIEs. Early adoption is permitted. The Company
adopted FIN 46R in the fourth quarter of 2003. The adoption of FIN 46R did not
result in the consolidation of any material VIEs.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45" or "the Interpretation"). FIN 45 requires
certain guarantees to be recorded at fair value and also requires a guarantor to
make new disclosures, even when the likelihood of making payments under the
guarantee is remote. In general, the Interpretation applies to contracts or
indemnification agreements that contingently require the guarantor to make
payments
F-7
<Page>
to the guaranteed party based on changes in an underlying instrument or indices
(e.g., security prices, interest rates, or currency rates) that are related to
an asset, liability or an equity security of the guaranteed party. The
recognition provisions of FIN 45 are effective on a prospective basis for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim and annual
periods ending after December 15, 2002. Adoption of this statement did not have
a material impact on the Company's consolidated financial condition or results
of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Action (including Certain Costs Incurred in
a Restructuring)" ("Issue 94-3"). The principal difference between SFAS No. 146
and Issue 94-3 is that SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred, rather than at the date of an entity's commitment to an exit plan.
SFAS No. 146 is effective for exit or disposal activities after December 31,
2002. Adoption of SFAS No. 146 will result in a change in the timing of when a
liability is recognized if the Company has restructuring activities after
December 31, 2002. Adoption of this statement did not have a material impact on
the Company's consolidated financial condition or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Under historical guidance, all gains and losses resulting from the
extinguishment of debt were required to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. SFAS
No. 145 rescinds that guidance and requires that gains and losses from
extinguishments of debt be classified as extraordinary items only if they are
both unusual and infrequent in occurrence. SFAS No. 145 also amends SFAS
No. 13, "Accounting for Leases" for the required accounting treatment of certain
lease modifications that have economic effects similar to sale-leaseback
transactions. SFAS No. 145 requires that those lease modifications be accounted
for in the same manner as sale-leaseback transactions. The provisions of SFAS
No. 145 related to SFAS No. 13 are effective for transactions occurring after
May 15, 2002. Adoption of the provisions of SFAS No. 145 related to SFAS No. 13
did not have a material impact on the Company's consolidated financial condition
or results of operations.
Effective September 2001, the Company adopted EITF Issue No. 01-10, "Accounting
for the Impact of the Terrorist Attacks of September 11, 2001". Under the
consensus, costs related to the terrorist act 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 discussion of the
impact of the September 11 terrorist attack ("September 11"), see Note 17.)
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 that applies to all long-lived
assets, including discontinued operations. SFAS No. 144 requires that 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 SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. Adoption
of SFAS No. 144 did not have a material impact on the Company's consolidated
financial condition or results of operations.
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. Adoption of SFAS No. 141
did not have a material impact on the Company's consolidated 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
recoverability must be periodically (at least annually) reviewed and tested for
impairment. Goodwill must be tested at the reporting unit level for impairment
in the year of adoption, including an initial test performed within six months
of adoption. If the initial test indicates a potential impairment, then a more
detailed analysis to determine the extent of impairment must be completed within
twelve months of adoption.
During the second quarter of 2002, the Company completed the review and analysis
of its goodwill asset in accordance with the provisions of SFAS No. 142. The
result of the analysis indicated that each reporting unit's fair value exceeded
its carrying amount, including goodwill. As a result, goodwill for each
reporting unit was not considered impaired. SFAS No. 142 also requires that
useful lives for intangibles other than goodwill be reassessed and remaining
amortization periods be adjusted accordingly. (For further discussion of the
impact of SFAS No. 142, see Note 6.)
Effective April 1, 2001, the Company adopted EITF Issue No. 99-20, "Recognition
of Interest Income and Impairment on Purchased and Retained Beneficial Interests
in
F-8
<Page>
Securitized Financial Assets". Under the consensus, investors in certain
securities with contractual cash flows, primarily asset-backed securities, are
required to periodically update their best estimate of cash flows over the life
of the security. If the fair value of the securitized financial asset is less
than its carrying amount and there has been a decrease in the present value of
the estimated cash flows since the last revised estimate, considering both
timing and amount, an other than temporary impairment charge is recognized. The
estimated cash flows are also used to evaluate whether there have been any
changes in the securitized asset's estimated yield. All yield adjustments are
accounted for on a prospective basis. Upon adoption of EITF Issue No. 99-20, the
Company recorded a $3 charge as the net of tax cumulative effect of the
accounting change.
Effective January 1, 2001, the Company adopted 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 accounting
criteria under which a derivative can qualify for hedge accounting. In order to
receive hedge 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. Hedge accounting for qualifying hedges
provides for matching the timing of gain or loss recognition on the hedging
instrument with the recognition of the corresponding changes in value of the
hedged item. The Company'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 as the net of
tax cumulative effect of the accounting change. This 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 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 ("AOCI") -- Unrealized Gain/Loss on Securities in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
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 $21, net of tax, to
AOCI -- Gain on Cash-Flow Hedging Instruments from AOCI -- Unrealized Gain/Loss
on Securities. This reclassification reflects the January 1, 2001 net unrealized
gain for all derivatives that were designated as cash-flow hedging instruments.
(For further discussion of the Company's derivative-related accounting policies,
see Note 2.)
FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
In December 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of
Position 03-3, "Accounting for Certain Loans or Debt Securities", (SOP 03-3).
SOP 03-3 addresses the accounting for differences between contractual and
expected cash flows to be collected from an investment in loans or fixed
maturity securities (collectively hereafter referred to as "loan(s)") acquired
in a transfer if those differences are attributable, at least in part, to credit
quality. SOP 03-3 limits the yield that may be accreted to the excess of the
estimated undiscounted expected principal, interest and other cash flows over
the initial investment in the loan. SOP 03-3 also requires that the excess of
contractual cash flows over cash flows expected to be collected not be
recognized as an adjustment of yield, loss accrual or valuation allowance. SOP
03-3 is effective for loans acquired in fiscal years beginning after
December 15, 2004. For loans acquired in fiscal years beginning on or before
December 15, 2004 and within the scope of Practice Bulletin 6 "Amortization of
Discount on Certain Acquired Loans", SOP 03-3, as it pertains to decreases in
cash flows expected to be collected, should be applied prospectively for fiscal
years beginning after December 15, 2004. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
condition or results of operations.
In July 2003, AcSEC issued a final Statement of Position 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts" (the "SOP"). The SOP addresses a wide
variety of topics, some of which have a significant impact on the Company. The
major provisions of the SOP require:
- - Recognizing expenses for a variety of contracts and contract features,
including guaranteed minimum death benefits ("GMDB"), certain death benefits
on universal-life type contracts and annuitization options, on an accrual
basis versus the previous method of recognition upon payment;
- - Reporting and measuring assets and liabilities of certain separate account
products as general account assets and liabilities when specified criteria
are not met;
- - Reporting and measuring the Company's interest in its separate accounts as
general account assets based on the insurer's proportionate beneficial
interest in the separate account's underlying assets; and
- - Capitalizing sales inducements that meet specified criteria and amortizing
such amounts over the life of the contracts using the same methodology as
used for amortizing deferred acquisition costs ("DAC").
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The SOP is effective for financial statements for fiscal years beginning after
December 15, 2003. At the date of initial application, January 1, 2004, the
estimated cumulative effect of the adoption of the SOP on net income and other
comprehensive income was comprised of the following individual impacts:
<Table>
<Caption>
Other
Comprehensive
Net Income Income
------------------------------
CUMULATIVE EFFECT OF ADOPTION
Establishing GMDB reserves for annuity contracts $(50)* $ --
Reclassifying certain separate accounts to general accounts 30 294
Other (1) (2)
------------------------------
TOTAL CUMULATIVE EFFECT OF ADOPTION $(21) $292
------------------------------
</Table>
* As of September 30, 2003, the Company estimated the cumulative effect of
adopting this provision of the SOP to be between $25 and $35, net of
amortization of DAC and taxes. During the fourth quarter, industry and the
largest public accounting firms reached general consensus on how to record the
reinsurance recovery asset related to GMDB's. This refinement resulted in the
increase to the cumulative effect adjustment as of January 1, 2004.
DEATH BENEFITS AND OTHER INSURANCE BENEFIT FEATURES
The Company 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. The Company currently reinsures a significant portion
of these death benefit guarantees associated with its in-force block of
business. As of January 1, 2004, the Company has recorded a liability for GMDB
and other benefits sold with variable annuity products of $191 and a related
reinsurance recoverable asset of $108. The determination of the GMDB liability
and related reinsurance recoverable is based on models that involve a range of
scenarios and assumptions, including those regarding expected market rates of
return and volatility, contract surrender rates and mortality experience. The
assumptions used are consistent with those used in determining estimated gross
profits for purposes of amortizing deferred acquisition costs.
Through December 31, 2003, the Company had not recorded a liability for the
risks associated with GMDB offered on the Company's variable annuity business,
but had consistently recorded the related expenses in the period the benefits
were paid to contractholders. Net of reinsurance, the Company paid $51 and $49
for the years ended December 31, 2003 and 2002, respectively, in GMDB benefits
to contractholders.
At December 31, 2003, the Company held $86.5 billion of variable annuities that
contained guaranteed minimum death benefits. The Company's total gross exposure
(i.e. before reinsurance), or net amount at risk (the amount by which current
account values in the variable annuity contracts are not sufficient to meet its
GMDB commitments), related to these guaranteed death benefits as of
December 31, 2003 was $11.4 billion. Due to the fact that 81% of this amount was
reinsured, the Company's net exposure was $2.2 billion. However, the Company
will only incur these guaranteed death benefit payments in the future if the
policyholder has an in-the-money guaranteed death benefit at their time of
death.
The Individual Life segment sells universal life-type contracts with certain
secondary guarantees, such as a guarantee that the policy will not lapse, even
if the account value is reduced to zero, as long as the policyholder makes
scheduled premium payments. The assumptions used in the determination of the
secondary guarantee liability are consistent with those used in determining
estimated gross profits for purposes of amortizing deferred policy acquisition
costs. Based on current estimates, the Company expects the cumulative effect on
net income upon recording this liability to be not material. The establishment
of the required liability will change the earnings pattern of these products,
lowering earnings in the early years of the contract and increasing earnings in
the later years. Currently there is diversity in industry practice and
inconsistent guidance surrounding the application of the SOP to universal
life-type contracts. The Company believes consensus or further guidance
surrounding the methodology for determining reserves for secondary guarantees
will develop in the future. This may result in an adjustment to the cumulative
effect of adopting the SOP and could impact future earnings.
