The Hartford 2007 Annual Report Download - page 5

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its fifth DALBAR Award for Mutual Fund and Retirement Plan Service which recognizes Hartford Life as the No. 1 service provider of
mutual funds and retirement plans in the industry. Continuing the trend of service excellence, Life’ s Individual Life segment won its
seventh consecutive DALBAR award for service of life insurance customers. Additionally, Life’ s Individual Life segment also won its
sixth DALBAR Financial Intermediary Service Award in 2007.
Risk Management
Life’ s product designs, prudent underwriting standards and risk management techniques are structured to protect it against
disintermediation risk, greater than expected mortality and morbidity experience, foreign currency risk and, risks associated with
certain product features, specifically the guaranteed minimum death benefit (“GMDB”), guaranteed minimum withdrawal benefit
(“GMWB”), guaranteed minimum income benefit (“GMIB”), and the guaranteed minimum accumulation benefit (“GMAB”) offered
with variable annuity products. As of December 31, 2007, Life had limited exposure to disintermediation risk on approximately 98%
of its domestic life insurance and annuity liabilities through the use of separate accounts, MVA features, policy loans, surrender charges
and non-surrenderability provisions. Life effectively utilizes prudent underwriting to select and price insurance risks and regularly
monitors mortality and morbidity assumptions to determine if experience remains consistent with these assumptions and to ensure that
its product pricing remains appropriate. Life also employs disciplined claims management to protect itself against greater than
expected morbidity experience. Life uses reinsurance structures and has modified benefit features to mitigate the mortality exposure
associated with GMDB. Life also uses reinsurance and derivative instruments to attempt to minimize equity risk volatility on GMWB
and, to some degree, foreign currency risk associated with the GMIB and GMAB liability.
Retail
The Retail segment focuses, through the sale of individual variable and fixed annuities, mutual funds and other investment products to
customers principally in the U.S., on the savings and retirement needs of the growing number of individuals who are preparing for
retirement or who have already retired. This segment’ s total assets were $136.0 billion and $130.0 billion as of December 31, 2007 and
2006, respectively, excluding mutual funds of $50.5 billion and $40.0 billion for the same respective periods. Retail generated
revenues of $3.5 billion, $3.4 billion and $3.2 billion in 2007, 2006 and 2005, respectively, of which individual annuities accounted for
$2.7 billion, $2.7 billion and $2.7 billion for 2007, 2006 and 2005, respectively. Net income in Retail was $812, $536 and $595 in
2007, 2006 and 2005, respectively.
Life sells both variable and fixed individual annuity products through a wide distribution network of national and regional broker-dealer
organizations, banks and other financial institutions and independent financial advisors. Life is among market leaders in the United
States annuity industry with deposits of $14.3 billion, $13.1 billion and $11.5 billion in 2007, 2006 and 2005, respectively. In addition,
Life is a large seller of individual retail variable annuities in the United States with deposits of $13.2 billion, $12.1 billion and $11.2
billion in 2007, 2006 and 2005, respectively.
Life’ s total account value related to individual annuity products was $129.3 billion as of December 31, 2007. Of this total account
value, $119.1 billion, or 92%, related to individual variable annuity products and $10.2 billion, or 8%, related primarily to fixed MVA
annuity products. As of December 31, 2006, Life’ s total account value related to individual annuity products was $124.3 billion. Of
this total account value, $114.4 billion, or 92%, related to individual variable annuity products and $9.9 billion, or 8%, related primarily
to fixed MVA annuity products. As of December 31, 2005, Life’ s total account value related to individual annuity products was $115.5
billion. Of this total account value, $105.3 billion, or 91%, related to individual variable annuity products and $10.2 billion, or 9%,
related primarily to fixed MVA annuity products.
Life continues to emerge as a significant participant in the mutual fund business. Retail mutual fund assets were $48.4 billion, $38.5
billion and $29.1 billion as of December 31, 2007, 2006 and 2005, respectively. Retail mutual fund sales were $14.4 billion, $11.1
billion and $5.8 billion in 2007, 2006 and 2005, respectively.
Principal Products
Individual Variable Annuities — Life earns fees, based on policyholders’ account values, for managing variable annuity assets,
providing various death benefits and living benefits, and maintaining policyholder accounts. Life uses specified portions of the periodic
deposits paid by a customer to purchase units in one or more mutual funds as directed by the customer, who then assumes the
investment performance risks and rewards. As a result, variable annuities permit policyholders to choose aggressive or conservative
investment strategies, as they deem appropriate, without affecting the composition and quality of assets in Life’ s general account.
These products offer the policyholder a variety of equity and fixed income options, as well as the ability to earn a guaranteed rate of
interest in the general account of Life. Life offers an enhanced guaranteed rate of interest for a specified period of time (no longer than
twelve months) if the policyholder elects to dollar-cost average funds from Life’ s general account into one or more separate accounts.
The assets underlying Life’ s variable annuities are managed both internally and by independent money managers, while Life provides
all policy administration services. Life utilizes a select group of money managers for inclusion in its variable annuities. Furthermore,
some of the money managers are compensated on sales of Life’ s products and enhance the marketability of Life’ s annuities and the
strength of its product offerings. Hartford Leaders, which is a multi-manager variable annuity that combines the product
manufacturing, wholesaling and service capabilities of Life with the investment management expertise of American Funds, Franklin
Templeton Group, AIM Investments and MFS Investment Management, is one of the industry leaders in terms of retail sales. In 2005,
the Director M variable annuity was introduced to combine the product manufacturing, wholesaling and service capabilities of Life
with the investment management expertise of Wellington Management Company, LLP (“Wellington”) and Hartford Investment