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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 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
(Address of principal executive offices) (860) 547-5000
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:7.625% Trust Preferred Securities, Series B, issued by Hartford Life Capital IISecurities registered pursuant to Section 12(g) of the Act:7.10% Notes due June 15, 20077.65% Debentures due June 15, 20277.375% Senior Notes due March 1, 2031
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). Yes o No þ The aggregate market value of the shares of Common Stock held by non-affiliates of the registrant
as of June 30, 2004 was $0, because all of the outstanding shares of Common Stock were owned by
Hartford Holdings, Inc., a direct wholly owned subsidiary of The Hartford Financial Services Group,
Inc. As of February 18, 2005, there were outstanding 1,000 shares of Common Stock, $0.01 par value per
share, of the registrant. The registrant meets the conditions set forth in General Instruction (I) (1) (a) and (b) of Form
10-K and is therefore filing this Form with the reduced disclosure format.




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CONTENTS ITEM
    
    DESCRIPTION
    
    PAGEPART I
    
    1
    
    Business of Hartford Life*
    
    
    32
    
    Properties*
    
    
    123
    
    Legal Proceedings
    
    
    124
    
    **PART II
    
    5
    
    Market for Hartford Lifes Common Stock and Related Stockholder Matters
    
    
    136
    
    **7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations*
    
    
    147A
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    578
    
    Financial Statements and Supplementary Data
    
    
    579
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    579A
    
    Controls and Procedures
    
    
    57PART III
    
    10
    
    **11
    
    **12
    
    **13
    
    **14
    
    Principal Accounting Fees and Services
    
    
    58PART IV
    
    15
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    58Signatures
    
    II-1Exhibits Index
    
    II-2EX-12.01: COMPUTATION OF RATIO OF EARNINGSEX-23.01: CONSENT OF DELOITTE & TOUCHE LLPEX-31.01: CERTIFICATIONEX-31.02: CERTIFICATIONEX-32.01: CERTIFICATIONEX-32.02: CERTIFICATION
    *
    
    Item prepared in accordance with General Instruction I (2) of Form 10-K**
    
    Item omitted in accordance with General Instruction I (2) of Form 10-K 2




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PART I Item 1. BUSINESS OF HARTFORD LIFE(Dollar amounts in millions, except for share data, unless otherwise stated) General Hartford Life, Inc. and its subsidiaries (Hartford Life or the Company), an indirect
subsidiary of The Hartford Financial Services Group, Inc. (The Hartford), is headquartered in
Simsbury, Connecticut and is a leading financial services and insurance organization. Hartford
Life provides (i) retail and institutional investment products, including variable annuities, fixed
market value adjusted (MVA) annuities, mutual funds, private placement life insurance, which
includes life insurance products purchased by a company on the lives of its employees, and
retirement plan services for the savings and retirement needs of over 5.0 million customers, (ii)
life insurance for wealth protection, accumulation and transfer needs for approximately 738,000
customers, (iii) group benefits products such as group life and group disability insurance for the
benefit of millions of individuals and (iv) fixed and variable annuity products through its
international operations. The Company is one of the largest sellers of individual variable
annuities, variable universal life insurance and group disability insurance in the United States.
The Companys strong position in each of its core businesses provides an opportunity to increase
the sale of the Companys products and services as individuals increasingly save and plan for
retirement, protect themselves and their families against the financial uncertainties associated
with disability or death and engage in estate planning. (For additional information, see the
Capital Resources and Liquidity section of the Managements Discussion and Analysis (MD&A)
section). Hartford Life is among the largest consolidated life insurance groups in the United States based on
statutory assets as of December 31, 2004. In the past year, the Companys total assets under
management, which include $28.1 billion of third-party assets invested in the Companys mutual
funds and 529 College Savings Plans, increased 18% to $248.5 billion at December 31, 2004 from
$210.1 billion at December 31, 2003. Hartford Life generated revenues of $11.4 billion, $8.1
billion, and $6.9 billion in 2004, 2003 and 2002, respectively. Additionally, the Company
generated net income of $1.3 billion, $769, and $557 in 2004, 2003 and 2002, respectively. Customer Service, Technology and Economies of Scale The Company maintains advantageous economies of scale and operating efficiencies due to its
growth, attention to expense and claims management and commitment to customer service and
technology. These advantages allow the Company to competitively price its products for its
distribution network and policyholders. In addition, the Company utilizes computer technology to
enhance communications within the Company and throughout its distribution network in order to
improve the Companys efficiency in marketing, selling and servicing its products and, as a result,
provides high-quality customer service. In recognition of excellence in customer service for
individual annuities, Hartford Life was awarded the 2004 Annuity Service Award by DALBAR Inc., a
recognized independent financial services research organization, for the ninth consecutive year.
Hartford Life is the only company to receive this prestigious award in every year of the awards
existence. Also, in 2004 the Company earned its second DALBAR Award for Mutual Fund and Retirement
Plan Service which recognizes Hartford Life as the No. 1 service provider of mutual funds and
retirement plans in the industry. Additionally, the Companys Individual Life segment won its
fourth consecutive DALBAR award for service of life insurance customers and its third consecutive
DALBAR Financial Intermediary Service Award in 2004. Risk Management The Companys product designs, prudent underwriting standards and risk management techniques
are structured to protect it against disintermediation risk, greater than expected mortality and
morbidity experience and, for certain product features, specifically the guaranteed minimum death
benefit (GMDB) and guaranteed minimum withdrawal benefit (GMWB) offered with variable annuity
products, equity market volatility. As of December 31, 2004, the Company had limited exposure to
disintermediation risk on approximately 97% of its domestic life insurance and annuity liabilities
through the use of non-guaranteed separate accounts, MVA features, policy loans, surrender charges
and non-surrenderability provisions. The Company effectively utilizes prudent underwriting to
select and price insurance risks and regularly monitors mortality and morbidity assumptions to
determine if experience remains consistent with these assumptions and to ensure that its product
pricing remains appropriate. The Company also enforces disciplined claims management to protect
itself against greater than expected morbidity experience. The Company uses reinsurance structures
and has modified benefit features to mitigate the mortality exposure associated with GMDB. The
Company also uses reinsurance in combination with derivative instruments to minimize the volatility
associated with the GMWB liability. 3




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Reporting Segments The Company changed its reportable operating segments in 2004 from Investment Products, Individual
Life, Group Benefits and Corporate Owned Life Insurance (COLI) to Retail Products Group
(Retail), Institutional Solutions Group (Institutional), Individual Life and Group Benefits.
Retail offers individual variable and fixed annuities, mutual funds, retirement plan products and
services to corporations under Section 401(k) plans and other investment products. Institutional
primarily offers retirement plan products and services to municipalities under Section 457 plans,
other institutional investment products, structured settlements, and private placement life
insurance (formerly referred to as COLI). Individual Life sells a variety of life insurance
products, including variable universal life, universal life, interest sensitive whole life and term
life insurance. The Group Benefits segment provides employers and associations with group life,
accident and disability coverage, along with other products and services, including voluntary
benefits, employee assistance programs, travel assistance, group retiree health, and medical stop
loss. Life also includes in an Other category its international operations, which are primarily
located in Japan and Brazil; net realized capital gains and losses other than periodic net coupon
settlements on non-qualifying derivatives and net realized capital gains and losses related to
guaranteed minimum withdrawal benefits; corporate items not directly allocated to any of its
reportable operating segments; and intersegment eliminations. Periodic net coupon settlements on
non-qualifying derivatives and net realized capital gains and losses related to guaranteed minimum
withdrawal benefits are reflected in each applicable segment in net realized capital gains and
losses. Retail Products Group The Retail segment focuses, through the sale of individual variable and fixed annuities, mutual
funds, retirement plan services and other investment products, on the savings and retirement needs
of the growing number of individuals who are preparing for retirement or who have already retired.
This segments assets under management grew to $144.4 billion at December 31, 2004 from $123.6
billion at December 31, 2003. Retail Products generated revenues of $3.2 billion, $2.2 billion and
$1.9 billion in 2004, 2003 and 2002, respectively, of which individual annuities accounted for $2.6
billion, $1.8 billion, and $1.5 billion for 2004, 2003 and 2002, respectively. Net income in the
Retail Products segment was $526, $430 and $356 in 2004, 2003 and 2002, respectively. The Company sells both variable and fixed individual annuity products through a wide distribution
network of national and regional broker-dealer organizations, banks and other financial
institutions and independent financial advisors. The Company is a market leader in the annuity
industry with sales of $15.7 billion, $16.5 billion, and $11.6 billion in 2004, 2003 and 2002,
respectively. The Company was the largest seller of individual retail variable annuities in the
United States with sales of $15.0 billion, $15.7 billion, and $10.3 billion in 2004, 2003 and 2002,
respectively. In addition, the Company continues to be the largest seller of individual retail
variable annuities through banks in the United States. The Companys total account value related to individual annuity products was $111.0 billion as of
December 31, 2004. Of this total account value, $99.6 billion, or 90%, related to individual
variable annuity products and $11.4 billion, or 10%, related primarily to fixed MVA annuity
products. At December 31, 2003, the Companys total account value related to individual annuity
products was $97.7 billion. Of this total account value, $86.5 billion, or 89%, related to
individual variable annuity products and $11.2 billion, or 11%, related primarily to fixed MVA
annuity products. In addition to its leading position in individual annuities, the Company continues to emerge as a
significant participant in the mutual fund business. As of December 31, 2004, retail mutual fund
assets were $25.2 billion. The Company is also among the top providers of retirement products and
services, including asset management and plan administration sold to small and medium size
corporations pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (referred
to as 401(k)). Principal Products Individual Variable Annuities- The Company earns fees, based on policyholders account values, for
managing variable annuity assets and maintaining policyholder accounts. The Company uses specified
portions of the periodic deposits paid by a customer to purchase units in one or more mutual funds
as directed by the customer, who then assumes the investment performance risks and rewards. As a
result, variable annuities permit policyholders to choose aggressive or conservative investment
strategies, as they deem appropriate, without affecting the composition and quality of assets in
the Companys general account. These products offer the policyholder a variety of equity and fixed
income options, as well as the ability to earn a guaranteed rate of interest in the general account
of the Company. The Company offers an enhanced guaranteed rate of interest for a specified period
of time (no longer than twelve months) if the policyholder elects to dollar-cost average funds from
the Companys general account into one or more non-guaranteed separate accounts. Additionally, the
Retail Products segment sells variable annuity contracts that offer various guaranteed minimum
death and withdrawal benefits. Policyholders may make deposits of varying amounts at regular or irregular intervals and the value
of these assets fluctuates in accordance with the investment performance of the funds selected by
the policyholder. To encourage persistency, many of the Companys individual variable annuities
are subject to withdrawal restrictions and surrender charges. Surrender charges range up to 8% of
the contracts deposits less withdrawals, and reduce to zero on a sliding scale, usually within
seven years from the deposit date. Individual variable annuity account values of $99.6 billion as
of December 31, 2004, have grown from $86.5.billion as of December 4




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31, 2003, due to strong net cash flow, resulting from high levels of sales, low levels of
surrenders and equity market appreciation. Approximately 83% and 80% of the individual variable
annuity account values were held in non-guaranteed separate accounts as of December 31, 2004 and
2003, respectively. The assets underlying the Companys variable annuities are managed both internally and by
independent money managers, while the Company provides all policy administration services. The
Company utilizes a select group of money managers, such as Wellington Management Company, LLP
(Wellington); Hartford Investment Management Company (Hartford Investment Management), a
wholly-owned subsidiary of The Hartford; Putnam Financial Services, Inc. (Putnam); American
Funds; MFS Investment Management (MFS); Franklin Templeton Group; and AIM Investments (AIM).
All have an interest in the continued growth in sales of the Companys products and enhance the
marketability of the Companys annuities and the strength of its product offerings. Hartford
Leaders, which is a multi-manager variable annuity that combines the product manufacturing,
wholesaling and service capabilities of the Company with the investment management expertise of
four of the nations most successful investment management organizations: American Funds, Franklin
Templeton Group, AIM and MFS, has emerged as the industry leader in terms of retail sales. In
addition, the Director variable annuity, which is managed in part by Wellington, ranks second in
the industry in terms of retail sales. Fixed MVA Annuities- Fixed MVA annuities are fixed rate annuity contracts which guarantee a
specific sum of money to be paid in the future, either as a lump sum or as monthly income. In the
event that a policyholder surrenders a policy prior to the end of the guarantee period, the MVA
feature increases or decreases the cash surrender value of the annuity in respect of any interest
rate decreases or increases, respectively, thereby protecting the Company from losses due to higher
interest rates at the time of surrender. The amount of payment will not fluctuate due to adverse
changes in the Companys investment return, mortality experience or expenses. The Companys
primary fixed MVA annuities have terms varying from one to ten years with an average term to
maturity of approximately four years. Account values of fixed MVA annuities were $11.4 billion and
$11.2 billion as of December 31, 2004 and 2003, respectively. Mutual Funds-The Company launched a family of retail mutual funds for which the Company provides
investment management and administrative services. The fund family has grown significantly from 8
funds at inception to the current offering of 40 funds, including the addition of the Hartford
Equity Income Fund introduced in 2003. The Companys funds are managed by Wellington and Hartford
Investment Management. The Company has entered into agreements with over 960 financial services
firms to distribute these mutual funds. The Company charges fees to the shareholders of the mutual funds, which are recorded as revenue by
the Company. Investors can purchase shares in the mutual funds, all of which are registered with
the Securities and Exchange Commission, in accordance with the Investment Company Act of 1940. The
mutual funds are owned by the shareholders of those funds and not by the Company. As such, the
mutual fund assets and liabilities, as well as related investment returns, are not reflected in the
Companys consolidated financial statements. Total retail mutual fund assets under management were
$25.2 billion and $20.3 billion as of December 31, 2004 and 2003, respectively. 401(k)- The Company sells retirement plan products and services to corporations under Section
401(k) plans targeting the small and medium case markets. The Company believes these markets are
under-penetrated in comparison to the large case market. As of December 31, 2004, the Company
administered over 8,200 Section 401(k) plans. Total 401(k) assets under management were $7.3
billion and $5.2 billion as of December 31, 2004 and 2003, respectively. Marketing and Distribution The Retail Products distribution network is based on managements strategy of utilizing multiple
and competing distribution channels to achieve the broadest distribution to reach target customers.
The success of the Companys marketing and distribution system depends on its product offerings,
fund performance, successful utilization of wholesaling organizations, quality of customer service,
and relationships with national and regional broker-dealer firms, banks and other financial
institutions, and independent financial advisors (through which the sale of the Companys retail
investment products to customers is consummated). The Company maintains a distribution network of approximately 1,500 broker-dealers and
approximately 500 banks. As of December 31, 2004, the Company was selling products through the 25
largest retail banks in the United States. The Company periodically negotiates provisions and terms
of its relationships with unaffiliated parties, and there can be no assurance that such terms will
remain acceptable to the Company or such third parties. The Companys primary wholesaler of its
individual annuities is PLANCO Financial Services, Inc. and its affiliate, PLANCO, Incorporated
(collectively PLANCO) a wholly owned subsidiary of Hartford Life and Accident Insurance Company
(HLA). PLANCO is one of the nations largest wholesalers of individual annuities and has played a
significant role in The Hartfords growth over the past decade. As a wholesaler, PLANCO distributes
the Companys fixed and variable annuities, and 401(k) plans, mutual funds and 529 plans by
providing sales support to registered representatives, financial planners and broker-dealers at
brokerage firms and banks across the United States. Owning PLANCO secures an important distribution
channel for the Company and gives the Company a wholesale distribution platform which it can expand
in terms of both the number of individuals wholesaling its products and the portfolio of products
which they wholesale. In addition, the Company uses internal personnel with extensive experience in
the Section 401(k) market, to sell its products and services in the retirement plan market. 5




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Competition The Retail segment competes with numerous other insurance companies as well as certain banks,
securities brokerage firms, independent financial advisors and other financial intermediaries
marketing annuities, mutual funds and other retirement-oriented products. Product sales are
affected by competitive factors such as investment performance ratings, product design, visibility
in the marketplace, financial strength ratings, distribution capabilities, levels of charges and
credited rates, reputation and customer service. Institutional Solutions Group The Company is among the top providers of retirement products and services, including asset
management and plan administration sold to municipalities pursuant to Section 457 and 403(b) of the
Internal Revenue Code of 1986, as amended (referred to as Section 457 and 403(b),
respectively). The Company also provides structured settlement contracts, institutional annuities,
institutional mutual funds and stable value investment products such as funding agreements and
guaranteed investment contracts (GICs). Additionally, the Company is a leader in the private placement life insurance (PPLI) market,
which includes life insurance policies purchased by a company or a trust on the lives of employees,
with the company or a trust sponsored by the company named as the beneficiary under the policy.
Until the passage of Health Insurance Portability and Accountability Act of 1996 (HIPAA), the
Company sold two principal types of PPLI, leveraged COLI and variable products. The Company has recently introduced two products for the High Net Worth markets. One is a
specialized life insurance contract for ultra-wealthy, High Net Worth investors, the other is a
hedge fund designed to leverage the strengths of Hartford Lifes award winning customer service and
distribution capability. The Companys total account values related to institutional investment products were $14.6 billion
and $12.7 billion as of December 31, 2004 and 2003, respectively. Governmental account values were
$10.0 billion and $9.0 billion as of December 31, 2004 and 2003, respectively. Variable PPLI
products account values were $22.5 billion and $21.0 billion as of December 31, 2004 and 2003,
respectively. Leveraged COLI account values were $2.5 billion as of December 31, 2004 and 2003. The
Institutional segment generated revenues of $1.8 billion, $2.1 billion and $1.8 billion for the
years ended December 31, 2004, 2003 and 2002, respectively and net income of $124, $83 and $108 in
2004, 2003 and 2002, respectively. Principal Products Institutional Investment Products- The Company sells the following institutional investment
products: structured settlements, institutional mutual funds, GICs and other short-term funding
agreements, and other annuity contracts for special purposes such as funding of terminated defined
benefit pension plans (institutional annuities arrangements). Structured Settlements- Structured settlement annuity contracts provide for periodic payments to
an injured person or survivor for a generally determinable number of years, typically in settlement
of a claim under a liability policy in lieu of a lump sum settlement. Institutional Mutual Funds- The Company sells its institutional mutual funds, the Hartford HLS
Funds and the Hartford HLS Series II Funds, to qualified retirement plans (i.e., Section 401(k) and
457 plans) on an investment only basis. That means that the funds are sold individually, with no
recordkeeping services included and not as a part of any bundled retirement program. The Hartfords
wholly-owned subsidiary, HL Investment Advisors, LLC, serves as the investment advisor to these
funds and contracts with sub-advisors to perform the day-to-day management of the funds. The two
primary sub-advisors to the Hartford HLS Funds are Wellington Management Company, LLP, of Boston,
Massachusetts for most of the equity funds and Hartford Investment Management, for the fixed income
funds. Stable Value Products-GICs are group annuity contracts issued to sponsors of qualified pension or
profit-sharing plans or stable value pooled fund managers. Under these contracts, the client
deposits a lump sum with the Hartford for a specified period of time for a guaranteed interest
rate. At the end of the specified period, the client receives principal plus interest earned.
Funding agreements are investment contracts that perform a similar function for non-qualified
assets. Also during 2004, the Company began issuing fixed rate funding agreements to Hartford Life
Global Funding trusts that, in turn, issue registered notes to institutional and retail investors. Institutional Annuities- Institutional annuities arrangements are group annuity contracts used to
fund pension liabilities that exist when a qualified retirement plan sponsor decides to terminate
an existing defined benefit pension plan. Group annuity contracts are very long-term in nature,
since they must pay the pension liabilities typically on a monthly basis to all participants
covered under the pension plan which is being terminated. Governmental- The Company sells retirement plan products and services to municipalities under
Section 457 plans. The Company offers a number of different investment products, including variable
annuities and fixed products, to the employees in Section 457 6