SEPARATE ACCOUNT PRESENTATION
The Company has recorded certain MVA fixed annuity products and modified
guarantee life insurance (primarily the Company's Compound Rate Contract ("CRC")
and associated assets) as separate account assets and liabilities through
December 31, 2003. Notwithstanding the market value adjustment feature in this
product, all of the investment performance of the separate account assets is not
being passed to the contractholder, and it therefore, does not meet the
conditions for separate account reporting under the SOP. On January 1, 2004,
market value reserves included in separate account liabilities for CRC, of $10.8
billion, were revalued at current account value in the general account to $10.1
billion. The related separate account assets of $11.0 billion were also
reclassified to the general account. Fixed maturities and equity securities were
reclassified to the general account, as
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available for sale securities, and will continue to be recorded at fair value,
however, subsequent changes in fair value, net of amortization of deferred
acquisition costs and income taxes, will be recorded in other comprehensive
income rather than net income. On January 1, 2004, the Company recorded a
cumulative effect adjustment to earnings equal to the revaluation of the
liabilities from fair value to account value plus the adjustment to record
unrealized gains (losses) on available for sale invested assets, previously
recorded as a component of net income, as other comprehensive income. The
cumulative adjustments to earnings and other comprehensive income were recorded
net of amortization of deferred acquisition costs and income taxes Through
December 31, 2003, the Company had recorded CRC assets and liabilities on a
market value basis with all changes in value (market value spread) included in
current earnings as a component of other revenues. Upon adoption of the SOP, the
components of CRC spread on a book value basis will be recorded in interest
income and interest credited. Realized gains and losses on investments and
market value adjustments on contract surrenders will be recognized as incurred.
Certain other products offered by the Company recorded in separate account
assets and liabilities through December 31, 2003, were reclassified to the
general account upon adoption of the SOP.
INTERESTS IN SEPARATE ACCOUNTS
As of December 31, 2003, the Company had $24 representing unconsolidated
interests in its own separate accounts. These interests were recorded as
available for sale equity securities, with changes in fair value recorded
through other comprehensive income. On January 1, 2004, the Company reclassified
$11 to investment in trading securities, where the Company's proportionate
beneficial interest in the separate account was less than 20%. Trading
securities are recorded at fair value with changes in fair value recorded to net
investment income. In instances where the Company's proportionate beneficial
interest was between 20-50%, the Company reclassified $13 of its investment to
reflect the Company's proportionate interest in each of the underlying assets of
the separate account. The Company has designated its proportionate interest in
these equity securities and fixed maturities as available for sale.
SALES INDUCEMENTS
The Company currently offers enhanced or bonus crediting rates to
contractholders on certain of its individual and group annuity products. Through
December 31, 2003, the expense associated with offering certain of these bonuses
was deferred and amortized over the contingent deferred sales charge period.
Others were expensed as incurred. Effective January 1, 2004, upon adopting the
SOP, the future expense associated with offering a bonus will be deferred and
amortized over the life of the related contract in a pattern consistent with the
amortization of deferred acquisition costs. Effective January 1, 2004,
amortization expense associated with expenses previously deferred will be
recorded over the remaining life of the contract rather than over the contingent
deferred sales charge period.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure an Amendment to FASB No. 123", which
provides three optional transition methods for entities that decide to
voluntarily adopt the fair value recognition principles of SFAS No. 123,
"Accounting for Stock Issued to Employees", and modifies the disclosure
requirements of SFAS No. 123. In January 2003, The Hartford adopted the fair
value recognition provisions of accounting for employee stock-based compensation
and used the prospective transition method. Under the prospective method,
stock-based compensation expense is recognized for awards granted or modified
after the beginning of the fiscal year in which the change is made. The Hartford
expenses all stock-based compensation awards granted after January 1, 2003. The
allocated expense to the Company from The Hartford associated with these awards
for the year ended December 31, 2003, was immaterial.
All stock-based compensation awards granted or modified prior to January 1,
2003, will continue to be valued using the intrinsic value-based provisions set
forth in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees". Under the intrinsic value method, compensation
expense is determined on the measurement date, which is the first date on which
both the number of shares the employee is entitled to receive and the exercise
price are known. Compensation expense, if any, is measured based on the award's
intrinsic value, which is the excess of the market price of the stock over the
exercise price on the measurement date. The expense, including non-option plans,
related to stock-based employee compensation included in the determination of
net income for the years ended December 31, 2003, 2002 and 2001 is less than
that which would have been recognized if the fair value method had been applied
to all awards granted since the effective date of SFAS No. 123.
INVESTMENTS
Hartford Life Insurance Company's investments in both fixed maturities, which
include bonds, redeemable preferred stock and commercial paper and equity
securities, which include common and non-redeemable preferred stocks, are
classified as "available-for-sale" as defined in SFAS No. 115. Accordingly,
these securities are carried at fair value with the after-tax difference from
amortized cost, as adjusted for the effect of deducting the life and pension
policyholders' share of the immediate participation guaranteed contracts and
certain life and annuity deferred policy acquisition costs, reflected in
stockholder's equity as a component of AOCI. Policy loans are carried at
outstanding balance, which approximates fair value. Other investments primarily
consist of limited partnership interests, derivatives and mortgage loans. The
limited partnerships are accounted for under the equity method and accordingly
the partnership earnings are included in net
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<Page>
investment income. Derivatives are carried at fair value and mortgage loans on
real estate are recorded at the outstanding principal balance adjusted for
amortization of premiums or discounts and net of valuation allowances, if any.
VALUATION OF FIXED MATURITIES
The fair value for fixed maturity securities is largely determined by one of
three primary pricing methods: independent third party pricing services,
independent broker quotations or pricing matrices which use data provided by
external sources. With the exception of short-term securities for which
amortized cost is predominantly used to approximate fair value, security pricing
is applied using a hierarchy or "waterfall" approach whereby prices are first
sought from independent pricing services with the remaining unpriced securities
submitted to brokers for prices or lastly priced via a pricing matrix.
Prices from independent pricing services are often unavailable for securities
that are rarely traded or are traded only in privately negotiated transactions.
As a result, a significant percentage of the Company's asset-backed and
commercial mortgage-backed securities are priced via broker quotations. A
pricing matrix is used to price securities for which the Company is unable to
obtain either a price from a third party service or an independent broker
quotation. The pricing matrix begins with current treasury rates and uses credit
spreads and issuer-specific yield adjustments received from an independent third
party source to determine the market price for the security. The credit spreads
incorporate the issuer's credit rating as assigned by a nationally recognized
rating agency and a risk premium, if warranted, due to the issuer's industry and
security's time to maturity. The issuer-specific yield adjustments, which can be
positive or negative, are updated twice annually, as of June 30 and
December 31, by an independent third-party source and are intended to adjust
security prices for issuer-specific factors. The matrix-priced securities at
December 31, 2003 and 2002, primarily consisted of non-144A private placements
and have an average duration of 4.3 and 4.5, respectively.
The following table identifies the fair value of fixed maturity securities by
pricing source as of December 31, 2003 and 2002:
<Table>
<Caption>
2003 2002
-----------------------------------------------------------------------------
Percentage Percentage
General Account Fixed of Total General Account Fixed of Total
Maturities at Fair Value Fair Value Maturities at Fair Value Fair Value
-----------------------------------------------------------------------------
Priced via independent market
quotations $24,668 82.0% $19,149 77.2%
Priced via broker quotations 2,037 6.8% 2,819 11.4%
Priced via matrices 2,129 7.1% 1,825 7.4%
Priced via other methods 151 0.5% 155 0.6%
Short-term investments (1) 1,100 3.6% 838 3.4%
-----------------------------------------------------------------------------
TOTAL $30,085 100.0% $24,786 100.0%
-----------------------------------------------------------------------------
</Table>
(1) Short-term investments are valued at amortized cost, which approximates
fair value.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. As such, the estimated fair value of a
financial instrument may differ significantly from the amount that could be
realized if the security was sold immediately.
OTHER-THAN-TEMPORARY INVESTMENTS
One of the significant estimations inherent in the valuation of investments is
the evaluation of other-than-temporary impairments. The evaluation of
impairments is a quantitative and qualitative process, which is subject to risks
and uncertainties and is intended to determine whether declines in the fair
value of investments should be recognized in current period earnings. The risks
and uncertainties include changes in general economic conditions, the issuer's
financial condition or near term recovery prospects and the effects of changes
in interest rates. The Company's accounting policy requires that a decline in
the value of a security below its amortized cost basis be assessed to determine
if the decline is other-than-temporary. If so, the security is deemed to be
other-than-temporarily impaired, and a charge is recorded in net realized
capital losses equal to the difference between the fair value and amortized cost
basis of the security. The fair value of the other-than-temporarily impaired
investment becomes its new cost basis. The Company has a security monitoring
process overseen by a committee of investment and accounting professionals that
identifies securities that, due to certain characteristics, as described below,
are subjected to an enhanced analysis on a quarterly basis.
Securities not subject to EITF Issue No. 99-20, ("non-EITF Issue No. 99-20
securities"), that are depressed by twenty percent or more for six months are
presumed to be other-than-temporarily impaired unless the depression is the
result of rising interest rates or significant objective verifiable evidence
supports that the security price is temporarily depressed and is expected to
recover within a reasonable period of time. Non-EITF Issue No. 99-20 securities
depressed less than twenty percent or depressed twenty percent or more but for
less than six months are also reviewed to determine if an other-than-temporary
impairment is present. The primary factors considered in evaluating whether a
decline in value for non-EITF Issue
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<Page>
No. 99-20 securities 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
condition, credit rating and near-term prospects of the issuer, (c) whether the
debtor is current on contractually obligated interest and principal payments and
(d) the intent and ability of the Company to retain the investment for a period
of time sufficient to allow for recovery.
For certain securitized financial assets with contractual cash flows (including
asset-backed securities), EITF Issue No. 99-20 requires the Company to
periodically update its best estimate of cash flows over the life of the
security. If the fair value of a securitized financial asset is less than its
carrying amount and there has been a decrease in the present value of the
estimated cash flows since the last revised estimate, considering both timing
and amount, then an other-than-temporary impairment charge is recognized.
Projections of expected future cash flows may change based upon new information
regarding the performance of the underlying collateral.
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 amortized cost prior to the expected date of sale. Once an impairment
charge has been recorded, the Company continues to review the
other-than-temporarily impaired securities for additional other-than-temporary
impairments
NET REALIZED CAPITAL GAINS AND LOSSES
Net realized capital gains and losses on security transactions associated with
the Company's immediate participation guaranteed contracts are recorded and
offset by amounts owed to policyholders and were $1 for the years ended
December 31, 2003, 2002 and 2001. Under the terms of the contracts, the net
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, after deducting the life and pension policyholders' share and related
amortization of deferred policy acquisition costs for certain products, are
reported as a component of revenues and are determined on a specific
identification basis.
NET INVESTMENT INCOME
Interest income from fixed maturities is recognized when earned on a constant
effective yield basis. The Company stops recognizing interest income when it
does not expect to receive amounts in accordance with the contractual terms of
the security. Net investment income on these investments is recognized only when
interest payments are received.
DERIVATIVE INSTRUMENTS
OVERVIEW
The Company utilizes a variety of derivative instruments, including swaps, caps,
floors, forwards, futures and options through one of four Company-approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; to control transaction costs; or to enter
into income enhancement and replication transactions. (For a further discussion,
see Note 3.)
The Company's derivative transactions are permitted uses of derivatives under
the derivatives use plan filed and/or approved, as applicable, by the State of
Connecticut and the State of New York insurance departments. The Company does
not make a market or trade in these instruments for the express purpose of
earning short-term 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. Fair value is based
upon either independent market quotations for exchange traded derivative
contracts, independent third party pricing sources or pricing valuation models
which utilize independent third party data as inputs. The derivative contracts
are reported as assets or liabilities in other investments and other
liabilities, respectively, in the Consolidated Balance Sheet, excluding embedded
derivatives. Embedded derivatives are recorded in the Consolidated Balance
Sheets with the associated host instrument.
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 investment and risk management
activities, which primarily involve managing asset or liability related risks
which do not qualify for hedge accounting under SFAS No. 133.
