##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-12749
 HARTFORD LIFE, INC.
  Delaware
    
    06-1470915(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 200 Hopmeadow Street, Simsbury, Connecticut 06089
 (860) 547-5000
  þ o
  o o þ
  o þ




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Report of Independent Registered Public Accounting Firm
    
    
    3Condensed Consolidated Statements of Operations  Three and Six Months
Ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Balance Sheets  June 30, 2006
and December 31, 2005
    
    
    5Condensed Consolidated Statements of Changes in
Stockholders Equity  Six Months Ended June 30, 2006 and 2005
    
    
    6Condensed Consolidated Statements of Cash Flows  Six Months
Ended June 30, 2006 and 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 4. Controls and Procedures
    
    
    49PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    50Item 6. Exhibits
    
    
    55Signature
    
    
    56Exhibits Index
    
    
    57EX-15.01:DELOITTE & TOUCHE LLP LETTER OF AWARENESSEX-31.01: CERTIFICATIONEX-31.02: CERTIFICATIONEX-32.01: CERTIFICATIONEX-32.02: CERTIFICATION
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 3




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HARTFORD LIFE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,(In millions)
    
    2006
    
    2005
    
    2006
    
    2005(Unaudited)
    
    (Unaudited)RevenuesFee income
    
    $
    1,156
    
    
    $
    960
    
    
    $
    2,274
    
    
    $
    1,910Earned premiums
    
    
    1,081
    
    
    
    1,047
    
    
    
    2,354
    
    
    
    2,046Net investment incomeSecurities available-for-sale and other
    
    
    791
    
    
    
    733
    
    
    
    1,557
    
    
    
    1,462Equity securities held for trading
    
    
    (970
    )
    
    
    303
    
    
    
    (516
    )
    
    
    524Total net investment income
    
    
    (179
    )
    
    
    1,036
    
    
    
    1,041
    
    
    
    1,986Net realized capital (losses) gains
    
    
    (150
    )
    
    
    (9
    )
    
    
    (276
    )
    
    
    83Total revenues
    
    
    1,908
    
    
    
    3,034
    
    
    
    5,393
    
    
    
    6,025Benefits, claims and expensesBenefits, claims and claim adjustment expenses
    
    
    508
    
    
    
    1,756
    
    
    
    2,646
    
    
    
    3,495Insurance expenses and other
    
    
    697
    
    
    
    636
    
    
    
    1,273
    
    
    
    1,195Amortization of deferred policy acquisition
costs and present value of future profits
    
    
    306
    
    
    
    275
    
    
    
    605
    
    
    
    566Dividends to policyholders
    
    
    4
    
    
    
    3
    
    
    
    18
    
    
    
    21Interest expense
    
    
    20
    
    
    
    20
    
    
    
    40
    
    
    
    40Total benefits, claims and expenses
    
    
    1,535
    
    
    
    2,690
    
    
    
    4,582
    
    
    
    5,317Income before income tax expense
    
    
    373
    
    
    
    344
    
    
    
    811
    
    
    
    708Income tax expense
    
    
    78
    
    
    
    81
    
    
    
    181
    
    
    
    167Net income
    
    $
    295
    
    
    $
    263
    
    
    $
    630
    
    
    $
    541
 See Notes to Condensed Consolidated Financial Statements.
 4




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HARTFORD LIFE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 June 30,
    
    December 31,2006
    
    2005(In millions, except for share data)
    
    (Unaudited)AssetsInvestmentsFixed maturities, available-for-sale, at fair value (amortized cost of $50,580 and
$49,615)
    
    $
    50,475
    
    
    $
    50,812Equity securities, available-for-sale, at fair value (cost of $760 and $781)
    
    
    772
    
    
    
    800Equity securities, trading securities, at fair value (cost of $23,062 and $19,570)
    
    
    26,916
    
    
    
    24,034Policy loans, at outstanding balance
    
    
    2,110
    
    
    
    2,016Mortgage loans on real estate
    
    
    2,269
    
    
    
    1,513Other investments
    
    
    831
    
    
    
    609Total investments
    
    
    83,373
    
    
    
    79,784Cash
    
    
    888
    
    
    
    1,001Premiums receivable and agents balances
    
    
    396
    
    
    
    426Reinsurance recoverables
    
    
    785
    
    
    
    800Deferred policy acquisition costs and present value of future profits
    
    
    9,362
    
    
    
    8,567Deferred income taxes
    
    
    (278
    )
    
    
    (633
    )Goodwill
    
    
    796
    
    
    
    796Other assets
    
    
    2,034
    
    
    
    2,146Separate account assets
    
    
    156,523
    
    
    
    150,875Total assets
    
    $
    253,879
    
    
    $
    243,762LiabilitiesReserve for future policy benefits
    
    $
    13,454
    
    
    $
    12,777Other policyholder funds
    
    
    67,767
    
    
    
    64,452Short-term debt
    
    
    400
    
    
    
    Long-term debt
    
    
    648
    
    
    
    1,048Other liabilities
    
    
    5,913
    
    
    
    5,251Separate account liabilities
    
    
    156,523
    
    
    
    150,875Total liabilities
    
    
    244,705
    
    
    
    234,403Commitments and Contingencies (Note 6)Stockholders EquityCommon Stock  1,000 shares authorized, issued and outstanding;
par value $0.01
    
    
    
    
    
    
    Capital surplus
    
    
    3,094
    
    
    
    3,094Accumulated other comprehensive incomeNet unrealized capital gains on securities, net of tax
    
    
    (180
    )
    
    
    608Foreign currency translation adjustments
    
    
    (20
    )
    
    
    (79
    )Total accumulated other comprehensive income
    
    
    (200
    )
    
    
    529Retained earnings
    
    
    6,280
    
    
    
    5,736Total stockholders equity
    
    
    9,174
    
    
    
    9,359Total liabilities and stockholders equity
    
    $
    253,879
    
    
    $
    243,762
 See Notes to Condensed Consolidated Financial Statements.
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HARTFORD LIFE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Changes in Stockholders Equity
 Six Months Ended June 30, 2006
 Accumulated Other Comprehensive IncomeNet GainNet Unrealized
    
    (Loss) onCapital
    
    Cash Flow
    
    ForeignGains (Losses)
    
    Hedging
    
    Currency
    
    
    
    
    
    TotalCommon
    
    Capital
    
    on Securities,
    
    Instruments,
    
    Translation
    
    Retained
    
    Stockholders(In millions) (Unaudited)
    
    Stock
    
    Surplus
    
    Net of Tax
    
    Net of Tax
    
    Adjustments
    
    Earnings
    
    EquityBalance, December 31, 2005

    $
    
    
    
    
    $
    3,094
    
    
    $
    709
    
    
    $
    (101
    )
    
    $
    (79
    )
    
    $
    5,736
    
    
    $
    9,359Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    630Other comprehensive income, net of tax (1)Net change in unrealized capital gains
on securities (2)
    
    
    
    
    
    
    
    
    
    
    (606
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (606
    )Net loss on cash flow hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    (182
    )Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (729
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    (86
    )Balance, June 30, 2006

    $
    
    
    
    
    $
    3,094
    
    
    $
    103
    
    
    $
    (283
    )
    
    $
    (20
    )
    
    $
    6,280
    
    
    $
    9,174
 Six Months Ended June 30, 2005
 Accumulated Other Comprehensive IncomeNet GainNet Unrealized
    
    (Loss) onCapital
    
    Cash Flow
    
    ForeignGains (Losses)
    
    Hedging
    
    Currency
    
    
    
    
    
    TotalCommon
    
    Capital
    
    on Securities,
    
    Instruments,
    
    Translation
    
    Retained
    
    Stockholders(In millions) (Unaudited)
    
    Stock
    
    Surplus
    
    Net of Tax
    
    Net of Tax
    
    Adjustments
    
    Earnings
    
    EquityBalance, December 31, 2004

    $
    
    
    
    
    $
    3,094
    
    
    $
    1,348
    
    
    $
    (170
    )
    
    $
    16
    
    
    $
    4,884
    
    
    $
    9,172Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    541
    
    
    
    541Other comprehensive income, net of tax (1)Net change in unrealized capital gains
on securities (2)
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )Net gain on cash flow hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    154Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202
    )
    
    
    (202
    )Balance, June 30, 2005

    $
    
    
    
    
    $
    3,094
    
    
    $
    1,311
    
    
    $
    (16
    )
    
    $
    (23
    )
    
    $
    5,223
    
    
    $
    9,589
 
 (1)
    
    Net change in unrealized capital gains (losses) on securities is reflected net of tax
benefit and other items of $326 and $20 for the six months ended June 30, 2006 and 2005,
respectively. Net gain (loss) on cash flow hedging instruments is net of tax (benefit)
provision of $(98) and $83 for the six months ended June 30, 2006 and 2005, respectively.(2)
    
    There were reclassification adjustments for after-tax (losses) gains realized in net income
of $(108) and $44 for the six months ended June 30, 2006 and 2005, respectively. See Notes to Condensed Consolidated Financial Statements.
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HARTFORD LIFE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,(In millions) (Unaudited)
    
    2006
    
    2005Operating ActivitiesNet income
    
    $
    630
    
    
    $
    541Adjustments to reconcile net income to net cash provided by operating activitiesAmortization of deferred policy acquisition costs and present value of future profits
    
    
    605
    
    
    
    566Additions to deferred policy acquisition costs and present value of future profits
    
    
    (979
    )
    
    
    (1,050
    )Change in:Reserve for future policy benefits
    
    
    526
    
    
    
    220Reinsurance recoverables
    
    
    16
    
    
    
    24Receivables
    
    
    (61
    )
    
    
    58Payables, accruals and other liabilities
    
    
    (139
    )
    
    
    (122
    )Accrued and deferred income taxes
    
    
    305
    
    
    
    70Net realized capital losses (gains)
    
    
    276
    
    
    
    (83
    )Net increase in equity securities, held for trading
    
    
    (2,072
    )
    
    
    (5,527
    )Net receipts from investment contracts credited to policyholder accounts associated
with equity securities, held for trading
    
    
    1,966
    
    
    
    5,568Depreciation and amortization
    
    
    253
    
    
    
    99Other, net
    
    
    250
    
    
    
    16Net cash provided by operating activities
    
    
    1,576
    
    
    
    380Investing ActivitiesProceeds from the sale/maturity/prepayment of:Fixed maturities, available-for-sale
    
    
    10,941
    
    
    
    15,272Equity securities, available-for-sale
    
    
    82
    
    
    
    11Mortgage loans
    
    
    169
    
    
    
    167Partnerships
    
    
    64
    
    
    
    25Payments for the purchase of:Fixed maturities, available-for-sale
    
    
    (12,059
    )
    
    
    (16,241
    )Equity securities, available-for-sale
    
    
    (127
    )
    
    
    (194
    )Mortgage loans
    
    
    (923
    )
    
