The Hartford 2008 Annual Report Download - page 119

Table of Contents
For the retail mutual fund business net sales can vary significantly depending on market conditions. The Company has seen
a decline in mutual fund deposits and net flows during the fourth quarter as a result of increased equity market volatility and
the declines in equity values throughout the fourth quarter. As this business continues to evolve, success will be driven by
diversifying net sales across the mutual fund platform, delivering superior investment performance and creating new
investment solutions for current and future mutual fund shareholders.
The decline in assets under management as a result of continued declines in the equity markets throughout 2008 have
decreased the extent of the scale efficiencies that Retail has benefited from in recent years. The significant reduction in
assets under management has resulted in revenues declining faster than expenses causing lower earnings during the fourth
quarter of 2008 and management expects this strain to continue in 2009. Management will continue to actively evaluate its
expense structure to ensure the business is controlling costs while maintaining its level of service to our customers.
Individual Life
Sales and account values for variable universal life products have been under pressure due to continued equity market
volatility and declines. For the year ended December 31, 2008, variable universal life sales and account values decreased
30% and 34%, respectively, compared to prior year. Continued volatility and declines in the equity markets may reduce the
attractiveness of variable universal life products and put additional strain on future earnings as variable life fees earned by
the Company are driven by the level of assets under management. The variable universal life mix was 40% of total life
insurance in-force for the year ended December 31, 2008.
Future sales for all products will be influenced by the Company’s management of current distribution relationships,
including recent merger and consolidation activity, and the development of new sources of distribution, while offering
competitive and innovative new products and product features. The current economic environment poses both opportunities
and challenges for future sales; while life insurance products respond well to consumer demand for financial security and
wealth accumulation solutions, individuals may be reluctant to transfer funds when market volatility has recently resulted in
significant declines in investment values. In addition, the availability and terms of capital solutions in the marketplace, as
discussed below, to support universal life products with secondary guarantees, may influence future growth.
Effective November 1, 2007, Individual Life reinsured the policy liability related to statutory reserves in universal life with
secondary guarantees to a captive reinsurance subsidiary. These reserves are calculated under prevailing statutory reserving
requirements as promulgated under Actuarial Guideline 38, “The Application of the Valuation of Life Insurance Policies
Model Regulation”. An unaffiliated standby third party letter of credit supports a portion of the statutory reserves that have
been ceded to this subsidiary. As of December 31, 2008, the transaction provided approximately $429 of statutory capital
relief associated with the Company’s universal life products with secondary guarantees. The Company expects this
transaction to accommodate future statutory capital needs for in-force business and new business written through
approximately December 31, 2009. The use of the letter of credit will result in a decline in net investment income and
increased expenses in future periods for Individual Life. As its business evolves in this product line, Individual Life will
evaluate the need for, and availability of, an additional capital transaction, which may impact the capacity to write these
policies in the future.
For risk management purposes, Individual Life accepts and retains up to $10 in risk on any one life. Individual Life uses
reinsurance where appropriate to mitigate earnings volatility; however, death claim experience may lead to periodic
short-term earnings volatility. Individual Life is currently evaluating and preparing to implement changes to its reinsurance
structure in 2009 in an effort to balance the overall profitability of its business while minimizing earnings volatility
associated with higher retention limits.
Individual Life continues to face uncertainty surrounding estate tax legislation, aggressive competition from other life
insurance providers, reduced availability and higher price of reinsurance, and the current regulatory environment related to
reserving for term insurance and universal life products with no-lapse guarantees. These risks may have a negative impact
on Individual Life’s future earnings.
Retirement Plans
The future financial results of the Retirement Plans segment will depend on Life’s ability to increase assets under
management across all businesses, achieve scale in areas with a high degree of fixed costs and maintain its investment
spread earnings on the general account products sold largely in the 403(b)/457 business. Disciplined expense management
will continue to be a focus and additional investments in service and technology will occur.
During 2008, the Company completed three Retirement Plans acquisitions. The acquisition of part of the defined
contribution record keeping business of Princeton Retirement Group gives Life a foothold in the business of providing
recordkeeping services to large financial firms which offer defined contribution plans to their clients and at acquisition
added $2.9 billion in mutual funds to Retirement Plans assets under management and $5.7 billion of assets under
administration. The acquisition of Sun Life Retirement Services, Inc., at acquisition added $15.8 billion in Retirement Plans
assets under management across 6,000 plans and provides new service locations in Boston, Massachusetts and Phoenix,
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009