FAIR-VALUE HEDGES
Changes in the fair value of a derivative that is designated and qualifies as a
fair-value hedge, along with the changes in the fair value of the hedged asset
or liability that is attributable to the hedged risk, are recorded in current
period earnings with any differences between the net change in fair value of
derivative and the hedged item representing the hedge ineffectiveness. Periodic
derivative net coupon settlements are recorded in net investment income.
CASH-FLOW HEDGES
Changes in the fair value of a derivative that is designated and qualifies as a
cash-flow hedge are recorded in AOCI and are reclassified into earnings when the
variability of the cash flow of the hedged item impacts earnings. Gains and
losses on derivative contracts that are reclassified from AOCI to current period
earnings are included in the line item in the Consolidated Statements of
Operations in which the hedged item is recorded. Any hedge ineffectiveness is
recorded immediately in current period earnings.
F-13
<Page>
Periodic derivative net coupon settlements are recorded in net investment
income.
FOREIGN-CURRENCY HEDGES
Changes in the fair value of derivatives that are designated and qualify as
foreign-currency hedges are recorded in either current period earnings or AOCI,
depending on whether the hedged transaction is a fair-value hedge or a cash-flow
hedge, respectively. Any hedge ineffectiveness is recorded immediately in
current period earnings. Periodic derivative net coupon settlements are recorded
in net investment income.
NET INVESTMENT IN A FOREIGN OPERATION HEDGES
Changes in fair value of a derivative used as a hedge of a net investment in a
foreign operation, to the extent effective as a hedge, are recorded in the
foreign currency translation adjustments account within AOCI. Cumulative changes
in fair value recorded in AOCI are reclassified into earnings upon the sale or
complete or substantially complete liquidation of the foreign entity. Any hedge
ineffectiveness is recorded immediately in current period earnings. Periodic
derivative net coupon settlements are recorded in net investment income.
OTHER INVESTMENT AND RISK MANAGEMENT ACTIVITIES
The Company's other investment and risk management activities primarily relate
to strategies used to reduce economic risk or enhance income, and do not receive
hedge accounting treatment under SFAS No. 133. Changes in the fair value,
including periodic net coupon settlements, of derivative instruments held for
other investment and risk management purposes are reported in current period
earnings as net realized capital gains and losses. During 2003, the Company
began recording periodic net coupon settlements in net realized capital gains
and losses and reclassified prior period amounts to conform to the current year
presentation.
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, foreign-currency or net-investment
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 80-125% of the inverse changes in the fair value or discounted cash
flows of the hedged item. Hedge effectiveness is assessed using the quantitative
methods, prescribed by SFAS No. 133, as amended, including the "Change in
Variable Cash Flows Method," the "Change in Fair Value Method" and the
"Hypothetical Derivative Method" depending on the hedge strategy. If it is
determined that a derivative is no longer highly effective as a hedge, the
Company discontinues hedge accounting in the period in which the derivative
became ineffective and prospectively, as discussed below under discontinuance of
hedge accounting.
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 is
dedesignated as a hedge instrument, because it is unlikely that a forecasted
transaction will occur; or (3) the derivative expires or is sold, terminated, or
exercised. 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 not probable that the forecasted transaction will occur, the
derivative continues to be carried on the balance sheet at its fair value, and
gains and losses that were accumulated in AOCI 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 in AOCI are amortized into earnings when
earnings are impacted by the variability of the cash flow of the hedged item.
EMBEDDED DERIVATIVES
The Company occasionally purchases or issues financial instruments or products
that contain a derivative instrument that is embedded in the financial
instruments or products. 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 bifurcated from the host for measurement purposes. The embedded
derivative, which is reported with the host instrument in the Consolidated
Balance Sheets, is carried at fair value with changes in fair value reported in
net realized capital gains and losses.
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
F-14
<Page>
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 of the Board of Directors. 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 the right of offset.
In addition, the Company periodically enters into swap agreements in which the
Company assumes credit exposure from a single entity, referenced index or asset
pool.
PRODUCT DERIVATIVES AND RISK MANAGEMENT
The Company offers certain variable annuity products with a GMWB rider. The GMWB
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 GMWB represents
an embedded derivative in the variable annuity contract that is required to be
reported separately from the host variable annuity contract. It is carried at
fair value and reported in other policyholder funds. The fair value of the GMWB
obligations is calculated based on actuarial assumptions related to the
projected cash flows, including benefits and related contract charges, over the
lives of the contracts, incorporating expectations concerning policyholder
behavior. Because of the dynamic and complex nature of these cash flows,
stochastic techniques under a variety of market return scenarios and other best
estimate assumptions are used. Estimating these cash flows involves numerous
estimates and subjective judgments including those regarding expected market
rates of return, market volatility, correlations of market returns and discount
rates. In valuing the embedded derivative, the Company attributes a portion of
the fees collected from the policyholder equal to the present value of future
GMWB claims (the "Attributed Fees"). All changes in the fair value of the
embedded derivative are recorded in net realized capital gains and losses. The
excess of fees collected from the policyholder for the GMWB over the Attributed
Fees are recorded in fee income.
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
lives of those contracts. This arrangement is recognized as a derivative and
carried at fair value in reinsurance recoverables. Changes in the fair value of
both the derivative assets and liabilities related to this reinsured GMWB are
recorded in net realized capital gains and losses. As of July 6, 2003, the
Company exhausted all but a small portion of the reinsurance capacity under this
current arrangement, as it relates to new business, 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.
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. The fees earned for administrative and
contractholder maintenance services performed for these separate accounts are
included in fee income. Beginning January 1, 2004, products previously recorded
in guaranteed separate accounts through December 31, 2003, will be recorded in
the general account in accordance with the Company's adoption of the SOP. See
Note 2 of Notes to Consolidated Financial Statements for a more complete
discussion of the Company's adoption of the SOP.
DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS
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. These deferred costs, together with the present value of future profits
of acquired business, are recorded as an asset commonly referred to as deferred
policy acquisition costs and present value of future profits ("DAC"). At
December 31, 2003 and 2002, the carrying value of the Company's DAC was $6.1
billion and $5.5 billion, respectively. For statutory accounting purposes, such
costs are expensed as incurred.
F-15
<Page>
DAC related to traditional policies are amortized over the premium-paying period
in proportion to the present value of annual expected premium income. DAC
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 estimated gross profits ("EGPs"), arising principally from projected
investment, mortality and expense margins and surrender charges. The
attributable portion of the DAC amortization is allocated to realized gains and
losses on investments. The DAC balance is also adjusted through other
comprehensive income by an amount that represents the amortization of deferred
policy acquisition costs that would have been required as a charge or credit to
operations had unrealized gains and losses on investments been realized. Actual
gross profits can vary from management's estimates, resulting in increases or
decreases in the rate of amortization.
The Company regularly evaluates its EGPs to determine if actual experience or
other evidence suggests that earlier estimates should be revised. In the event
that the Company were to revise its EGPs, the cumulative DAC amortization would
be adjusted to reflect such revised EGPs in the period the revision was
determined to be necessary. Several assumptions considered to be significant in
the development of EGPs include separate account fund performance, surrender and
lapse rates, estimated interest spread and estimated mortality. The separate
account fund performance assumption is critical to the development of the EGPs
related to the Company's variable annuity and to a lesser extent, variable
universal life insurance businesses. The average annual long-term rate of
assumed separate account fund performance (before mortality and expense charges)
used in estimating gross profits for the variable annuity and variable universal
life business was 9% for the years ended December 31, 2003 and 2002. For other
products including fixed annuities and other universal life-type contracts, the
average assumed investment yield ranged from 5% to 8.5% for both years ended
December 31, 2003 and 2002.
The Company has developed sophisticated modeling capabilities to evaluate its
DAC asset, which allowed it to run a large number of stochastically determined
scenarios of separate account fund performance. These scenarios were then
utilized to calculate a statistically significant range of reasonable estimates
of EGPs. This range was then compared to the present value of EGPs currently
utilized in the DAC amortization model. As of December 31, 2003, the present
value of the EGPs utilized in the DAC amortization model fall within a
reasonable range of statistically calculated present value of EGPs. As a result,
the Company does not believe there is sufficient evidence to suggest that a
revision to the EGPs (and therefore, a revision to the DAC) as of December 31,
2003 is necessary; however, if in the future the EGPs utilized in the DAC
amortization model were to exceed the margin of the reasonable range of
statistically calculated EGPs, a revision could be necessary. Furthermore, the
Company has estimated that the present value of the EGPs is likely to remain
within a reasonable range if overall separate account returns decline by 15% or
less for 2004, and if certain other assumptions that are implicit in the
computations of the EGPs are achieved.
Additionally, the Company continues to perform analyses with respect to the
potential impact of a revision to future EGPs. If such a revision to EGPs were
deemed necessary, the Company would adjust, as appropriate, all of its
assumptions for products accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments", and reproject its future EGPs based on
current account values at the end of the quarter in which a revision is deemed
to be necessary. To illustrate the effects of this process, assume the Company
had concluded that a revision of the Company's EGPs was required at
December 31, 2003. If the Company assumed a 9% average long-term rate of growth
from December 31, 2003 forward along with other appropriate assumption changes
in determining the revised EGPs, the Company estimates the cumulative increase
to amortization would be approximately $60-$70, after-tax. If instead the
Company were to assume a long-term growth rate of 8% in determining the revised
EGPs, the adjustment would be approximately $75-$90, after-tax. Assuming that
such an adjustment were to have been required, the Company anticipates that
there would have been immaterial impacts on its DAC amortization for the 2004
and 2005 years exclusive of the adjustment, and that there would have been
positive earnings effects in later years. Any such adjustment would not affect
statutory income or surplus, due to the prescribed accounting for such amounts
that is discussed above.
Aside from absolute levels and timing of market performance assumptions,
additional factors that will influence this determination include the degree of
volatility in separate account fund performance and shifts in asset allocation
within the separate account made by policyholders. The overall return generated
by the separate account is dependent on several factors, including the relative
mix of the underlying sub-accounts among bond funds and equity funds as well as
equity sector weightings. The Company's overall separate account fund
performance has been reasonably correlated to the overall performance of the S&P
500 Index (which closed at 1,112 on December 31, 2003), although no assurance
can be provided that this correlation will continue in the future.
The overall recoverability of the DAC asset is dependent on the future
profitability of the business. The Company tests the aggregate recoverability of
the DAC asset by comparing the amounts deferred to the present value of total
EGPs. In addition, the Company routinely stress tests its DAC asset for
recoverability against severe declines in its separate account assets, which
could occur if the equity markets experienced another significant sell-off, as
the majority of policyholders' funds in the separate accounts is invested in the
equity market. As of December 31, 2003,
F-16
<Page>
the Company believed variable annuity separate account assets could fall by at
least 40% before portions of its DAC asset would be unrecoverable.
RESERVE FOR FUTURE POLICY BENEFITS
The Company establishes and carries 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.
Liabilities for future policy benefits are computed by the net level premium
method using interest assumptions ranging from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued. Claim
reserves, which are the result of sales of group long-term and short-term
disability, stop loss, and Medicare supplement, are stated at amounts determined
by estimates on individual cases and estimates of unreported claims based on
past experience.
