The Hartford 2008 Annual Report Download - page 155

Table of Contents
Year ended December 31, 2008 compared to the year ended December 31, 2007
Net income decreased for the year ended December 31, 2008 as a result of the 2008 Unlock versus the 2007 Unlock along
with increased realized capital losses from the adoption of SFAS 157, which resulted in a net realized capital loss of $34
during the first quarter of 2008, the impact of the 3 Win trigger, impairment charges, increases in insurance operating costs
and other expenses, partially offset by an increase in fee income. For further discussion on the Unlock and 3 Win trigger, see
Unlock and Sensitivity Analysis in the Critical Accounting Estimates section of the MD&A. For further discussion of the
SFAS 157 transition impact, see Note 4 of the Notes to the Consolidated Financial Statements. For further discussion of
realized capital losses, see Realized Capital Gains and losses by Segment table under Life’s Operating Section of the
MD&A. The following other factors contributed to the changes in net income:
Fee income • Fee income increased primarily due to growth in Japan’s variable annuity average assets
under management. The increase in average assets under management over the past four
quarters was driven by deposits of $3.0 billion and a $6.6 billion increase due to foreign
currency exchange translation as the yen strengthened compared to the U.S. dollar.
Deposits and favorable foreign currency exchange were offset by unfavorable market
performance of $10.9 billion.
Benefits, losses and
loss adjustment
expenses
• Benefits, losses and loss adjustment expense increased as a result of the impacts of the
Unlock in the third quarter of 2008 as compared to the third quarter of 2007, the impact of
the 3 Win trigger, as well as higher GMDB net amount at risk and increased claims costs.
For further discussion of the 3 Win trigger, see Unlock and Sensitivity Analysis in the
Critical Accounting Estimates section of the MD&A.
Insurance operating
costs and other
expenses
• Insurance operating costs and other expenses increased due to the growth and strategic
investment in the Japan and Other International operations, as well as lower capitalization
of deferred policy acquisition costs, as acquisition costs exceeded pricing allowables.
Amortization of
deferred policy
acquisition costs
• Amortization of deferred policy acquisition costs increased as a result of the impacts of the
Unlock in the third quarter of 2008 as compared to the third quarter of 2007, as well as the
accelerated amortization associated with the 3 Win trigger. For further discussion of the 3
Win trigger see Unlock and Sensitivity Analysis in the Critical Accounting Estimates
section of the MD&A.
Income Tax expense • Income tax expense decreased primarily as a result of a decline in income before taxes.
Year ended December 31, 2007 compared to the year ended December 31, 2006
Net income decreased for the year ended December 31, 2007 due to a lower unlock benefit in 2007 compared with 2006 and
an increase in realized capital losses of $28 for the year ended December 31, 2007 as compared to the prior year period.
Losses were partially offset by increased fee income driven by growth in assets under management. For further discussion,
see Realized Capital Gains and Losses by Segment table under Life’s Operating Section of the MD&A. The following other
factors contributed to the change in income:
Fee income • Fee income increased for the year ended December 31, 2007 primarily due to growth in
Japan’s variable annuity assets under management. As of December 31, 2007, Japan’s
variable annuity assets under management were $35.8 billion, an increase of $6.1 billion or
21% from the prior year period. The increase in assets under management was driven by
positive net flows of $4.5 billion, partially offset by unfavorable market performance of
$620, which includes the impact of foreign currency movements on the Japanese
customer’s foreign assets and a $2.3 billion increase due to foreign currency exchange
translation as the yen strengthened compared to the U.S. dollar.
Benefits, losses and
loss adjustment
expenses
• The increase in benefits, losses and loss adjustment expenses for the year ended
December 31, 2007 over the prior year period was due to the unlock benefit in the fourth
quarter of 2006 exceeding the unlock benefit in the third quarter of 2007. For further
discussion, see Unlock and Sensitivity Analysis in the Critical Accounting Estimates
section of the MD&A.
Insurance operating
costs and other
expenses
• Insurance operating costs and other expenses increased for the year ended December 31,
2007 due to the growth in the Japan operation.
•
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009