    
    (392
    )Partnerships
    
    
    (336
    )
    
    
    (85
    )Change in policy loans, net
    
    
    (94
    )
    
    
    522Change in payables for collateral under securities lending, net
    
    
    429
    
    
    
    (89
    )Change in other investments, net
    
    
    (508
    )
    
    
    127Additions to property and equipment, net
    
    
    (25
    )
    
    
    (27
    )Net cash used for investing activities
    
    
    (2,387
    )
    
    
    (904
    )Financing ActivitiesNet receipts from investment and universal life-type contracts
    
    
    731
    
    
    
    584Dividends paid
    
    
    (81
    )
    
    
    (170
    )Net cash provided by financing activities
    
    
    650
    
    
    
    414Foreign exchange rate effect on cash
    
    
    48
    
    
    
    (52
    )Net decrease in cash
    
    
    (113
    )
    
    
    (162
    )Cash - beginning of period
    
    
    1,001
    
    
    
    933Cash - end of period
    
    $
    888
    
    
    $
    771Supplemental Disclosure of Cash Flow InformationNet cash paid during the period forIncome taxes (received) paid
    
    $
    (149
    )
    
    $
    125Interest
    
    $
    39
    
    
    $
    40
 See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Dollar amounts in millions, unless otherwise stated)
 1. Basis of Presentation and Accounting Policies
 Basis of Presentation
    Consolidation
  Reclassifications
  Use of Estimates
   Significant Accounting Policies
  8




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Income Taxes
     Adoption of New Accounting Standards
   Future Adoption of New Accounting Standards
  9




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##### Table of Contents



2. Segment Information
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005RetailRealized gains (losses)
    
    $
    8
    
    
    $
    9
    
    
    $
    17
    
    
    $
    18Credit risk charge
    
    
    (7
    )
    
    
    (6
    )
    
    
    (13
    )
    
    
    (13
    )Retirement PlansRealized gains (losses)
    
    
    2
    
    
    
    1
    
    
    
    5
    
    
    
    3Credit risk charge
    
    
    (2
    )
    
    
    (2
    )
    
    
    (4
    )
    
    
    (4
    )InstitutionalRealized gains (losses)
    
    
    4
    
    
    
    3
    
    
    
    8
    
    
    
    6Credit risk charge
    
    
    (5
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    (9
    )Individual LifeRealized gains (losses)
    
    
    2
    
    
    
    3
    
    
    
    5
    
    
    
    6Credit risk charge
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Group BenefitsRealized gains (losses)
    
    
    1
    
    
    
    3
    
    
    
    2
    
    
    
    5Credit risk charge
    
    
    (3
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (5
    )InternationalRealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Credit risk charge
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    OtherRealized gains (losses)
    
    
    (17
    )
    
    
    (19
    )
    
    
    (37
    )
    
    
    (38
    )Credit risk charge
    
    
    18
    
    
    
    16
    
    
    
    37
    
    
    
    34Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 10




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005RevenuesRetail
    
    $
    867
    
    
    $
    799
    
    
    $
    1,717
    
    
    $
    1,589Retirement Plans
    
    
    131
    
    
    
    117
    
    
    
    268
    
    
    
    230Institutional
    
    
    367
    
    
    
    340
    
    
    
    885
    
    
    
    639Individual Life
    
    
    275
    
    
    
    259
    
    
    
    546
    
    
    
    521Group Benefits
    
    
    1,129
    
    
    
    1,048
    
    
    
    2,261
    
    
    
    2,094International
    
    
    184
    
    
    
    111
    
    
    
    364
    
    
    
    215Other
    
    
    (75
    )
    
    
    57
    
    
    
    (132
    )
    
    
    213Total segment revenues [2]
    
    
    2,878
    
    
    
    2,731
    
    
    
    5,909
    
    
    
    5,501Net investment income on
equity securities held
for trading [1]
    
    
    (970
    )
    
    
    303
    
    
    
    (516
    )
    
    
    524Total revenues
    
    $
    1,908
    
    
    $
    3,034
    
    
    $
    5,393
    
    
    $
    6,025
 
 [1]
    
    Management does not include dividend income and
mark-to-market effects of trading securities supporting the
international variable annuity business in its segment revenues
since corresponding amounts credited to policyholders are
included within benefits, claims and claim adjustment expenses.[2]
    
    Amounts include net realized capital losses of $150 and $9
for the three months ended June 30, 2006 and 2005, respectively.
Amounts include net realized capital losses of $276 and net
realized capital gains of $83 for the six months ended June 30,
2006 and 2005, respectively. Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Net Income (Loss)Retail
    
    $
    166
    
    
    $
    127
    
    
    $
    342
    
    
    $
    275Retirement Plans
    
    
    22
    
    
    
    17
    
    
    
    43
    
    
    
    34Institutional
    
    
    29
    
    
    
    21
    
    
    
    51
    
    
    
    42Individual Life
    
    
    48
    
    
    
    39
    
    
    
    93
    
    
    
    78Group Benefits
    
    
    74
    
    
    
    64
    
    
    
    142
    
    
    
    123International
    
    
    52
    
    
    
    21
    
    
    
    98
    
    
    
    35Other
    
    
    (96
    )
    
    
    (26
    )
    
    
    (139
    )
    
    
    (46
    )Total net income
    
    $
    295
    
    
    $
    263
    
    
    $
    630
    
    
    $
    541
 3. Investments and Derivative Instruments
 June 30, 2006
    
    December 31, 2005Gross
    
    Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    Value
    
    Cost
    
    Gains
    
    Losses
    
    ValueBonds and NotesAsset-backed securities (ABS)
    
    $
    6,950
    
    
    $
    56
    
    
    $
    (77
    )
    
    $
    6,929
    
    
    $
    6,819
    
    
    $
    48
    
    
    $
    (75
    )
    
    $
    6,792Collateralized mortgage
obligations (CMOs)Agency backed
    
    
    890
    
    
    
    2
    
    
    
    (14
    )
    
    
    878
    
    
    
    758
    
    
    
    3
    
    
    
    (5
    )
    
    
    756Non-agency backed
    
    
    106
    
    
    
    
    
    
    
    (1
    )
    
    
    105
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    106Commercial mortgage-backed
securities (CMBS)Agency backed
    
    
    71
    
    
    
    
    
    
    
    (3
    )
    
    
    68
    
    
    
    70
    
    
    
    1
    
    
    
    
    
    
    
    71Non-agency backed
    
    
    9,786
    
    
    
    96
    
    
    
    (205
    )
    
    
    9,677
    
    
    
    9,219
    
    
    
    174
    
    
    
    (97
    )
    
    
    9,296Corporate
    
    
    24,187
    
    
    
    694
    
    
    
    (624
    )
    
    
    24,257
    
    
    
    23,893
    
    
    
    1,178
    
    
    
    (259
    )
    
    
    24,812Government/Government agenciesForeign
    
    
    566
    
    
    
    24
    
    
    
    (11
    )
    
    
    579
    
    
    
    719
    
    
    
    50
    
    
    
    (4
    )
    
    
    765United States
    
    
    1,237
    
    
    
    6
    
    
    
    (17
    )
    
    
    1,226
    
    
    
    630
    
    
    
    24
    
    
    
    (5
    )
    
    
    649Mortgage-backed securities (MBS)
    
    
    2,160
    
    
    
    2
    
    
    
    (82
    )
    
    
    2,080
    
    
    
    2,794
    
    
    
    6
    
    
    
    (43
    )
    
    
    2,757States, municipalities and
political subdivisions
    
    
    3,252
    
    
    
    116
    
    
    
    (67
    )
    
    
    3,301
    
    
    
    3,256
    
    
    
    210
    
    
    
    (9
    )
    
    
    3,457Redeemable preferred stock
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Short-term
    
    
    1,360
    
    
    
    
    
    
    
    
    
    
    
    1,360
    
    
    
    1,334
    
    
    
    
    
    
    
    
    
    
    
    1,334Total fixed maturities
    
    $
    50,580
    
    
    $
    996
    
    
    $
    (1,101
    )
    
    $
    50,475
    
    
    $
    49,615
    
    
    $
    1,694
    
    
    $
    (497
    )
    
    $
    50,812
 11




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##### Table of Contents



Variable Interest Entities
   Derivative Instruments
      June 30, 2006
    
    December 31, 2005Liability
    
    
    
    
    
    LiabilityAsset Values
    
    Values
    
    Asset Values
    
    ValuesOther investments
    
    $
    201
    
    
    $
    
    
    
    $
    179
    
    
    $
    Reinsurance recoverables
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    17Other policyholder funds and benefits payable
    
    
    66
    
    
    
    
    
    
    
    8
    
    
    
    Other liabilities
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    420Total
    
    $
    267
    
    
    $
    727
    
    
    $
    187
    
    
    $
    437
  June 30, 2006
    
    December 31, 2005Notional
    
    
    
    
    
    NotionalAmount
    
    Fair Value
    
    Amount
    
    Fair ValueCash flow hedge
    
    $
    7,105
    
    
    $
    (494
    )
    
    $
    7,197
    
    
    $
    (242
    )Fair value hedge
    
    
    2,442
    
    
    
    15
    
    
    
    1,707
    
    
    
    (1
    )Other investment and risk management activities
    
    
    61,813
    
    
    
    19
    
    
    
    54,161
    
    
    
    (7
    )Total
    
    $
    71,360
    
    
    $
    (460
    )
    
    $
    63,065
    
    
    $
    (250
    )
  12




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##### Table of Contents



4. Deferred Policy Acquisition Costs and Present Value of Future Profits
  2006
    
    2005Balance, January 1
    
    $
    8,567
    
    
    $
    7,437Capitalization
    
    
    979
    
    
    
    1,053Amortization  Deferred policy acquisition costs and present value of future profits
    
    
    (605
    )
    
    
    (566
    )Adjustments to unrealized gains and losses on securities available-for-sale and other
    
    
    377
    
    
    
    (8
    )Effect of currency translation adjustment
    
    
    44
    
    
    
    (74
    )Balance, June 30
    
    $
    9,362
    
    
    $
    7,842
 5. Separate Accounts, Death Benefits and Other Insurance Benefit Features
  U.S. GMDB [1]
    
    Japan GMDB/GMIB [1]Liability balance as of January 1, 2006
    
    $
    158
    
    
    $
    50Incurred
    
    
    62
    
    
    
    17Paid
    
    
    (55
    )
    
    
    (1
    )Currency translation adjustment
    
    
    
    
    
    
    2Liability balance as of June 30, 2006
    
    $
    165
    
    
    $
    68
 
 [1]
    
    The reinsurance recoverable asset related to the U.S. GMDB was $35 as of June 30, 2006.
The reinsurance recoverable asset related to the Japan GMDB was $2 as of June 30, 2006. 13




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##### Table of Contents



U.S. GMDB [1]
    