OTHER POLICYHOLDER FUNDS
Other policyholder funds and benefits payable include reserves for investment
contracts without life contingencies, corporate owned life insurance and
universal life insurance contracts. Of the amounts included in this item, $24.0
billion and $21.6 billion, as of December 31, 2003 and 2002, respectively,
represent net 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.
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 revenue 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.
FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses are reflected in stockholder's
equity as a component of accumulated other comprehensive income. The Company's
foreign subsidiaries' 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. Gains and losses on
foreign currency transactions are reflected in earnings. The national currencies
of the international operations are their functional currencies.
DIVIDENDS TO POLICYHOLDERS
Policyholder dividends are accrued using an estimate of the amount to be paid
based on underlying contractual obligations under policies and applicable state
laws.
Participating life insurance in force accounted for 6%, 6% and 8% as of
December 31, 2003, 2002 and 2001, respectively, of total life insurance in
force. Dividends to policyholders were $63, $65 and $68 for the years ended
December 31, 2003, 2002 and 2001, respectively. There were no additional amounts
of income allocated to participating policyholders. If limitations exist on the
amount of net income from participating life insurance contracts that may be
distributed to the stockholder, 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.
REINSURANCE
Written premiums, earned premiums and incurred insurance losses and loss
adjustment expense all reflect the net effects of assumed and ceded reinsurance
transactions. Assumed reinsurance refers to our acceptance of certain insurance
risks that other insurance companies have underwritten. Ceded reinsurance means
other insurance companies have agreed to share certain risks the Company has
underwritten. Reinsurance accounting is followed for assumed and ceded
transactions when the risk transfer provisions of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," have
been met.
INCOME TAXES
The Company recognizes taxes payable or refundable for the current year and
deferred taxes for the future tax consequences of differences between the
financial reporting and tax basis of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years the temporary differences are expected to reverse.
F-17
<Page>
3. INVESTMENTS AND DERIVATIVE INSTRUMENTS
<Table>
<Caption>
For the years ended
December 31,
------------------------------
2003 2002 2001
------------------------------
COMPONENTS OF NET INVESTMENT INCOME
Fixed maturities income $1,425 $1,235 $1,105
Policy loans income 207 251 304
Other investment income 152 103 95
------------------------------
Gross investment income 1,784 1,589 1,504
Less: Investment expenses 20 17 13
------------------------------
NET INVESTMENT INCOME $1,764 $1,572 $1,491
------------------------------
COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
Fixed maturities $ (6) $ (285) $ (52)
Equity securities (7) (4) (17)
Periodic net coupon settlements on non-qualifying
derivatives 29 13 4
Other (16) (1) (23)
Change in liability to policyholders for net realized
capital gains 1 1 1
------------------------------
NET REALIZED CAPITAL GAINS (LOSSES) $ 1 $ (276) $ (87)
------------------------------
COMPONENTS OF UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIES
Gross unrealized gains $ 11 $ 2 $ 1
Gross unrealized losses (4) (19) (8)
------------------------------
Net unrealized gains (losses) 7 (17) (7)
Deferred income taxes and other items 2 (6) (1)
------------------------------
Net unrealized gains (losses), net of tax 5 (11) (6)
Balance -- beginning of year (11) (6) (2)
------------------------------
CHANGE IN UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIES $ 16 $ (5) $ (4)
------------------------------
COMPONENTS OF UNREALIZED GAINS (LOSSES) ON FIXED MATURITIES
Gross unrealized gains $1,715 $1,389 $ 514
Gross unrealized losses (141) (278) (305)
Net unrealized gains credited to policyholders (63) (58) (24)
------------------------------
Net unrealized gains 1,511 1,053 185
Deferred income taxes and other items 788 579 65
------------------------------
Net unrealized gains, net of tax 723 474 120
Balance -- beginning of year 474 120 18
------------------------------
CHANGE IN UNREALIZED GAINS (LOSSES) ON FIXED MATURITIES $ 249 $ 354 $ 102
------------------------------
</Table>
F-18
<Page>
COMPONENTS OF FIXED MATURITY INVESTMENTS
<Table>
<Caption>
As of December 31, 2003
----------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
----------------------------------------------------------------------
Bonds and Notes
U.S. Gov't and Gov't agencies and
authorities (guaranteed and sponsored) $ 641 8 (2) 647
U.S. Gov't and Gov't agencies and
authorities (guaranteed and
sponsored) -- asset-backed 2,059 33 (4) 2,088
States, municipalities and political
subdivisions 307 6 (7) 306
International governments 641 55 (1) 695
Public utilities 1,195 103 (5) 1,293
All other corporate including
international 13,808 1,170 (41) 14,937
All other corporate -- asset-backed 8,649 339 (81) 8,907
Short-term investments 1,210 1 -- 1,211
Redeemable preferred stock 1 -- -- 1
----------------------------------------------------------------------
TOTAL FIXED MATURITIES $28,511 $1,715 $(141) $30,085
----------------------------------------------------------------------
</Table>
<Table>
<Caption>
As of December 31, 2002
----------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
----------------------------------------------------------------------
Bonds and Notes
U.S. Gov't and Gov't agencies and
authorities (guaranteed and sponsored) $ 255 $ 9 $ -- $ 264
U.S. Gov't and Gov't agencies and
authorities (guaranteed and
sponsored) -- asset-backed 2,063 64 (2) 2,125
States, municipalities and political
subdivisions 27 4 (1) 30
International governments 422 43 (1) 464
Public utilities 1,160 70 (29) 1,201
All other corporate including
international 11,094 822 (128) 11,788
All other corporate -- asset-backed 7,152 348 (100) 7,400
Short-term investments 940 1 -- 941
Certificates of deposit 561 28 (17) 572
Redeemable preferred stock 1 -- -- 1
----------------------------------------------------------------------
TOTAL FIXED MATURITIES $23,675 $1,389 $(278) $24,786
----------------------------------------------------------------------
</Table>
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 2003 by contractual maturity year are shown below. Estimated
maturities may 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. Actual prepayment experience may vary from
these estimates.
F-19
<Page>
<Table>
<Caption>
Amortized Cost Fair Value
-------------------------------
MATURITY
One year or less $ 3,129 $ 3,141
Over one year through five years 10,692 11,146
Over five years through ten years 7,437 7,912
Over ten years 7,253 7,886
-------------------------------
TOTAL $28,511 $ 30,085
-------------------------------
</Table>
NON-INCOME PRODUCING INVESTMENTS
Investments that were non-income producing as of December 31, are as follows:
<Table>
<Caption>
2003 2002
-----------------------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
-----------------------------------------------
SECURITY TYPE
All other corporate --
asset-backed $ 2 $ 4 $-- $--
All other corporate including
international 12 30 24 36
-----------------------------------------------
TOTAL $14 $34 $24 $36
-----------------------------------------------
</Table>
For 2003, 2002 and 2001, net investment income was $17, $13 and $2,
respectively, lower than it would have been if interest on non-accrual
securities had been recognized in accordance with the original terms of these
investments.
SALES OF FIXED MATURITY AND EQUITY SECURITY INVESTMENTS
<Table>
<Caption>
For the years ended
December 31,
------------------------------
2003 2002 2001
------------------------------
SALE OF FIXED MATURITIES
Sale proceeds $6,205 $5,617 $4,613
Gross gains 196 117 82
Gross losses (71) (60) (44)
SALE OF EQUITY SECURITIES
Sale proceeds $ 107 $ 11 $ 42
Gross gains 4 -- --
Gross losses (3) (3) (17)
------------------------------
</Table>
CONCENTRATION OF CREDIT RISK
The Company is not exposed to any credit concentration risk of a single issuer
greater than 10% of the Company's stockholder's equity.
SECURITY UNREALIZED LOSS AGING
The following table presents the Company's unrealized loss, fair value and
amortized cost for fixed maturity and equity securities, excluding securities
subject to EITF Issue No. 99-20, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position, as of December 31, 2003.
F-20
<Page>
<Table>
<Caption>
Less Than 12 Months 12 Months or More
----------------------------------------------------------------
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Losses Cost Value Losses
----------------------------------------------------------------
U.S. Gov't and Gov't agencies and
authorities (guaranteed and sponsored) $ 235 $ 233 $ (2) $ -- $ -- $ --
U.S. Gov't and Gov't agencies and
authorities (guaranteed and
sponsored) -- asset-backed 372 368 (4) 1 1 --
States, municipalities and political
subdivisions 160 153 (7) -- -- --
International governments 26 25 (1) -- -- --
Public utilities 120 119 (1) 56 52 (4)
All other corporate including
international 1,176 1,147 (29) 291 279 (12)
All other corporate -- asset-backed 768 759 (9) 142 141 (1)
----------------------------------------------------------------
TOTAL FIXED MATURITIES 2,857 2,804 (53) 490 473 (17)
Common stock 2 2 -- 3 3 --
Nonredeemable preferred stock 39 35 (4) -- -- --
----------------------------------------------------------------
TOTAL EQUITY 41 37 (4) 3 3 --
----------------------------------------------------------------
TOTAL TEMPORARILY IMPAIRED SECURITIES $2,898 $2,841 $(57) $493 $476 $(17)
----------------------------------------------------------------
</Table>
<Table>
<Caption>
Total
-------------------------------
Amortized Fair Unrealized
Cost Value Losses
-------------------------------
U.S. Gov't and Gov't agencies and authorities (guaranteed
and sponsored) $ 235 $ 233 $ (2)
U.S. Gov't and Gov't agencies and authorities (guaranteed
and sponsored) --
asset-backed 373 369 (4)
States, municipalities and political subdivisions 160 153 (7)
International governments 26 25 (1)
Public utilities 176 171 (5)
All other corporate including international 1,467 1,426 (41)
All other corporate -- asset-backed 910 900 (10)
-------------------------------
TOTAL FIXED MATURITIES 3,347 3,277 (70)
-------------------------------
Common stock 5 5 --
Nonredeemable preferred stock 39 35 (4)
-------------------------------
TOTAL EQUITY 44 40 (4)
-------------------------------
TOTAL TEMPORARILY IMPAIRED SECURITIES $3,391 $3,317 $(74)
-------------------------------
</Table>
The following discussion refers to the data presented in the table above.
There were no fixed maturities or equity securities as of December 31, 2003,
with a fair value less than 80% of the security's amortized cost. As of
December 31, 2003, fixed maturities represented approximately 95% of the
Company's unrealized loss amount, which was comprised of approximately 425
different securities. As of December 31, 2003, the Company held no securities
presented in the table above that were at an unrealized loss position in excess
of $4.2.
The majority of the securities in an unrealized loss position for less than
twelve months are depressed due to the rise in long-term interest rates. This
group of securities was comprised of approximately 375 securities. Of the less
than twelve months total unrealized loss amount $48, or 84%, was comprised of
securities with fair value to amortized cost ratios as of December 31, 2003 at
or greater than 90%. As of December 31, 2003, $47 of the less than twelve months
total unrealized loss amount was comprised of securities in an unrealized loss
position for less than six continuous months.
The securities depressed for twelve months or more were comprised of less than
100 securities. Of the twelve months or more unrealized loss amount $15, or 88%,
was comprised of securities with fair value to amortized cost ratios as of
December 31, 2003 at or greater than 90%.