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plans. Generally, with the variable products, the Company manages the fixed income funds and
certain other outside money managers act as advisors to the equity funds offered in Section 457
plans administered by the Company. As of December 31, 2004, the Company administered over 3,600
plans under Sections 457 and 403(b). Variable PPLI products- Private Placement Variable Life Insurance (PPVLI) products continue to
be used by employers to fund non-qualified benefits or other post-employment benefit liabilities. A
key advantage to plan sponsors is the opportunity to select from a range of tax deferred investment
allocations. Recent clarifications in regulatory policy have made PPVLI products particularly
attractive to banks with postretirement medical obligations. PPVLI has also been widely used in
the high net worth marketplace due to its low costs, range of investment choices and ability to
accommodate a fund of funds management style. This institutionally priced hedge fund product is
aimed at the rapidly growing market composed of affluent investors unable to participate in the
higher minimums of some hedge funds. Leveraged COLI- Leveraged COLI is a fixed premium life insurance policy owned by a company or a
trust sponsored by a company. HIPAA phased out the deductibility of interest on policy loans under
leveraged COLI at the end of 1998, virtually eliminating all future sales of leveraged COLI. Marketing and Distribution In the Section 457 market, the Institutional segment distribution network uses internal personnel
with extensive experience to sell its products and services in the retirement plan and
institutional markets. The success of the Companys marketing and distribution system depends on
its product offerings, fund performance, successful utilization of wholesaling organizations,
quality of customer service, and relationships with national and regional broker-dealer firms,
banks and other financial institutions. In the structured settlement market, the Institutional segment sells individual fixed immediate
annuity products through a small number of specialty brokerage firms that work closely with The
Hartfords Property and Casualty claim operations. The Company also works directly with the
brokerage firms on cases that do not involve The Hartfords Property and Casualty operations. In the institutional mutual fund market, the Institutional segment typically sells it products
though investment consulting firms employed by retirement plan sponsors. Institutionals products
are also sold through 401(k) record keeping firms that offer a platform of mutual funds to their
plan sponsor clients. A third sales channel is direct sales to qualified plan sponsors, using
registered representatives employed by Hartford Equity Sales Company, Inc. In the stable value marketplace, the Institutional segment sells GICs, funding agreements, and
investor notes to retirement plan sponsors either through investment management firms or directly,
using Hartford employees. In the institutional annuities market, the company sells its group annuity products to retirement
plan sponsors through three different channels (1) a small number of specialty brokers, (2) large
benefits consulting firms and (3) directly, using Hartford employees. In the PPVLI market, specialized strategic alliance partners with expertise in the large case
market assist in the placement of many cases. High Net Worth PPVLI is often placed with the
assistance of investment banking and wealth management specialists. The hedge fund of funds product is positioned to be sold through family offices, wealth management
platforms and other specialists in the mass-affluent market. Competition The Institutional segment competes with numerous other insurance companies as well as certain
banks, securities brokerage firms, independent financial advisors and other financial
intermediaries marketing annuities, mutual funds and other retirement-oriented products. Product
sales are affected by competitive factors such as investment performance ratings, product design,
visibility in the marketplace, financial strength ratings, distribution capabilities, levels of
charges and credited rates, reputation and customer service. For institutional product lines offering fixed annuity products (i.e., institutional annuities,
structured settlements and stable value), financial strength, stability and credit ratings are key
buying factors. As a result, the competitors in those marketplaces tend to be other large,
long-established insurance companies. For product lines offering mutual funds  either unbundled (institutional mutual funds) or wrapped
in a variable annuity or mutual fund retirement program (government markets)  the variety of
available funds and their performance is most important to plan sponsors. The competitors tend to
be the major mutual fund companies. 7




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For PPVLI, competition in the large case market comes from other insurance carriers, and from
specialized agents with expertise in the benefit funding marketplace. For high net worth programs,
the competition is often from other investment banking firms allied with other insurance carriers. The hedge fund of funds product competes against a range of similar products from respected
vendors, including investment banking firms and wire houses. It is distributed by former members of
the PLANCO team which assisted in The Hartfords successful annuity business. Individual Life The Individual Life segment provides life insurance solutions to a wide array of partners to solve
the wealth protection, accumulation and transfer needs of its affluent, emerging affluent and
business insurance clients. As of December 31, 2004, life insurance in force increased 7% to
$139.9 billion, from $130.8 billion as of December 31, 2003. Account values increased 9% to $9.5
billion as of December 31, 2004 from $8.7 billion as of December 31, 2003. Revenues were $1,048,
$982 and $958 for the years ended December 31, 2004, 2003 and 2002, respectively. Net income in
the Individual Life segment was $153, $145 and $133 for the years ended December 31, 2004, 2003 and
2002, respectively. Principal Products The Company holds a significant market share in the variable universal life product market and was
the number one seller of variable life insurance, according to the Tillinghast VALUE Survey, in
2004, for the third year in a row. In 2004, the Companys sales of individual life insurance were
50% variable universal life, 44% universal life and other, and 6% term life insurance. Variable Universal Life- Variable universal life provides life insurance with a return linked to
an underlying investment portfolio and the Company allows policyholders to determine their desired
asset mix among a variety of underlying mutual funds. As the return on the investment portfolio
increases or decreases, the surrender value of the variable universal life policy will increase or
decrease, and, under certain policyholder options or market conditions, the death benefit may also
increase or decrease. The Companys second-to-die products are distinguished from other products
in that two lives are insured rather than one, and the policy proceeds are paid upon the death of
both insureds. Second-to-die policies are frequently used in estate planning for a married couple.
Variable universal life account values were $5.4 billion and $4.7 billion as of December 31, 2004
and 2003, respectively. Universal Life and Interest Sensitive Whole Life- Universal life and interest sensitive whole life
insurance coverages provide life insurance with adjustable rates of return based on current
interest rates. Universal life provides policyholders with flexibility in the timing and amount of
premium payments and the amount of the death benefit, provided there are sufficient policy funds to
cover all policy charges for the coming period, unless guaranteed no-lapse coverage is in effect.
At December 31, 2004, guaranteed no-lapse universal life represents less than 2% of life insurance
in-force. The Company also sells second-to-die universal life insurance policies. Universal life
and interest sensitive whole life account values were $3.4 billion and $3.3 billion as of December
31, 2004 and 2003, respectively. Marketing and Distribution Consistent with the Companys strategy to access multiple distribution outlets, the Individual Life
distribution organization has been developed to penetrate a multitude of retail sales channels.
The Company sells both variable and fixed individual life products through a wide distribution
network of national and regional broker-dealer organizations, banks and independent financial
advisors. The Company is a market leader in selling individual life insurance through national
stockbroker and financial institutions. In addition, the Company distributes individual life
products through independent life and property-casualty agents and Woodbury Financial Services, a
subsidiary retail broker dealer. To wholesale the Companys products, the Company has a group of
highly qualified life insurance professionals with specialized training in sophisticated life
insurance sales. These individuals are generally employees of the Company who are managed through
a regional sales office system. Competition The Individual Life segment competes with approximately 1,200 life insurance companies in the
United States, as well as other financial intermediaries marketing insurance products. Competitive
factors related to this segment are primarily the breadth and quality of life insurance products
offered, pricing, relationships with third-party distributors, effectiveness of wholesaling
support, pricing and availability of reinsurance, and the quality of underwriting and customer
service. Group Benefits The Group Benefits segment provides employers, associations, affinity groups and financial
institutions with group life, accident and disability coverage, along with other products and
services, including voluntary benefits, employee assistance programs, travel assistance, group
retiree health, and medical stop loss. The Hartfords Group Benefits segment ranks number two in
fully-insured group disability premium and number five in fully-insured life premium of U.S. group
carriers according to LIMRA. The Company 8




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also offers disability underwriting, administration, claims processing services and reinsurance to
other insurers and self-funded employer plans. Generally, policies sold in this segment are term
insurance. This allows the Company to adjust the rates or terms of its policies in order to
minimize the adverse effect of various market trends, including declining interest rates and other
factors. Typically policies are sold with one, two or three year rate guarantees depending upon
the product. In the disability market, the Company focuses on its risk management expertise and on
efficiencies and economies of scale to derive a competitive advantage. The Group Benefits segment
generated fully insured ongoing premiums of $3.6 billion for the year ended December 31, 2004, and
$2.3 billion for the years ended December 31, 2003 and 2002, respectively, of which group
disability insurance accounted for $1.6 billion, $963, $961 in 2004, 2003 and 2002, respectively,
and group life insurance accounted for $1.7 billion, $984 and $965 for the year ended December 31,
2004, 2003, and 2002, respectively. The Company held group disability reserves of $4.2 billion and
$4.0 billion and group life reserves of $1.3 billion and $1.3 billion, as of December 31, 2004 and
2003, respectively. Net income in the Group Benefits segment was $229, $148 and $128 for the years
ended December 31, 2004, 2003 and 2002, respectively. The Company acquired the group life and accident, and short-term and long-term disability
businesses of CNA Financial Corporation on December 31, 2003. This acquisition increased the scale
of the Companys group life, disability and accident operations, expanded the Companys
distribution and enhanced the Companys capability to deliver outstanding products and services. Principal Products Group Disability- The Company is one of the largest carriers in the large case market of the
group disability insurance business. The large case market, as defined by the Company, generally
consists of group disability policies covering over 5,000 employees in a particular company. The
Company is continuing its focus on the small case and medium case group markets, as well as its
association/affinity market, emphasizing name recognition and reputation, financial strength and
stability and the Companys functional approach to claims management. The Company also offers
voluntary, or employee-paid, short-term and long-term disability group benefits. The Companys
efforts in the group disability market focus on early intervention, return-to-work programs and
successful rehabilitation, offering the support to help claimants return to an active, productive
life after a disability. The Company also works with disability claimants to improve their
approval rate for Social Security Assistance (i.e., reducing payment of benefits by the amount of
Social Security payments received). The Companys short-term disability benefit plans provide a weekly benefit amount (typically 60% to
70% of the insureds earned income up to a specified maximum benefit) to insureds when they are
unable to work due to an accident or illness. Long-term disability insurance provides a monthly
benefit for those extended periods of time not covered by a short-term disability benefit plan when
insureds are unable to work due to disability. Insureds may receive total or partial disability
benefits. Most of these policies begin providing benefits following a 90 or 180 day waiting period
and generally continue providing benefits until the insured reaches age 65. Long-term disability
benefits are paid monthly and are limited to a portion, generally 50-70%, of the insureds earned
income up to a specified maximum benefit. Group Life and Accident- Group term life insurance provides term coverage to employees and members
of associations, affinity groups and financial institutions and their dependents for a specified
period and has no accumulation of cash values. The Company offers options for its basic group life
insurance coverage, including portability of coverage and a living benefit and critical illness
option, whereby terminally ill policyholders can receive death benefits in advance. The Company
also offers voluntary, or employee-paid, life group benefits and accidental death and dismemberment
coverage either packaged with life insurance or on a stand-alone basis. Other- The Company offers a host of other products and services, such as Family and Medical Leave
Act Administration, Travel Assistance, GuidanceResources (an enhanced employee assistance and
work/life program), group retiree health, and specialized insurance products for physicians. The

Company provides excess of loss medical coverage (known as stop loss insurance) to employers who
self-fund their medical plans and pay claims using the services of a third party administrator.
The Company also provides travel accident, hospital indemnity, supplemental health insurance for
military personnel and their families and other coverages to individual members of various
associations, affinity groups, financial institutions and employee groups. Marketing and Distribution The Company uses an experienced group of Company employees, managed through a regional sales office
system, to distribute its group insurance products and services through a variety of distribution
outlets, including brokers, consultants, third-party administrators and trade associations. The
Company increased its distribution channel in 2004 through the acquisition of CNA Group Benefits
and intends to continue to expand the system in areas that offer the highest growth potential. Competition The Group Benefits business remains highly competitive. Competitive factors primarily affecting
Group Benefits are the variety and quality of products and services offered, the price quoted for
coverage and services, the Companys relationships with its third-party 9




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distributors, and the quality of customer service. Group Benefits competes with numerous other
insurance companies and other financial intermediaries marketing insurance products. However, many
of these businesses have relatively high barriers to entry and there have been very few new
entrants into the group benefits insurance market over the past few years. Other The Company includes in an Other category its international operations, which are primarily located
in Japan and Brazil; net realized capital gains and losses other than periodic net coupon
settlements on non-qualifying derivatives and net realized capital gains and losses related to
guaranteed minimum withdrawal benefits; corporate items not directly allocated to any of its
reportable operating segments; and intersegment eliminations. Periodic net coupon settlements on
non-qualifying derivatives and net realized capital gains and losses related to guaranteed minimum
withdrawal benefits are reflected in each applicable segment in net realized capital gains and
losses. The Company sells variable individual annuity products through a wide distribution network of
Japans broker-dealer organizations, banks and other financial institutions and independent
financial advisors. The Companys Japanese operation achieved $7.3 billion, $3.7 billion and $1.4
billion in variable annuity sales for the years ended December 31, 2004, 2003 and 2002,
respectively. During the third quarter of 2004, Life introduced MVA fixed annuity products to
provide a diversified product portfolio to customers in Japan. Japan fixed annuity sales for the
year ended December 31, 2004 were $522. The growth in sales was the primary reason for the
increased account values related to Japan, which grew to $14.7 billion as of December 31, 2004 up
from $6.2 billion as of December 31, 2003. In addition to the established operations in Japan and Brazil, Life has started a European
operation, which is called Hartford Life Limited that will focus on selling investment and
retirement accumulation products known as unit-linked bonds in the U.K. in the later part of 2005.
Unit-linked bonds are similar to variable annuities marketed in the United States and Japan.
Hartford Life has established operations in London, as well as Dublin, Ireland to help market and
service its new business. Reserves Life insurance subsidiaries of the Company establish and carry as liabilities, predominantly, three
types of reserves: (1) a liability equal to the balance that accrues to the benefit of the
policyholder as of the financial statement date, otherwise known as the account value, (2) a
liability for unpaid claims, including those that have been incurred but not yet reported, and (3)
a liability for future policy benefits, representing the present value of future benefits to be
paid to or on behalf of policyholders less the present value of future net premiums. The
liabilities for unpaid claims and future policy benefits are calculated based on actuarially
recognized methods using morbidity and mortality tables, which are modified to reflect the
Companys actual experience when appropriate. Liabilities for unpaid claims include estimates of
amounts to fully settle known reported claims as well as claims related to insured events that the
Company estimates have been incurred but have not yet been reported. Future policy benefit
reserves are computed at amounts that, with additions from estimated premiums to be received and
with interest on such reserves compounded annually at certain assumed rates, are expected to be
sufficient to meet the Companys policy obligations at their maturities or in the event of an
insureds disability or death. Other insurance liabilities include those for unearned premiums and
benefits in excess of account value. Reserves for assumed reinsurance are computed in a manner
that is comparable to direct insurance reserves. Additional information on reserves may be found
in the Critical Accounting Estimates section of the MD&A under Reserves. Ceded Reinsurance In accordance with normal industry practice, the Company is involved in both the cession and
assumption of insurance with other insurance and reinsurance companies. As of December 31, 2004,
the largest amount of life insurance retained on any one life by any one of the life operations was
approximately $2.9. In addition, the Company has reinsured the majority of the minimum death
benefit guarantees as well as the guaranteed minimum withdrawal benefits on contracts issued prior
to July 2003 offered in connection with its variable annuity contracts. The Company also assumes
reinsurance from other insurers. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk. For the years ended December 31, 2004, 2003 and 2002,
the Company did not make any significant changes in the terms under which reinsurance is ceded to
other insurers except for the Companys 2003 recapture of a block of business previously reinsured
with an unaffiliated reinsurer. For further discussion see Note 6 of Notes to Consolidated
Financial Statements. 10