    Japan GMDB/GMIBLiability balance as of January 1, 2005
    
    $
    174
    
    
    $
    28Incurred
    
    
    67
    
    
    
    14Paid
    
    
    (78
    )
    
    
    Currency translation adjustment
    
    
    
    
    
    
    (3
    )Liability balance as of June 30, 2005
    
    $
    163
    
    
    $
    39
 
 [1]
    
    The reinsurance recoverable asset related to the U.S. GMDB was $48 as of June 30, 2005.   Breakdown of Individual Variable and Group Annuity Account Value by GMDB/GMIB Type
 Retained Net
    
    Weighted AverageAccount
    
    Net Amount
    
    Amount
    
    Attained Age ofValue
    
    at Risk
    
    at Risk
    
    AnnuitantMaximum anniversary value (MAV) [1]MAV only
    
    $
    53,559
    
    
    $
    4,880
    
    
    $
    583
    
    
    
    64With 5% rollup [2]
    
    
    3,814
    
    
    
    490
    
    
    
    98
    
    
    
    63With Earnings Protection Benefit Rider (EPB) [3]
    
    
    5,314
    
    
    
    333
    
    
    
    59
    
    
    
    61With 5% rollup & EPB
    
    
    1,379
    
    
    
    132
    
    
    
    24
    
    
    
    62Total MAV
    
    
    64,066
    
    
    
    5,835
    
    
    
    764Asset Protection Benefit (APB) [4]
    
    
    31,244
    
    
    
    167
    
    
    
    92
    
    
    
    61Lifetime Income Benefit (LIB) [5]
    
    
    1,682
    
    
    
    2
    
    
    
    2
    
    
    
    59Reset [6] (5-7 years)
    
    
    6,863
    
    
    
    382
    
    
    
    382
    
    
    
    65Return of Premium [7]/Other
    
    
    9,331
    
    
    
    36
    
    
    
    35
    
    
    
    49Subtotal U.S. Guaranteed Minimum Death Benefits
    
    
    113,186
    
    
    
    6,422
    
    
    
    1,275
    
    
    
    62Japan Guaranteed Minimum Death and Income Benefit [8]
    
    
    27,323
    
    
    
    249
    
    
    
    180
    
    
    
    66Total at June 30, 2006
    
    $
    140,509
    
    
    $
    6,671
    
    
    $
    1,455
 
 [1]
    
    MAV: the death benefit is the greatest of current account value, net premiums paid and
the highest account value on any anniversary before age 80 (adjusted for withdrawals).[2]
    
    Rollup: the death benefit is the greatest of the MAV, current account value, net premium
paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to
the earlier of age 80 or 100% of adjusted premiums.[3]
    
    EPB: the death benefit is the greatest of the MAV, current account value, or contract value
plus a percentage of the contracts growth. The contracts growth is account value less
premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals.[4]
    
    APB: the death benefit is the greater of current account value or MAV, not to exceed current
account value plus 25% times the greater of net premiums and MAV (each adjusted for premiums
in the past 12 months).[5]
    
    LIB: the death benefit is the greater of current account value or MAV, net premiums paid, or
a benefit amount that rachets over time, generally based on market performance.[6]
    
    Reset: the death benefit is the greatest of current account value, net premiums paid and
the most recent five to seven year anniversary account value before age 80 (adjusted for
withdrawals).[7]
    
    Return of premium: the death benefit is the greater of current account value and net
premiums paid.[8]
    
    Death benefits include a Return of Premium and MAV (before age 75) death benefit and income
benefits include a guarantee to return initial investment, which is adjusted for earnings
liquidity or a maximum annual withdrawal of 3% of premiums, depending on the product, through
a fixed annuity after a minimum deferral period of 10, 15 or 20 years. The guaranteed
remaining balance related to the Japan GMIB was $18.6 billion and $15.2 billion as of June 30,
2006 and December 31, 2005, respectively.  14




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##### Table of Contents



6. Commitments and Contingencies
 Litigation
   Broker Compensation Litigation
 15




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##### Table of Contents



Regulatory Developments
  16




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##### Table of Contents



17




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##### Table of Contents



7. Stock Compensation Plans
   Stock Plan
   Stock Option Awards
  18




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##### Table of Contents



Share Awards
  Employee Stock Purchase Plan
  8. Transactions with Affiliates
  9. Sale of Affiliates
   10. Debt
  19




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (Dollar amounts in millions, unless otherwise stated)
   INDEXOverview
    
    
    21Critical Accounting Estimates
    
    
    23Consolidated Results of Operations
    
    
    25Retail
    
    
    31Retirement Plans
    
    
    32Institutional
    
    
    33Individual Life
    
    
    34Group Benefits
    
    
    35International
    
    
    36Other
    
    
    37Investments
    
    
    38Investment Credit Risk
    
    
    42Capital Markets Risk Management
    
    
    44Capital Resources and Liquidity
    
    
    47Accounting Standards
    
    
    49
 20




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##### Table of Contents



OVERVIEW
 Regulatory Developments
        21




---



##### Table of Contents



Broker Compensation
  22




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES
   Life Deferred Policy Acquisition Costs and Present Value of Future Profits Associated with Variable
Annuity and Other Universal Life-Type Contracts
 Accounting Policy and Assumptions
    23




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##### Table of Contents



Unlock and Sensitivity Analysis
        24




---



##### Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS
   25




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##### Table of Contents



Performance Measures
 Fee Income
  As of and For the Three
    
    As of and For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,Product/Key Indicator Information
    
    2006
    
    2005
    
    2006
    
    2005U.S. Variable AnnuitiesAccount value, beginning of period
    
    $
    108,695
    
    
    $
    98,071
    
    
    $
    105,314
    
    
    $
    99,617Net flows
    
    
    (638
    )
    
    
    (59
    )
    
    
    (1,466
    )
    
    
    347Change in market value and other
    
    
    (1,833
    )
    
    
    1,735
    
    
    
    2,376
    
    
    
    (217
    )Account value, end of period
    
    $
    106,224
    
    
    $
    99,747
    
    
    $
    106,224
    
    
    $
    99,747Retail Mutual FundsAssets under management, beginning of period
    
    $
    31,988
    
    
    $
    24,949
    
    
    $
    29,063
    
    
    $
    25,240Net sales
    
    
    1,389
    
    
    
    322
    
    
    
    2,917
    
    
    
    703Change in market value and other
    
    
    (766
    )
    
    
    687
    
    
    
    631
    
    
    
    15Assets under management, end of period
    
    $
    32,611
    
    
    $
    25,958
    
    
    $
    32,611
    
    
    $
    25,958Retirement PlansAccount value, beginning of period
    
    $
    20,465
    
    
    $
    16,946
    
    
    $
    19,317
    
    
    $
    16,493Net flows
    
    
    541
    
    
    
    349
    
    
    
    1,395
    
    
    
    1,026Change in market value and other
    
    
    (266
    )
    
    
    297
    
    
    
    28
    
    
    
    73Account value, end of period
    
    $
    20,740
    
    
    $
    17,592
    
    
    $
    20,740
    
    
    $
    17,592Individual Life InsuranceVariable universal life account value, end of period
    
    $
    6,053
    
    
    $
    5,433
    
    
    $
    6,053
    
    
    $
    5,433Total life insurance inforce
    
    $
    156,392
    
    
    $
    144,151
    
    
    $
    156,392
    
    
    $
    144,151S&P 500 IndexPeriod end closing value
    
    
    1,270
    
    
    
    1,191
    
    
    
    1,270
    
    
    
    1,191Daily average value
    
    
    1,281
    
    
    
    1,182
    
    
    
    1,282
    
    
    
    1,187Japan AnnuitiesAccount value, beginning of period
    
    $
    28,241
    
    
    $
    17,615
    
    
    $
    26,104
    
    
    $
    14,631Net flows
    
    
    952
    
    
    
    2,568
    
    
    
    2,798
    
    
    
    6,111Change in market value and other
    
    
    (203
    )
    
    
    (457
    )
    
    
    88
    
    
    
    (1,016
    )Account value, end of period
    
    $
    28,990
    
    
    $
    19,726
    
    
    $
    28,990
    
    
    $
    19,726
 
    
    The increase in U.S. variable annuity account values from June 30,
2005 and December 31, 2005 to June 30, 2006 can be attributed to
market growth over the past four and two quarters, respectively. Net
flows for the U.S. variable annuity business have decreased from
prior year levels resulting from higher surrenders due to increased
competition.
    
    Mutual Fund net sales increased substantially over the prior year
period as a result of focused wholesaling efforts and favorable fund
and equity market performance.
    
    The increase in Retirement Plan account values from June 30, 2005 and
December 31, 2005 to June 30, 2006 can be mainly attributed to
positive net flows over the past four and two quarters, respectively.
    
    Individual Life account value and life insurance inforce increased
for the three and six months ended June 30, 2006 due to business
growth.
    
    Japan annuity account values as of June 30, 2006 continue to grow as
a result of positive net flows, a weakening of the dollar as compared
to the Yen, offset by a decline in capital markets in 2006. However,
Japan net flows have decreased due to increased competition.
 
 26




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##### Table of Contents



Net Investment Income and Interest Credited
  
    
    Net investment income and interest credited in Other
decreased for the three and six months ended June 30, 2006 due
to a decrease in the mark-to-market effects of trading account
securities supporting the Japanese variable annuity business.
    
    Net investment income and interest credited on general
account assets in Retail declined for the three and six months
ended June 30, 2006 due to lower assets under management from
surrenders on market value adjusted (MVA) fixed annuity
products at the end of their guarantee period. Also
contributing to the decline in assets under management were
transfers within Variable Annuity products from the general
account option to separate account funds.
    
    Net investment income and interest credited on general
account assets in Institutional increased as a result of the
Companys funding agreement backed Investor Notes program.
 Premiums
  For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,Group Benefits
    
    2006
    
    2005
    
    2006
    
    2005Total premiums and other considerations
    
    $
    1,028
    
    
    $
    948
    
    
    $
    2,060
    
    
    $
    1,896Fully insured ongoing sales (excluding buyouts)
    
    $
    134
    
    
    $
    110
    
    
    $
    575
    
    
    $
    486
 
    
    Earned premiums and other considerations include $1 and $0 and $5 and $25 in buyout
premiums for the three and six months ended June 30, 2006 and 2005, respectively. The
increase in premiums and other considerations for Group Benefits in 2006 compared to 2005 was
driven by sales growth of 18%.
 27




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##### Table of Contents



Expenses
  For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005RetailGeneral insurance expense ratio (individual annuity)
    
    
    17.7
    bps
    
    
    19.3
    bps
    
    
    16.7
    bps
    
    
    18.4
    bpsDAC amortization ratio (individual annuity)
    
    
    51.6
    %
    
    
    48.7
    %
    
    
    50.5
    %
    
    
    49.4
    %Individual LifeDeath benefits
    
    $
    63
    
    
    $
    63
    
    
    $
    132
    
    
    $
    129Insurance expenses, net of deferrals
    
    $
    46
    
    
    $
    42
    
    
    $
    88
    
    
    $
    82Group BenefitsTotal benefits, claims and claim adjustment expenses
    
    $
    740
    
    
    $
    696
    
    
    $
    1,507
    
    
    $
    1,418Loss ratio (excluding buyout premiums)
    
    
    72.0
    %
    
    
    73.4
    %
    
    
    73.1
    %
    
    
    74.5
    %Insurance expenses, net of deferrals
    
    $
    277
    
    
    $
    257
    
    
    $
    538
    
    
    $
    494Expense ratio, (excluding buyout premiums)
    
    
    27.9
    %
    
    
    27.8
    %
    
    
    27.2
    %
    
    
    27.2
    %
 
    
    Asset growth and lower contract maintenance expenses for the three
and six months ended June 30, 2006 decreased individual annuitys
expense ratio to a level lower than prior year periods.
Management expects the 2006 full year ratio to be between 18-20 bps.
    