As of December 31, 2003, the securities in an unrealized loss position for
twelve months or more were primarily interest rate related. The sector in the
greatest gross unrealized loss position in the schedule above was financial
services which is included within the other corporate including international
and nonredeemable preferred stock categories above. A description of the events
contributing to the security type's unrealized loss position and the factors
considered in determining that recording an other-than-temporary impairment was
not warranted are outlined below.
Financial services represents approximately $10 of the securities in an
unrealized loss position for twelve months or more. All of these positions
continue to be priced at or
F-21
<Page>
greater than 80% of amortized cost. The financial services securities in an
unrealized loss position are primarily investment grade variable rate securities
with extended maturity dates, which have been adversely impacted by the
reduction in forward interest rates after the purchase date, resulting in lower
expected cash flows. Unrealized loss amounts for these securities have declined
during the year as interest rates have risen. Additional changes in fair value
of these securities are primarily dependent on future changes in forward
interest rates. A substantial percentage of these securities are currently
hedged with interest rate swaps, which convert the variable rate earned on the
securities to a fixed amount. The swaps generally receive cash flow hedge
accounting treatment and are currently in an unrealized gain position.
The remaining balance of $7 in the twelve months or more unrealized loss
category is comprised of approximately 50 securities with fair value to
amortized cost ratios greater than 80%.
As part of the Company's ongoing security monitoring process by a committee of
investment and accounting professionals, the Company has reviewed its investment
portfolio and concluded that there were no additional other-than-temporary
impairments as of December 31, 2003 and 2002. Due to the issuers' continued
satisfaction of the securities' obligations in accordance with their contractual
terms and the expectation that they will continue to do so, management's intent
and ability to hold these securities, as well as the evaluation of the
fundamentals of the issuers' financial condition and other objective evidence,
the Company believes that the prices of the securities in the sectors identified
above were temporarily depressed.
The evaluation for other-than-temporary impairments is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are
other-than-temporary. The risks and uncertainties include changes in general
economic conditions, the issuer's financial condition or near term recovery
prospects and the effects of changes in interest rates.
DERIVATIVE INSTRUMENTS
Derivative instruments are recorded at fair value and presented in the
Consolidated Balance Sheets as of December 31, as follows:
<Table>
<Caption>
Asset Values Liability Values
--------------------------------------------
2003 2002 2003 2002
--------------------------------------------
Other investments $ 116 $179 $ -- --
Fixed maturities 7 10 -- --
Reinsurance recoverables -- 48 115 --
Other policyholder funds and benefits payable 115 -- -- 48
Other liabilities -- -- 186 78
--------------------------------------------
TOTAL $ 238 $237 $301 $ 126
--------------------------------------------
</Table>
F-22
<Page>
The following table summarizes the primary derivative instruments used by the
Company and the hedging strategies to which they relate. Derivatives in the
Company's separate accounts are not included because associated gains and losses
generally accrue directly to policyholders. The notional value of derivative
contracts represent the basis upon which pay or receive amounts are calculated
and are not reflective of credit risk. The fair value amounts of derivative
assets (liabilities) are presented on a net basis as of December 31 in the
following table.
<Table>
<Caption>
Notional Amount Fair Value
--------------------------------------------
HEDGING STRATEGY 2003 2002 2003 2002
--------------------------------------------
CASH-FLOW HEDGES
Interest rate swaps
Interest rate swaps are primarily used to convert interest
receipts on floating-rate fixed maturity investments to fixed
rates. These derivatives are predominantly used to better match
cash receipts from assets with cash disbursements required to
fund liabilities. $ 1,889 $ 2,494 $ 98 $ 184
Foreign currency swaps
Foreign currency swaps are used to convert foreign denominated
cash flows associated with certain foreign denominated fixed
maturity investments to U.S. dollars. The foreign fixed
maturities are primarily denominated in Euros and are swapped
to minimize cash flow fluctuations due to changes in currency
rates. 703 386 (147) (30)
FAIR-VALUE HEDGES
Interest rate swaps
A portion of the Company's fixed debt is hedged against
increases in LIBOR (the benchmark interest rate). In addition,
interest rate swaps are used to hedge the changes in fair value
of certain fixed rate liabilities due to changes in LIBOR. 112 30 (5) --
Interest rate caps and floors
Interest rate caps and floors are used to offset the changes in
fair value related to corresponding interest rate caps and
floors that exist in certain of the Company's variable-rate
fixed maturity investments. 51 129 (1) (3)
OTHER INVESTMENT AND RISK MANAGEMENT ACTIVITIES
Interest rate caps and swaption contracts
The Company is exposed to policyholder surrenders during a
rising interest rate environment. Interest rate cap and
swaption contracts are used to mitigate the Company's loss in a
rising interest rate environment. The increase in yield from
the cap and swaption contract in a rising interest rate
environment may be used to raise credited rates, thereby
increasing the Company's competitiveness and reducing the
policyholder's incentive to surrender.
The Company also uses an interest rate cap as an economic hedge
of the interest rate risk related to fixed rate debt. In a
rising interest rate environment, the cap will limit the net
interest expense on the hedged fixed rate debt. 1,466 516 11 --
</Table>
F-23
<Page>
<Table>
<Caption>
Notional Amount Fair Value
--------------------------------------------
HEDGING STRATEGY 2003 2002 2003 2002
--------------------------------------------
Credit default and total return swaps
The Company enters into swap agreements in which the Company
assumes credit exposure from an individual entity, referenced
index or asset pool. The Company assumes credit exposure to
individual entities through credit default swaps. These
contracts entitle the company to receive a periodic fee in
exchange for an obligation to compensate the derivative
counterparty should a credit event occur on the part of the
issuer. Credit events typically include failure on the part of
the issuer to make a fixed dollar amount of contractual
interest or principal payments or bankruptcy. The maximum
potential future exposure to the Company is the notional value
of the swap contracts, $49 and $49, after-tax, as of
December 31, 2003 and 2002, respectively.
The Company also assumes exposure to the change in value of
indices or asset pools through total return swaps. As of
December 31, 2003 and 2002, the maximum potential future
exposure to the Company from such contracts is $130 and $68,
after-tax, respectively. $ 275 $ 307 $ (18) $ (42)
Options
The Company writes option contracts for a premium to monetize
the option embedded in certain of its fixed maturity
investments. The written option grants the holder the ability
to call the bond at a predetermined strike value. The maximum
potential future economic exposure is represented by the then
fair value of the bond in excess of the strike value, which is
expected to be entirely offset by the appreciation in the value
of the embedded long option. 276 742 1 --
Interest rate swaps
The Company enters into interest rates swaps to terminate
existing swaps in hedging relationships, and thereby offsetting
the changes in value in the original swap. In addition, the
Company uses interest rate swaps to convert interest receipts
on floating-rate fixed maturity investments to fixed rate. 1,702 1,512 29 10
Foreign currency swaps and put and call options
The Company enters into foreign currency swaps, purchases
foreign put options and writes foreign call options to hedge
the foreign currency exposures in certain of its foreign fixed
maturity investments. Currency options were closed in January
2003 for a loss of $1, after-tax. 104 353 (31) (8)
Product derivatives
The Company offers certain variable annuity products with a
GMWB rider. The GMWB is an embedded derivative that 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. The policyholder also has the
option, after a specified time period, to reset the GRB to the
then-current account value, if greater (For a further
discussion, see Note 2). The notional value of the embedded
derivative is the GRB balance. 14,961 2,760 115 (48)
--------------------------------------------
Reinsurance contracts
Reinsurance arrangements are used to offset the Company's
exposure to the GMWB embedded derivative for the lives of the
host variable annuity contracts. The notional amount of the
reinsurance contracts is the GRB amount. 14,961 2,760 (115) 48
--------------------------------------------
TOTAL $36,500 $11,989 $ (63) $ 111
--------------------------------------------
</Table>
F-24
<Page>
For the years ended December 31, 2003, 2002 and 2001, the Company's gross gains
and losses representing the total ineffectiveness of all cash-flow, fair-value
and net investment hedges were immaterial. For the years ended December 31,
2003, 2002 and 2001, the Company recognized an after-tax net gain (loss) of
$(3), $1 and ($11), respectively, (reported as net realized capital gains and
losses in the Consolidated Statements of Operations), which represented the
total change in value for other derivative-based strategies which do not qualify
for hedge accounting treatment including the periodic net coupon settlements.
As of December 31, 2003 and 2002, the after-tax deferred net gains on derivative
instruments accumulated in AOCI that are expected to be reclassified to earnings
during the next twenty-four months are $6 and $7, respectively. This expectation
is based on the anticipated interest payments on hedged investments in fixed
maturity securities that will occur over the next twenty-four 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 twenty-four months. For the years ended December 31,
2003, 2002 and 2001, the net reclassifications from AOCI to earnings resulting
from the discontinuance of cash-flow hedges were immaterial.
SECURITIES LENDING AND COLLATERAL ARRANGEMENTS
The Company participates in a securities lending program to generate additional
income, whereby certain domestic fixed income securities are loaned for a short
period of time from the Company's portfolio to qualifying third parties, via a
lending agent. Borrowers of these securities provide collateral of 102% of the
market value of the loaned securities. Acceptable collateral may be in the form
of cash or U.S. Government securities. The market value of the loaned securities
is monitored and additional collateral is obtained if the market value of the
collateral falls below 100% of the market value of the loaned securities. Under
the terms of the securities lending program, the lending agent indemnifies the
Company against borrower defaults. As of December 31, 2003, the fair value of
the loaned securities was approximately $780 and was included in fixed
maturities in the Consolidated Balance Sheets. The Company retains a portion of
the income earned from the cash collateral or receives a fee from the borrower.
The Company recorded before-tax income from securities lending transactions, net
of lending fees, of $0.5 for the year ended December 31, 2003, which was
included in net investment income.
The Company enters into various collateral arrangements, which require both the
pledging and accepting of collateral in connection with its derivative
instruments. As of December 31, 2003 and 2002, collateral pledged of $209 and
$8, respectively, was included in fixed maturities in the Consolidated Balance
Sheets.
The classification and carrying amount of the loaned securities associated with
the lending program and the collateral pledged at December 31, 2003 and 2002
were as follows:
<Table>
<Caption>
2003 2002
--------------
LOANED SECURITIES AND COLLATERAL PLEDGED
U.S. Gov't and Gov't agencies and authorities (guaranteed
and sponsored) $410 $ --
U.S. Gov't and Gov't agencies and authorities (guaranteed
and sponsored -- asset-backed) 3 8
International governments 11 --
Public utilities 15 --
All other corporate including international 366 --
All other corporate -- asset-backed 184 --
--------------
TOTAL $989 $ 8
--------------
</Table>
As of December 31, 2003 and 2002, the Company had accepted collateral relating
to the securities lending program and collateral arrangements consisting of
cash, U.S. Government, and U.S. Government agency securities with a fair value
of $996 and $407, respectively. At December 31, 2003 and 2002, only cash
collateral of $869 and $173, respectively, was invested and recorded in the
Consolidated Balance Sheets in fixed maturities and with a corresponding amount
recorded in other liabilities. The Company is only permitted by contract to sell
or repledge the noncash collateral in the event of a default by the counterparty
and none of the collateral has been sold or repledged at December 31, 2003 and
2002. As of December 31, 2003 and 2002 all collateral accepted was held in
separate custodial accounts.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure about Fair Value of Financial Instruments", requires
disclosure of fair value information of financial instruments. For certain
financial instruments where quoted market prices are not available, other
independent valuation techniques and assumptions are used. Because considerable
judgment is used, these estimates are not necessarily indicative of amounts that
could be realized in a current market exchange. SFAS No. 107 excludes certain
financial instruments from disclosure, including insurance contracts 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.
