The Hartford 2008 Annual Report Download - page 22

Table of Contents
Based on LIMRA market share data for in-force premiums as of June 30, 2008, Group Benefits is the second largest group
disability carrier and the third largest group life insurance carrier. The relatively large size and underwriting capacity of this
business provides opportunities not available to smaller companies.
International
International, which has operations located in Japan, Brazil, Ireland and the United Kingdom, and plans to open operations
in Germany in 2009, provides investments, retirement savings and other insurance and savings products to individuals and
groups outside the United States and Canada. International revenues were $617, $847 and $736 in 2008, 2007 and 2006,
respectively. Net income (loss) for International was $(325), $223 and $231 in 2008, 2007 and 2006, respectively.
International’s total assets were $41.5 billion, $41.6 billion and $33.8 billion as of December 31, 2008, 2007 and 2006,
respectively. The Company’s Japan operation, Hartford Life Insurance K.K. (“HLIKK”), remains the largest distributor of
variable annuities in Japan, based on assets under management. The Company also sells yen and U.S. dollar denominated
fixed annuities in Japan. With assets under management of $34.5 billion, $37.6 billion and $31.3 billion as of December 31,
2008, 2007 and 2006, respectively, the Japan operation is the largest component of International with net income (loss) of
$(263), $253 and $252 in 2008, 2007 and 2006, respectively.
The Company’s Japan operation sells both variable and fixed individual annuity products through a wide distribution
network of Japan’s broker-dealer organizations, banks and other financial institutions and independent financial advisors.
Individual retail variable annuity deposits in Japan were $3.0 billion, $6.3 billion and $5.8 billion in 2008, 2007 and 2006,
respectively. Deposits have declined in 2008 due to increased competition from Japanese domestic firms as well as equity
market volatility.
During the second and third quarters of 2008, the Company launched a new product called “Rising Income/Care Story,”
which is a GMWB variable annuity combined with a nursing care rider, as well as the new product “Plus 5,” which is a
10-year GMAB variable annuity with a 5% bonus at year 10. The success of the Company’s product offerings will
ultimately be based on customer acceptance in an increasingly competitive environment.
Due to significant market declines in the fourth quarter of 2008, approximately 97% of the Company’s in-force 3 Win
policies, or $3.1 billion in account value, have triggered the associated GMIB. 3 Win is a variable annuity product offered in
Japan with a GMIB and GMAB rider. The GMIB trigger occurred as a result of policyholder account values falling below
80% of their initial deposit. As a result of the GMIB trigger, the majority of the Company’s 3 Win policies annuitized or
surrendered free of charge in the fourth quarter of 2008. This significantly and negatively impacted fourth quarter net flows
and will continue to reduce future profitability. For further details on the trigger of the GMIB associated with the 3 Win
product, see Unlock and Sensitivity Analysis within Critical Accounting Estimates.
International’s other operations include a 50% owned joint venture in Brazil and startup operations in Europe. The Brazil
joint venture operates under the name Icatu-Hartford and distributes pension, life insurance and other insurance and savings
products through broker-dealer organizations and various partnerships. The Company’s European operation, Hartford Life
Limited, began selling unit-linked investment bonds and pension products in the United Kingdom in April 2005. Unit-linked
bonds and pension products are similar to variable annuities marketed in the United States and Japan, and are distributed
through independent financial advisors. Hartford Life Limited established its operations in Dublin, Ireland with a branch
office in London to help market and service its business in the United Kingdom.
Principal Products
Individual Variable Annuities — The Company earns fees, based on policyholders’ account values, for managing variable
annuity assets and maintaining policyholder accounts. The Company 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, as long as asset allocation limits,
where applicable, are not exceeded, who then assumes the investment performance risks and rewards. These products offer
the policyholder a variety of equity and fixed income options. Additionally, International sells variable annuity contracts that
offer various guaranteed minimum death and living benefits.
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
the Company’s individual variable annuities are subject to withdrawal restrictions and surrender charges. Surrender charges
range up to 7% of the contract’s deposits, less withdrawals, and reduce to zero on a sliding scale, usually within seven years
from the deposit date. In Japan, individual variable annuity account values were $29.7 billion, $35.8 billion and $29.7 billion
as of December 31, 2008, 2007, and 2006, respectively.
Fixed MVA Annuities and Other — Fixed MVA annuities are fixed rate annuity contracts that 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 adjusts the contract’s cash surrender value with respect to
any changes in Japanese LIBOR, thereby protecting the Company from losses due to higher interest rates, but not
necessarily widening credit spreads, at the time of surrender. The amount of lump sum or monthly income payments will not
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009