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Investments The investment portfolios of the Company are managed by Hartford Investment Management Company
(HIM), a wholly-owned subsidiary of The Hartford. HIM manages the portfolios to maximize
economic value, while attempting to generate the income necessary to support the Companys various
product obligations, within internally established objectives, guidelines and risk tolerances. The
portfolio objectives and guidelines are developed based upon the asset/liability profile, including
duration, convexity and other characteristics within specified risk tolerances. The risk
tolerances considered include, for example, asset and credit issuer allocation limits, maximum
portfolio below investment grade (BIG) holdings and foreign currency exposure. The Company
attempts to minimize adverse impacts to the portfolio and the results of operations due to changes
in economic conditions through asset allocation limits, asset/liability duration matching and
through the use of derivatives. (For further discussion of HIMs portfolio management approach,
see the Investments General section of the MD&A.) Regulation and Premium Rates Insurance companies are subject to comprehensive and detailed regulation and supervision throughout
the United States. The extent of such regulation varies, but generally has its source in statutes
which delegate regulatory, supervisory and administrative powers to state insurance departments.
Such powers relate to, among other things, the standards of solvency that must be met and
maintained; the licensing of insurers and their agents; the nature of and limitations on
investments; establishing premium rates; claim handling and trade practices; restrictions on the
size of risks which may be insured under a single policy; deposits of securities for the benefit of
policyholders; approval of policy forms; periodic examinations of the affairs of companies; annual
and other reports required to be filed on the financial condition of companies or for other
purposes; fixing maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values; and the adequacy of reserves and other necessary provisions for
unearned premiums, unpaid claims and claim adjustment expenses and other liabilities, both reported
and unreported. Most states have enacted legislation that regulates insurance holding company systems such as the
Company. This legislation provides that each insurance company in the system is required to
register with the insurance department of its state of domicile and furnish information concerning
the operations of companies within the holding company system which may materially affect the
operations, management or financial condition of the insurers within the system. All transactions
within a holding company system affecting insurers must be fair and equitable. Notice to the
insurance departments is required prior to the consummation of transactions affecting the ownership
or control of an insurer and of certain material transactions between an insurer and any entity in
its holding company system. In addition, certain of such transactions cannot be consummated
without the applicable insurance departments prior approval. The extent of insurance regulation on business outside the United States varies significantly among
the countries in which the Company operates. Some countries have minimal regulatory requirements,
while others regulate insurers extensively. Foreign insurers in many countries are faced with
greater restrictions than domestic competitors domiciled in that particular jurisdiction. The
Companys international operations are comprised of insurers licensed in their respective countries
and, therefore, are subject to the generally less restrictive domestic insurance regulations. Ratings Reference is made to the Capital Resources and Liquidity section of the MD&A under Ratings. Risk-Based Capital Reference is made to the Capital Resources and Liquidity section of the MD&A under Risk-Based
Capital. Legislative and Regulatory Initiatives Reference is made to the Regulatory Matters and Contingencies section of the MD&A under
Legislative and Regulatory Initiatives. Insolvency Fund Reference is made to the Regulatory Matters and Contingencies section of the MD&A under Guaranty
Fund. Dependence on Certain Third Party Relationships Reference is made to the Regulatory Matters and Contingencies section of the MD&A under Dependence
on Certain Third Party Relationships. Employees The Company has approximately 7,700 employees as of December 31, 2004. 11




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Item 2. PROPERTIES The Companys principal executive offices are located in Simsbury, Connecticut. The Companys
home office complex consists of approximately 655 thousand square feet, and is leased from a third
party by Hartford Fire Insurance Company (Hartford Fire), a direct subsidiary of The Hartford.
This lease expires January 1, 2010. Expenses associated with these offices are allocated on a
direct basis to the Company by Hartford Fire. The Company believes its properties and facilities
are suitable and adequate for current operations. 
 Item 3. LEGAL PROCEEDINGS The Hartford Financial Services Group, Inc. and its consolidated subsidiaries (The Hartford)  is involved in various legal actions arising in the ordinary course of business,
some of which assert claims for substantial amounts. These actions include, among others, putative
state and federal class actions seeking certification of a state or national class. Such putative
class actions have alleged, for example, improper sales practices in connection with the sale of
life insurance and other investment products; and improper fee arrangements in connection with
mutual funds. The Hartford also is involved in individual actions in which punitive damages are
sought, such as claims alleging bad faith in the handling of insurance claims. Management expects
that the ultimate liability, if any, with respect to such lawsuits, after consideration of
provisions made for estimated losses, will not be material to the consolidated financial condition
of the Company. Nonetheless, given the large or indeterminate amounts sought in certain of these
actions, and the inherent unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the Companys
consolidated results of operations or cash flows in particular quarterly or annual periods. Broker Compensation Litigation On October 14, 2004, the New York Attorney Generals Office filed
a civil complaint (the NYAG Complaint) against Marsh Inc. and Marsh & McLennan Companies, Inc.
(collectively, Marsh) alleging, among other things, that certain insurance companies, including
The Hartford, participated with Marsh in arrangements to submit inflated bids for business
insurance and paid contingent commissions to ensure that Marsh would direct business to them. The
Hartford is not joined as a defendant in the action. Since the filing of the NYAG Complaint,
several private actions have been filed against The Hartford asserting claims arising from the
allegations of the NYAG Complaint. Two securities class actions have been filed in the United States District Court for the District
of Connecticut alleging claims against The Hartford and five of its executive officers under
Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The complaints allege on behalf
of a putative class of shareholders that The Hartford and the five named individual defendants, as
control persons of The Hartford, disseminated false and misleading financial statements by
concealing that [The Hartford] was paying illegal and concealed contingent commissions pursuant
to illegal contingent commission agreements. The class period alleged is November 5, 2003
through October 13, 2004, the day before the NYAG Complaint was filed. The complaints seek damages
and attorneys fees. The Hartford and the individual defendants dispute the allegations and intend
to defend these actions vigorously. In addition, three putative class actions have been filed in the same court on behalf of
participants in The Hartfords 401(k) plan against The Hartford, Hartford Fire Insurance Company,
The Hartfords Pension Fund Trust and Investment Committee, The Hartfords Pension Administration
Committee, The Hartfords Chief Financial Officer, and John/Jane Does 1-15. The suits assert
claims under the Employee Retirement Income Security Act of 1974, as amended (ERISA), alleging
that The Hartford and the other named defendants breached their fiduciary duties to plan
participants by, among other things, failing to inform them of the risk associated with investment
in The Hartfords stock as a result of the activity alleged in the NYAG Complaint. The class
period alleged is November 5, 2003 through the present. The complaints seek restitution of losses
to the plan, declaratory and injunctive relief, and attorneys fees. All defendants dispute the
allegations and intend to defend these actions vigorously. Two corporate derivative actions also have been filed in the same court. The complaints, brought
in each case by a shareholder on behalf of The Hartford against its directors and an executive
officer, allege that the defendants knew adverse non-public information about the activities
alleged in the NYAG Complaint and concealed and misappropriated that information to make profitable
stock trades, thereby breaching their fiduciary duties, abusing their control, committing gross
mismanagement, wasting corporate assets, and unjustly enriching themselves. The complaints seek
damages, injunctive relief, disgorgement, and attorneys fees. All defendants dispute the
allegations and intend to defend these actions vigorously. Seven putative class actions also have been filed by alleged policyholders in federal district
courts, one in the Southern District of New York, two in the Eastern District of Pennsylvania,
three in the Northern District of Illinois, and one in the Northern District of California, against
several brokers and insurers, including The Hartford. These actions assert, on behalf of a class
of persons who purchased insurance through the broker defendants, claims under the Sherman Act and
state law, and in some cases the Racketeer Influenced and Corrupt Organizations Act (RICO),
arising from the conduct alleged in the NYAG Complaint. The class period alleged is 1994 through
the date of class certification, which has not yet occurred. The complaints seek treble damages,
injunctive and declaratory relief, and attorneys fees. Putative
class actions also have been
filed in the Circuit Court for Cook County, Illinois, Chancery
Division and in the Circuit Court for Seminole County, Florida, Civil
Division, on behalf of a class of
all persons who purchased insurance from a class of defendant
insurers. These state court 12




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actions assert unjust
enrichment claims and violation of state unfair trade practices acts arising from the conduct
alleged in the NYAG Complaint and
seek remedies including restitution of premiums, and, in the Cook
County action, imposition of a constructive trust, and declaratory and injunctive
relief. The class period alleged is 1994 through the present. The Hartford has removed the Cook
County action to the United States District Court for the Northern District of Illinois. Pursuant
to an order of the Judicial Panel on Multidistrict Litigation, it is likely that most or all of
these actions will be transferred to the United States District Court for the District of New
Jersey. The Hartford disputes the allegations in all of these actions and intends to defend the
actions vigorously. Additional complaints may be filed against The Hartford in various courts alleging claims under
federal or state law arising from the conduct alleged in the NYAG Complaint. The Hartfords
ultimate liability, if any, in the pending and possible future suits is highly uncertain and
subject to contingencies that are not yet known, such as how many suits will be filed, in which
courts they will be lodged, what claims they will assert, what the outcome of investigations by the
New York Attorney Generals Office and other regulatory agencies will be, the success of defenses
that The Hartford may assert, and the amount of recoverable damages if liability is established.
In the opinion of management, it is possible that an adverse outcome in one or more of these suits
could have a material adverse effect on the Companys consolidated results of operations or cash
flows in particular quarterly or annual periods. 
 PART II  Item 5.
    MARKET FOR HARTFORD LIFES COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the Companys outstanding shares are ultimately owned by The Hartford. As of February
18, 2005, the Company had issued and outstanding 1,000 shares of Common Stock at $0.01 par value
per share. There is no established public trading market for the Companys Common Stock. For a discussion regarding the Companys payment of dividends, and the restrictions related
thereto, see the Capital Resources and Liquidity section of the MD&A under Dividends and
Liquidity Requirements. 13




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Item 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in millions, unless otherwise stated) Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
addresses the financial condition of Hartford Life, Inc. and its subsidiaries (Hartford Life or
the Company) as of December 31, 2004, compared with December 31, 2003, and its results of
operations for each of the three years in the period ended December 31, 2004. This discussion
should be read in conjunction with the Consolidated Financial Statements and related Notes
beginning on page F-1. Certain reclassifications have been made to prior year financial
information to conform to the current year presentation. Certain of the statements contained herein are forward-looking statements. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic, competitive and
legislative developments. These forward-looking statements are subject to change and uncertainty
which are, in many instances, beyond the Companys control and have been made based upon
managements expectations and beliefs concerning future developments and their potential effect
upon the Company. There can be no assurance that future developments will be in accordance with
managements expectations or that the effect of future developments on the Company will be those
anticipated by management. Actual results could differ materially from those expected by the
Company, depending on the outcome of various factors. These factors include: the possible
occurrence of terrorist attacks; the response of reinsurance companies under reinsurance contracts
and the availability, pricing and adequacy of reinsurance to protect the Company against losses;
changes in the stock markets, interest rates or other financial markets, including the potential
effect on the Companys statutory capital levels; the inability to effectively mitigate the impact
of equity market volatility on the Companys financial position and results of operations arising
from obligations under annuity product guarantees; the difficulty in predicting the Companys
potential exposure arising out of regulatory proceedings or private claims relating to incentive
compensation or payments made to brokers or other producers and alleged
anti-competitive conduct; the uncertain effect on the Company of regulatory and market-driven
changes in 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; the
possibility of more unfavorable loss experience than anticipated; stronger than anticipated
competitive activity; unfavorable judicial or legislative developments, including the possibility
that the Terrorism Risk Insurance Act of 2002 is not extended beyond 2005; the potential effect of
domestic and foreign regulatory developments, including those which could increase the Companys
business costs and required capital levels; the possibility of general economic and business
conditions that are less favorable than anticipated; the Companys ability to distribute its
products through distribution channels, both current and future; the uncertain effects of emerging
claim and coverage issues; the effect of assessments and other surcharges for guaranty funds; a
downgrade in the Companys claims-paying, financial strength or credit ratings; the ability of the
Companys subsidiaries to pay dividends to the Company; and other factors described in such
forward-looking statements. INDEX Overview
    
    
    14Critical Accounting Estimates
    
    
    19Consolidated Results of Operations: Operating Summary
    
    
    24Retail
Products Group
    
    
    27Institutional
Solutions Group
    
    
    29Individual Life
    
    
    31Group Benefits
    
    
    33Investments
    
    
    34Investment Credit Risk
    
    
    40Capital Markets Risk Management
    
    
    46Capital Resources and Liquidity
    
    
    52Effect of Inflation
    
    
    57Impact of New Accounting Standards
    
    
    57
 OVERVIEW The Company has four reportable operating segments: Retail Products Group, Institutional
Solutions Group, Individual Life and Group Benefits. The Company provides investment and
retirement products such as variable and fixed annuities, mutual funds and retirement plan services
and other institutional investment products; structured settlements; private placement life
insurance; individual life insurance products including variable universal life, universal life,
interest sensitive whole life and term life; and group benefit products, such as group life and
group disability insurance. The Company derives its revenues principally from: (a) fee income, including asset management
fees, on separate account and mutual fund assets and mortality and expense fees, as well as cost of
insurance charges; (b) net investment income on general account assets; (c) fully insured premiums;
and (d) certain other fees. Asset management fees and mortality and expense fees are primarily
generated from separate account assets, which are deposited with the Company through the sale of
variable annuity and variable universal life products and from mutual funds. Cost of insurance
charges are assessed on the net amount at risk for investment-oriented life
insurance products. Premium revenues are derived primarily from the sale of group life, group
disability and individual term insurance products. 14




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The Companys expenses essentially consist of interest credited to policyholders on general account
liabilities, insurance benefits provided, amortization of the deferred policy acquisition costs,
expenses related to the selling and servicing the various products offered by the Company,
dividends to policyholders, and other general business expenses. The Companys profitability in its variable annuity, mutual fund and to a lesser extent, variable
universal life businesses depends largely on the amount of the contract holder account value or
assets under management on which it earns fees and the level of fees charged. Changes in account
value or assets under management are driven by two main factors: net flows, which measure the
success of the Companys asset gathering and retention efforts and the market return of the funds,
which is heavily influenced by the return on the equity markets. Net flows are comprised of new
sales and other deposits less surrenders, death benefits, policy charges and annuitizations of
investment type contracts, for instance, variable annuity contracts. In the mutual fund business,
net flows are known as net sales. Net sales are comprised of new sales less redemptions of mutual
fund customers. The Company uses the average daily value of the S&P 500 Index as an indicator for
evaluating market returns of the underlying account portfolios in the United States. Relative
profitability of variable products is highly correlated to the growth in account values or assets
under management since these products generally earn fee income on a daily basis. Thus, a
prolonged downturn in the financial markets could reduce revenues and potentially raise the
possibility of a charge against deferred policy acquisition costs. The profitability of the Companys fixed annuities and other spread based products depends largely
on its ability to earn target spreads between earned investment rates on its general account assets
and interest credited to policyholders. Profitability is also influenced by operating expense
management including the benefits of economies of scale in the administration of its United States
variable annuity businesses in particular. In addition, the size and persistency of gross profits
from these businesses is an important driver of earnings as it affects the rate of amortization of
the deferred policy acquisition costs. The Companys profitability in its individual life insurance and group benefits businesses depends
largely on the size of its in force block, the adequacy of product pricing and underwriting
discipline, actual mortality and morbidity experience, and the efficiency of its claims and expense
management. Performance Measures Fee Income Fee income is largely driven from amounts collected as a result of contractually defined
percentages of assets under management on investment type contracts. These fees are generally
collected on a daily basis from the contract holders account. For individual life insurance
products, fees are contractually defined percentages based on levels of insurance, age, premiums
and deposits collected and contractholder account value. Life insurance fees are generally
collected on a monthly basis. Therefore, the growth in assets under management either through
positive net flows or net sales and favorable equity market performance will have a favorable
impact on fee income. Conversely, negative net flows or net sales and unfavorable equity market
performance will reduce fee income generated from investment type contracts. For the Years EndedProduct/Key Indicator Information
    
    
    2004
    
    
    
    2003
    
    
    
    2002United States Variable AnnuitiesAccount value at December 31,
    
    
    $
    99,617
    
    
    
    $
    86,501
    
    
    
    $
    64,343Net flows
    
    
    
    5,471
    
    
    
    
    7,709
    
    
    
    
    2,127Change in market value
    
    
    
    7,645
    
    
    
    
    14,449
    
    
    
    
    (12,365
    )Retail Mutual FundsAssets under management at December 31,
    
    
    $
    25,240
    
    
    
    $
    20,301
    
    
    
    $
    14,079Net sales
    
    
    
    2,505
    
    
    
    
    2,155
    
    
    
    
    1,951Change in market value
    
    
    
    2,522
    
    
    
    
    4,142
    
    
    
    
    (3,232
    )Individual Life InsuranceVariable universal life account value at December 31
    
    
    $
    5,356
    
    
    
    $
    4,725
    
    
    
    $
    3,648Total life insurance inforce
    
    
    
    139,889
    
    
    
    
    130,798
    
    
    
    
    126,680S&P 500 IndexYear end closing value
    
    
    
    1,212
    
    
    
    
    1,112
    
    
    
    
    880Daily average value
    
    
    
    1,131
    
    
    
    
    965
    
    
    
    
    995
 15




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##### 



Net Investment Income and Interest Credited Certain investment type contracts such as fixed annuities and other spread-based contracts generate
deposits that the Company collects and invests to earn investment income. In addition, insurance
type contracts such as those sold by the Group Benefits segment collect premiums (discussed below)
for protection from losses specified in the particular insurance contract. These deposits and
premiums together comprise the majority of the assets of the general account that are invested to
generate investment income for the Company. The investment type contracts use this investment
income to credit the contract holder an amount of interest specified in the respective contract.
As discussed in the overview, the amount of investment income earned in excess of the interest
credited to the contract holder is the spread income earned by the Company. For insurance type
contracts, net investment income earned during the time that premiums are invested prior to paying
claims and expenses supports the profitability of these products. For the Years EndedNet Investment Income
    