F-25
<Page>
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.
Derivative instruments are reported at fair value based upon internally
established valuations that are consistent with external valuation models,
quotations furnished by dealers in such instrument or market quotations. Other
policyholder funds and benefits payable fair value information is determined by
estimating future cash flows, discounted at the current market rate.
The carrying amount and fair values of Hartford Life Insurance Company's
financial instruments as of December 31, 2003 and 2002 were as follows:
<Table>
<Caption>
2003 2002
-----------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------------
ASSETS
Fixed maturities $30,085 $30,085 $24,786 $24,786
Equity securities 85 85 120 120
Policy loans 2,470 2,470 2,895 2,895
Other investments 639 639 918 918
LIABILITIES
Other policyholder funds (1) $23,957 $24,320 $20,418 $20,591
-----------------------------------------------------------
</Table>
(1) Excludes universal life insurance contracts, including corporate owned
life insurance.
5. SALE OF SUDAMERICANA HOLDING S.A.
On September 7, 2001, Hartford Life Insurance Company 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. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142 and accordingly
ceased all amortization of goodwill.
The following tables show net income for the years ended December 31, 2003, 2002
and 2001, with the 2001 period adjusted for goodwill amortization recorded.
<Table>
<Caption>
2003 2002 2001
--------------------------
NET INCOME
Income before cumulative effect of accounting changes $626 $426 $652
Goodwill amortization, net of tax -- -- 4
--------------------------
Adjusted income before cumulative effect of accounting
changes 626 426 656
Cumulative effect of accounting changes, net of tax -- -- (6)
--------------------------
ADJUSTED NET INCOME $626 $426 $650
--------------------------
</Table>
The following table shows the Company's acquired intangible assets that continue
to be subject to amortization and aggregate amortization expense. Except for
goodwill, the Company has no intangible assets with indefinite useful lives.
<Table>
<Caption>
2003 2002
-------------------------------------------------------------
Accumulated Accumulated
Carrying Net Carrying Net
Amount Amortization Amount Amortization
-------------------------------------------------------------
AMORTIZED INTANGIBLE ASSETS
PRESENT VALUE OF FUTURE PROFITS $490 $115 $529 $76
-------------------------------------------------------------
</Table>
Net amortization expense for the years ended December 31, 2003, 2002 and 2001
was $39, $39 and $37, respectively.
F-26
<Page>
Estimated future net amortization expense for the succeeding five years is as
follows.
<Table>
<Caption>
For the year ended December 31,
- ----------------------------------------------
2004 $ 35
2005 $ 30
2006 $ 29
2007 $ 25
2008 $ 24
- ----------------------------------------------
</Table>
The Company's tests of its goodwill for other-than-temporary impairment in
accordance with SFAS No. 142 resulted in no write-downs for the years ended
December 31, 2003 and 2002. For further discussions of the adoption of SFAS
No. 142, see Note 2.
7. SEPARATE ACCOUNTS
Hartford Life Insurance Company maintained separate account assets and
liabilities totaling $130.2 billion and $105.3 billion at December 31, 2003 and
2002, 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 $118.1 billion and $93.5
billion at December 31, 2003 and 2002, respectively, wherein the policyholder
assumes substantially all the investment risks and rewards, and guaranteed
separate accounts totaling $12.1 and $11.8 billion at December 31, 2003 and
2002, 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
$139 and $384 at December 31, 2003 and 2002, 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 $1.3 billion, $1.1
billion and $1.2 billion in 2003, 2002 and 2001, 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 6.0% and 6.3% as of December 31, 2003 and 2002,
respectively. The assets that support these liabilities were comprised of $11.7
billion and $11.1 billion in fixed maturities at December 31, 2003 and 2002,
respectively, and $106 and $385 of other invested assets at December 31, 2003
and 2002, respectively. 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 $(81) and $135 in
carrying value and $2.6 billion and $3.6 billion in notional amounts as of
December 31, 2003 and 2002, respectively.
8. STATUTORY RESULTS
<Table>
<Caption>
For the years ended December 31,
------------------------------------
2003 2002 2001
------------------------------------
Statutory net income
(loss) $ 801 $ (305) $ (485)
------------------------------------
Statutory capital and
surplus $3,115 $2,354 $2,412
------------------------------------
</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 payment of dividends by
Connecticut-domiciled insurers is limited under the insurance holding company
laws of Connecticut. Under these laws, the insurance subsidiaries may only make
their dividend payments out of unassigned surplus. These laws require notice to
and approval by the state insurance commissioner for the declaration or payment
of any dividend, which, together with other dividends or distributions made
within the preceding twelve months, exceeds the greater of (i) 10% of the
insurer's policyholder surplus as of December 31 of the preceding year or
(ii) net income (or net gain from operations, if such company is a life
insurance company) for the twelve-month period ending on the thirty-first day of
December last preceding, in each case determined under statutory insurance
accounting policies. In addition, if any dividend of a Connecticut-domiciled
insurer exceeds the insurer's earned surplus, it requires the prior approval of
the Connecticut Insurance Commissioner. The insurance holding company laws of
the other jurisdictions in which The Hartford's insurance subsidiaries are
incorporated (or deemed commercially domiciled) generally contain similar
(although in certain instances somewhat more restrictive) limitations on the
payment of dividends. As of December 31, 2003, the maximum amount of statutory
dividends which may be paid by the insurance subsidiaries of the Company in
2004, without prior approval, is $550.
The domestic insurance subsidiaries of Hartford Life Insurance Company prepare
their statutory financial statements in accordance with accounting practices
prescribed by the applicable insurance department. 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 was 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
impact of applying the new guidance resulted in a benefit of approximately $38
in statutory surplus.
F-27
<Page>
9. PENSION PLANS, POSTRETIREMENT, HEALTH CARE AND LIFE INSURANCE BENEFIT AND
SAVINGS PLANS
PENSION PLANS
The Company's employees are included in The Hartford'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 $19, $10 and $11 in 2003, 2002 and 2001, respectively.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was not material to the results of operations for 2003, 2002 and 2001.
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 $6 for the years ended
December 31, 2003, 2002 and 2001, respectively.
10. REINSURANCE
Hartford Life Insurance Company cedes insurance to other insurers in order to
limit its maximum losses and to diversify its exposures. 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. The Company also assumes reinsurance from other
insurers and is a member of and participates in several reinsurance pools and
associations. Hartford Life Insurance Company evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk. As of
December 31, 2003, Hartford Life Insurance Company had no reinsurance
recoverables and related concentrations of credit risk greater than 10% of the
Company's stockholders' equity.
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, 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 reinsures the majority of the
minimum death benefit guarantees and the guaranteed withdrawal benefits offered
in connection with its variable annuity contracts.
Insurance net retained premiums were comprised of the following:
<Table>
<Caption>
For the years ended December 31,
------------------------------------
2003 2002 2001
------------------------------------
Gross premiums $3,780 $3,324 $4,033
Reinsurance assumed 43 45 79
Reinsurance ceded (720) (716) (1,028)
------------------------------------
NET RETAINED PREMIUMS $3,103 $2,653 $3,084
------------------------------------
</Table>
Hartford Life Insurance Company reinsures certain of its risks to other
reinsurers under yearly renewable term, coinsurance, and modified coinsurance
arrangements. Yearly renewable term and coinsurance arrangements result in
passing a portion of the risk to the reinsurer. Generally, the reinsurer
receives a proportionate amount of the premiums less an allowance for
commissions and expenses and is liable for a corresponding proportionate amount
of all benefit payments. Modified coinsurance is similar to coinsurance except
that the cash and investments that support the liabilities for contract benefits
are not transferred to the assuming company, and settlements are made on a net
basis between the companies.
Hartford Life Insurance Company also purchases reinsurance covering the death
benefit guarantees on a portion of its variable annuity business. On March 16,
2003, a final decision and award was issued in the previously disclosed
arbitration between subsidiaries of the Company and one of their primary
reinsurers relating to policies with death benefits written from 1994 to 1999
(see further discussion in Note 12).
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. Insurance recoveries on ceded
reinsurance contracts, which reduce death and other benefits were $550, $670 and
$693 for the years ended December 31, 2003, 2002 and 2001, respectively.
Hartford Life Insurance Company also assumes reinsurance from other insurers.
Hartford Life Insurance Company records a receivable for reinsured benefits paid
and the portion of insurance liabilities that are reinsured, net of a valuation
allowance, if necessary. The amounts recoverable from reinsurers are estimated
based on assumptions that are consistent with those used in establishing the
reserves related to the underlying reinsured contracts. Management believes the
recoverables are appropriately established; however, in the event that future
circumstances and information require Hartford Life Insurance Company to change
its estimates of needed loss reserves, the amount of reinsurance recoverables
may also require adjustments.
On June 30, 2003, the Company recaptured a block of business previously
reinsured with an unaffiliated reinsurer. Under this treaty, the Company
reinsured a portion of the guaranteed minimum death benefit (GMDB) feature
associated with certain of its annuity contracts. As consideration for
recapturing the business and final settlement under the
F-28
<Page>
treaty, the Company has received assets valued at approximately $32 and one
million warrants exercisable for the unaffiliated company's stock. This amount
represents to the Company an advance collection of its future recoveries under
the reinsurance agreement and will be recognized as future losses are incurred.
Prospectively, as a result of the recapture, the Company will be responsible for
all of the remaining and ongoing risks associated with the GMDB's related to
this block of business. The recapture increased the net amount at risk retained
by the Company, which is included in the net amount at risk discussed in Note 2.
On January 1, 2004, upon adoption of the SOP, the $32 was included in the
Company's GMDB reserve calculation as part of the net reserve benefit ratio and
as a claim recovery to date.
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 $78, $96 and
$178 in 2003, 2002 and 2001, respectively, and accident and health premium of
$305, $373 and $418, respectively, to HLA.
11. 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 tax
adjustments, generally will be determined as though the Company were filing a
separate Federal income tax return with current credit for net losses to the
extent the losses provide a benefit in the consolidated return.
The Company is included in The Hartford's consolidated Federal income tax
return. The Company's effective tax rate was 21%, 1% and 6% in 2003, 2002 and
2001, respectively.
Income tax expense (benefit) is as follows:
<Table>
<Caption>
For the years ended December 31,
-----------------------------------
2003 2002 2001
-----------------------------------
Current $ 13 $4 $(202)
Deferred 155 (2) 246
-----------------------------------
INCOME TAX EXPENSE $168 $2 $ 44
-----------------------------------
</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,
----------------------------------
2003 2002 2001
----------------------------------
Tax provision at the U.S. federal statutory rate $278 $150 $244
Tax preferred investments (87) (63) (60)
IRS audit settlement (See Note 13) -- (76) --
Tax adjustment (See Note 13) (21) -- (144)
Foreign related investments (4) (6) --
Other 2 (3) 4
----------------------------------
TOTAL $168 $ 2 $ 44
----------------------------------
</Table>
Deferred tax assets (liabilities) include the following as of December 31:
<Table>
<Caption>
2003 2002
-----------------------------
Tax basis deferred policy acquisition costs $ 638 $ 699
Financial statement deferred policy acquisition costs and
reserves (713) (751)
Employee benefits 5 13
Net unrealized capital losses (gains) on securities (535) (422)
Net operating loss carryforward/Minimum tax credits 124 249
Investments and other (5) (31)
-----------------------------
TOTAL $(486) $(243)
-----------------------------
</Table>
Hartford Life Insurance Company had a current tax receivable of $141 and $89 as
of December 31, 2003 and 2002, respectively.
