The Hartford 2007 Annual Report Download - page 6

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Management Company (“HIMCO”), as well as an additional six premier investment firms: AllianceBernstein, Fidelity Investments,
Lord Abbett, Oppenheimer Funds, Putnam and Van Kampen.
Policyholders may make deposits of varying amounts at regular or irregular intervals and the value of these assets fluctuates in
accordance with the investment performance of the funds selected by the policyholder. To encourage persistency, many of Life’s
individual variable annuities are subject to withdrawal restrictions and surrender charges. Surrender charges range up to 8% of the
contract’ s deposits less withdrawals, and reduce to zero on a sliding scale, usually within seven years from the deposit date. Total
individual variable annuity account values of $119.1 billion as of December 31, 2007, have grown from $114.4 billion as of December
31, 2006, primarily due to equity market appreciation. Approximately 96% and 95% of the individual variable annuity account values
were held in separate accounts as of December 31, 2007 and 2006, respectively.
All new individual variable annuity contracts issued by Retail also offer a living benefit (i.e., GMWB) feature. The GMWB provides
the policyholder with a guaranteed remaining balance (“GRB”) if their 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
a specific percentage 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. For certain of the
withdrawal benefit features, the policyholder also has the option, after a specified time period, to reset the GRB to the then-current
account value, if greater. In addition, the Company has features that allow the policyholder to receive the guaranteed annual withdrawal
amount for life. Through this feature, the policyholder will receive a percentage of the GRB. The GRB is reset on an annual basis to
the maximum anniversary account value subject to a cap. Retail’s total account value related to individual variable annuity products
with GMWB features was $56.4 billion, $48.3 billion and $38.1 billion for December 31, 2007, 2006 and 2005, respectively.
Retail also sells many variable annuity contracts issued with a GMDB feature. For certain contracts Life pays the greater of (1) 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. For certain
guaranteed death benefits sold with variable annuity contracts beginning in June 2003, the Company pays the greater of (1) the account
value at death; or (2) the maximum anniversary value; not to exceed the account value plus the greater of (a) 25% of premium
payments, or (b) 25% of the maximum anniversary value of the contract. Retail’ s total account value related to variable annuity
products with GMDB features was $126.8 billion, $121.8 billion and $112.1 billion as of December 31, 2007, 2006 and 2005,
respectively.
Fixed MVA Annuities — Fixed MVA annuities are fixed rate annuity contracts which guarantee a specific sum of money to be paid in
the future, either as a lump sum or as monthly income. In the event that a policyholder surrenders a policy prior to the end of the
guarantee period, the MVA feature increases or decreases the cash surrender value of the annuity as a function of decreases or
increases, respectively, in crediting rates for newly issued contracts thereby protecting Life from losses due to higher interest rates at
the time of surrender. The amount of the lump sum or monthly income payment will not fluctuate due to adverse changes in other
components of Life’s investment return, mortality experience or expenses. Retail’ s primary fixed MVA annuities have terms varying
from one to ten years with an average term to maturity of approximately four years. Account values of fixed MVA annuities were
$10.2 billion, $9.9 billion and $10.2 billion as of December 31, 2007, 2006 and 2005, respectively.
Mutual Funds — Life offers a family of retail mutual funds for which Life provides investment management and administrative
services. The fund family has grown significantly from 8 funds at inception to the current offering of 54 mutual funds and 1 closed end
fund, including the addition of 3 new funds in 2007, the Checks and Balances Fund, the High Yield Municipal Bond Fund, and the
Strategic Income Fund. Life’s funds are managed by Wellington and HIMCO. Life has entered into agreements with over 1,200
financial services firms to distribute these mutual funds.
Life charges fees to the shareholders of the mutual funds, which are recorded as revenue by Life. Investors can purchase shares in the
mutual funds, all of which are registered with the Securities and Exchange Commission, in accordance with the Investment Company
Act of 1940. The mutual funds are owned by the shareholders of those funds and not by Life. As such, the mutual fund assets and
liabilities, as well as related investment returns, are not reflected in The Hartford’ s consolidated financial statements. Total retail
mutual fund assets under management were $48.4 billion, $38.5 billion and $29.1 billion as of December 31, 2007, 2006 and 2005,
respectively.
Marketing and Distribution
Life’ s distribution network is based on management’ s strategy of utilizing multiple and competing distribution channels to achieve the
broadest distribution to reach target customers. The success of Life’ s marketing and distribution system depends on its product
offerings, fund performance, successful utilization of wholesaling organizations, quality of customer service, and relationships with
national and regional broker-dealer firms, banks and other financial institutions, and independent financial advisors (through which the
sale of Life’s retail investment products to customers is consummated).
Life periodically negotiates provisions and terms of its relationships with unaffiliated parties, and there can be no assurance that such
terms will remain acceptable to Life or such third parties. Life’s primary wholesaler of its individual annuities is PLANCO Financial
Services, LLC and its affiliate, PLANCO, LLC (collectively “PLANCO”) which are indirect wholly-owned subsidiaries of Hartford
Life. PLANCO is one of the nation’ s largest wholesalers of individual annuities and has played a significant role in The Hartford’ s
growth over the past decade. As a wholesaler, PLANCO distributes Life’ s fixed and variable annuities, mutual funds, 529 plans and
offshore products by providing sales support to registered representatives and financial planners at broker-dealers and brokerage firms