    The ratio of individual annuity DAC amortization over income before
taxes and DAC amortization, while relatively stable, was influenced by true-ups recorded in the respective periods.
    
    Individual Life death benefits were flat for the three months ended,
and increased a moderate 2% for the six months ended June 30, 2006
primarily due to a larger insurance inforce.
    
    The Group Benefits loss ratio, excluding buyouts, for the three and
six months ended June 30, 2006 decreased primarily due to favorable
mortality experience as compared to the prior year periods.
 Profitability
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Ratios
    
    2006
    
    2005
    
    2006
    
    2005RetailIndividual annuity return on assets (ROA)
    
    
    52.8
    bps
    
    
    51.5
    bps
    
    

    54.4
    bps
    
    
    50.5
    bpsGroup BenefitsAfter-tax margin (excluding buyouts)
    
    
    7.2
    %
    
    
    6.8
    %
    
    
    6.9
    %
    
    
    6.6
    %
 
    
    Individual annuitys ROA increased for the three and six
months ended June 30, 2006 compared to the prior year periods.
In particular, variable annuity fees and the DRD benefit each
increased for the three and six months ended June 30, 2006
compared to the prior year period. The increase in the ROA
pertaining to fees can be attributed to the increase in account
values and resulting increased fees including GMWB rider fees.
Additionally, general insurance expenses were also favorable as
a percentage of total assets.
    
    The improvement in the Group Benefits after-tax margin for
the three and six months ended June 30, 2006 was primarily due
to an improvement in the expense ratio excluding the financial
institution business.
 28




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedOperating Summary
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeFee income
    
    $
    1,156
    
    
    $
    960
    
    
    
    20
    %
    
    $
    2,274
    
    
    $
    1,910
    
    
    
    19
    %Earned premiums
    
    
    1,081
    
    
    
    1,047
    
    
    
    3
    %
    
    
    2,354
    
    
    
    2,046
    
    
    
    15
    %Net investment incomeSecurities available-for-sale and other
    
    
    791
    
    
    
    733
    
    
    
    8
    %
    
    
    1,557
    
    
    
    1,462
    
    
    
    6
    %Equity securities held for trading [1]
    
    
    (970
    )
    
    
    303
    
    
    NM
    
    
    
    (516
    )
    
    
    524
    
    
    NMTotal net investment income
    
    
    (179
    )
    
    
    1,036
    
    
    
    (117
    %)
    
    
    1,041
    
    
    
    1,986
    
    
    
    (48
    %)Net realized capital (losses) gains
    
    
    (150
    )
    
    
    (9
    )
    
    NM
    
    
    
    (276
    )
    
    
    83
    
    
    NMTotal revenues
    
    
    1,908
    
    
    
    3,034
    
    
    
    (37
    %)
    
    
    5,393
    
    
    
    6,025
    
    
    
    (10
    %)Benefits, claims and claim adjustment expenses [1]
    
    
    508
    
    
    
    1,756
    
    
    
    (71
    %)
    
    
    2,646
    
    
    
    3,495
    
    
    
    (24
    %)Amortization of deferred policy acquisition costs
and present value of future profits
    
    
    306
    
    
    
    275
    
    
    
    11
    %
    
    
    605
    
    
    
    566
    
    
    
    7
    %Insurance operating costs and other expenses
    
    
    721
    
    
    
    659
    
    
    
    9
    %
    
    
    1,331
    
    
    
    1,256
    
    
    
    6
    %Total benefits, claims and expenses
    
    
    1,535
    
    
    
    2,690
    
    
    
    (43
    %)
    
    
    4,582
    
    
    
    5,317
    
    
    
    (14
    %)Income before income tax expense
    
    
    373
    
    
    
    344
    
    
    
    8
    %
    
    
    811
    
    
    
    708
    
    
    
    15
    %Income tax expense
    
    
    78
    
    
    
    81
    
    
    
    (4
    %)
    
    
    181
    
    
    
    167
    
    
    
    8
    %Net income
    
    $
    295
    
    
    $
    263
    
    
    
    12
    %
    
    $
    630
    
    
    $
    541
    
    
    
    16
    %
 
 [1]
    
    Includes investment income and mark-to-market effects of trading securities supporting the
international variable annuity business, which are classified in net investment income with
corresponding amounts credited to policyholders within benefits, claims and claim adjustment
expenses.  Three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005
  
    
    Net income increased primarily due to growth in assets
under management resulting from market growth and sales, along
with higher earned premiums and a lower expense ratio excluding
the financial institution business in Group Benefits.
    
    Net realized capital losses occurred in the second quarter
of 2006 compared to minimal net realized capital losses in the
prior year period due to increased other-than-temporary
impairments (see the Other-Than-Temporary Impairments discussion
within Investment Results for more information on the increase
in impairments), realized losses associated with GMWB
derivatives, primarily due to modeling refinements made in the
second quarter of 2006, and losses on non-qualifying derivatives
due to rising interest rates in 2006, partially offset by a
decrease in realized losses from the Japan fixed annuity
contract hedges due to movements in interest rates. Net realized capital losses occurred
in the first six months of 2006 compared to net realized capital
gains in the prior year period due to increased
other-than-temporary impairments, realized losses associated
with GMWB derivatives, primarily due to the modeling refinements
made in the second quarter of 2006, losses on non-qualifying
derivatives due to rising interest rates in 2006 and realized
losses from the Japan fixed annuity contract hedges due to movements in interest rates.
    
    During the first quarter of 2006 and 2005, the Company
recorded a $7 after-tax reserve and a $66 after-tax reserve,
respectively for regulatory investigations.
    
    During the first quarter of 2006, the Company achieved
favorable settlements in several cases brought against the
Company by policyholders regarding their purchase of broad-based
leveraged corporate owned life insurance (leveraged COLI)
policies in the early to mid-1990s. The Company ceased offering
this product in 1996. Based on the favorable outcome of these
cases, together with the Companys current assessment of the few
remaining leveraged COLI cases, the Company reduced its estimate
of the ultimate cost of these cases during the three months
ended March 31, 2006. This reserve reduction, recorded in
insurance operating costs and other expenses, resulted in an
after-tax benefit of $34 in the three months ended March 31,
2006.
    
    During the second quarter of 2005, the Company recorded an
after-tax expense of $24, which was, at the time, an estimate of
the termination value of a provision of an agreement with a
distribution partner of the Companys retail mutual funds. The
agreement was ultimately terminated in late 2005.
 29




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##### Table of Contents



Income Taxes
     30




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##### Table of Contents



RETAIL
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    670
    
    
    $
    566
    
    
    
    18
    %
    
    $
    1,318
    
    
    $
    1,123
    
    
    
    17
    %Earned premiums
    
    
    (18
    )
    
    
    (5
    )
    
    NM
    

    
    
    (35
    )
    
    
    (20
    )
    
    
    75
    %Net investment income
    
    
    215
    
    
    
    236
    
    
    
    (9
    %)
    
    
    431
    
    
    
    480
    
    
    
    (10
    %)Net realized capital gains
    
    
    
    
    
    
    2
    
    
    
    (100
    %)
    
    
    3
    
    
    
    6
    
    
    
    (50
    %)Total revenues
    
    
    867
    
    
    
    799
    
    
    
    9
    %
    
    
    1,717
    
    
    
    1,589
    
    
    
    8
    %Benefits, claims and claim adjustment expenses
    
    
    207
    
    
    
    236
    
    
    
    (12
    %)
    
    
    414
    
    
    
    471
    
    
    
    (12
    %)Insurance operating costs and other expenses
    
    
    256
    
    
    
    233
    
    
    
    10
    %
    
    
    484
    
    
    
    422
    
    
    
    15
    %Amortization of deferred policy acquisition
costs and present value of future profits
    
    
    208
    
    
    
    178
    
    
    
    17
    %
    
    
    406
    
    
    
    359
    
    
    
    13
    %Total benefits, claims and expenses
    
    
    671
    
    
    
    647
    
    
    
    4
    %
    
    
    1,304
    
    
    
    1,252
    
    
    
    4
    %Income before income tax expense
    
    
    196
    
    
    
    152
    
    
    
    29
    %
    
    
    413
    
    
    
    337
    
    
    
    23
    %Income tax expense
    
    
    30
    
    
    
    25
    
    
    
    20
    %
    
    
    71
    
    
    
    62
    
    
    
    15
    %Net income
    
    $
    166
    
    
    $
    127
    
    
    
    31
    %
    
    $
    342
    
    
    $
    275
    
    
    
    24
    %Assets Under ManagementIndividual variable annuity account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    106,224
    
    
    $
    99,747
    
    
    
    6
    %Individual fixed annuity and other account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,036
    
    
    
    10,553
    
    
    
    (5
    %)Other retail products account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417
    
    
    
    243
    
    
    
    72
    %Total account values[1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,677
    
    
    
    110,543
    
    
    
    6
    %Retail mutual fund assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,611
    
    
    
    25,958
    
    
    
    26
    %Other mutual fund assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,203
    
    
    
    771
    
    
    
    56
    %Total mutual fund assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,814
    
    
    
    26,729
    
    
    
    27
    %Total assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    150,491
    
    
    $
    137,272
    
    
    
    10
    %
 
 [1]
    
    Includes policyholder balances for separate accounts and other policyholder funds. Three and six months ended June 30, 2006 compared to the three and six months ended June 30,
2005
  
    
    The increase in fee income in the variable annuity business for the
three and six months ended June 30, 2006 occurred primarily as the
result of growth in average account values. The year-over-year
increase in average account values can be attributed to market
appreciation of $9.2 billion over the past four quarters. Variable
annuity had net outflows of $1.5 billion for the six months ended
June 30, 2006 compared to net inflows of $347 for the prior year
period. Net outflows from additional surrender activity was due to
increased sales competition, particularly from competitors offering
variable annuity products with guaranteed living benefits.
    