In management's judgment, the gross deferred tax asset will more likely than not
be realized as reductions of future taxable income. Accordingly, no valuation
allowance has been recorded. Included in the total net deferred tax liability is
a deferred tax asset for net operating losses of $50, which expire in 2017 -
2023.
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
F-29
<Page>
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, 2003.
12. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
The Company is or may become involved in various kinds of legal actions, some of
which assert claims for substantial amounts. These actions may include, among
others, putative state and federal class actions seeking certification of a
state or national class. The Company also is involved in individual actions in
which punitive damages are sought, such as claims alleging bad faith in the
handling of insurance claims. Management expects that the ultimate liability, if
any, with respect to such lawsuits, after consideration of provisions made for
potential losses and costs of defense, will not be material to the consolidated
financial condition of the Company. Nonetheless, given the large or
indeterminate amounts sought in certain of these actions, and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's consolidated results of operations or cash flows in particular
quarterly or annual periods.
In the third quarter of 2003, Hartford Life Insurance Company ("HLIC") and its
affiliate International Corporate Marketing Group, LLC ("ICMG") settled their
intellectual property dispute with Bancorp Services, LLC ("Bancorp"). The
dispute concerned, among other things, Bancorp's claims for alleged patent
infringement, breach of a confidentiality agreement, and misappropriation of
trade secrets related to certain stable value corporate-owned life insurance
products. The dispute was the subject of litigation in the United States
District Court for the Eastern District of Missouri, in which Bancorp obtained
in 2002 a judgment exceeding $134 against HLIC and ICMG after a jury trial on
the trade secret and breach of contract claims, and HLIC and ICMG obtained
summary judgment on the patent infringement claim. Based on the advice of legal
counsel following entry of the judgment, the Company recorded an $11 after-tax
charge in the first quarter of 2002 to increase litigation reserves. Both
components of the judgment were appealed.
Under the terms of the settlement, HLIC and ICMG will pay a minimum of $70 and a
maximum of $80, depending on the outcome of the patent appeal, to resolve all
disputes between the parties. The appeal from the trade secret and breach of
contract judgment will be dismissed. The settlement resulted in the recording of
a $9 after-tax benefit in the third quarter of 2003, to reflect the Company's
portion of the settlement.
On March 16, 2003, a final decision and award was issued in the previously
disclosed reinsurance arbitration between subsidiaries of the Company and one of
their primary reinsurers relating to policies with guaranteed minimum death
benefits written from 1994 to 1999. The arbitration involved alleged breaches
under the reinsurance treaties. Under the terms of the final decision and award,
the reinsurer's reinsurance obligations to the Company's subsidiaries were
unchanged and not limited or reduced in any manner. The award was confirmed by
the Connecticut Superior Court on May 5, 2003.
LEASES
The rent paid to Hartford Fire for operating leases entered into by the Company
was $31, $31 and $22 in 2003, 2002 and 2001, respectively. Future minimum rental
commitments are as follows:
<Table>
2004 $ 28
2005 25
2006 23
2007 21
2008 20
Thereafter 37
--------
TOTAL $ 154
--------
</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 for the facility located in Simsbury, Connecticut,
which expires on December 31, 2009, and amounted to approximately $12, $10 and
$11 in 2003, 2002 and 2001, respectively.
TAX MATTERS
The Company's federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"). The Company is currently under audit for the 1998-2001
tax years. Management believes that adequate provision has been made in the
financial statements for any potential assessments that may result from tax
examinations and other tax-related matters for all open tax years
Throughout the IRS audit of the 1996-1997 years, the Company and the IRS engaged
in a dispute regarding what portion of the separate account dividends-received
deduction ("DRD") is deductible by the Company. During 2001 the Company
continued its discussions with the IRS. As part of the Company's due diligence
with respect to this issue, the Company closely monitored the activities of the
IRS with respect to other taxpayers on this issue and consulted with outside tax
counsel and advisors on the merits of the Company's separate account DRD. The
due diligence was completed during the third quarter of 2001 and the Company
concluded that it was probable that a greater portion of the separate account
DRD claimed on its filed returns would be realized. Based on the Company's
assessment of the probable outcome, the Company concluded an additional $144 tax
benefit was appropriate to record in the third quarter of 2001, relating to the
tax years 1996-2000. Additionally, the Company increased its estimate of the
separate account DRD recognized with respect to tax year 2001 from $44 to $60.
F-30
<Page>
Early in 2002, the Company and its IRS agent requested advice from the National
Office of the IRS with respect to certain aspects of the computation of the
separate account DRD that had been claimed by the Company for the 1996-1997
audit period. During September 2002 the IRS National Office issued a ruling that
confirmed that the Company had properly computed the items in question in the
separate account DRD claimed on its 1996-1997 tax returns. Additionally, during
the third quarter, the Company reached agreement with the IRS on all other
issues with respect to the 1996-1997 tax years. The Company recorded a benefit
of $76 during the third quarter of 2002, primarily relating to the tax treatment
of such issues for the 1996-1997 tax years, as well as appropriate carryover
adjustments to the 1998-2002 years. The total DRD benefit related to the 2002
tax year was $63.
During the second quarter of 2003 the Company recorded a benefit of $23,
consisting primarily of a change in estimate of the DRD tax benefit reported
during 2002. The change in estimate was the result of actual 2002 investment
performance on the related separate accounts being unexpectedly out of pattern
with past performance, which had been the basis for the estimate. The total DRD
benefit relating to the 2003 tax year recorded during the twelve months ended
December 31, 2003 was $87.
The Company will continue to monitor further developments surrounding the
computation of the separate account DRD, as well as other tax-related items, and
will adjust its estimate of the probable outcome of these issues as developments
warrant.
UNFUNDED COMMITMENTS
At December 31, 2003, Hartford Life Insurance Company has outstanding
commitments totaling $214, of which $152 is committed to fund limited
partnership investments. These capital commitments can be called by the
partnership during the commitment period (on average 2 to 5 years) to fund
working capital needs or purchase new investments. Once the commitment period
expires, the Company is under no obligation to fund the remaining unfunded
commitment but may elect to do so. The remaining $62 of outstanding commitments
are primarily related to various funding obligations associated with investments
in mortgage loans. These have a commitment period that expires in less than one
year.
13. TRANSACTIONS WITH AFFILIATES
In connection with a comprehensive evaluation of various capital maintenance and
allocation strategies by The Hartford, an intercompany asset sale transaction
was completed in April 2003. The transaction resulted in certain of The
Hartford's Property & Casualty subsidiaries selling ownership interests in
certain high quality fixed maturity securities to the Company for cash equal to
the fair value of the securities as of the effective date of the sale. For the
Property and Casualty subsidiaries, the transaction monetized the embedded gain
in certain securities on a tax deferred basis to The Hartford because no capital
gains tax will be paid until the securities are sold to unaffiliated third
parties. The transfer re-deployed to the Company desirable investments without
incurring substantial transaction costs that would have been payable in a
comparable open market transaction. The fair value of securities transferred was
$1.7 billion.
The Company's employees are included in The Hartford's non-contributory defined
benefit pension benefit plans and the Company is allocated expense for these
plans by The Hartford. On September 30, 2003, Hartford Life, Inc. assumed the
Company's intercompany payable of $49 for the reimbursement of costs associated
with the defined benefit pension plans. As a result, the Company reported $49 as
a capital contribution during the quarter ended September 30, 2003 to reflect
the extinguishment of the intercompany payable.
Effective July 7, 2003, the Company and its subsidiary, Hartford Life and
Annuity Insurance Company ("HLAI") entered into an indemnity reinsurance
arrangement with Hartford Life and Accident Company ("HLA"). Through this
arrangement, both the Company and HLAI will automatically cede 100% of the
GMWB's incurred on variable annuity contracts issued between July 7, 2003 and
December 31, 2003 that were otherwise not reinsured. The Company and HLAI, in
total, ceded an immaterial amount of premiums to HLA. As of December 31, 2003,
HLIC and HLAI, combined, have recorded a reinsurance recoverable from HLA of
$(26).
The Company has issued a guarantee to retirees and vested terminated employees
(Retirees) of The Hartford Retirement Plan for U.S. Employees (the Plan) who
retired or terminated prior to January 1, 2004. The Plan is sponsored by The
Hartford. The guarantee is an irrevocable commitment to pay all accrued benefits
which the Retiree or the Retiree's designated beneficiary is entitled to receive
under the Plan in the event the Plan assets are insufficient to fund those
benefits and The Hartford is unable to provide sufficient assets to fund those
benefits. The Company believes that the likelihood that payments will be
required under this guarantee is remote.
14. 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 universal
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.
F-31
<Page>
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 primarily occur between Corporate and the
operating segments. These amounts primarily include interest income on allocated
surplus, interest charges on excess separate account surplus, the allocation of
net realized capital gains and losses and the allocation of credit risk CHARGES.
Each operating segment is allocated corporate surplus as needed to support its
business. Portfolio management is a corporate function and net realized capital
gains and losses on invested assets are recognized in Corporate. Those net
realized capital gains and losses that are interest rate related are
subsequently allocated back to the operating segments in future periods, with
interest, over the average estimated duration of the operating segment's
investment portfolios, through an adjustment to each respective operating
segment's net investment income, with an offsetting adjustment in Corporate.
Credit related net capital losses are retained by Corporate. However, in
exchange for retaining credit related losses, Corporate charges each operating
segment a "credit-risk" fee through net investment income. The "credit-risk" fee
covers fixed income assets included in each operating segment's general account
and guaranteed separate accounts. The "credit-risk" fee is based upon historical
default rates in the corporate bond market, the Company's actual default
experience and estimates of future losses. 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.
