The Hartford 2008 Annual Report Download - page 26

Table of Contents
Institutional Mutual Funds — Life sells institutional shares of The Hartford Mutual Funds to both qualified (i.e., section
401(k) and 457 plans) and non-qualified (i.e., endowments and foundations) institutional investors on an “investment only”
basis. The funds are sold individually, with no recordkeeping services included and not as a part of any bundled retirement
program. The Hartford’s indirect wholly-owned subsidiary, HL Investment Advisors, LLC, serves as the investment advisor
to these funds and contracts with sub-advisors to perform the day-to-day management of the funds. The two primary
sub-advisors to the Hartford HLS Funds are Wellington for most of the equity funds and HIMCO for the fixed income
funds.
Stable Value Products — Guaranteed investment contracts (“GICs”) are group annuity contracts issued to sponsors of
qualified pension or profit-sharing plans or stable value pooled fund managers. Under these contracts, the client deposits a
lump sum with The Hartford for a specified period of time for a guaranteed interest rate. At the end of the specified period,
the client receives principal plus interest earned. Funding agreements are investment contracts that provide a
contractually-obligated rate of interest or return. The Company has issued fixed and variable rate funding agreements to
Hartford Life Global Funding trusts, that in turn issue registered notes to institutional and retail investors. Certain of these
contracts allow an investor to accelerate principal payments after a defined notice period. During 2008, Life ceased issuance
of retail and institutional funding agreement backed notes, largely due to the change in customer preference to FDIC-insured
products. Prospectively, the Company will issue only GICs, and on a limited basis, funding agreements.
Marketing and Distribution
In the PPLI market, specialized brokers with expertise in the large case market assist in the placement of many cases. High
net worth PPLI is often placed with the assistance of investment banking and wealth management specialists.
In the institutional annuities market, Life sells its group annuity products to retirement plan sponsors through three different
channels: (1) a small number of specialty brokers; (2) large benefits consulting firms; and (3) directly, using Hartford
employees.
In the structured settlement market, the Institutional segment sells individual fixed immediate annuity products through a
small number of specialty brokerage firms that work closely with The Hartford’s Property & Casualty operations. Life also
works directly with the brokerage firms on cases that do not involve The Hartford’s Property & Casualty operations.
Approximately 85 percent of annual sales are through claim settlements not associated with The Hartford’s Property &
Casualty operations.
In the longevity assurance and income annuities markets, Life sells its individual fixed payout annuity contracts through
financial advisors that work with individual investors.
In the institutional mutual fund market, the Institutional segment typically sells its products through investment consulting
firms employed by retirement plan sponsors. Institutional’s products are also sold through 401(k) record keeping firms that
offer a “platform” of mutual funds to their plan sponsor clients. A third sales channel is direct sales to qualified plan
sponsors, using registered representatives employed by Hartford Equity Sales Company, Inc., an indirect wholly-owned
subsidiary.
In the stable value marketplace, the Institutional segment typically sells GICs to retirement plan sponsors or stable value
portfolio managers either through investment management firms or directly, using Hartford employees.
Competition
Institutional markets are highly competitive from a pricing perspective, and a small number of cases often account for a
significant portion of sales. Institutional competes with other life insurance companies and asset managers who provide
investment and risk management solutions. Product sales are often affected by competitive factors such as investment
performance, company credit ratings, perceived financial strength, product design, marketplace visibility, distribution
capabilities, fees, credited rates, and customer service. Recent actions by rating agencies may make competition more
challenging for Institutional in several of its businesses.
For PPLI, competition in the large case market comes from other insurance carriers and from specialized agents with
expertise in the benefit funding marketplace. Price is a major consideration, but there are other factors such as investment
offerings and services. For high net worth programs, the competition is often from investment banking firms allied with
other insurance carriers.
For institutional product lines offering fixed annuity products (e.g., institutional annuities, income annuities, structured
settlements, and stable value products), price, financial strength, stability and credit ratings are key buying factors. As a
result, the competitors in those marketplaces tend to be large, long-established insurance companies.
For institutional mutual funds, the variety of available funds, fee levels, and fund performance are most important to plan
sponsors and investment consultants. Competitors tend to be the major mutual fund companies, insurance companies, and
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009