    
    2004
    
    
    
    2003
    
    
    
    2002Retail Products Group segment
    
    
    $
    1,077
    
    
    
    $
    494
    
    
    
    $
    368Institutional Solutions Group segment
    
    
    
    1,061
    
    
    
    
    995
    
    
    
    
    977Individual Life segment
    
    
    
    302
    
    
    
    
    256
    
    
    
    
    262Group Benefits segment
    
    
    
    375
    
    
    
    
    264
    
    
    
    
    258Other
    
    
    
    1,079
    
    
    
    
    32
    
    
    
    
    (16
    )Total net investment income
    
    
    $
    3,894
    
    
    
    $
    2,041
    
    
    
    $
    1,849Interest Credited on General Account AssetsRetail Products Group segment
    
    
    $
    880
    
    
    
    $
    325
    
    
    
    $
    256Institutional Solutions Group segment
    
    
    
    587
    
    
    
    
    566
    
    
    
    
    547Individual Life segment
    
    
    
    216
    
    
    
    
    192
    
    
    
    
    196Other
    
    
    
    798
    
    
    
    
    
    
    
    
    
    Total interest credited on general
account assets
    
    
    $
    2,481
    
    
    
    $
    1,083
    
    
    
    $
    999
 The significant increase in net investment income and interest credited in the Retail Products
Group segment and Other and, to a lesser extent Individual Life segment, was largely the result of
the adoption of SOP 03-1. The adoption of SOP 03-1 resulted in certain changes in presentation in
the Companys financial statements, including reporting of the spreads on the Companys MVA fixed
annuities and variable annuity products offered in Japan on a gross basis in net investment income
and interest credited. The increase in net investment income for the Group Benefits segment was
primarily due to the acquisition of the group benefits business of CNA at December 31, 2003. Premiums As discussed above, traditional insurance type products collect premiums from policyholders in
exchange for financial protection of the policy holder from a specified insurable loss, such as
death or disability. These premiums together with net investment income earned from the overall
investment strategy are used to pay the contractual obligations under these insurance contracts.
Two major factors, new sales and persistency, impact premium growth. Sales can increase or
decrease in a given year based on a number of factors, including but not limited to, customer
demand for the Companys product offerings, pricing competition, distribution channels and the
Companys reputation and ratings. A majority of sales correspond with the open enrollment periods
of employers benefit plans, typically January 1 or July 1. Persistency is a measure of business
retention during a renewal period. For the Years EndedGroup Benefits Segment
    
    
    2004
    
    
    
    2003
    
    
    
    2002Total premiums and other consideration
    
    
    $
    3,652
    
    
    
    $
    2,362
    
    
    
    $
    2,327Fully insured ongoing sales
    
    
    
    632
    
    
    
    
    507
    
    
    
    
    597Persistency [1]
    
    
    
    88

    %
    
    
    
    81
    %
    
    
    
    83
    %
   [1]
    
    The persistency rate represents the employer group life and disability business, which
accounts for 65-70% of inforce premiums, excluding the CNA
acquisition. For comparability purposes, the 2004 persistency rate excludes the CNA acquisition. The significant increase in premiums for the Group Benefits segment in 2004 compared to 2003 is the
result of the earned premium growth as the result of the CNA Acquisition as well as in the
pre-acquisition Group Benefits business. The increase in earned premiums of the pre-acquisition
Group Benefits business was driven by sales and favorable persistency. 16




---



##### 



Expenses There are three major categories for expenses. The first category of expenses is benefits and
claims. These include the costs of mortality and morbidity, particularly in the group benefits and
mortality in the individual life businesses, as well as other contract holder benefits to
policyholders. In addition, traditional insurance type products generally use a loss ratio which
is expressed as the amount of benefits incurred during a particular period divided by total
premiums and other considerations, as a key indicator of underwriting performance. Since the Group
Benefits segment occasionally buys a block of claims for a stated premium amount, the Company
excludes this buyout from the loss ratio used for evaluating the underwriting results of the
business as buyout may distort the loss ratio. The second major category is insurance operating costs and expenses, which is commonly expressed in
a ratio of a revenue measure depending on the type of business. The third category is the
amortization of deferred policy acquisition costs and the present value of future profits, which is
typically expressed as a percentage of pretax income before the cost of this amortization. The
individual annuity business within the Retail Products Group segment accounts for the majority of
the amortization of deferred policy acquisition costs and present value of future profits for the
Company. For the Years Ended2004
    
    
    
    2003
    
    
    
    2002Retail Products GroupInsurance expenses, net of deferrrals
    
    
    $
    742
    
    
    
    $
    602
    
    
    
    $
    568Expense ratio (individual annuity)
    
    
    18.3 bps
    
    
    22.0 bps
    
    
    24.5 bpsDAC amortization ratio (individual annuity)
    
    
    
    50.8
    %
    
    
    
    49.6
    %
    
    
    
    47.0
    %Individual LifeDeath benefits
    
    
    $
    245
    
    
    
    $
    224
    
    
    
    $
    232Insurance expenses, net of deferrals
    
    
    $
    164
    
    
    
    $
    161
    
    
    
    $
    159Group BenefitsTotal benefits and claims
    
    
    $
    2,703
    
    
    
    $
    1,862
    
    
    
    $
    1,878Loss ratio (excluding buyout premiums)
    
    
    
    74.0
    %
    
    
    
    78.5
    %
    
    
    
    80.6
    %Insurance expenses, net of deferrals
    
    
    $
    989
    
    
    
    $
    553
    
    
    
    $
    524Expense ratio
    
    
    
    27.7
    %
    
    
    
    24.6
    %
    
    
    
    23.4
    %
 The increase in the expense ratio for the Group Benefits segment in 2004 compared to 2003 is the
result of the CNA Acquisition. As part of the CNA Acquisition, a larger block of affinity business
is now included in the Group Benefits segment and this business typically has lower expected loss
ratios and higher expected commission ratios than other products within the business. Profitability Management evaluates the rates of return various businesses can provide as a way of determining
where additional capital is invested to increase net income and shareholder returns. Specifically,
because of the importance of its individual annuity products, the Company uses the return on assets
for the individual annuity business for evaluating profitability. In Group Benefits, after tax
margin is a key indicator of overall profitability. Ratios
    
    
    2004
    
    
    
    2003
    
    
    
    2002Retail Products GroupIndividual annuity return on assets
    
    
    44.8 bps
    
    
    45.9 bps
    
    
    41.8 bpsGroup BenefitsAfter tax margin
    
    
    
    6.3
    %
    
    
    
    6.4
    %
    
    
    
    5.5
    %
 Regulatory Developments In June 2004, The Hartford received a subpoena from the New York Attorney Generals Office in
connection with its inquiry into compensation arrangements between brokers and carriers. In
mid-September 2004 and subsequently, The Hartford has received additional subpoenas from the New
York Attorney Generals Office, which relate more specifically to possible anti-competitive
activity among brokers and insurers. Since the beginning of
October 2004, The Hartford has received
subpoenas or other information requests from Attorneys General and regulatory agencies in more than
a dozen jurisdictions regarding broker compensation and possible anti-competitive activity. The
Hartford may receive additional subpoenas and other information requests from Attorneys General or
other regulatory agencies regarding similar issues. The Hartford also has received a subpoena from
the New York Attorney Generals Office requesting information related to The Hartfords underwriting practices with
respect to legal professional liability insurance. In addition, The Hartford has received a
request for information from the New York Attorney Generals Office concerning 17




---



##### 



The Hartfords
compensation arrangements in connection with the administration of workers compensation plans. The
Hartford intends to continue cooperating fully with these investigations, and is conducting an
internal review, with the assistance of outside counsel, regarding the issues under investigation. On October 14, 2004, the New York Attorney Generals Office filed a civil complaint against Marsh &
McLennan Companies, Inc., and Marsh, Inc. (collectively, Marsh). The complaint alleges, among
other things, that certain insurance companies, including The Hartford, participated with Marsh in
arrangements to submit inflated bids for business insurance and paid contingent commissions to
ensure that Marsh would direct business to them. The Hartford is not joined as a defendant in the
action. Although no regulatory action has been initiated against The Hartford in connection with
the allegations described in the civil complaint, it is possible that the New York Attorney
Generals Office or one or more other regulatory agencies may pursue action against The Hartford or
one or more of its employees in the future. The potential timing of any such action is difficult
to predict. If such an action is brought, it could have a material adverse effect on the Company. On October 29, 2004, the New York Attorney Generals Office informed The Hartford that the Attorney
General is conducting an investigation with respect to the timing of the previously disclosed sale
by Thomas Marra, a director and executive officer of The Hartford, of 217,074 shares of The
Hartfords common stock on September 21, 2004. The sale occurred shortly after the issuance of two
additional subpoenas dated September 17, 2004 by the New York Attorney Generals Office. The
Hartford has engaged outside counsel to review the circumstances related to the transaction and is
fully cooperating with the New York Attorney Generals Office. On the basis of the review, The
Hartford has determined that Mr. Marra complied with The Hartfords applicable internal trading
procedures and has found no indication that Mr. Marra was aware of the additional subpoenas at the
time of the sale. There continues to be significant federal and state regulatory activity relating to financial
services companies, particularly mutual funds companies. These regulatory inquiries have focused
on a number of mutual fund issues, including market timing and late trading, revenue sharing and
directed brokerage, fees, transfer agents and other fund service providers, and other mutual-fund
related issues. The Hartford has received requests for information and subpoenas from the
Securities and Exchange Commission (SEC), subpoenas from the New York Attorney Generals Office,
requests for information from the Connecticut Securities and Investments Division of the Department
of Banking, and requests for information from the New York Department of Insurance, in each case
requesting documentation and other information regarding various mutual fund regulatory issues. The SECs Division of Enforcement and the New York Attorney Generals Office are investigating
aspects of The Hartfords variable annuity and mutual fund operations related to market timing.
The Hartfords mutual funds are available for purchase by the separate accounts of different
variable universal life insurance policies, variable annuity products, and funding agreements, and
they are offered directly to certain qualified retirement plans. Although existing products
contain transfer restrictions between subaccounts, some products, particularly older variable
annuity products, do not contain restrictions on the frequency of transfers. In addition, as a
result of the settlement of litigation against The Hartford with respect to certain owners of older
variable annuity products, The Hartfords ability to restrict transfers by these owners is limited.
In February 2005, the Company agreed in principle with the Boards of
Directors of the mutual funds to idemnify the mutual funds for any
material harm caused to the funds from frequent trading by these
owners.
The specific terms of the indemnification have not been determined.

The SECs Division of Enforcement also is investigating aspects of The Hartfords variable annuity
and mutual fund operations related to directed brokerage and revenue sharing. The Hartford
discontinued the use of directed brokerage in recognition of mutual fund sales in late 2003. The
Hartford also has received a subpoena from the New York Attorney Generals Office requesting
information related to The Hartfords group annuity products. The Hartford continues to cooperate
fully with the SEC, the New York Attorney Generals Office and other regulatory agencies. A number of companies have announced settlements of enforcement actions with various regulatory
agencies, primarily the SEC and the New York Attorney Generals Office, which have included a range
of monetary penalties and restitution. While no such action has been initiated against The
Hartford, the SEC, and the New York Attorney Generals Office are likely to take some action at the
conclusion of the on-going investigations related to market timing and directed brokerage. The
potential timing of any such action is difficult to predict, and The Hartfords ultimate liability,
if any, from any such action is not reasonably estimable at this time. If such an action is brought, it could
have a material adverse effect on the Companys consolidated results of operations or cash flows in
particular quarterly or annual periods. Broker Compensation As The Hartford has disclosed previously, the Company pays brokers and independent agents
commissions and other forms of incentive compensation in connection with the sale of many of the
Companys insurance products. Since the New York Attorney Generals Office filed a civil complaint
against Marsh & McLennan Companies, Inc. and Marsh, Inc. (collectively, Marsh) on October 14,
2004, several of the largest national insurance brokers, including Marsh, have announced that they
have discontinued the use of contingent compensation arrangements. Other industry participants may
make similar, or different, determinations in the future. In addition, legal, legislative,
regulatory, business or other developments may require changes to industry practices relating to
incentive compensation. At this time, it is not possible to predict the effect of these announced
or potential changes on the Companys business or distribution strategies. 18




---



##### 



CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements, in conformity with accounting principles generally
accepted in the United States of America (GAAP), requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. The Company has identified the following estimates as critical in that they involve a higher degree
of judgment and are subject to a significant degree of variability; insurance reserves; deferred
policy acquisition costs and present value of future profits; valuation of investments and
derivative instruments and the evaluation of other-than-temporary impairments; and contingencies.
In developing these estimates management makes subjective and complex judgments that are inherently
uncertain and subject to material change as facts and circumstances develop. Although variability
is inherent in these estimates, management believes the amounts provided are appropriate based upon
the facts available upon compilation of the financial statements. Reserves for Future Policy Benefits, Unpaid Claims, Claim Adjustment Expenses, Other Policyholder
Funds and Benefits Payable The Companys life insurance subsidiaries establish and carry as liabilities, predominantly, three
types of reserves: (1) a liability for amounts that accrue to the benefit of the policyholder as of
the financial statement date, (2) a liability for unpaid claims, including those that have been
incurred but not yet reported, and (3) a liability for future policy benefits. Reserves also
include amounts for unearned premiums. Reserves for assumed reinsurance are computed in a manner
that is comparable to direct insurance reserves. The Company has classified its fixed and variable annuities, 401(k), certain governmental
annuities, private placement life insurance, variable life insurance, universal life insurance and
interest sensitive whole life insurance as universal life-type contracts. The liability for
universal life-type contracts is equal to the balance that accrues to the benefit of the
policyholders as of the financial statement date (commonly referred to as the account value),
including credited interest, amounts that have been assessed to compensate the Company for services
to be performed over future periods, and any amounts previously assessed against policyholders that
are refundable on termination of the contract. Certain contracts classified as universal life-type
may also include additional death or other insurance benefit features, such as guaranteed minimum
death or income benefits offered with variable annuity contracts or no lapse guarantees offered
with universal life insurance contracts. An additional liability is established for these benefits
by estimating the expected present value of the benefits in excess of the projected account value
in proportion to the present value of total expected assessments. Excess benefits are accrued as a
liability as actual assessments are recorded. Determination of the expected value of excess
benefits and assessments are based on a range of scenarios and assumptions including those related
to market rates of return and volatility, contract surrender rates and mortality experience. The Company has classified its institutional and governmental products, without life contingencies,
including funding agreements, structured settlements and guaranteed investment contracts, as
investment contracts. The liability for investment contracts is equal to the balance that accrues
to the benefit of the contract holder as of the financial statement date, which includes the
accumulation of deposits plus credited interest, less withdrawals and amounts assessed through the
financial statement date. Liabilities for the Companys group life and disability contracts as well its individual term life
insurance policies include amounts for unpaid claims and future policy benefits. Liabilities for
unpaid claims include estimates of amounts to fully settle known reported claims as well as claims
related to insured events that the Company estimates have been incurred but have not yet been
reported. Liabilities for future policy benefits are calculated by estimating the present value of
future policy benefits to be paid to or on behalf of policyholders less the estimated present value
of future net premiums. The methods used in determining the liability for unpaid claims and future
policy benefits are standard actuarial methods recognized by the American Academy of Actuaries.
For the tabular reserves, discount rates are based on the Companys earned investment yield and the
morbidity/mortality tables used are standard industry tables modified to reflect the Companys
actual experience when appropriate. In particular, for the Companys group disability known claim
reserves, the morbidity table for the early durations of claim is based exclusively on the
Companys experience, incorporating factors such as sex, elimination period and diagnosis. These
reserves are computed such that they are expected to meet the Companys future policy obligations.
Future policy benefits are computed at amounts that, with additions from estimated premiums to be
received and with interest on such reserves compounded annually at certain assumed rates, are
expected to be sufficient to meet the Companys policy obligations at their maturities or in the
event of an insureds death. Changes in or deviations from the assumptions used for mortality,
morbidity, expected future premiums and interest can significantly affect the Companys reserve
levels and related future operations and, as such, provisions for adverse deviation are built into
the long-tailed liability assumptions. Valuation of Investments and Derivative Instruments and Evaluation of Other-Than-Temporary
Impairments The Companys investments in fixed maturities, which include bonds, redeemable preferred stock and
commercial paper; and certain equity securities, which include common and non-redeemable preferred

stocks, are classified as available-for-sale as defined in Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities 19




---



##### 



(SFAS No. 115). Accordingly, these securities are carried at fair value with the after-tax
difference from amortized cost, as adjusted for the effect of deducting the life and pension
policyholders share of the immediate participation guaranteed contracts and certain life and
annuity deferred policy acquisition costs, reflected in stockholders equity as a component of
accumulated other comprehensive income (AOCI). The equity investments associated with the
variable annuity products offered in Japan are recorded at fair value and are classified as
trading as defined in SFAS No. 115, with changes in fair value recorded in net investment
income. Policy loans are carried at outstanding balance, which approximates fair value. Other
investments primarily consist of limited partnership interests, derivatives and mortgage loans.
The limited partnerships are accounted for under the equity method and accordingly the Companys
share of partnership earnings are included in net investment income. Derivatives are carried at
fair value and mortgage loans on real estate are recorded at the outstanding principal balance
adjusted for amortization of premiums or discounts and net of valuation allowances, if any. Valuation of Fixed Maturities The fair value for fixed maturity securities is largely determined by one of three primary pricing
methods: independent third party pricing service market quotations, independent broker quotations
or pricing matrices, which use data provided by external sources. With the exception of short-term
securities for which amortized cost is predominantly used to approximate fair value, security
pricing is applied using a hierarchy or waterfall approach whereby prices are first sought from
independent pricing services with the remaining unpriced securities submitted to brokers for prices
or lastly priced via a pricing matrix. Prices from independent pricing services are often unavailable for securities that are rarely
traded or are traded only in privately negotiated transactions. As a result, certain of the
Companys asset-backed and commercial mortgage-backed securities are priced via broker quotations.
A pricing matrix is used to price securities for which the Company is unable to obtain either a
price from an independent third party service or an independent broker quotation. The pricing
matrix begins with current treasury rates and uses credit spreads and issuer-specific yield
adjustments received from an independent third party source to determine the market price for the
security. The credit spreads incorporate the issuers credit rating as assigned by a nationally
recognized rating agency and a risk premium, if warranted, due to the issuers industry and the
securitys time to maturity. The issuer-specific yield adjustments, which can be positive or
negative, are updated twice annually, as of June 30 and December 31, by an independent third party
source and are intended to adjust security prices for issuer-specific factors. The matrix-priced
securities at December 31, 2004 and 2003, primarily consisted of non-144A private placements and
have an average duration of 4.8 and 4.4, respectively. The following table identifies the fair value of fixed maturity securities by pricing source as of
December 31, 2004 and 2003: 2004
    
