The Hartford 2008 Annual Report Download - page 145

Table of Contents
Year ended December 31, 2007 compared to the year ended December 31, 2006
Net income in Retail increased for the year ended December 31, 2007, primarily driven by lower amortization of DAC
resulting from the unlock benefit in the third quarter of 2007, fee income growth in the variable annuity and mutual fund
businesses, partially offset by increased non-deferrable individual annuity asset based commissions and mutual fund
commissions. In addition, realized capital losses increased $294 for the year ended December 31, 2007 as compared to 2006.
For further discussion, see Realized Capital Gains and Losses by Segment table under Life’s Operating Section of the
MD&A. A more expanded discussion of income growth is presented below:
Fee income and other • Fee income increased for the year ended December 31, 2007 primarily as a result of growth
in variable annuity average account values. The year-over-year increase in average variable
annuity account values can be attributed to market appreciation of $7.4 billion during the
year. Variable annuities had net outflows of $2.7 billion in 2007. Net outflows were driven
by surrender activity due to the aging of the variable annuity in force block of business and
increased sales competition, particularly competition related to guaranteed living benefits.
• Mutual fund fee income increased 23% for the year ended December 31, 2007 due to
increased assets under management driven by net sales of $5.5 billion and market
appreciation of $4.4 billion during 2007.
Net investment income • Net investment income declined for the year ended December 31, 2007 due to a decrease in
variable annuity fixed option account values of 11% or $635. The decrease in these account
values can be attributed to a combination of transfers into separate accounts and surrender
activity. Offsetting this decrease in net investment income was an increase in the returns
from limited partnership and other alternative investment income of $14 for the year ended
December 31, 2007.
Insurance operating
costs and other
expenses
• Insurance operating costs and other expenses increased for the year ended December 31,
2007. These increases were principally driven by mutual fund commission increases of $75
for the year ended December 31, 2007 due to growth in deposits of 29%. In addition,
non-deferrable variable annuity asset based commissions increased $67 for the year ended
December 31, 2007 due to a 4% growth in assets under management, as well as an increase
in the number of contracts reaching anniversaries when trail commission payments begin.
Amortization of
deferred policy
acquisition costs
and present value of
future profits
(“DAC”)
• Lower amortization of DAC resulted from the unlock benefit during the third quarter of
2007 as compared to an unlock expense during the fourth quarter of 2006. For further
discussion, see Unlock and Sensitivity Analysis in the Critical Accounting Estimates
section of the MD&A.
Income tax expense
(benefit)
• The effective tax rate increased from 7% to 21% for the year ended December 31, 2007
from the prior year due to an increase in income before income taxes and revisions in the
estimates of the separate account DRD which resulted in an incremental tax of $17, and
foreign tax credits.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009