    Mutual fund fee income increased 30% and 27% for the three and six
months ended June 30, 2006, respectively, due to increased assets
under management driven by market appreciation of $3.2 billion and
net sales of $3.5 billion during the past four quarters. Net sales
grew to $2.9 billion for the six months ended June 30, 2006 compared
to $703 for the prior year period. This increase was primarily
attributable to focused wholesaling efforts.
    
    Despite stable general account investment spread over the past four
quarters, net investment income has steadily declined for the three
and six months ended June 30, 2006 due to an increased level of
surrenders and transfers. This decline in the fixed annuity business
has been slowed largely due to a lower surrender rate. In addition,
a more favorable interest rate environment recently has led to net
outflows for the six months ended June 30, 2006 decreasing $680
compared to the six months ended June 30, 2005. Benefits, claims and
claim adjustment expenses have decreased for the three and six months
ended June 30, 2006 due to a decline in interest credited also due to
an increase in surrenders and transfers.
    
    Insurance operating costs and other expenses increased for the three
and six months ended June 30, 2006 primarily due to an increase in
mutual fund commissions due to significant growth in sales. In
addition, variable annuity asset based commissions increased due to
6% growth in assets under management, as well as an increase in the
number of contracts reaching anniversaries when trail commission
payments begin.
    
    During the second quarter of 2005, the Company recorded an after-tax
expense of $24, which was, at the time, an estimate of the
termination value of a provision of an agreement with a distribution
partner of the Companys retail mutual funds. The agreement was
ultimately terminated in late 2005.
 31




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##### Table of Contents




    
    Higher amortization of DAC resulted from higher actual gross profits
due to the positive earnings drivers discussed above. The DAC
amortization rate as a percentage of pre-tax, pre-amortization
profits remained fairly stable.
 RETIREMENT PLANS
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    48
    
    
    $
    37
    
    
    
    30
    %
    
    $
    91
    
    
    $
    71
    
    
    
    28
    %Earned premiums
    
    
    2
    
    
    
    4
    
    
    
    (50
    %)
    
    
    16
    
    
    
    7
    
    
    
    129
    %Net investment income
    
    
    80
    
    
    
    77
    
    
    
    4
    %
    
    
    160
    
    
    
    153
    
    
    
    5
    %Net realized capital gains (losses)
    
    
    1
    
    
    
    (1
    )
    
    NM
    
    
    
    1
    
    
    
    (1
    )
    
    NMTotal revenues
    
    
    131
    
    
    
    117
    
    
    
    12
    %
    
    
    268
    
    
    
    230
    
    
    
    17
    %Benefits, claims and claim adjustment expenses
    
    
    59
    
    
    
    59
    
    
    
    
    
    
    
    128
    
    
    
    115
    
    
    
    11
    %Insurance operating costs and other expenses
    
    
    35
    
    
    
    29
    
    
    
    21
    %
    
    
    66
    
    
    
    56
    
    
    
    18
    %Amortization of deferred policy acquisition costs
    
    
    8
    
    
    
    5
    
    
    
    60
    %
    
    
    16
    
    
    
    12
    
    
    
    33
    %Total benefits, claims and expenses
    
    
    102
    
    
    
    93
    
    
    
    10
    %
    
    
    210
    
    
    
    183
    
    
    
    15
    %Income before income tax expense
    
    
    29
    
    
    
    24
    
    
    
    21
    %
    
    
    58
    
    
    
    47
    
    
    
    23
    %Income tax expense
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    15
    
    
    
    13
    
    
    
    15
    %Net income
    
    $
    22
    
    
    $
    17
    
    
    
    29
    %
    
    $
    43
    
    
    $
    34
    
    
    
    26
    %Assets Under ManagementGovernmental account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,458
    
    
    $
    10,054
    
    
    
    4
    %401(k) account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,282
    
    
    
    7,538
    
    
    
    36
    %Total account values[1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,740
    
    
    
    17,592
    
    
    
    18
    %Governmental mutual fund assets under management [2]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728
    
    
    
    (100
    %)401(k) mutual fund assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,040
    
    
    
    808
    
    
    
    29
    %Total mutual fund assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,040
    
    
    
    1,536
    
    
    
    (32
    %)Total assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,780
    
    
    $
    19,128
    
    
    
    14
    %
 
 [1]
    
    Includes policyholder balances for separate accounts and other policyholder
funds.[2]
    
    Government mutual fund assets declined to zero due to a large case surrender in 2005 and
the remaining business being transferred to the Institutional segment. Three and six months ended June 30, 2006 compared to the three and six months ended June 30,
2005
  
    
    Fee income for 401(k) increased 38% or $10, and 41% or $20, for the
three and six months ended June 30, 2006, respectively. This
increase is mainly attributable to positive net flows of $2.0 billion
over the past four quarters resulting from strong sales and increased
ongoing deposits. Total 401(k) deposits increased by 30%, for the
three and six months ended June 30, 2006, and net flows increased by
22% and 25%, respectively.
    
    General account spread remained stable for the six months ended June
30, 2006 compared to the prior year period. Overall, net investment
income and the associated interest credited within benefits, claims
and claim adjustment expenses, each increased as a result of the
growth in general account assets under management. Additionally,
benefits, claims and claim adjustment expenses increased, for the six
months ended June 30, 2006 compared to the respective prior year
period, due to a large case annuitization in the 401(k) business,
which resulted in an increase in premiums and reserves of $12.
    
    Insurance operating costs and other expenses increased for the three
and six months ended June 30, 2006 primarily driven by the 401(k)
business. The additional costs can be attributed to greater sales
and assets under management, resulting in higher trail commissions
and maintenance expenses.
    
    Higher amortization of DAC resulted from higher actual gross profits
due to the positive earnings drivers discussed above. The DAC
amortization rate as a percentage of pre-tax profits remained fairly
stable.
 32




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##### Table of Contents



INSTITUTIONAL
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    28
    
    
    $
    33
    
    
    
    (15
    %)
    
    $
    55
    
    
    $
    70
    
    
    
    (21
    %)Earned premiums
    
    
    92
    
    
    
    115
    
    
    
    (20
    %)
    
    
    359
    
    
    
    197
    
    
    
    82
    %Net investment income
    
    
    248
    
    
    
    193
    
    
    
    28
    %
    
    
    473
    
    
    
    374
    
    
    
    26
    %Net realized capital losses
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    Total revenues
    
    
    367
    
    
    
    340
    
    
    
    8
    %
    
    
    885
    
    
    
    639
    
    
    
    38
    %Benefits, claims and claim adjustment expenses
    
    
    299
    
    
    
    287
    
    
    
    4
    %
    
    
    762
    
    
    
    541
    
    
    
    41
    %Insurance operating costs and other expenses
    
    
    19
    
    
    
    17
    
    
    
    12
    %
    
    
    35
    
    
    
    27
    
    
    
    30
    %Amortization of deferred policy acquisition costs
    
    
    8
    
    
    
    8
    
    
    
    
    
    
    
    16
    
    
    
    14
    
    
    
    14
    %Total benefits, claims and expenses
    
    
    326
    
    
    
    312
    
    
    
    4
    %
    
    
    813
    
    
    
    582
    
    
    
    40
    %Income before income tax expense
    
    
    41
    
    
    
    28
    
    
    
    46
    %
    
    
    72
    
    
    
    57
    
    
    
    26
    %Income tax expense
    
    
    12
    
    
    
    7
    
    
    
    71
    %
    
    
    21
    
    
    
    15
    
    
    
    40
    %Net income
    
    $
    29
    
    
    $
    21
    
    
    
    38
    %
    
    $
    51
    
    
    $
    42
    
    
    
    21
    %Assets Under ManagementInstitutional Investment Product account values [1] [2]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,730
    
    
    $
    16,076
    
    
    
    23
    %Private Placement Life Insurance account values [2]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,629
    
    
    
    23,057
    
    
    
    7
    %Mutual fund assets under management [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,107
    
    
    
    1,146
    
    
    
    84
    %Total assets under management[1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    46,466
    
    
    $
    40,279
    
    
    
    15
    %
 [1]
    
    Institutional investment product account values and mutual fund assets under management
include a transfer from the Retirement Plans segment of $413 and $178, respectively.[2]
    
    Includes policyholder balances for separate account contracts and reserves for other
policyholder funds. Three and six months ended June 30, 2006 compared to the three and six months ended June 30,
2005
  
    
    Total revenues increased in IIP as a result of higher assets under
management, driven by positive net flows of $2.4 billion during
the past four quarters. Net flows for IIP were strong primarily as
a result of the Companys funding agreement backed Investor Notes
program. Investor Notes sales for the four quarters ended June
30, 2006 were $2.0 billion.
    
    General account spread is the main driver of net income for IIP.
An increase in spread income in 2006 was driven by higher assets
under management, as noted above along with favorable investment
results, which included higher partnership income in the second
quarter of 2006. For the three and six months ended June 30,
2006, income related to partnership investments was $6 and $7
after-tax, respectively. Partnership income was immaterial for
the three and six months ended June 30, 2005.
    
    IIP had favorable mortality experience on structured settlement
and terminal funding contracts for the three and six months ended
June 30, 2006 compared to the prior year contributing to IIPs
higher earnings.
    
