The Hartford 2007 Annual Report Download - page 9

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agreements to Hartford Life Global Funding trusts, that, in turn, issue registered notes to institutional and retail investors. During 2006,
the Company began issuing consumer notes directly to retail investors.
Institutional Annuities — Institutional annuities arrangements are group annuity contracts used to fund pension liabilities that exist
when a qualified retirement plan sponsor decides to terminate an existing defined benefit pension plan. Group annuity contracts are
very long-term in nature, since they must pay the pension liabilities typically on a monthly basis to all participants covered under the
pension plan which is being terminated.
Longevity assurance — Longevity assurance is a fixed deferred-payout annuity that provides life contingent benefits to individuals with
the purpose of providing individuals with protection from the risk of outliving retirement income.
Single Premium Immediate Annuities – Single premium immediate annuities (“SPIA”) are individual contracts that provide a fixed
immediate payout annuity. Contracts pay either life contingent or period certain benefits, at the discretion of the contract holder.
Variable PPLI Products — Variable PPLI products continue to be used by employers to fund non-qualified benefits or other post-
employment benefit liabilities. A key advantage to plan sponsors is the opportunity to select from a range of tax deferred investment
allocations. Recent clarifications in regulatory policy have made PPLI products particularly attractive to banks with postretirement
medical obligations. PPLI has also been widely used in the high net worth marketplace due to its low costs, range of investment
choices and ability to accommodate a fund of funds management style. This institutionally priced hedge fund product is aimed at the
rapidly growing market composed of affluent investors unwilling to participate in hedge funds directly due to minimum investment
thresholds.
Marketing and Distribution
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.
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 sells GICs, funding agreements, and funding agreement backed notes to
retirement plan sponsors or other large institutions either through investment management firms or directly, using Hartford employees.
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 PPLI market, specialized strategic alliance partners 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.
The Institutional segment also distributes consumer notes through a purchasing agent and its corresponding selling group of broker-
dealers and securities firms.
Competition
IIP markets are highly competitive from a pricing perspective, and a small number of cases often account for a significant portion of
sales. In addition, the value proposition for a segment of Institutional’ s sales is dependent on the new money yield on fixed income
assets. The lower interest rates become and/or the more volatile the credit environment becomes the less attractive our solution is
perceived relative to alternatives available to our clients. Institutional does benefit from a diverse product platform including
institutional mutual funds and structured settlements which help mitigate the impact of interest rate and credit spread changes on sales.
Institutional competes with numerous other life insurance companies as well as investment banks and asset managers who provide
investment and risk management solutions. Additionally, there is competition from retail banks, securities brokerage firms,
independent financial advisors and other financial intermediaries marketing annuities, mutual funds and other retirement-oriented
products. Product sales are affected by competitive factors such as investment performance, ratings, product design, visibility in the
marketplace, financial strength, distribution capabilities, fees, credited rates, reputation and customer service.
For institutional product lines offering fixed annuity products (e.g., Institutional Annuities, Structured Settlements, and GICs), price,
financial strength, stability and credit ratings are key buying factors. As a result, the competitors in those marketplaces tend to be other
large, long-established insurance companies.
For institutional mutual funds, the variety of available funds, price, and their performance are most important to plan sponsors and
investment consultants. The competitors tend to be the major mutual fund companies and asset managers.
For PPLI, competition in the large case market comes from other insurance carriers and from specialized agents with expertise in the
benefit funding marketplace. The business is very competitive. Price is a major consideration, but there are other factors such as
relationships, investment offerings and services. PPLI is a leader in the large case market and has strengthened its position in the last
few years. For high net worth programs, the competition is often from other investment banking firms allied with other insurance