    
    2003Percentage
    
    
    
    
    
    
    Percentageof Total
    
    
    
    
    
    
    of TotalFair Value
    
    
    Fair Value
    
    
    Fair Value
    
    
    Fair ValuePriced via independent market quotations
    
    $
    40,902
    
    
    
    80.9
    %
    
    $
    39,857
    
    
    
    81.0
    %Priced via broker quotations
    
    
    3,319
    
    
    
    6.6
    %
    
    
    3,273
    
    
    
    6.7
    %Priced via matrices
    
    
    4,018
    
    
    
    7.9
    %
    
    
    3,445
    
    
    
    7.0
    %Priced via other methods
    
    
    31
    
    
    
    0.1
    %
    
    
    301
    
    
    
    0.6
    %Short-term investments [1]
    
    
    2,261
    
    
    
    4.5
    %
    
    
    2,321
    
    
    
    4.7
    %Total
    
    $
    50,531
    
    
    
    100.0
    %
    
    $
    49,197
    
    
    
    100.0
    %Total general accounts
    
    
    
    
    
    
    
    
    
    $
    37,462
    
    
    
    76.1
    %Total guaranteed separate accounts [2]
    
    
    
    
    
    
    
    
    
    $
    11,735
    
    
    
    23.9
    %
   [1]
    
    Short-term investments are primarily valued at amortized cost, which approximates fair value.[2]
    
    Effective
January 1, 2004, guaranteed separate account assets were
included with general account assets as a result of adopting
SOP 03-1. The fair value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between knowledgeable, unrelated willing parties. As such, the
estimated fair value of a financial instrument may differ significantly from the amount that could
be realized if the security was sold immediately. Valuation of Derivative Instruments Derivative instruments are reported at fair value based upon either independent market quotations
or pricing valuation models which utilize independent third party data as inputs. Other than the
guaranteed minimum withdrawal benefit (GMWB) and the associated reinsurance contracts, which are
discussed below, approximately 72% of derivatives, based upon notional values, were priced via
valuation models and the remaining 28% of derivatives were priced via independent market
quotations. Other-Than-Temporary Impairments One of the significant estimations inherent in the valuation of investments is the evaluation of
other-than-temporary impairments. The evaluation of impairments is a quantitative and qualitative
process, which is subject to risks and uncertainties and is intended to determine whether declines
in the fair value of investments should be recognized in current period earnings. The risks and 20




---



##### 



uncertainties include changes in general economic conditions, the issuers financial condition or
near term recovery prospects and the effects of changes in interest rates. The Companys
accounting policy requires that a decline in the value of a security below its amortized cost basis
be assessed to determine if the decline is other-than-temporary. If the security is deemed to be
other-than-temporarily impaired, a charge is recorded in net realized capital losses equal to the
difference between the fair value and amortized cost basis of the security. In addition, for
securities expected to be sold, an other-than-temporary impairment charge is recognized if the
Company does not expect the fair value of a security to recover to amortized cost prior to the
expected date of sale. The fair value of the other-than-temporarily impaired investment becomes
its new cost basis. The Company has a security monitoring process overseen by a committee of
investment and accounting professionals (the committee) that identifies securities that, due to
certain characteristics, as described below, are subjected to an enhanced analysis on a quarterly
basis. Securities not subject to Emerging Issues Task Force (EITF) Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets (non-EITF Issue No. 99-20 securities), that are in an unrealized loss position,
are reviewed at least quarterly to determine if an other-than-temporary impairment is present based
on certain quantitative and qualitative factors. The primary factors considered in evaluating
whether a decline in value for non-EITF Issue No. 99-20 securities is other-than-temporary include:
(a) the length of time and the extent to which the fair value has been less than cost, (b) the
financial condition, credit rating and near-term prospects of the issuer, (c) whether the debtor is
current on contractually obligated interest and principal payments and (d) the intent and ability
of the Company to retain the investment for a period of time sufficient to allow for recovery.
Non-EITF Issue No. 99-20 securities depressed by twenty percent or more for six months are presumed
to be other-than-temporarily impaired unless significant objective verifiable evidence supports
that the security price is temporarily depressed and is expected to recover within a reasonable
period of time. The evaluation of non-EITF Issue No. 99-20 securities depressed more than ten
percent is documented and discussed quarterly by the committee. For certain securitized financial assets with contractual cash flows (including asset-backed
securities), EITF Issue No. 99-20 requires the Company to periodically update its best estimate of
cash flows over the life of the security. If the fair value of a securitized financial asset is
less than its carrying amount and there has been a decrease in the present value of the estimated
cash flows since the last revised estimate, considering both timing and amount, then an
other-than-temporary impairment charge is recognized. Estimating future cash flows is a
quantitative and qualitative process that incorporates information received from third party
sources along with certain internal assumptions and judgments regarding the future performance of
the underlying collateral. As a result, actual results may differ from current estimates. In
addition, projections of expected future cash flows may change based upon new information regarding
the performance of the underlying collateral. Once an impairment charge has been recorded, the Company continues to review the
other-than-temporarily impaired securities for additional other-than-temporary impairments. As
discussed in Note 2 of the Notes to Consolidated Financial Statements, the Financial Accounting
Standards Board (FASB) voted to delay the implementation of the impairment measurement and
recognition guidance contained in paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairments and Its Application to Certain Investments, (EITF Issue No.
03-1), in order to redeliberate certain aspects of the consensus. The ultimate completion of EITF
Issue No. 03-1 may impact the Companys current other-than-temporary impairment evaluation process. Valuation of Guaranteed Minimum Withdrawal Benefit Derivatives An embedded derivative instrument is reported at fair value based upon internally established
valuations that are consistent with external valuation models, quotations furnished by dealers in
such instrument or market quotations. The Company has calculated the fair value of the GMWB
embedded derivative liability based on actuarial assumptions related to the projected cash flows,
including benefits and related contract charges, over the lives of the contracts, incorporating
expectations concerning policyholder behavior. Because of the dynamic and complex nature of these
cash flows, stochastic techniques under a variety of market return scenarios and other best
estimate assumptions are used. Estimating these cash flows involves numerous estimates and
subjective judgments including those regarding expected market rates of return, market volatility,
correlations of market returns and discount rates. At each valuation date, the Company assumes
expected returns based on risk-free rates as represented by the current LIBOR forward curve rates;
market volatility assumptions for each underlying index is based on a blend of observed market
implied volatility data and annualized standard deviations of monthly returns using the most
recent 20 years of observed market performance; correlations of market returns across underlying
indices is based on actual observed market returns and relationships over the ten years preceding
the valuation date; and current risk-free spot rates as represented by the current LIBOR spot curve
is used to determine the present value of expected future cash flows produced in the stochastic
projection process. 21




---



##### 



Deferred Policy Acquisition Costs and Present Value of Future Profits Policy acquisition costs include commissions and certain other expenses that vary with and are
primarily associated with acquiring business. Present value of future profits is an intangible
asset recorded upon applying purchase accounting in an acquisition of a life insurance company.
Deferred policy acquisition costs and the present value of future profits intangible asset are
amortized in the same way. Both are amortized over the estimated life of the contracts acquired,
usually 20 years. Within the following discussion, deferred policy acquisition costs and the
present value of future profits intangible asset will be referred to as DAC. At December 31,
2004 and 2003, the carrying value of the Companys DAC was $7.4 billion and $6.6 billion,
respectively. For statutory accounting purposes, such costs are expensed as incurred. DAC related to traditional policies are amortized over the premium-paying period in proportion
to the present value of annual expected premium income. DAC related to investment contracts and
universal life-type contracts are deferred and amortized using the retrospective deposit method.
Under the retrospective deposit method, acquisition costs are amortized in proportion to the
present value of estimated gross profits (EGPs), arising principally from projected investment,
mortality and expense margins and surrender charges. The attributable portion of the DAC
amortization is allocated to realized gains and losses on investments. The DAC balance is also
adjusted through other comprehensive income by an amount that represents the amortization of
deferred policy acquisition costs that would have been required as a charge or credit to operations
had unrealized gains and losses on investments been realized. Actual gross profits can vary from
managements estimates, resulting in increases or decreases in the rate of amortization. The Company regularly evaluates its EGPs to determine if actual experience or other evidence
suggests that earlier estimates should be revised. In the event that the Company were to revise
its EGPs, the cumulative DAC amortization would be adjusted to reflect such revised EGPs in the
period the revision was determined to be necessary. Several assumptions considered to be
significant in the development of EGPs include separate account fund performance, surrender and
lapse rates, estimated interest spread and estimated mortality. The separate account fund
performance assumption is critical to the development of the EGPs related to the Companys variable
annuity and to a lesser extent, variable universal life insurance businesses. The average annual
long-term rate of assumed separate account fund performance (before mortality and expense charges)
used in estimating gross profits for the variable annuity and variable universal life business was
9% for the years ended December 31, 2004 and 2003. For other products including fixed annuities
and other universal life-type contracts, the average assumed investment yield ranged from 5.7% to
7.9% for both years ended December 31, 2004 and 2003. The Company had developed models to evaluate its DAC asset, which allowed it to run a large number
of stochastically determined scenarios of separate account fund performance. These scenarios were
then utilized to calculate a statistically significant range of reasonable estimates of EGPs. This
range was then compared to the present value of EGPs currently utilized in the DAC amortization
model. As of December 31, 2004, the present value of the EGPs utilized in the DAC amortization
model fall within a reasonable range of statistically calculated present value of EGPs. As a
result, the Company does not believe there is sufficient evidence to suggest that a revision to the
EGPs (and therefore, a revision to the DAC) as of December 31, 2004 is necessary; however, if in
the future the EGPs utilized in the DAC amortization model were to fall outside of the margin of
the reasonable range of statistically calculated EGPs, a revision could be necessary. Furthermore,
the Company has estimated that the present value of the EGPs is likely to remain within a
reasonable range if overall separate account returns decline by 25% or less over the next twelve
months, and if certain other assumptions that are implicit in the computations of the EGPs are
achieved. Additionally, the Company continues to perform analyses with respect to the potential impact of a
revision to future EGPs. If such a revision to EGPs were deemed necessary, the Company would
adjust, as appropriate, all of its assumptions for products accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 97, Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments, and reproject its future EGPs based on current account values at the end of the
quarter in which a revision is deemed to be necessary. To illustrate the effects of this process,
assume the Company had concluded that a revision of the Companys EGPs was required at December 31,
2004. If the Company assumed a 9% average long-term rate of growth from December 31, 2004 forward
along with other appropriate assumption changes in determining the revised EGPs, the Company
estimates the cumulative decrease to amortization would be approximately $80-$90, after-tax. If
instead the Company were to assume a long-term growth rate of 8% in determining the revised EGPs,
the adjustment would be approximately $45-$50, after-tax. Any such adjustment would not affect
statutory income or surplus, due to the prescribed accounting for such amounts that is discussed
above. Aside from absolute levels and timing of market performance assumptions, additional factors that
will influence this determination include the degree of volatility in separate account fund
performance and shifts in asset allocation within the separate account made by policyholders. The
overall return generated by the separate account is dependent on several factors, including the
relative mix of the underlying sub-accounts among bond funds and equity funds as well as equity
sector weightings. The Companys overall separate account fund performance has been reasonably
correlated to the overall performance of the S&P 500 Index (which closed at 1,212 on December 31,
2004), although no assurance can be provided that this correlation will continue in the future. The overall recoverability of the DAC asset is dependent on the future profitability of the
business. The Company tests the aggregate recoverability of the DAC asset by comparing the amounts
deferred to the present value of total EGPs. In addition, the Company 22




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##### 



routinely stress tests its DAC asset for recoverability against severe declines in its separate
account assets, which could occur if the equity markets experienced another significant sell-off,
as the majority of policyholders funds in the separate accounts is invested in the equity market.
As of December 31, 2004, the Company believed variable annuity separate account assets could fall
by at least 45% before portions of its DAC asset would be unrecoverable. Contingencies Management follows the requirements of SFAS No. 5 Accounting for Contingencies. This statement
requires management to evaluate each contingent matter separately. A loss is recorded if estimable
and probable. Management establishes reserves for these contingencies at its best estimate, or,
if no one number within the range of possible losses is more likely than any other, the Company
records an estimated reserve at the low end of the range of losses. The majority of contingencies
currently being evaluated by the Company relate to litigation matters, which are inherently
difficult to evaluate and subject to significant changes. 23




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##### 



CONSOLIDATED RESULTS OF OPERATIONS Operating Summary 2004 vs.
    
    2003 vs.2004
    
    2003
    
    2002
    
    2003
    
    2002Change
    
    ChangeFee income and other
    
    $
    3,245
    
    
    $
    2,891
    
    
    $
    2,697
    
    
    
    12
    %
    
    
    7
    %Earned premiums
    
    
    4,072
    
    
    
    3,086
    
    
    
    2,697
    
    
    
    32
    %
    
    
    14
    %Net investment income [1]
    
    
    3,894
    
    
    
    2,041
    
    
    
    1,849
    
    
    
    91
    %
    
    
    10
    %Net realized capital gains (losses)
    
    
    149
    
    
    
    40
    
    
    
    (308
    )
    
    NM
    
    NMTotal revenues
    
    
    11,360
    
    
    
    8,058
    
    
    
    6,935
    
    
    
    41
    %
    
    
    16
    %Benefits, claims and claim adjustment expenses [1]
    
    
    6,630
    
    
    
    4,616
    
    
    
    4,158
    
    
    
    44
    %
    
    
    11
    %Insurance expenses and other
    
    
    2,116
    
    
    
    1,544
    
    
    
    1,405
    
    
    
    37
    %
    
    
    10
    %Amortization of deferred policy acquisition costs and
present value of future profits
    
    
    978
    
    
    
    769
    
    
    
    628
    
    
    
    27
    %
    
    
    22
    %Interest expense
    
    
    97
    
    
    
    117
    
    
    
    112
    
    
    
    (17
    %)
    
    
    4
    %Dividends to policyholders
    
    
    29
    
    
    
    63
    
    
    
    65
    
    
    
    (54
    %)
    
    
    (3
    %)Total benefits, claims and expenses
    
    
    9,850
    
    
    
    7,109
    
    
    
    6,368
    
    
    
    39
    %
    
    
    12
    %Income before income tax expense
and cumulative effect of account
change
    
    
    1,510
    
    
    
    949
    
    
    
    567
    
    
    
    59
    %
    
    
    67
    %Income tax expense
    
    
    168
    
    
    
    180
    
    
    
    10
    
    
    
    (7
    %)
    
    NMIncome before cumulative effect of accounting
change
    
    
    1,342
    
    
    
    769
    
    
    
    557
    
    
    
    75
    %
    
    
    38
    %Cumulative effect of accounting changes, net of tax[2]
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557
    
    
    
    72
    %
    
    
    38
    %
   [1]
    
    With the adoption of SOP 03-1, certain annuity and individual life products were required
to be accounted for in the general account. This change in accounting resulted in an increase
of $1,637 in net investment income, an increase of $1,387 in benefits, claims and claim
adjustment expenses and a decrease of $131 in other revenues for the year ended December 31,
2004, respectively.[2]
    
    For the years ended December 31, 2004, represents the cumulative impact of the Companys
adoption of SOP 03-1. The Company defines the following as NM or not meaningful: increases or decreases greater
than 200%, or changes from a net gain to a net loss position, or vice versa. The Company changed its reportable operating segments in 2004 from Investment Products, Individual
Life, Group Benefits and Corporate Owned Life Insurance (COLI) to Retail Products Group
(Retail), Institutional Solutions Group (Institutional), Individual Life and Group Benefits.
Retail offers individual variable and fixed annuities, mutual funds, retirement plan products and
services to corporations under Section 401(k) plans and other investment products. Institutional
primarily offers retirement plan products and services to municipalities under Section 457 plans,
other institutional investment products, structured settlements, and private placement life
insurance. Individual Life sells a variety of life insurance products, including variable
universal life, universal life, interest sensitive whole life and term life insurance. Group
Benefits sells group insurance products, including group life and group disability insurance as
well as other products, including medical stop loss and supplementary medical coverages to
employers and employer sponsored plans, accidental death and dismemberment, travel accident and
other special risk coverages to employers and associations. The Company also includes, in an Other
category, its international operations, which are primarily located in Japan and Brazil; net
realized capital gains and losses other than periodic net coupon settlements on non-qualifying
derivatives and net realized capital gains and losses related to guaranteed minimum withdrawal
benefits; corporate items not directly allocated to any of its reportable operating segments; and
intersegment eliminations. Periodic net coupon settlements on non-qualifying derivatives and net
realized capital gains and losses related to guaranteed minimum withdrawal benefits are reflected
in each applicable segment in net realized capital gains and losses. 2004 Compared to 2003 Net income increased due primarily to business growth in virtually all
lines of business as discussed below, a lower effective income tax rate, and higher net realized
capital gains. (See the Investments section for further discussion of investment results and
related realized capital gains.) During the third quarter of 2004, the Internal Revenue Service
completed its examination of the 1998-2001 tax years. (For further discussion see Note 12 of Notes
to Condensed Consolidated Financial Standards under Tax Matters). The Company recorded in the
third quarter of 2004 a tax benefit of $190, consisting primarily of a change in estimate of the
dividends-received deduction (DRD) tax benefit reported during 2003 and prior years and interest,
and changed the estimate of the after-tax benefit for the DRD benefit related to the 2004 tax year. 24