    For the six months ended June 30, 2006, earned premiums increased
as a result of a large terminal funding case that was sold during
the three months ended March 31, 2006. This increase in earned
premiums was offset by a corresponding increase in benefits,
claims and claim adjustment expenses.
 33




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##### Table of Contents



INDIVIDUAL LIFE
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    207
    
    
    $
    191
    
    
    
    8
    %
    
    $
    410
    
    
    $
    386
    
    
    
    6
    %Earned premiums
    
    
    (13
    )
    
    
    (7
    )
    
    
    86
    %
    
    
    (25
    )
    
    
    (15
    )
    
    
    67
    %Net investment income
    
    
    80
    
    
    
    75
    
    
    
    7
    %
    
    
    159
    
    
    
    149
    
    
    
    7
    %Net realized capital gains
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    100
    %Total revenues
    
    
    275
    
    
    
    259
    
    
    
    6
    %
    
    
    546
    
    
    
    521
    
    
    
    5
    %Benefits, claims and claim adjustment expenses
    
    
    120
    
    
    
    120
    
    
    
    
    
    
    
    251
    
    
    
    240
    
    
    
    5
    %Insurance operating costs and other expenses
    
    
    46
    
    
    
    42
    
    
    
    10
    %
    
    
    88
    
    
    
    82
    
    
    
    7
    %Amortization of deferred policy acquisition
costs and present value of future profits
    
    
    40
    
    
    
    40
    
    
    
    
    
    
    
    72
    
    
    
    85
    
    
    
    (15
    %)Total benefits, claims and expenses
    
    
    206
    
    
    
    202
    
    
    
    2
    %
    
    
    411
    
    
    
    407
    
    
    
    1
    %Income before income tax expense
    
    
    69
    
    
    
    57
    
    
    
    21
    %
    
    
    135
    
    
    
    114
    
    
    
    18
    %Income tax expense
    
    
    21
    
    
    
    18
    
    
    
    17
    %
    
    
    42
    
    
    
    36
    
    
    
    17
    %Net income
    
    $
    48
    
    
    $
    39
    
    
    
    23
    %
    
    $
    93
    
    
    $
    78
    
    
    
    19
    %Account ValuesVariable universal life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,053
    
    
    $
    5,433
    
    
    
    11
    %Universal life/interest sensitive whole life
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,850
    
    
    
    3,485
    
    
    
    10
    %Modified guaranteed life and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    723
    
    
    
    (2
    %)Total account values
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,610
    
    
    
    9,641
    
    
    
    10
    %Life Insurance InforceVariable universal life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,461
    
    
    
    69,979
    
    
    
    4
    %Universal life/interest sensitive whole life
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,152
    
    
    
    39,777
    
    
    
    8
    %Modified guaranteed life and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,779
    
    
    
    34,395
    
    
    
    19
    %Total life insurance inforce
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    156,392
    
    
    $
    144,151
    
    
    
    8
    %
 Three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005
  
    
    Fee income increased for the three and six months ended June 30, 2006. Cost of insurance charges,
the largest component of fee income, increased $7 and $15, respectively, driven by growth in the
variable universal, universal, and interest-sensitive whole life insurance inforce. Variable fee
income also increased, consistent with the growth in the variable universal life insurance account
value. Other fee income, another component of total fee income, increased $7 and $5 for the three
and six months ended June 30, 2006, due to growth and product performance primarily in variable
universal life insurance.
    
    Amortization of DAC was flat and declined $13 for the three and six months ended June 30, 2006,
respectively, primarily due to revisions in 2006 to estimates made at December 31, 2005 and first
quarter 2006. Excluding these revisions, the amortization of DAC increased $6 and was flat for the
three and six months ended June 30, 2006, consistent with the level and mix of product
profitability.
    
    Net investment income increased primarily due to increased general account assets from sales growth.
  
    
    Earned premiums, which include premiums for ceded reinsurance, decreased primarily due to increased
reinsurance premiums of $9 and $16.
    
    Benefits, claims and claim adjustment expenses increased for the six months ended June 30, 2006
primarily due to interest credited on growing account values and higher death benefits from inforce
growth.
    
    Operating costs increased over the prior year periods primarily as a result of business growth.
 34




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##### Table of Contents



GROUP BENEFITS
 Three Months Ended
    
    
    Six Months EndedOperating Summary
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeEarned premiums and other
    
    $
    1,028
    
    
    $
    948
    
    
    
    8
    %
    
    $
    2,060
    
    
    $
    1,896
    
    
    
    9
    %Net investment income
    
    
    103
    
    
    
    100
    
    
    
    3
    %
    
    
    204
    
    
    
    198
    
    
    
    3
    %Net realized capital losses
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    Total revenues
    
    
    1,129
    
    
    
    1,048
    
    
    
    8
    %
    
    
    2,261
    
    
    
    2,094
    
    
    
    8
    %Benefits, claims and claim adjustment expenses
    
    
    740
    
    
    
    696
    
    
    
    6
    %
    
    
    1,507
    
    
    
    1,418
    
    
    
    6
    %Insurance operating costs and other expenses
    
    
    277
    
    
    
    257
    
    
    
    8
    %
    
    
    538
    
    
    
    494
    
    
    
    9
    %Amortization of deferred policy acquisition costs
    
    
    10
    
    
    
    7
    
    
    
    43
    %
    
    
    20
    
    
    
    14
    
    
    
    43
    %Total benefits, claims and expenses
    
    
    1,027
    
    
    
    960
    
    
    
    7
    %
    
    
    2,065
    
    
    
    1,926
    
    
    
    7
    %Income before income tax expense
    
    
    102
    
    
    
    88
    
    
    
    16
    %
    
    
    196
    
    
    
    168
    
    
    
    17
    %Income tax expense
    
    
    28
    
    
    
    24
    
    
    
    17
    %
    
    
    54
    
    
    
    45
    
    
    
    20
    %Net income
    
    $
    74
    
    
    $
    64
    
    
    
    16
    %
    
    $
    142
    
    
    $
    123
    
    
    
    15
    %Earned premiums and otherFully insured  ongoing premiums
    
    $
    1,020
    
    
    $
    940
    
    
    
    9
    %
    
    $
    2,037
    
    
    $
    1,852
    
    
    
    10
    %Buyout premiums
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    25
    
    
    
    (80
    %)Other
    
    
    7
    
    
    
    8
    
    
    
    (13
    %)
    
    
    18
    
    
    
    19
    
    
    
    (5
    %)Total earned premiums and other
    
    $
    1,028
    
    
    $
    948
    
    
    
    8
    %
    
    $
    2,060
    
    
    $
    1,896
    
    
    
    9
    %
  Three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005
  
    
    Earned premiums increased driven by year-to-date sales (excluding buyouts) growth, particularly in life, of 18%.
    
    The loss ratio (defined as benefits, claims and claim adjustment expenses as a percentage of premiums and other
considerations excluding buyouts) was 72.0% for the three months ended June 30, 2006, down from 73.4% in the prior
year period. For the six months ended June 30, 2006, the loss ratio was 73.1%, down from 74.5% in the prior year
period. For both the three and six months ended June 30, 2006, the decrease in segment loss ratio was driven by
favorable mortality experience. Excluding financial institutions, the loss ratio was 76.8 % for the three months
ended June 30, 2006 as compared to 76.7% in the prior year period. For the six months ended June 30, 2006, the loss
ratio excluding financial institutions was 78.0% as compared to 78.1% in the prior year period.
    
    The expense ratio was 27.9% for the three months ended June 30, 2006 as compared to 27.8% in the prior year
period. The six month expense ratio was 27.2% for both the current and prior year. Excluding financial
institutions, the expense ratio for the three months ended June 30, 2006 was 23.4%, down from 24.7% in the prior
year period. For the six months ended June 30, 2006, the expense ratio excluding financial institutions was 22.5%
as compared to 23.9% for the prior year period. The decline in expense ratio excluding financial institutions for
both the three and six month periods ended June 30, 2006 was due to growth in premiums outpacing growth in expenses.
 35




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##### Table of Contents



INTERNATIONAL
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    172
    
    
    $
    103
    
    
    
    67
    %
    
    $
    338
    
    
    $
    200
    
    
    
    69
    %Earned premiums
    
    
    (3
    )
    
    
    
    
    
    NM
    


    
    
    (3
    )
    
    
    
    
    
    NMNet investment income
    
    
    31
    
    
    
    18
    
    
    
    72
    %
    
    
    59
    
    
    
    30
    
    
    
    97
    %Net realized capital losses
    
    
    (16
    )
    
    
    (10
    )
    
    
    60
    %
    
    
    (30
    )
    
    
    (15
    )
    
    
    100
    %Total revenues
    
    
    184
    
    
    
    111
    
    
    
    66
    %
    
    
    364
    
    
    
    215
    
    
    
    69
    %Benefits, claims and claim adjustment expenses
    
    
    12
    
    
    
    7
    
    
    
    71
    %
    
    
    24
    
    
    
    20
    
    
    
    20
    %Insurance operating costs and other expenses
    
    
    48
    
    
    
    39
    
    
    
    23
    %
    
    
    94
    
    
    
    78
    
    
    
    21
    %Amortization of deferred policy acquisition costs
    
    
    48
    
    
    
    31
    
    
    
    55
    %
    
    
    97
    
    
    
    63
    
    
    
    54
    %Total benefits, claims and expenses
    
    
    108
    
    
    
    77
    
    
    
    40
    %
    
    
    215
    
    
    
    161
    
    
    
    34
    %Income before income tax expense
    
    
    76
    
    
    
    34
    
    
    
    124
    %
    
    
    149
    
    
    
    54
    
    
    
    176
    %Income tax expense
    
    
    24
    
    
    
    13
    
    
    
    85
    %
    
    
    51
    
    
    
    19
    
    
    
    168
    %Net income
    
    $
    52
    
    
    $
    21
    
    
    
    148
    %
    
    $
    98
    
    
    $
    35
    
    
    
    180
    %Assets Under ManagementJapan variable annuity assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,323
    
    
    $
    18,440
    
    
    
    48
    %Japan MVA fixed annuity assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,667
    
    
    
    1,286
    
    
    
    30
    %Total assets under management
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,990
    
    
    $
    19,726
    
    
    
    47
    %
 Three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005
  
    
    Fee income increased $69 or 67%, and $138 or 69%, for the three and six months ended June 30, 2006,
respectively. As of June 30, 2006, Japans variable annuity assets under management were $27.3 billion, a
48% increase from the prior year period. The increase in assets under management was driven by positive net
flows of $7.1 billion and market appreciation of $2.2 billion, partially offset by ($0.5) billion of foreign
currency exchange over the past four quarters. Despite the increase in assets under management, the amount
of variable annuity sales has declined for the three and six months ended June 30, 2006, by 51% and 37%,
respectively, compared to the prior year periods primarily due to increased competition and changes in key
distribution relationships.
    
    Also contributing to the higher fee income was increased surrender activity as customers surrendered
policies in order to take advantage of significant appreciation in their account balances. For the three
and six months ended June 30, 2006, surrender fees increased by $7 and $18, respectively, from the prior
year periods.
    
    The increase in fixed annuity assets under management can be attributed to positive net flows of $398 over
the past four quarters.
    
    Further contributing to higher net income in the quarter was a cumulative benefit of $4 due to a change in
the effective tax rate on Japan earnings resulting from a change in managements intent under APB 23. For a
further discussion of this change, see Note 1 of Notes to Condensed
Consolidated Financial Statements and Other section of Managements Discussion and Analysis.
  
    
    DAC amortization was higher due to higher actual gross profits consistent with growth in the Japan operation.
    