F-32
<Page>
<Table>
<Caption>
For the years ended December 31,
----------------------------------
2003 2002 2001
----------------------------------
TOTAL REVENUES
Investment Products $ 3,374 $ 2,694 $ 2,947
Individual Life 893 858 774
COLI 482 592 717
Other 119 (195) 50
----------------------------------
TOTAL REVENUES $ 4,868 $ 3,949 $ 4,488
----------------------------------
NET INVESTMENT INCOME
Investment Products $ 1,254 $ 1,049 $ 865
Individual Life 222 224 205
COLI 215 276 352
Other 73 23 69
----------------------------------
TOTAL NET INVESTMENT INCOME $ 1,764 $ 1,572 $ 1,491
----------------------------------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS AND
PRESENT VALUE OF FUTURE PROFITS
Investment Products $ 494 $ 385 $ 413
Individual Life 165 146 153
COLI 1 -- --
Other -- -- --
----------------------------------
TOTAL AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
AND PRESENT VALUE OF FUTURE PROFITS $ 660 $ 531 $ 566
----------------------------------
INCOME TAX EXPENSE (BENEFIT)
Investment Products $ 65 $ 87 $ 111
Individual Life 64 59 54
COLI 22 14 17
Other 17 (158) (138)
----------------------------------
TOTAL INCOME TAX EXPENSE $ 168 $ 2 $ 44
----------------------------------
NET INCOME (LOSS)
Investment Products $ 414 $ 343 $ 375
Individual Life 134 116 106
COLI 46 31 36
Other 32 (64) 129
----------------------------------
TOTAL NET INCOME $ 626 $ 426 $ 646
----------------------------------
ASSETS
Investment Products $126,158 $ 96,865 $106,497
Individual Life 9,484 8,173 9,248
COLI 29,593 30,326 26,835
Other 6,705 6,737 2,853
----------------------------------
TOTAL ASSETS $171,940 $142,101 $145,433
----------------------------------
REVENUES BY PRODUCT
Investment Products
Individual Annuities $ 1,656 $ 1,451 $ 1,397
Other 1,718 1,243 1,550
----------------------------------
TOTAL INVESTMENT PRODUCTS 3,374 2,694 2,947
----------------------------------
Individual Life 893 858 774
COLI 482 592 717
----------------------------------
TOTAL REVENUES BY PRODUCT $ 4,749 $ 4,144 $ 4,438
----------------------------------
</Table>
15. ACQUISITIONS
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. The Company effected the acquisition
through several reinsurance agreements with subsidiaries of Fortis and the
purchase of 100% of the stock of Fortis Advisers, Inc. and Fortis Investors,
Inc., wholly-owned subsidiaries of Fortis, Inc. The acquisition was accounted
for as a purchase transaction 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.
F-33
<Page>
16. QUARTERLY RESULTS FOR 2003 AND 2002 (UNAUDITED)
<Table>
<Caption>
Three Months Ended
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002 2003 2002
------------------------------------------------------------------------------
Revenues $1,018 $1,072 $1,186 $921 $1,449 $952 $1,215 $1,004
Benefits, claims and expenses 888 895 970 863 1,229 873 987 890
Net income 100 132 189 57 167 146 170 91
------------------------------------------------------------------------------
</Table>
17. SEPTEMBER 11, 2001
As a result of September 11, 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. In the first quarter of 2002, the Company recognized a $3
after-tax benefit related to favorable development of reserves related to
September 11. As a result of the uncertainties involved in the estimation
process, final claims settlement may vary from present estimates.
F-34
<Page>
PART II
<Page>
OTHER INFORMATION
Item 27. Exhibits
(a) Resolution of the board of directors of Hartford authorizing the
establishment of the Separate Account.(1)
(b) Not applicable.
(c) (i) Principal Underwriting Agreement.(2)
(ii) Form of Sales Agreement.(2)
(d) Form of Group Variable Funding Agreement.
(e) Form of the Application.
(f) (i) Articles of Incorporation of Hartford.(3)
(ii) Bylaws of Hartford.(4)
(g) Not applicable.
(h) Form of Participation Agreement.(2)
(i) Not applicable.
(j) Not applicable.
(k) Opinion and Consent of Christine Hayer Repasy, Senior Vice
President, General Counsel and Corporate Secretary.
(l) Not applicable.
(m) Not applicable.
(n) Consent of Deloitte & Touche LLP.
(o) No financial statements are omitted.
(p) Not applicable.
(q) Not applicable.
(r) Copy of Power of Attorney.
(s) Organizational Chart.(6)
- --------
(1) Incorporated by reference to Registration Statement File No. 333-109149,
filed September 26, 2003.
(2) Incorporated by reference to Post-Effective Amendment No. 1, to the
Registration Statement File No. 33-59541, dated May 1, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 6, to the
Registration Statement File No. 333-66343, filed on February 8, 2001.
(4) Incorporated by reference to Post-Effective Amendment No. 12, to the
Registration Statement File No. 333-69485, filed on April 9, 2001.
(5) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement File No. 333-101923, filed on April 5, 2004.
<Page>
Item 28. Directors and Officers of the Depositor
<Page>
<Table>
<Caption>
- -------------------------------------------- -------------------------------------------------------------------------
NAME POSITION WITH HARTFORD
- -------------------------------------------- -------------------------------------------------------------------------
Daniel A. Andriola Vice President
- -------------------------------------------- -------------------------------------------------------------------------
David G. Bedard Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
David A. Carlson Senior Vice President & Deputy Chief Financial Officer, Director*
- -------------------------------------------- -------------------------------------------------------------------------
James Davey Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Charles J. DiVencenzo Jr. Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Joseph G. Eck Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Bruce W. Ferris Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Timothy M. Fitch Senior Vice President and Actuary
- -------------------------------------------- -------------------------------------------------------------------------
Mary Jane B. Fortin Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Stephen T. Joyce Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Michael L. Kalen Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Michael D. Keeler Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Kristine J. Kelliher Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Patrice Kelly-Ellis Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Robert A. Kerzner Executive Vice President, Director*
- -------------------------------------------- -------------------------------------------------------------------------
Deborah Koltenuk Vice President
- -------------------------------------------- -------------------------------------------------------------------------
David N. Levenson Senior Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Joseph F. Mahoney Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Thomas M. Marra President, Chief Executive Officer and Chairman of the Board, Director*
- -------------------------------------------- -------------------------------------------------------------------------
Ernest M. McNeill, Jr. Vice President & Chief Accounting Officer*
- -------------------------------------------- -------------------------------------------------------------------------
Peter J. Michalek Vice President
- -------------------------------------------- -------------------------------------------------------------------------
John J. Mittelstadt Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Tom Nassiri Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Joseph J. Noto Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Marianne O'Doherty Vice President and Assistant General Counsel
- -------------------------------------------- -------------------------------------------------------------------------
Craig R. Raymond Senior Vice President and Chief Actuary
- -------------------------------------------- -------------------------------------------------------------------------
Christine Hayer Repasy Senior Vice President, General Counsel and Corporate Secretary, Director*
- -------------------------------------------- -------------------------------------------------------------------------
Michael J. Roscoe Vice President and Actuary
- -------------------------------------------- -------------------------------------------------------------------------
Martin A. Swanson Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Charles N. Vest Vice President and Actuary
- -------------------------------------------- -------------------------------------------------------------------------
John C. Walters Executive Vice President, Director*
- -------------------------------------------- -------------------------------------------------------------------------
Eric H. Wietsma Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Neal S. Wolin Executive Vice President
- -------------------------------------------- -------------------------------------------------------------------------
Lizabeth H. Zlatkus Executive Vice President and Chief Financial Officer, Director*
- -------------------------------------------- -------------------------------------------------------------------------
David M. Znamierowski Senior Vice President and Chief Investment Officer, Director*
- -------------------------------------------- -------------------------------------------------------------------------
</Table>
<Page>
Unless otherwise indicated, the principal business address of each of the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes Board of Directors.
Item 29. Persons Controlled By or Under Common Control with the Depositor or
Registrant
See Item 27(s).
Item 30. Indemnification
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
<Page>
corporation. Specifically, Section 33-771(a)(2) permits a corporation to
indemnify a director if the corporation, pursuant to Section 33-636(b)(5),
obligated itself under its certificate of incorporation to indemnify a director
for liability except for certain liability involving conduct described in
Section 33-636(b)(5). 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
<Page>
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 31. Principal Underwriters
(a) HSD acts as principal underwriter for the following investment
companies:
Hartford Life Insurance Company - Separate Account One
Hartford Life Insurance Company - Separate Account Two
Hartford Life Insurance Company - Separate Account Two
(DC Variable Account I)
Hartford Life Insurance Company - Separate Account Two
(DC Variable Account II)
Hartford Life Insurance Company - Separate Account Two
(QP Variable Account)
Hartford Life Insurance Company - Separate Account Two
(Variable Account "A")
Hartford Life Insurance Company - Separate Account Two
(NQ Variable Account)
Hartford Life Insurance Company - Separate Account Ten
Hartford Life Insurance Company - Separate Account Three
Hartford Life Insurance Company - Separate Account Five
Hartford Life Insurance Company - Separate Account Seven
Hartford Life Insurance Company - Separate Account Eleven
Hartford Life Insurance Company - Separate Account Twelve
Hartford Life and Annuity Insurance Company - Separate
Account One
Hartford Life and Annuity Insurance Company - Separate
Account Ten
Hartford Life and Annuity Insurance Company - Separate
Account Three
Hartford Life and Annuity Insurance Company - Separate
Account Five
Hartford Life and Annuity Insurance Company - Separate
Account Six
Hartford Life and Annuity Insurance Company - Separate
Account Seven
American Maturity Life Insurance - Separate Account AMLVA
American Maturity Life Insurance - Separate Account One
Servus Life Insurance Company - Separate Account One
Servus Life Insurance Company - Separate Account Two
Hart Life Insurance Company - Separate Account One
Hart Life Insurance Company - Separate Account Two
<Page>
(b) Directors and Officers of HSD
<Table>
<Caption>
POSITIONS AND OFFICES
NAME WITH UNDERWRITER
---- ---------------------
David A. Carlson Senior Vice President and Deputy Chief
Financial Officer
Bruce W. Ferris Vice President
George R. Jay Controller
Stephen T. Joyce Vice President
Thomas M. Marra President, Chief Executive Officer and
Chairman of the Board, Director
Christine Hayer Repasy Senior Vice President, General Counsel and
Corporate Secretary
Martin A. Swanson Vice President
John C. Walters Executive Vice President, Director
Lizabeth H. Zlatkus Executive Vice President & Chief Financial
Officer, Director
</Table>
Unless otherwise indicated, the principal business address of each of the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
<Page>
Item 32. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by the Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 33. Management Services
All management contracts are discussed in Part A and Part B of this
registration statement.
Item 34: Representation of Reasonableness of Fees
Hartford hereby represents that the aggregate fees and charges under
the Agreement are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Hartford.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf, in the Town of Simsbury, and State of Connecticut on
this 12th day of April, 2004.
HARTFORD LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT TWELVE
(Registrant)
By: Thomas M. Marra *By: /s/ Christopher M. Grinnell
---------------------------------------- -----------------------
Thomas M. Marra, Chief Executive Officer Christopher M. Grinnell
and Chairman of the Board, President* Attorney-In-Fact
HARTFORD LIFE INSURANCE COMPANY
(Depositor)
By: Thomas M. Marra
----------------------------------------
Thomas M. Marra, Chief Executive Officer
and Chairman of the Board, President*
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons and in the capacity
and on the date indicated.
David A. Carlson, Senior Vice President & Deputy Chief
Financial Officer, Director*
Robert A. Kerzner, Executive Vice President,
Director*
Thomas M. Marra, President, Chief Executive
Officer and Chairman of the Board, Director*
Ernest M. McNeill, Jr., Vice President
and Chief Accounting Officer*
Christine Hayer Repasy, Senior Vice President,
General Counsel & Corporate Secretary,
Director* *By: Christopher M. Grinnell
John C. Walters, Executive Vice President, ------------------------
Director* Christopher M. Grinnell
Lizabeth H. Zlatkus, Executive Vice President Attorney-in-Fact
and Chief Financial Officer, Director*
David M. Znamierowski, Senior Vice President & Date: April 12, 2004
Chief Investment Officer, Director*
333-
<Page>
EXHIBIT INDEX
(1) Form of Group Variable Funding Agreement.
(2) Form of the Application.
(3) Opinion and Consent of Christine Hayer Repasy, Senior Vice President,
General Counsel, and Corporate Secretary.
(4) Consent of Deloitte & Touche LLP.
(5) Copy of Power of Attorney.