---



##### 



Net income in the Retail segment increased, principally driven by growth in the variable annuity
and mutual fund businesses as a result of increasing assets under management. Partially offsetting
the increase in the Retail segment was lower spread income on market value adjusted (MVA) fixed
annuities due to the adoption of SOP 03-1. Net income in the Group Benefits segment increased due
primarily to increased earned premiums and net investment income growth, primarily resulting from
the Companys acquisition of the group life and accident, and short-term and long-term disability
businesses of CNA Financial Corporation (CNA Acquisition). In addition, the Group Benefits
segment was impacted by favorable persistency in most businesses and lower benefit costs in the
group life line. Net income in the Institutional segment was higher as a result of a decrease in
other expenses related to private placement life insurance business compared to the respective
prior year period. The decrease in other expenses for the current year is attributed to a $40
after-tax charge, recorded in the third quarter ended September 30, 2003, associated with the
settlement of the Bancorp Services, LLC (Bancorp) litigation. Additionally, net income was
higher for Individual Life and the international operations. The increase in Individual Life
earnings was primarily driven by improved net investment spread including the effects of
prepayments and growth in account values and life insurance inforce. Net income for the
international operations, which is included in the other category, increased over the prior year
primarily driven by the increase in assets under management of the Japan annuity business. Japans
assets under management have grown to $14.7 billion at December 31, 2004 from $6.2 billion at
December 31, 2003. During 2004, the Company introduced market value adjusted fixed annuity
products to provide a diversified product portfolio to customers in Japan. The effective tax rate was 11% for the current year as compared to an effective tax rate of 19% for
the respective prior year period. The lower effective tax rate was attributed to tax related
items, as discussed above, of $190 and a 2004 tax year DRD benefit of $132, as compared to tax
related items of $30 and a 2003 tax year DRD benefit of $87 reported for the years ended December
31, 2004 and 2003, respectively. Slightly offsetting the positive earnings drivers for the year
ended December 31, 2004 was the cumulative effect of accounting change from the Companys adoption
of SOP 03-1. The adoption of SOP 03-1 also resulted in certain changes in presentation in the
Companys financial statements, including reporting of the spreads on the Companys MVA fixed
annuities and variable annuity products offered in Japan on a gross basis in net investment income
and benefits expense. Exclusive of the cumulative effect, overall application of SOP 03-1 resulted
in an immaterial reduction in net income. (For further discussion of the impact of the Companys
adoption of SOP 03-1, see Note 2 of Notes to Condensed Consolidated Financial Statements). 2003 Compared to 2002-Net income increased for the year ended December 31, 2003 due primarily to
the growth in the Retail segment and a decrease in net realized capital losses compared to 2002.
The earnings growth in the Retail segment is due to an increase in fee income and net investment
income. Fee income in the Retail segment was higher in 2003 compared to 2002, as a result of
higher average account values, specifically in individual annuities and mutual fund businesses, due
primarily to stronger variable annuity sales as well as market appreciation. Net investment income
in Retail increased due to higher general account assets in the individual annuity business. Also
contributing to the net income growth was higher earnings in Group Benefits, primarily due to
increases in earned premiums and favorable claims. Additionally, Individual Life experienced
earnings growth due to increases in fees and cost of insurance as life insurance in-force grew and
aged, and variable universal life account values increased 30% due primarily to the growth in the
equity markets and favorable mortality. Partially offsetting these increases was a decrease in
Institutional net income for the year ended December 31, 2003, as compared to the prior year
period. This decrease is attributed to a $40 after-tax charge, recorded in the third quarter of
2003 associated with the settlement of the Bancorp litigation. In addition, there was an $8
after-tax benefit recorded in the first quarter of 2002 related to favorable development on the
Companys estimated September 11 exposure. The effective tax rate increased in 2003 when compared with 2002 as a result of higher earnings and
lower DRD related tax items. The tax provision recorded during 2003 reflects a benefit of $30,
consisting primarily of a change in estimate of the DRD tax benefit reported during 2002. The
change in estimate was the result of actual 2002 investment performance on the related separate
accounts being unexpectedly out of pattern with past performance, which had been the basis for the
estimate. This compares with a tax benefit of $76 recorded in 2002. The total DRD benefit related
to the 2003 tax year for the year ended December 31, 2003 was $87 as compared to $63 for the year
ended December 31, 2002. Outlook In 2004, the Company experienced record earnings driven by strong growth in assets under
management, favorable premium growth and loss ratios in Group Benefits, strong expense management,
and a one-time DRD tax benefit related to prior years of $190. Due to gains in the equity markets
and positive net flows, assets under management grew 18% resulting in increased fee income earned
on those assets. The growth and profitability of the Company in the future is dependent to a
large degree on the performance of the equity markets as well as each segments ability to attract
new customers and attract and retain assets under management. Please refer to each segments
results for outlooks on specific segments and products. Also, contributing to the Companys
performance in 2004 was increased earnings in the Other category, which was primarily the result
of the growth in assets under management in the international operations. This growth was driven
by record sales of $7.8 billion and positive net flows in Japan, which combined with gains in the
equity market increased assets under management to $14.7 billion at December 31, 2004 from $6.2
billion at December 31, 2003. Although the Companys international operations experienced
significant growth during 2004, Japanese regulations combined with competition could adversely
affect the Companys ability to exceed or sustain the level of new sales and net flows attained in
2004. 25




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##### 



Segment Results Below is a summary of net income (loss) by segment. 2004
    
    
    2003
    
    
    2002Retail
    
    $
    526
    
    
    $
    430
    
    
    $
    356Institutional
    
    
    124
    
    
    
    83
    
    
    
    108Individual Life
    
    
    153
    
    
    
    145
    
    
    
    133Group Benefits
    
    
    229
    
    
    
    148
    
    
    
    128Other [1]
    
    
    287
    
    
    
    (37
    )
    
    
    (168
    )Net income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557
   [1]
    
    Includes tax benefits reflecting the impact of audit settlements of $190, $0 and $76
for the years ended December 31, 2004, 2003 and 2002. A description of each segment as well as an analysis of the operating results summarized
above is included on the following pages. 26




---



##### 



RETAIL PRODUCTS GROUP Operating Summary 2004 vs.
    
    2003 vs.2003
    
    20022004
    
    2003
    
    2002
    
    Change
    
    ChangeFee income and other
    
    $
    2,098
    
    
    $
    1,703
    
    
    $
    1,591
    
    
    
    23
    %
    
    
    7
    %Earned premiums
    
    
    7
    
    
    
    (31
    )
    
    
    (24
    )
    
    NM
    
    
    (29
    %)Net investment income
    
    
    1,077
    
    
    
    494
    
    
    
    368
    
    
    
    118
    %
    
    
    34
    %Net realized capital gains
    
    
    
    
    
    
    21
    
    
    
    7
    
    
    NM
    
    
    200
    %Total revenues
    
    
    3,182
    
    
    
    2,187
    
    
    
    1,942
    
    
    
    45
    %
    
    
    13
    %Benefits, claims and claim adjustment expenses
    
    
    1,120
    
    
    
    568
    
    
    
    486
    
    
    
    97
    %
    
    
    17
    %Insurance operating costs and other expenses
    
    
    742
    
    
    
    602
    
    
    
    568
    
    
    
    23
    %
    
    
    6
    %Amortization of deferred policy acquisition costs and present value
of future profits
    
    
    661
    
    
    
    509
    
    
    
    436
    
    
    
    30
    %
    
    
    17
    %Total benefits, claims and expenses
    
    
    2,523
    
    
    
    1,679
    
    
    
    1,490
    
    
    
    50
    %
    
    
    13
    %Income before income tax expense
and cumulative effect of account
change
    
    
    659
    
    
    
    508
    
    
    
    452
    
    
    
    30
    %
    
    
    12
    %Income tax expense
    
    
    114
    
    
    
    78
    
    
    
    96
    
    
    
    46
    %
    
    
    (19
    %)Income before cumulative effect of
accounting change
    
    
    545
    
    
    
    430
    
    
    
    356
    
    
    
    27
    %
    
    
    21
    %Cumulative effect of accounting change, net of tax [1]
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    $
    526
    
    
    $
    430
    
    
    $
    356
    
    
    
    22
    %
    
    
    21
    %2004 vs.
    
    2003 vs.2003
    
    2002Assets Under Management
    
    2004
    
    2003
    
    2002
    
    Change
    
    ChangeIndividual variable annuity account values
    
    $
    99,617
    
    
    $
    86,501
    
    
    $
    64,343
    
    
    
    15
    %
    
    
    34
    %Individual fixed annuity and other account values
    
    
    11,384
    
    
    
    11,215
    
    
    
    10,565
    
    
    
    2
    %
    
    
    6
    %Other retail products account values
    
    
    6,713
    
    
    
    4,654
    
    
    
    2,972
    
    
    
    44
    %
    
    
    57
    %Total account values [2]
    
    
    117,714
    
    
    
    102,370
    
    
    
    77,880
    
    
    
    15
    %
    
    
    31
    %Retail mutual fund assets under management
    
    
    25,240
    
    
    
    20,301
    
    
    
    14,079
    
    
    
    24
    %
    
    
    44
    %Other mutual fund assets under management
    
    
    1,396
    
    
    
    953
    
    
    
    480
    
    
    
    46
    %
    
    
    99
    %Total mutual fund assets under management
    
    
    26,636
    
    
    
    21,254
    
    
    
    14,559
    
    
    
    25
    %
    
    
    46
    %Total assets under management
    
    $
    144,350
    
    
    $
    123,624
    
    
    $
    92,439
    
    
    
    17
    %
    
    
    34
    %
   [1]
    
    Represents
the cumulative impact of the Companys adoption of SOP 03-1.[2]
    
    Includes policyholders balances for investments contracts and reserve for future policy
benefits for insurance contracts. The Retail Products Group segment focuses on the savings and retirement needs of the growing
number of individuals who are preparing for retirement, or have already retired, through the sale
of individual variable and fixed annuities, mutual funds, retirement plan services and other
investment products. The Company is both a leading writer of individual variable annuities and a
top seller of individual variable annuities through banks in the United States. 2004 Compared to 2003 Net income increased for the year ended December 31, 2004, principally
driven by higher fee income from double digit growth in the assets under management in virtually
all businesses of the segment and strong expense management. Fee income generated by the variable
annuity operation increased, as average account values were higher in the current year compared to
the respective prior year periods. The increase in average account values can be attributed to
market appreciation of $7.6 billion and net flows of $5.5 billion during 2004. Another
contributing factor to the increase in fee income was the increase in assets under management in
the mutual fund and 401(k) businesses. Retail mutual fund assets under management increased 24%
principally due to net sales and market appreciation of $2.5 billion each during 2004. In
addition, 401(k) assets under management grew 40% to $7.3 billion as a result of favorable net
flows and market conditions. Partially offsetting the positive earnings drivers discussed above were higher DAC amortization
costs, lower income from the fixed annuity business and the cumulative effect of accounting change
from the Companys adoption of SOP 03-1. DAC amortization was higher in the current year as
compared to the prior year due to higher subsequent deposit activity, primarily in individual
annuity. The decrease in net income in the fixed annuity business in 2004 compared to 2003 was principally due
to lower investment spread from 27




---



##### 



the market value adjusted (MVA) product. With the adoption of
SOP 03-1, the Company includes the investment return from the fixed annuity product in net
investment income and includes interest credited to contract holders in the benefits, claims and
expenses line on the income statement rather than reporting the net spread in fee income and other.
Additionally, income tax expense was higher for the current year due primarily to higher income
earned by the segment. This increase was largely offset by a higher DRD tax benefit of $115 related
to the 2004 tax year reported for the year ended December 31, 2004, as discussed above, as compared
to the DRD tax benefit of $79 related to the 2003 tax year reported in the comparable prior year
period. 2003 Compared to 2002-Net income was higher driven by an increase in revenues in the individual
annuity and other retail product operations as a result of the strong net flows and growth in the
equity markets during 2003 and strong expense management. Net income increased due to an increase
in fee income in Retail. Fee income in Retail was higher in 2003 compared to 2002, as a result of
higher average account values, specifically in individual annuities and mutual fund businesses, due
primarily to stronger variable annuity sales and the higher equity market values compared to the
prior year. Net investment income increased due to higher general account assets. General account
assets for the individual annuity business were $9.4 billion as of December 31, 2003, an increase
of approximately $800 or 9% from 2002, due primarily to an increase in individual annuity sales,
with the majority of those new sales electing to use the dollar cost averaging (DCA) feature.
The DCA feature allows policyholders to earn a credited interest rate in the general account for a
defined period of time as their invested assets are systematically invested into the separate
account funds. Additionally, there was increased interest credited in the individual annuity
operation as a result of higher general account asset levels and an increase in amortization of
deferred policy acquisition costs related to the individual annuity business due to higher gross
profits. In addition, net income increased in 2003 compared to 2002 due to the favorable impact of $19,
resulting from the Companys previously discussed change in estimate of the DRD tax benefit
reported during 2002. The change in estimate was the result of 2002 actual investment performance
on the related separate accounts being unexpectedly out of pattern with past performance, which had
been the basis for the estimate. The total DRD benefit related to the 2003 tax year for the year
ended December 31, 2003 was $79 as compared to $59 for the year ended December 31, 2002. Outlook Management believes the market for retirement products continues to expand as individuals
increasingly save and plan for retirement. Demographic trends suggest that as the baby boom
generation matures, a significant portion of the United States population will allocate a greater
percentage of their disposable incomes to saving for their retirement years due to uncertainty
surrounding the Social Security system and increases in average life expectancy. Individual
annuity sales in 2004 were $15.7 billion (a 5% decrease) compared to $16.5 billion in 2003, and
401(k) products experienced an increase of 37% in sales in 2004 compared to 2003. Significantly contributing to the Companys variable annuity sales during 2004 and 2003 was
Principal First, a guaranteed minimum withdrawal benefit (GMWB) rider, which was developed in
response to our customers needs. However, competition has increased substantially in this market
with most major variable annuity writers now offering GMWB riders and as a result, the Company may
not be able to sustain the level of sales attained in 2004. In an effort to meet diverse customer
needs, in the fourth quarter of 2004 the Company introduced Principal First Preferred, a lower cost
GMWB alternative to Principal First. The success of this new product will ultimately be based on
customer acceptance. According to VARDS, the Company had 11.87% market share as of December 31,
2004 as compared to 12.6% at December 31, 2003. With the increased competition in the variable
annuity market causing lower sales levels from the record level in 2003, combined with an aging
block of business, net flows may decline from levels experienced in 2004. This will be largely
dependent on the Companys ability to retain contractholders account values as they reach the end
of the surrender charge period of their contract. In addition, net flows in the Companys fixed
annuity block may be impacted by approximately $2 billion of contracts reaching renewal dates in
2005 at crediting rates significantly above those offered currently. The growth and profitability of the individual annuity and mutual fund businesses is dependent to
a large degree on the performance of the equity markets. In periods of favorable equity market
performance, the Company may experience stronger sales and higher net flows, which will increase
assets under management and thus increase fee income earned on those assets. In addition, higher
equity market levels will generally reduce certain costs to the Company of individual annuities,
such as guaranteed minimum death benefit (GMDB) and GMWB benefits. Conversely, weak equity
markets may dampen sales activity and increase surrender activity causing declines in assets under
management and lower fee income. Such declines in the equity markets will also increase the cost
to the Company of GMDB and GMWB benefits associated with individual annuities. The Company
attempts to mitigate some of the volatility associated with the GMDB and GMWB benefits using
reinsurance or other risk management strategies, such as hedging. Future net income for the
Company will be affected by the effectiveness of the risk management strategies the Company has
implemented to mitigate the net income volatility associated with the GMDB and GMWB benefits of
variable annuity contracts. For spread based products sold in the Retail segment, the future
growth will depend on the ability to earn targeted returns on new business given competition,
retention of account values in the fixed annuity business where the contract holders rate
guarantee expires in the upcoming year, and the future interest rate environment. 28




---



##### 



INSTITUTIONAL SOLUTIONS GROUP Operating Summary 2004 vs.
    
    2003 vs.2004
    
    2003
    
    2002
    
    2003
    
    2002Change
    
    ChangeFee income and other
    
    $
    307
    
    
    $
    308
    
    
    $
    356
    
    
    
    
    
    
    
    (13
    %)Earned premiums
    
    
    471
    
    
    
    795
    
    
    
    421
    
    
    
    (41
    %)
    
    
    89
    %Net investment income
    
    
    1,061
    
    
    
    995
    
    
    
    977
    
    
    
    7
    %
    
    
    2
    %Net realized capital losses
    
    
    7
    
    
    
    12
    
    
    
    3
    
    
    
    (42
    %)
    
    NMTotal revenues
    
    
    1,846
    
    
    
    2,110
    
    
    
    1,757
    
    
    
    (13
    %)
    
    
    20
    %Benefits, claims and claim adjustment expenses
    
    
    1,513
    
    
    
    1,749
    
    
    
    1,369
    
    
    
    (13
    %)
    
    
    28
    %Insurance operating costs and other expenses
    
    
    100
    
    
    
    152
    
    
    
    162
    
    
    
    (34
    %)
    
    
    (6
    %)Dividends to policyholders
    
    
    27
    
    
    
    60
    
    
    
    62
    
    
    
    (55
    %)
    
    
    (3
    %)Amortization of deferred policy acquisition costs
    
    
    37
    
    
    
    34
    
    
    
    8
    
    
    
    9
    %
    
    NMTotal benefits, claims and expenses
    
    
    1,677
    
    
    
    1,995
    
    
    
    1,601
    
    
    
    (16
    %)
    
    
    25
    %Income before income tax expense
and cumulative effect of account
change
    
    
    169
    
    
    
    115
    
    
    
    156
    
    
    
    47
    %
    
    
    (26
    %)Income tax expense
    
    
    44
    
    
    
    32
    
    
    
    48
    
    
    
    38
    %
    
    
    (33
    %)Income before cumulative effect of
Accounting change
    
    
    125
    
    
    
    83
    
    
    
    108
    
    
    
    51
    %
    
    
    (23
    %)Cumulative effect of accounting change, net of tax [1]
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    $
    124
    
    
    $
    83
    
    
    $
    108
    
    
    
    49
    %
    
    
    (23
    %)
 2004 vs.
    