    Insurance operating costs and other expenses increased for the three and six months ended June 30, 2006 by
23% and 21%, respectively. These increases are due to higher maintenance costs and asset-based commissions
resulting from the growth in the Japan operation.
 36




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##### Table of Contents



OTHER
 Three Months Ended
    
    Six Months EndedOperating Summary
    
    June 30,
    
    June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeFee income
    
    $
    24
    
    
    $
    22
    
    
    
    9
    %
    
    $
    44
    
    
    $
    41
    
    
    
    7
    %Net investment incomeSecurities available-for-sale and other
    
    
    34
    
    
    
    34
    
    
    
    
    
    
    
    71
    
    
    
    78
    
    
    
    (9
    %)Equity securities held for trading
    
    
    (970
    )
    
    
    303
    
    
    NM
    

    
    
    (516
    )
    
    
    524
    
    
    
    (198
    %)Total net investment income
    
    
    (936
    )
    
    
    337
    
    
    NM
    


    
    
    (445
    )
    
    
    602
    
    
    
    (174
    %)Net realized capital (losses) gains
    
    
    (133
    )
    
    
    1
    
    
    NM
    


    
    
    (247
    )
    
    
    94
    
    
    
    Total revenues
    
    
    (1,045
    )
    
    
    360
    
    
    NM
    



    
    
    (648
    )
    
    
    737
    
    
    
    (188
    %)Benefits, claims and claim adjustment expenses
    
    
    (929
    )
    
    
    351
    
    
    NM
    


    
    
    (440
    )
    
    
    690
    
    
    
    (164
    %)Insurance operating costs and other expenses
    
    
    40
    
    
    
    42
    
    
    
    (5
    %)
    
    
    26
    
    
    
    97
    
    
    
    (73
    %)Amortization of deferred policy acquisition costs
    
    
    (16
    )
    
    
    6
    
    
    NM
    


    
    
    (22
    )
    
    
    19
    
    
    
    Total benefits, claims and expenses
    
    
    (905
    )
    
    
    399
    
    
    NM
    


    
    
    (436
    )
    
    
    806
    
    
    
    (154
    %)Loss before income tax benefit
    
    
    (140
    )
    
    
    (39
    )
    
    NM
    


    
    
    (212
    )
    
    
    (69
    )
    
    
    Income tax benefit
    
    
    (44
    )
    
    
    (13
    )
    
    NM
    


    
    
    (73
    )
    
    
    (23
    )
    
    
    Net loss
    
    $
    (96
    )
    
    $
    (26
    )
    
    NM
    


    
    $
    (139
    )
    
    $
    (46
    )
    
    
    
 Three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005
  
    
    Net realized capital losses occurred in the second
quarter of 2006 compared to minimal net realized capital
gains in the prior year period due to increased
other-than-temporary impairments (see the
Other-Than-Temporary Impairments discussion within Investment
Results for more information on the increase in impairments),
realized losses associated with GMWB derivatives, primarily
due to modeling refinements made in the second quarter of
2006, and losses on non-qualifying derivatives due to rising
interest rates in 2006, partially offset by a decrease in
realized losses from the Japan fixed annuity contract hedges
due to movements in interest rates. Net realized capital losses occurred in the
first six months of 2006 compared to net realized capital
gains in the prior year period due to increased
other-than-temporary impairments, realized losses associated
with GMWB derivatives, primarily due to the modeling
refinements made in the second quarter of 2006, losses on
non-qualifying derivatives due to rising interest rates in
2006 and realized losses from the Japan fixed annuity
contract hedges due to movements in interest rates.
    
    During the first quarter of 2006 and 2005, the Company
recorded a $7 after-tax reserve and a $66 after-tax reserve,
respectively for regulatory investigations.
    
    During the first quarter of 2006, the Company achieved
favorable settlements in several cases brought against the
Company by policyholders regarding their purchase of
broad-based leveraged corporate owned life insurance
(leveraged COLI) policies in the early to mid-1990s. The
Company ceased offering this product in 1996. Based on the
favorable outcome of these cases, together with the Companys
current assessment of the few remaining leveraged COLI cases,
the Company reduced its estimate of the ultimate cost of
these cases during the three months ended March 31, 2006.
This reserve reduction, recorded in insurance operating costs
and other expenses, resulted in an after-tax benefit of $34
in the three months ended March 31, 2006.
    
    During the second quarter of 2006, the Company
concluded that it no longer met the indefinite reversal
criteria of APB Opinion No. 23 with respect to undistributed
earnings associated with Hartford Life K.K. The impact in
Other, due to losses on Japan activities reported in Other,
was a tax expense of $2.
 37




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##### Table of Contents



INVESTMENTS
 General
       Composition of Invested Assets
 June 30, 2006
    
    December 31, 2005Amount
    
    Percent
    
    Amount
    
    PercentFixed maturities, available-for-sale, at fair value
    
    $
    50,475
    
    
    
    60.6
    %
    
    $
    50,812
    
    
    
    63.7
    %Equity securities, available-for-sale, at fair value
    
    
    772
    
    
    
    0.9
    %
    
    
    800
    
    
    
    1.0
    %Equity securities held for trading, at fair value
    
    
    26,916
    
    
    
    32.3
    %
    
    
    24,034
    
    
    
    30.1
    %Policy loans, at outstanding balance
    
    
    2,110
    
    
    
    2.5
    %
    
    
    2,016
    
    
    
    2.5
    %Mortgage loans, at amortized cost
    
    
    2,269
    
    
    
    2.7
    %
    
    
    1,513
    
    
    
    1.9
    %Limited partnerships, at fair value
    
    
    581
    
    
    
    0.7
    %
    
    
    431
    
    
    
    0.6
    %Other investments
    
    
    250
    
    
    
    0.3
    %
    
    
    178
    
    
    
    0.2
    %Total investments
    
    $
    83,373
    
    
    
    100.0
    %
    
    $
    79,784
    
    
    
    100.0
    %
  38




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##### Table of Contents



Investment Results
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(before-tax)
    
    2006
    
    2005
    
    2006
    
    2005Net Investment Income (Loss)Net investment income  excluding policy loans and equity
securities held for trading
    
    $
    755
    
    
    $
    697
    
    
    $
    1,488
    
    
    $
    1,390Equity securities held for trading [1]
    
    
    (970
    )
    
    
    303
    
    
    
    (516
    )
    
    
    524Policy loan income
    
    
    36
    
    
    
    36
    
    
    
    69
    
    
    
    72Total net investment income (loss)
    
    $
    (179
    )
    
    $
    1,036
    
    
    $
    1,041
    
    
    $
    1,986Yield on average invested assets [2]
    
    
    5.8
    %
    
    
    5.6
    %
    
    
    5.7
    %
    
    
    5.6
    %Net Realized Capital Gains (Losses)Gross gains on sale
    
    $
    48
    
    
    $
    123
    
    
    $
    89
    
    
    $
    221Gross losses on sale
    
    
    (82
    )
    
    
    (84
    )
    
    
    (141
    )
    
    
    (132
    )ImpairmentsCredit related
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Other [3]
    
    
    (43
    )
    
    
    
    
    
    
    (52
    )
    
    
    (1
    )Total impairments
    
    
    (43
    )
    
    
    (5
    )
    
    
    (52
    )
    
    
    (6
    )Japanese fixed annuity contract hedges, net [4]
    
    
    (14
    )
    
    
    (40
    )
    
    
    (58
    )
    
    
    (4
    )Periodic net coupon settlements on credit derivatives/Japan
    
    
    (8
    )
    
    
    (9
    )
    
    
    (22
    )
    
    
    (13
    )GMWB derivatives, net
    
    
    (22
    )
    
    
    1
    
    
    
    (35
    )
    
    
    8Other, net [5]
    
    
    (29
    )
    
    
    5
    
    
    
    (57
    )
    
    
    9Net realized capital gains (losses), before-tax
    
    $
    (150
    )
    
    $
    (9
    )
    
    $
    (276
    )
    
    $
    83
 [1]
    
    Represents the change in value of equity securities held for trading.[2]
    
    Represents annualized net investment income (excluding equity securities held for trading) divided by the monthly weighted average invested
assets at cost or amortized cost, as applicable, excluding equity securities held for trading, collateral received associated with the
securities lending program and reverse repurchase agreements as well as consolidated variable interest entity minority interests.[3]
    
    Primarily relates to fixed maturity impairments for which the Company was uncertain of its intent to retain the investment for a period of
time sufficient to allow for a recovery to amortized cost. These impairments do not relate to security issuers for which the Company has
current concerns regarding their ability to pay future interest and principal amounts based upon the securities contractual terms.[4]
    
    Relates to the Japanese fixed annuity product (product and related derivative hedging instruments excluding periodic net coupon settlements).[5]
    
    Primarily consists of changes in fair value on non-qualifying derivatives, changes in fair value of certain derivatives in fair value hedge
relationships and hedge ineffectiveness on qualifying derivative instruments.     39




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##### Table of Contents




    
    The net losses on fixed maturity sales in 2006 were primarily the result of rising interest rates and, to a lesser
extent, credit spread widening on certain issuers.
    
    For further discussion of other-than-temporary impairments, see the Other-Than-Temporary Impairments section that follows.
    
    The Japanese fixed annuity contract hedges, net amount consists of the foreign currency transaction remeasurements
associated with the yen denominated fixed annuity contracts offered in Japan and the corresponding offsetting cross
currency swaps. Although the Japanese fixed annuity contracts are economically hedged, the net realized capital losses
result from the mixed attribute accounting model, which requires fixed annuity liabilities to be recorded at cost and
remeasured only for foreign currency exchange rates but the associated derivatives to be reported at fair value. The net
realized capital losses for the three and six months ended June 30, 2006, resulted primarily from rising Japanese
interest rates.
    
    The periodic net coupon settlements on credit derivatives and the Japan fixed annuity cross currency swaps includes the
net periodic income/expense or coupon associated with the swap contracts. The net loss for the three and six months
ended June 30, 2006, is primarily associated with the Japan fixed annuity cross currency swaps and results from the
interest rate differential between U.S. and Japanese interest rates.
    
