The Hartford 2008 Annual Report Download - page 12

Table of Contents
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 had annuity
deposits of $9.5 billion, $14.3 billion and $13.1 billion in 2008, 2007 and 2006, respectively. Life had individual retail
variable annuity deposits in the United States of $7.9 billion, $13.2 billion and $12.1 billion in 2008, 2007 and 2006,
respectively. Annuity deposits declined in 2008 due to equity market volatility and increased competition.
Life’s total account value related to individual annuity products was $85.9 billion as of December 31, 2008. Of this total
account value, $74.6 billion, or 87%, related to individual variable annuity products and $11.3 billion, or 13%, related
primarily to fixed MVA annuity products. As of December 31, 2007, Life’s total account value related to individual annuity
products was $129.3 billion. 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.
Individual variable annuity account values declined in 2008 due primarily to declining equity markets.
The mutual fund business continues to be a significant business to the Life Company. Retail mutual fund assets were
$31.0 billion, $48.4 billion and $38.5 billion as of December 31, 2008, 2007 and 2006, respectively. The decline in Retail
mutual fund assets during 2008 was primarily related to declining equity markets. Retail mutual fund deposits were
$14.1 billion, $14.4 billion and $11.1 billion in 2008, 2007 and 2006, respectively.
Principal Products
Individual Variable Annuities — Life earns fees, based on policyholders’ account values, for managing variable annuity
assets, providing various death 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. Furthermore, each money manager is compensated on sales of Life’s products
and enhances the marketability of Life’s annuities and the strength of its product offerings.
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.
Many of the 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, certain withdrawal provisions and reset features could cause the GRB to fluctuate from year to year. Retail’s total
account value related to individual variable annuity products with GMWB features was $38.1 billion, $56.4 billion and
$48.3 billion at December 31, 2008, 2007 and 2006, respectively. The decline in account value during 2008 was primarily
due to declines in equity markets.
All variable annuity contracts are issued with a GMDB feature. GMDB features include (1) the sum of all premium
payments less prior withdrawals; (2) the maximum anniversary value of the contract, plus any premium payments since the
contract anniversary, minus any withdrawals following the contract anniversary and (3) 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.
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 (but, not necessarily widening credit spreads) 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.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009