    2003 vs.2003
    
    2002Assets Under Management
    
    2004
    
    2003
    
    2002
    
    Change
    
    ChangeInstitutional account values
    
    $
    14,599
    
    
    $
    12,660
    
    
    $
    9,738
    
    
    
    15
    %
    
    
    30
    %Governmental account values
    
    
    9,962
    
    
    
    8,965
    
    
    
    7,211
    
    
    
    11
    %
    
    
    24
    %Private Placement Life Insurance account values:Variable products
    
    
    22,498
    
    
    
    20,993
    
    
    
    19,674
    
    
    
    7
    %
    
    
    7
    %Leveraged COLI
    
    
    2,529
    
    
    
    2,524
    
    
    
    3,321
    
    
    
    
    
    
    
    (24
    %)Total Private Placement Life Insurance account values [2]
    
    
    25,027
    
    
    
    23,517
    
    
    
    22,995
    
    
    
    6
    %
    
    
    2
    %Mutual fund assets under management
    
    
    1,432
    
    
    
    1,208
    
    
    
    762
    
    
    
    19
    %
    
    
    59
    %Total assets under management
    
    $
    51,020
    
    
    $
    46,350
    
    
    $
    40,706
    
    
    
    10
    %
    
    
    14
    %
   [1]
    
    Represents the cumulative impact of the Companys adoption of SOP 03-1.[2]
    
    Includes policyholder balances for investment contracts and reserves for future policy
benefits for insurance contracts The Institutional Solutions Group primarily offers customized wealth creation and financial
protection for institutions, corporate and government employers and high net worth individuals
through its three business units: Government, Institutional Investment Products (IIP) and private
placement life insurance (PPLI) (formerly Corporate Owned Life Insurance or COLI). 2004 Compared to 2003-Net income for the year ended December 31, 2004 increased primarily due to
decreases in other expenses related to PPLI business compared to the prior year. The decrease in
other expenses was primarily attributed to a $40 after-tax charge, recorded in the third quarter
ended September 30, 2003, associated with the settlement of the Bancorp litigation. In addition,
the governmental business contributed higher income for the current year. This increase was
primarily attributable to higher revenues earned from the growth in the average account values as a
result of positive net flows and market appreciation since the prior year coupled with improved
spreads and expense management. Partially offsetting increases in segment net income for the current year was lower income from the
IIP and PPLI businesses, excluding the settlement of the Bancorp litigation. For a discussion of
the Bancorp litigation, see Note 12 of Notes to Consolidated Financial Statements. The decrease in
net income in the IIP was due primarily to lower spread income and slightly higher insurance
operating costs for the year ended December 31, 2004 as compared to 2003. In addition, the IIP
reported lower earnings for the current year compared to the prior year due to favorable mortality
experience in 2003. PPLI also experienced lower earnings for the year ended December 31, 2004 as
compared to 2003 due to lower average leveraged COLI account values. 29




---



##### 



Additionally, income tax expense was higher for the current year due primarily to decreases in
other expenses related to the PPLI business, as discussed above. This increase in income tax
expense was partially offset by a higher DRD tax benefit of $11 related to the 2004 tax year, as
compared to the DRD tax benefit of $4 related to the 2003 tax year reported in the prior year
period. 2003 Compared to 2002-Net income decreased in 2003 compared to 2002 principally as a result of
lower income from the PPLI business due to an increase in other expenses. Other expenses increased
due primarily to a $40 after-tax expense, related to the Bancorp litigation expense recorded in
2003 compared with the $11 after-tax expense recorded in 2002. Excluding the expenses associated with the Bancorp litigation, net income increased $4 or 9%,
primarily due to higher income in the institutional investment products business as a result of
favorable mortality experience and growth in average assets over the last twelve months. General
account assets under management related to the IIP increased 32% since December 31, 2002, to $9.9
billion as of December 31, 2003. The increase in general account assets was primarily due to
higher net flows and market appreciation related to institutional annuities and structured
settlement products. Partially offsetting the increase in earnings in the IIP was lower PPLI
income due to the decline in leveraged COLI account values as a result of surrender activity and
lower sales volume of PPLI products in 2003 as compared to the prior year. In addition,
amortization of deferred policy acquisition costs increased as a result of higher sales in the
institutional investment products business. Outlook The future net income of this segment will depend on the Companys ability to increase assets under
management and maintain its investment spread earnings on the majority of the products sold in
largely the IIP and Government businesses. These markets are highly competitive from a pricing
perspective, and a small number of cases often account for a significant portion of sales,
therefore the Company may not be able to sustain the level of assets under management growth
attained in 2004. In 2004, IIP introduced the Hartford Income Notes, a new funding agreement
backed product that provides the Company with opportunity for future growth. This product provides
access to both a multi-billion-dollar retail market, and a nearly trillion dollar institutional
market. These markets are very competitive and the Companys success depends in part on the level
of credited interest rates and the Companys credit rating. The focus of the PPLI business is
variable PPLI products to fund non-qualified benefits or other post employment benefit liabilities.
The leveraged COLI business, while in run-off, has been an important contributor to PPLIs
profitability in recent years and will continue to contribute to the profitability of the Company
albeit at lower levels. The market served by PPLI is subject to extensive legal and regulatory
review that could have an adverse effect on its business. 30




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##### 



INDIVIDUAL LIFE Operating Summary 2004 vs.
    
    2003 vs.2004
    
    2003
    
    2002
    
    2003
    
    2002Change
    
    ChangeFee income and other
    
    $
    767
    
    
    $
    747
    
    
    $
    705
    
    
    
    3
    %
    
    
    6
    %Earned premiums
    
    
    (21
    )
    
    
    (20
    )
    
    
    (8
    )
    
    
    (5
    %)
    
    
    (150
    %)Net investment income
    
    
    302
    
    
    
    256
    
    
    
    262
    
    
    
    18
    %
    
    
    (2
    %)Net realized capital losses
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    Total revenues
    
    

    1,048
    
    
    
    982
    
    
    
    958
    
    
    
    7
    %
    
    
    3
    %Benefits, claims and claim adjustment expenses
    
    
    480
    
    
    
    436
    
    
    
    443
    
    
    
    10
    %
    
    
    (2
    %)Amortization of deferred policy acquisition costs
    
    
    180
    
    
    
    176
    
    
    
    160
    
    
    
    2
    %
    
    
    10
    %Insurance operating costs and other expenses
    
    
    164
    
    
    
    161
    
    
    
    159
    
    
    
    2
    %
    
    
    1
    %Total benefits, claims and expenses
    
    
    824
    
    
    
    773
    
    
    
    762
    
    
    
    7
    %
    
    
    1
    %Income before income tax expense
and cumulative effect of account
change
    
    
    224
    
    
    
    209
    
    
    
    196
    
    
    
    7
    %
    
    
    7
    %Income tax expense
    
    
    70
    
    
    
    64
    
    
    
    63
    
    
    
    9
    %
    
    
    2
    %Income before cumulative effect of
accounting change
    
    
    154
    
    
    
    145
    
    
    
    133
    
    
    
    6
    %
    
    
    9
    %Cumulative effect of accounting change, net of tax[1]
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    $
    153
    
    
    $
    145
    
    
    $
    133
    
    
    
    6
    %
    
    
    9
    %Account ValuesVariable universal life
    
    $
    5,356
    
    
    $
    4,725
    
    
    $
    3,648
    
    
    
    13
    %
    
    
    30
    %Universal life/interest sensitive whole life
    
    
    3,402

    
    
    
    3,259
    
    
    
    3,139
    
    
    
    4
    %
    
    
    4
    %Modified guaranteed life and other
    
    
    729
    
    
    
    742
    
    
    
    770
    
    
    
    (2
    %)
    
    
    (4
    %)Total account values
    
    $
    9,487
    
    
    $
    8,726
    
    
    $
    7,557
    
    
    
    9
    %
    
    
    15
    %Life
Insurance InforceVariable universal life insurance
    
    $
    69,089
    
    
    $
    67,031
    
    
    $
    66,715
    
    
    
    3
    %
    
    
    Universal life/interest sensitive whole life
    
    
    39,109
    
    
    
    38,320
    
    
    
    38,457
    
    
    
    2
    %
    
    
    Modified guaranteed life and other
    
    
    31,691
    
    
    
    25,447
    
    
    
    21,508
    
    
    
    25
    %
    
    
    18
    %Total life insurance inforce
    
    $
    139,889
    
    
    $
    130,798
    
    
    $
    126,680
    
    
    
    7
    %
    
    
    3
    %
   [1]
    
    Represents
the cumulative impact of the Companys adoption of SOP 03-1. The Individual Life segment provides life insurance solutions to a wide array of partners to
solve the wealth protection, accumulation and transfer needs of their affluent, emerging affluent
and business insurance clients. 2004 Compared to 2003-Net income in the Individual Life segment increased for the year ended
December 31, 2004 as compared to the prior year, primarily driven by business growth and improved
investment spreads. Account values and inforce grew 9% and 7% from 2003 to 2004. Net investment
income increased for the current year as compared to the prior year primarily due to the adoption
of SOP 03-1, growth in general account values and prepayments on bonds. The adoption of SOP 03-1
also resulted in increases in benefits, claims and claim adjustment expenses and a decrease to fee
income and other for the year ended December 31, 2004 as compared to the prior year period for the
segments Modified Guarantee Life Insurance product, which was formerly classified as a separate
account product. Fee income increased primarily due to increased cost of insurance charges as life
insurance inforce grew and aged and variable universal life account values increased driven by
favorable equity markets and new sales. The increase in benefits, claims and claim adjustment
expenses was primarily due to the absence in 2004 of the unusually favorable mortality experienced
in 2003, along with continued growth and aging of the inforce. Business growth resulted in
increased insurance operating costs and expenses for the year compared to prior year.
Additionally, income tax expense was higher for the year ended December 31, 2004 due primarily to
earnings growth, as discussed above. Income tax expense includes a DRD tax benefit of $5 related
to the 2004 tax year, whereas, income tax expense for 2003 includes a total DRD tax benefit of $6. 2003 Compared to 2002-Net income increased due to increases in fee income. Fees increased
primarily due to increased cost of insurance charges as life insurance inforce grew and aged, and
variable universal life account values increased 30%, driven by the growth in the equity markets in
2003. Also contributing to the increase in net income was a decrease in benefit costs in 2003 as
compared to 2002 due to favorable mortality rates compared to the prior year. Additionally, net
income for the year ended December 31, 2003 includes the favorable impact of $2 DRD benefit
resulting from the Companys previously discussed change in estimate of 31




---



##### 



the DRD tax benefit reported during 2002. The total DRD benefit related to the 2003 tax year for
the year ended December 31, 2003 was $4 as compared to $3 for the year ended December 31, 2002. Earned premiums, which include premiums for ceded reinsurance, decreased primarily due to increased
use of reinsurance. The decrease in net investment income was due primarily to lower investment
yields. Outlook Individual Life sales grew to $233 in 2004 from $196 in 2003 with renewed customer interest in
variable universal life products and the successful introduction of new universal life and
variable universal life products. Variable universal life sales and account values remain
sensitive to equity market levels and returns. The Company also continues to introduce new and
enhanced products, which are expected to increase new sales. The Company continues to pursue
broader and deeper distribution opportunities to increase sales. However, the Company continues to
face uncertainty surrounding estate tax legislation, aggressive competition from life insurance
providers, reduced availability and higher price of reinsurance, and the current regulatory
environment regarding reserving practices for universal life products with no-lapse guarantees. 32




---



##### 



GROUP BENEFITS Operating Summary 2004 vs.
    
    2003 vs.2003
    
    20022004
    
    2003
    
    2002
    
    Change
    
    ChangeEarned premiums and other
    
    $
    3,652
    
    
    $
    2,362
    
    
    $
    2,327
    
    
    
    55
    %
    
    
    2
    %Net investment income
    
    
    375
    
    
    
    264
    
    
    
    258
    
    
    
    42
    %
    
    
    2
    %Net realized capital gains (losses)
    
    
    1
    
    
    
    (2
    )
    
    
    (3
    )
    
    NM
    
    
    33
    %Total revenues
    
    
    4,028
    
    
    
    2,624
    
    
    
    2,582
    
    
    
    54
    %
    
    
    2
    %Benefits, claims and claim adjustment expenses
    
    
    2,703
    
    
    
    1,862
    
    
    
    1,878
    
    
    
    45
    %
    
    
    (1
    %)Insurance operating costs and other expenses
    
    
    989
    
    
    
    553
    
    
    
    524
    
    
    
    79
    %
    
    
    6
    %Amortization of deferred policy acquisition costs
    
    
    23
    
    
    
    18
    
    
    
    17
    
    
    
    28
    %
    
    
    6
    %Total benefits, claims and expenses
    
    
    3,715
    
    
    
    2,433
    
    
    
    2,419
    
    
    
    53
    %
    
    
    1
    %Income before income tax expense
    
    
    313
    
    
    
    191
    
    
    
    163
    
    
    
    64
    %
    
    
    17
    %Income tax expense
    
    
    84
    
    
    
    43
    
    
    
    35
    
    
    
    95
    %
    
    
    23
    %Net income
    
    $
    229
    
    
    $
    148
    
    
    $
    128
    
    
    
    55
    %
    
    
    16
    %
 2004 vs.
    
    2003 vs.2003
    
    2002Earned Premiums and Other
    
    2004
    
    2003
    
    2002
    
    Change
    
    ChangeFully insured  ongoing premiums
    
    $
    3,611
    
    
    $
    2,302
    
    
    $
    2,295
    
    
    
    57
    %
    
    
    Buyout premiums
    
    
    4
    
    
    
    40
    
    
    
    13
    
    
    
    (90
    %)
    
    NMOther
    
    
    37
    
    
    
    20
    
    
    
    19
    
    
    
    85
    %
    
    
    5
    %Earned premiums and other total
    
    $
    3,652
    
    
    $
    2,362
    
    
    $
    2,327
    
    
    
    55
    %
    
    
    2
    %
 The Group Benefits segment provides employers, associations, affinity groups and financial
institutions with group life, accident and disability coverage, along with other products and
services, including voluntary benefits, employee assistance programs, travel assistance, group
retiree health, and medical stop loss. The Company also offers disability underwriting,
administration, claims processing services and reinsurance to other insurers and self-funded
employer plans. 2004 Compared to 2003-Net income increased for the year ended December 31, 2004 as compared to
the prior year due to earned premium growth and net investment income growth as the result of the
CNA Acquisition. The increase in earned premiums was driven by sales (excluding buyouts) of $632
for the current year, representing an increase of 25% over sales reported in the prior year, and
favorable persistency. Although benefits, claims and claim adjustment expenses increased, the
segments loss ratio was 74% for the current year as compared to 79% for the prior year, which
contributed favorably to net income. The loss ratio for the year was the result of improved
mortality and morbidity experience as well as a change in the mix of business (discussed below)
that results in a lower loss ratio and higher expense ratio. Partially offsetting these favorable
items for current year as compared to the prior year were higher commissions due to higher sales
and premiums previously discussed. Additionally, operating costs increased due to the growth in
the segment and the CNA Acquisition. Consistent with the increase in operating costs, the
segments ratio of insurance operating costs and other expenses to premiums and other
considerations (excluding buyouts) increased to 28% for the year ended December 31, 2004,
respectively, from 25% for prior year. As part of the CNA Acquisition, a larger block of affinity
business is now included in the Group Benefits segment. This business typically has lower expected
loss ratios and higher expected commission ratios than other products within the business. 2003 Compared to 2002-Net income increased primarily due to increases in earned premiums and
favorable claims experience. Premium growth was not as high as anticipated, however, due to lower
sales to new customers in 2003 and lower persistency on renewals reflecting a competitive
marketplace. However, the segment reported an increase in total buyout premiums. Buyouts involve
the acquisition of claim liabilities from another carrier for a purchase price calculated to cover
the run off of those liabilities plus administration expenses and profit. Due to the nature of the
buyout marketplace, the predictability of buyout premiums is uncertain. Although, total benefits,
claims and expenses increased for the year ended December 31, 2003, total benefits, claims and
expenses excluding buyouts decreased $43, or 2%, over the same period. The segments loss ratio
was 79%, down from 81% in 2002. Partially offsetting these factors that contributed to the
increased net income was an increase in insurance operating costs and other expenses due to the
premium growth previously described and continued investments in technology, service and
distribution. The segments ratio of insurance operating costs and other expenses to premiums and
other considerations, excluding buyouts, was 25%, increasing slightly from 23% in 2002. 33