    The losses associated with the GMWB derivatives were primarily driven by modeling refinements made in the second quarter
of 2006.
     40




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##### Table of Contents



Other-Than-Temporary Impairments
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(before-tax)
    
    2006
    
    2005
    
    2006
    
    2005CMBS
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    Corporate
Basic industry
    
    
    9
    
    
    
    2
    
    
    
    9
    
    
    
    2Capital goods
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    Consumer cyclical
    
    
    11
    
    
    
    1
    
    
    
    11
    
    
    
    1Consumer non-cyclical
    
    
    6
    
    
    
    
    
    
    
    7
    
    
    
    Energy
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Technology and communications
    
    
    5
    
    
    
    2
    
    
    
    7
    
    
    
    2Utilities
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Total Corporate
    
    
    41
    
    
    
    5
    
    
    
    49
    
    
    
    5Other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Equity
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Total other-than-temporary impairments
    
    $
    43
    
    
    $
    5
    
    
    $
    52
    
    
    $
    6
     Variable Interest Entities
   41




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##### Table of Contents



INVESTMENT CREDIT RISK
     Fixed Maturities by Type
 June 30, 2006
    
    December 31, 2005Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of TotalAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    Fair
    
    Amortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    FairCost
    
    Gains
    
    Losses
    
    Value
    
    Value
    
    Cost
    
    Gains
    
    Losses
    
    Value
    
    ValueABS
    
    $
    6,950
    
    
    $
    56
    
    
    $
    (77
    )
    
    $
    6,929
    
    
    
    13.7
    %
    
    $
    6,819
    
    
    $
    48
    
    
    $
    (75
    )
    
    $
    6,792
    
    
    
    13.4
    %CMBS
    
    
    9,857
    
    
    
    96
    
    
    
    (208
    )
    
    
    9,745
    
    
    
    19.3
    %
    
    
    9,289
    
    
    
    175
    
    
    
    (97
    )
    
    
    9,367
    
    
    
    18.4
    %Collateralized
mortgage obligations
(CMOs)
    
    
    996
    
    
    
    2
    
    
    
    (15
    )
    
    
    983
    
    
    
    2.0
    %
    
    
    864
    
    
    
    3
    
    
    
    (5
    )
    
    
    862
    
    
    
    1.7
    %Corporate
Basic industry
    
    
    2,065
    
    
    
    43
    
    
    
    (51
    )
    
    
    2,057
    
    
    
    4.1
    %
    
    
    2,296
    
    
    
    87
    
    
    
    (36
    )
    
    
    2,347
    
    
    
    4.6
    %Capital goods
    
    
    1,644
    
    
    
    62
    
    
    
    (38
    )
    
    
    1,668
    
    
    
    3.3
    %
    
    
    1,701
    
    
    
    91
    
    
    
    (18
    )
    
    
    1,774
    
    
    
    3.5
    %Consumer cyclical
    
    
    2,074
    
    
    
    34
    
    
    
    (71
    )
    
    
    2,037
    
    
    
    4.0
    %
    
    
    2,186
    
    
    
    71
    
    
    
    (37
    )
    
    
    2,220
    
    
    
    4.4
    %Consumer non-cyclical
    
    
    2,259
    
    
    
    65
    
    
    
    (64
    )
    
    
    2,260
    
    
    
    4.5
    %
    
    
    2,294
    
    
    
    124
    
    
    
    (24
    )
    
    
    2,394
    
    
    
    4.7
    %Energy
    
    
    1,063
    
    
    
    47
    
    
    
    (21
    )
    
    
    1,089
    
    
    
    2.1
    %
    
    
    1,068
    
    
    
    104
    
    
    
    (7
    )
    
    
    1,165
    
    
    
    2.3
    %Financial services
    
    
    7,287
    
    
    
    185
    
    
    
    (135
    )
    
    
    7,337
    
    
    
    14.6
    %
    
    
    6,768
    
    
    
    302
    
    
    
    (54
    )
    
    
    7,016
    
    
    
    13.8
    %Technology and
communications
    
    
    2,896
    
    
    
    106
    
    
    
    (79
    )
    
    
    2,923
    
    
    
    5.8
    %
    
    
    2,982
    
    
    
    193
    
    
    
    (32
    )
    
    
    3,143
    
    
    
    6.2
    %Transportation
    
    
    635
    
    
    
    12
    
    
    
    (19
    )
    
    
    628
    
    
    
    1.2
    %
    
    
    638
    
    
    
    29
    
    
    
    (6
    )
    
    
    661
    
    
    
    1.3
    %Utilities
    
    
    2,836
    
    
    
    120
    
    
    
    (106
    )
    
    
    2,850
    
    
    
    5.6
    %
    
    
    2,804
    
    
    
    154
    
    
    
    (30
    )
    
    
    2,928
    
    
    
    5.7
    %Other
    
    
    1,428
    
    
    
    20
    
    
    
    (40
    )
    
    
    1,408
    
    
    
    2.8
    %
    
    
    1,156
    
    
    
    23
    
    
    
    (15
    )
    
    
    1,164
    
    
    
    2.3
    %Government/Government
agencies
Foreign
    
    
    566
    
    
    
    24
    
    
    
    (11
    )
    
    
    579
    
    
    
    1.2
    %
    
    
    719
    
    
    
    50
    
    
    
    (4
    )
    
    
    765
    
    
    
    1.5
    %United States
    
    
    1,237
    
    
    
    6
    
    
    
    (17
    )
    
    
    1,226
    
    
    
    2.4
    %
    
    
    630
    
    
    
    24
    
    
    
    (5
    )
    
    
    649
    
    
    
    1.3
    %MBS
    
    
    2,160
    
    
    
    2
    
    
    
    (82
    )
    
    
    2,080
    
    
    
    4.1
    %
    
    
    2,794
    
    
    
    6
    
    
    
    (43
    )
    
    
    2,757
    
    
    
    5.4
    %Municipal
Taxable
    
    
    1,000
    
    
    
    7
    
    
    
    (52
    )
    
    
    955
    
    
    
    1.9
    %
    
    
    948
    
    
    
    47
    
    
    
    (4
    )
    
    
    991
    
    
    
    2.0
    %Tax-exempt
    
    
    2,252
    
    
    
    109
    
    
    
    (15
    )
    
    
    2,346
    
    
    
    4.7
    %
    
    
    2,308
    
    
    
    163
    
    
    
    (5
    )
    
    
    2,466
    
    
    
    4.9
    %Redeemable preferred
stock
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    Short-term
    
    
    1,360
    
    
    
    
    
    
    
    
    
    
    
    1,360
    
    
    
    2.7
    %
    
    
    1,334
    
    
    
    
    
    
    
    
    
    
    
    1,334
    
    
    
    2.6
    %Total fixed maturities
    
    $
    50,580
    
    
    $
    996
    
    
    $
    (1,101
    )
    
    $
    50,475
    
    
    
    100.0
    %
    
    $
    49,615
    
    
    $
    1,694
    
    
    $
    (497
    )
    
    $
    50,812
    
    
    
    100.0
    %
  42




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CMBS
 Financial services
 Utilities
 Aircraft lease receivables
     43




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CAPITAL MARKETS RISK MANAGEMENT
  Market Risk
  Derivative Instruments
  Equity Risk
     44




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45




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Interest Rate Risk
  46




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CAPITAL RESOURCES AND LIQUIDITY
 Liquidity Requirements
      Sources of Capital
 Revolving Credit Facilities
  Ratings
    47




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Standard &A.M. Best
    
    Fitch
    
    
    Poors
    
    
    MoodysInsurance RatingsHartford Life Insurance Company
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life and Accident Insurance Company
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life Group Insurance Company
    
    A+
    
    AA
    
    
    
    
    
    
    Hartford Life and Annuity Insurance Company
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life Insurance KK (Japan)
    
    
    
    
    
    
    
    AA-
    
    
    Hartford Life Limited (Ireland)
    
    
    
    
    
    
    
    AA-
    
    
    Other RatingsHartford Life, Inc.Senior debt
    
    a-
    
    
    A
    
    
    
    A
    
    
    
    A3Commercial paper
    
    AMB-1
    
    
    F1
    
    
    
    A-1
    
    
    
    P-2Hartford Life Insurance Company:Short Term Rating
    
    
    
    
    
    
    
    
    A-1+
    
    
    
    P-1
   Contingencies
 Legal Proceedings
 Dependence on Certain Third Party Relationships 
  Regulatory Developments
  48




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ACCOUNTING STANDARDS
 10-K
 
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
  Changes in internal control over financial reporting
  
 Part II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   Broker Compensation Litigation
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Item 1A. RISK FACTORS
  The occurrence of one or more terrorist attacks in the geographic areas we serve or the threat of
terrorism in general may have a material adverse effect on our business, consolidated operating
results, financial condition or liquidity.
  We may incur losses due to our reinsurers being unwilling or unable to meet their obligations under
reinsurance contracts and the availability, pricing and adequacy of reinsurance may not be
sufficient to protect us against losses.
  50




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We are exposed to significant capital markets risk related to changes in interest rates, equity
prices and foreign exchange rates which may adversely affect our results of operations, financial
condition or cash flows.
  We may be unable to effectively mitigate the impact of equity market volatility on our financial
position and results of operations arising from obligations under annuity product guarantees, which
may affect our consolidated results of operations, financial condition or cash flows.
  Regulatory proceedings or private claims relating to incentive compensation or payments made to
brokers or other producers, alleged anti-competitive conduct and other sales practices could have a
material adverse effect on us.
  51




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Regulatory and market-driven changes may affect our practices relating to the payment of incentive
compensation to brokers and other producers, including changes that have been announced and those
which may occur in the future, and could have a material adverse effect on us in the future.
  Competitive activity may adversely affect our market share and profitability, which could have an
adverse effect on our business, results of operations or financial condition.
  We may experience unfavorable judicial or legislative developments that would adversely affect our
results of operations or liquidity.
  Potential changes in domestic and foreign regulation may increase our business costs and required
capital levels, which could adversely affect our business, consolidated operating results,
financial condition or liquidity.
  52




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
    
    licensing companies and agents to transact business;
    
    calculating the value of assets to determine compliance with statutory requirements;
    
    mandating certain insurance benefits;
    
    regulating certain premium rates;
    
    reviewing and approving policy forms;
    
    regulating unfair trade and claims practices, including through the imposition of
restrictions on marketing and sales practices, distribution arrangements and payment of
inducements;
    
    establishing statutory capital and reserve requirements and solvency standards;
    
    fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed
crediting rates on life insurance policies and annuity contracts;
    
    approving changes in control of insurance companies;
    
    restricting the payment of dividends and other transactions between affiliates; and
    
    regulating the types, amounts and valuation of investments.
  Our business, results of operations and financial condition may be adversely affected by general
domestic and international economic
and business conditions that are less favorable than anticipated.
  53




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We may experience difficulty in marketing and distributing products through our current and future
distribution channels.
  We may experience a downgrade in our financial strength or credit ratings which may make our
products less attractive, increase our cost of capital, and inhibit our ability to refinance our
debt, which would have an adverse effect on our business, consolidated operating results, financial
condition and liquidity.
  If we are unable to maintain the availability of our systems and safeguard the security of our data
due to the occurrence of disasters or other unanticipated events, our ability to conduct business
may be compromised, which may have a material adverse effect on our business, consolidated results
of operations, financial condition or cash flows.
  We are particularly vulnerable to losses from the incidence and severity of catastrophes, both
natural and man-made, the occurrence of which may have a material adverse effect on our financial
condition, consolidated results of operations or cash flows in a particular quarterly or annual
period.
   54




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Item 6. EXHIBITS
  55




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SIGNATURE
  HARTFORD LIFE, INC./s/ Ernest M. McNeill Jr.Ernest M. McNeill Jr.Senior Vice President and Chief Accounting
Officer
  56




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HARTFORD LIFE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 2006
 
 EXHIBITS INDEX
 Exhibit #15.01
    
    Deloitte & Touche LLP Letter of Awareness31.01
    
    Certification of Thomas M. Marra pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.02
    
    Certification of Glenn D. Lammey pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.01
    
    Certification of Thomas M. Marra pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.02
    
    Certification of Glenn D. Lammey pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 57