---



##### 



Outlook Following the majority of the integration effort of the acquired group life and accident, and
short-term and long-term disability businesses of CNA Financial Corporation, the Company
anticipates the increased scale of the group life and disability operations and the expanded
distribution network for its products and services will generate low double digit sales growth in
2005. Sales, however, may be negatively affected by the competitive pricing environment in the
marketplace. Management is committed to selling competitively priced products that meet the
Companys internal rate of return guidelines. The two significant factors in evaluating this
business are the loss ratio and the expense ratio. Based on historical experience trends and
variability in the Group Benefits business, management expects the loss ratio in future periods to
be in the range of 73% to 76% and the expense ratio to be in the range of 27% to 29%. Despite the current market conditions, including low interest rates, rising medical costs, the
changing regulatory environment and cost containment pressure on employers, the Group Benefits
segment continues to leverage off of its strength in claim practices, risk management, service and
distribution, enabling the Company to capitalize on market opportunities. Additionally, employees
continue to look to the workplace for a broader and ever expanding array of insurance products. As
employers design benefit strategies to attract and retain employees, while attempting to control
their benefit costs, management believes that the need for the Group Benefits segments products
will continue to expand. This, combined with the significant number of employees who currently do
not have coverage or adequate levels of coverage, creates unique opportunities for our products and
services. INVESTMENTS General The investment portfolios of the Company are managed by Hartford Investment Management Company
(HIM), a wholly-owned subsidiary of The Hartford. HIM manages the portfolios to maximize
economic value, while attempting to generate the income necessary to support the Companys various
product obligations, within internally established objectives, guidelines and risk tolerances. The
portfolio objectives and guidelines are developed based upon the asset/liability profile, including
duration, convexity and other characteristics within specified risk tolerances. The risk
tolerances considered include, for example, asset and credit issuer allocation limits, maximum
portfolio below investment grade (BIG) holdings and foreign currency exposure. The Company
attempts to minimize adverse impacts to the portfolio and the results of operations due to changes
in economic conditions through asset allocation limits, asset/liability duration matching and
through the use of derivatives. (For a further discussion of how the investment portfolios credit
and market risks are assessed and managed, see the Investment Credit Risk and Capital Markets Risk
Management sections of the MD&A.) HIMs security selection process is a multi-dimensional approach that combines independent internal
credit research along with a macro economic outlook of technical trends (e.g. interest rates, slope
of the yield curve and credit spreads) and market pricing to identify valuation inefficiencies and
relative value buying and selling opportunities. Security selection and monitoring is performed by
asset class specialists working within dedicated portfolio management teams. HIM portfolio managers may sell securities, except those securities in an unrealized loss position
for which the Company has indicated its intent and ability to hold until the price recovers, due to
portfolio guidelines or market technicals or trends. For example, the Company may sell securities
to capture market valuation inefficiencies or relative value opportunities through security or
sector rotation, to remain compliant with internal asset/liability duration matching guidelines
often times a result of changes in interest rates, or to modify a portfolios duration to
capitalize on interest rate levels or yield curve slope. HIM believes that advantageously buying and selling securities within a structured purchasing,
monitoring and selling framework, provides the greatest economic value for the Company over the
long-term. The primary investment objective of Hartford Lifes general account is to maximize after-tax
returns consistent with acceptable risk parameters, including the management of the interest rate
sensitivity of invested assets and the generation of sufficient liquidity relative to that of
policyholder and corporate obligations, as discussed in the Capital Markets Risk Management section
of the MD&A under Market Risk  Key Market Risk Exposures. Pursuant to the adoption of SOP 03-1, as discussed in Note 2 of Notes to Consolidated Financial
Statements, on January 1, 2004, the Company reclassified $18.1 billion of separate account assets
to the general account. Of this amount, $11.7 billion was associated with guaranteed separate
accounts and was primarily comprised of fixed maturities. These assets are classified as
available-for-sale securities with changes in fair value reported in other comprehensive income.
In addition, $6.2 billion is primarily comprised of equity securities related to variable annuity
products offered in Japan. These assets are classified as trading securities with changes in fair
value reported in net investment income. The remaining amount of $200 related to policy loans on
private placement life insurance products. 34




---



##### 



Return on general account invested assets is an important element of Hartford Lifes financial
results. Significant fluctuations in the fixed income or equity markets could weaken the Companys
financial condition or its results of operations. Additionally, changes in market interest rates
may impact the period of time over which certain investments, such as mortgage-backed securities,
are repaid and whether certain investments are called by the issuers. Such changes may, in turn,
impact the yield on these investments and also may result in reinvestment of funds received from
calls and prepayments at rates below the average portfolio yield. Net investment income and net
realized capital gains and losses accounted for approximately 36%, 26% and 22% of the Companys
consolidated revenues for the years ended December 31, 2004, 2003 and 2002, respectively. The
increase in the percentage of consolidated revenues for 2004, as compared to the prior years, is
primarily due to income earned on separate account assets reclassified to the general account as a
result of the adoption of SOP 03-1. Fluctuations in interest rates affect the Companys return on, and the fair value of, general
account fixed maturity investments, which comprised approximately 74% and 91% of the fair value of
its invested assets as of December 31, 2004 and 2003, respectively. Other events beyond the
Companys control could also adversely impact the fair value of these investments. Specifically, a
downgrade of an issuers credit rating or default of payment by an issuer could reduce the
Companys investment return. The Company invests in private placement securities, mortgage loans and limited partnership
arrangements in order to further diversify its investment portfolio. These investment types
comprised approximately 17% and 19% of the fair value of its invested assets as of December 31,
2004 and 2003, respectively. These security types are typically less liquid than direct
investments in publicly traded fixed income or equity investments. However, generally these
securities have higher yields to compensate for the liquidity risk. A decrease in the fair value of any investment that is deemed other-than-temporary would result in
the Companys recognition of a net realized capital loss in its financial results prior to the
actual sale of the investment. (For a further discussion of the evaluation of other-than-temporary
impairments, see the Critical Accounting Estimates section of the MD&A under Valuation of
Investments and Derivative Instruments and Evaluation of Other-Than-Temporary Impairments.) The following table identifies the invested assets by type held in the general account as of
December 31, 2004 and 2003. Composition of Invested Assets2004
    
    2003Amount
    
    Percent
    
    Amount
    
    PercentFixed maturities, available-for-sale, at fair value
    
    $
    50,531
    
    
    
    73.5
    %
    
    $
    37,462
    
    
    
    91.0
    %Equity securities, available-for-sale, at fair value
    
    
    525
    
    
    
    0.8
    %
    
    
    357
    
    
    
    0.9
    %Equity securities, held for trading, at fair value
    
    
    13,634
    
    
    
    19.8
    %
    
    
    
    
    
    
    Policy loans, at outstanding balance
    
    
    2,662
    
    
    
    3.9
    %
    
    
    2,512
    
    
    
    6.1
    %Mortgage loans, at cost
    
    
    923
    
    
    
    1.3
    %
    
    
    466
    
    
    
    1.1
    %Limited partnerships, at fair value
    
    
    256
    
    
    
    0.4
    %
    
    
    177
    
    
    
    0.4
    %Other investments
    
    
    185
    
    
    
    0.3
    %
    
    
    180
    
    
    
    0.5
    %Total investments
    
    $
    68,716
    
    
    
    100.0
    %
    
    $
    41,154
    
    
    
    100.0
    %
 Fixed maturity investments and equity securities held for trading increased 35% and 100%,
respectively, since December 31, 2003, primarily the result of fixed maturities and equity
securities that were reclassified from separate accounts to the general account as a result of the
adoption of SOP 03-1 coupled with positive operating cash flow. Mortgage loans increased $457, or 98%, since December 31, 2003, as a result of a decision to
increase the Companys investment in this asset class primarily due to its attractive yields and
diversification opportunities. 35




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##### 



Investment Results The following table summarizes the Companys investment results. (before-tax)
    
    2004
    
    
    2003
    
    
    2002Net investment income  excluding income on policy loan and
trading securities
    
    $
    2,690
    
    
    $
    1,831
    
    
    $
    1,595Policy loan income
    
    
    186
    
    
    
    210
    
    
    
    254Trading securities income [1]
    
    
    1,018
    
    
    
    
    
    
    
    Net investment income  total
    
    $
    3,894
    
    
    $
    2,041
    
    
    $
    1,849Yield on average invested assets [2]
    
    
    5.8
    %
    
    
    6.0
    %
    
    
    6.1
    %Gross gains on sale
    
    
    359
    
    
    
    267
    
    
    
    175Gross losses on sale
    
    
    (147
    )
    
    
    (95
    )
    
    
    (112
    )Impairments
    
    
    (25
    )
    
    
    (162
    )
    
    
    (380
    )Periodic net coupon settlements on non-qualifying derivatives
    
    
    6
    
    
    
    26
    
    
    
    9GMWB derivatives, net gains before DAC
    
    
    8
    
    
    
    6
    
    
    
    Other, net [3]
    
    
    (52
    )
    
    
    (2
    )
    
    
    Net realized capital gains (losses), before-tax
    
    $
    149
    
    
    $
    40
    
    
    $
    (308
    )
   [1]
    
    Represents the change in value of securities classified as trading.[2]
    
    Represents annualized net investment income (excluding the change in fair value of trading securities) divided by the
monthly weighted average invested assets at cost or amortized cost, as applicable, excluding trading securities and the
collateral received associated with the securities lending program. Also, for 2003, the fixed maturities associated
with the acquisition of CNAs group life and accident, long-term and short-term disability and certain specialty
businesses are excluded from the weighted average invested assets.[3]
    
    Primarily consists of changes in fair value on non-qualifying derivatives and hedge ineffectiveness on qualifying
derivative instruments, as well as, the amortization of deferred acquisition costs. 2004 Compared to 2003 Net investment income, excluding income on policy loans and trading
securities, increased $859, or 47%, compared to the prior year. The increase in net investment
income was primarily due to income earned on a higher average invested assets base, as compared to
the prior year, and an increase in income from prepayment penalties primarily associated with
commercial mortgage-backed securities (CMBS) and yield adjustments related to changes in
prepayment speeds associated with mortgage-backed securities (MBS) held at a premium or discount.
These increases were partially offset by a decrease in the average new invested asset yield and
the repositioning of the portfolio into higher quality assets as described below. The increase in the average invested assets base, as compared to the prior year, was primarily the
result of separate account assets reclassified to the general account pursuant to the adoption of
SOP 03-1 and, to a lesser extent, assets acquired in the CNA acquisition and operating cash flows.
Income earned on separate account assets reclassified to the general account, excluding trading
securities, was $619 for 2004. Income earned on assets acquired in the CNA transaction was $116
for 2004. During 2004, the yield on average invested assets decreased from the prior year as a result of new
investment purchases at rates below the average portfolio yield due to the continued low interest
rate environment and decreased policy loan income. Since the Company invests primarily in
long-term fixed rate debt securities, current period changes in long-term interest rates impact the
yield on new asset purchases and, therefore, have a gradual impact on the overall portfolio yield.
The weighted average yield on new invested asset purchases in 2004 of approximately 4.9%,
before-tax, continues to be below the average portfolio yield. The Company expects the average
before-tax new investment yields in 2005 to range from 4.8% to 5.0%. If future interest rates
differ from the forward rates as of December 31, 2004, the actual average new investment yields may
be significantly different than yields currently expected. Net realized capital gains during 2004 increased by $109 compared to the prior year, primarily the
result of lower other-than-temporary impairments. (For further discussion of other-than-temporary
impairments, see the Other-Than-Temporary Impairments commentary in this section of the MD&A.) In 2004, gross gains were realized as fixed maturity credit spreads tightened and portions of the
Companys portfolios were repositioned into higher quality assets where HIM believed greater
relative value existed. Credit spreads tightened primarily due to improved credit quality, market
liquidity and demand for higher yielding assets, as well as the relatively low interest rate
environment. It is expected that the higher quality assets will provide greater liquidity if the
credit environment and issuer default rates return to historical norms. In addition, foreign
government securities were sold, primarily in the first and fourth quarters of 2004, to reduce the
portfolios exposure to foreign holdings and realize gains associated with the decline in value of
the U.S. dollar against foreign currencies. In 2004, securities sold at a loss were predominantly corporate securities, U.S. government
securities, certain asset-backed securities (ABS) and CMBS with no single security sold at a loss
in excess of $5 and an average loss as a percentage of the fixed maturitys amortized cost of less
than 5%, which under the Companys current impairment policy, were deemed to be depressed only to a
minor extent. In 2003, no single security was sold at a loss in excess of $8. 36




---



##### 



2003 Compared to 2002 Net investment income, excluding policy loan income, increased $236, or
15%, compared to the prior year. The increase was primarily due to income earned on a higher
invested asset base partially offset by lower investment yields. Policy loan income decreased
primarily due to the decline in leveraged COLI policies, as a result of surrender activity and
lower sales. Yield on average invested assets decreased as a result of lower rates on new
investment purchases and decreased policy loan income. Net realized capital gains (losses) for 2003 increased by $348 compared to the prior year,
primarily as a result of net gains on sales of fixed maturities and a decrease in
other-than-temporary impairments on fixed maturities. Sales were the result of normal trading
activity and were primarily attributable to the improvement in the corporate credit environment,
general economic conditions and operating fundamentals, the decrease in interest rates and improved
pricing levels for ABS. (For a further discussion of other-than-temporary impairments, see the
Other-Than-Temporary Impairments commentary in this section of the MD&A.) Separate Account Products Separate account products are those for which a separate investment and liability account is
maintained on behalf of the policyholder. Prior to January 1, 2004, the Companys separate accounts
reflected two categories of risk assumption: non-guaranteed separate accounts wherein the
policyholder assumes substantially all the risk and reward; and guaranteed separate accounts
wherein the Company contractually guarantees either a minimum return or the account value to the
policyholder. Effective January 1, 2004, the guaranteed separate accounts are included with
general account assets pursuant to SOP 03-1. As of December 31, 2004, the Companys separate
accounts totaled $140.0 billion. As of December 31, 2003, the Companys total separate accounts
totaled $136.6 billion, of which $12.1 billion was guaranteed separate accounts. Investment objectives for non-guaranteed separate accounts, which consist of the participants
account balances, vary by fund account type, as outlined in the applicable fund prospectus or
separate account plan of operations. Separate account products include variable annuities,
variable universal life insurance contracts and variable COLI. The assets and liabilities
associated with variable annuity products sold in Japan do not meet the criteria to be recognized
as a separate account because the assets are not legally insulated from the Company. Therefore,
these assets are also included with general account assets effective January 1, 2004. Products, previously recorded as guaranteed separate accounts but now recorded in the general
account upon adoption of SOP 03-1, primarily consist of modified guaranteed individual annuities
and modified guaranteed life insurance and generally include market value adjustment features and
surrender charges to mitigate the risk of disintermediation. The primary investment objective of
these assets is to maximize after-tax returns consistent with acceptable risk parameters, including
the management of the interest rate sensitivity of invested assets relative to that of policyholder
obligations, as discussed in the Capital Markets Risk Management section of the MD&A under Market
Risk  Key Market Risk Exposures. Investment Management Activities During 2004, HIM issued one and began serving as the collateral asset manager for an additional
synthetic collateralized loan obligation (CLO), both of which the Company has an investment in.
The synthetic CLOs invest in senior secured bank loans through total return swaps (referenced bank
loan portfolios). The notional value of the referenced bank loan portfolios from the two
synthetic CLOs as of December 31, 2004 was approximately $700. The synthetic CLOs issued
approximately $135 of notes and preferred shares (CLO issuances), approximately $120 of which was
to third party investors. The proceeds from the CLO issuances were invested in collateral accounts
consisting of high credit quality securities that were pledged to the referenced bank loan
portfolios swap counterparties. Investors in the CLO issuances receive the net proceeds from the
referenced bank loan portfolios. Any principal losses incurred by the swap counterparties
associated with the referenced bank loan portfolios are borne by the CLO issuances investors
through the total return swaps. Pursuant to the requirements of FIN 46R, the Company has concluded that the two synthetic CLOs are
variable interest entities (VIEs) and for the CLO issued in 2004, the Company is the primary
beneficiary and must consolidate this CLO. Accordingly, the Company has recorded in the
consolidated balance sheets $65 of cash and invested assets, total return swaps with a fair value
of $3 in other assets, which reference a bank loan portfolio with a maximum notional of $400, and
$52 in other liabilities related to the CLO issuances. The total return from the referenced bank
loan portfolio of $3 was received via the total return swap and recorded in realized capital gains
and losses. Income from the fixed maturity collateral account and CLO issuance investor payments
were recorded in net investment income in the consolidated statements of income. The Companys
investment in the consolidated synthetic CLO issuance is $14, which is its maximum exposure to
loss. In addition, the Company has a $2 preferred share investment in the non-consolidated
synthetic CLO issuance, which is its maximum exposure to loss. The investors in the two synthetic
CLO issuances have recourse only to the VIE assets and not to the general credit of the Company. Other-Than-Temporary Impairments The Company has a security monitoring process overseen by a committee of investment and accounting
professionals that, on a quarterly basis, identifies securities that could potentially be
other-than-temporarily impaired. When a security is deemed to be other-than-temporarily impaired
its carrying amount is written-down to current market value and a realized loss is recorded in the
Companys consolidated statements of income. (For further discussion regarding the Companys
other-than-temporary impairment policy, see 37




---



##### 



Valuation of Investments and Derivative Instruments and Evaluation of Other-Than-Temporary
Impairments included in the Critical Accounting Estimates section of the MD&A and Note 2 of Notes
to Consolidated Financial Statements.) The following table identifies the Companys other-than-temporary impairments by type. Other-Than-Temporary Impairments by Type(before-tax)
    
    2004
    
    
    2003
    
    
    2002ABSAircraft lease receivables
    
    $
    2
    
    
    $
    29
    
    
    $
    73Collaterized debt obligations (CDO)
    
    
    4
    
    
    
    21
    
    
    
    35Credit card receivables
    
    
    3⁄4
    
    
    
    12
    
    
    
    9Manufactured housing (MH) receivables
    
    
    3⁄4
    
    
    
    9
    
    
    
    14Mutual fund fee receivables
    
    
    3⁄4
    
    
    
    3
    
    
    
    16Other ABS
    
    
    3⁄4
    
    
    
    8
    
    
    
    16Total ABS
    
    
    6
    
    
    
    82
    
    
    
    163Commercial mortgages
    
    
    3
    
    
    
    
    
    
    
    CMBS
    
    
    3
    
    
    
    5
    
    
    
    4CorporateFood and beverage
    
    
    3
    
    
    
    25
    
    
    
    Technology and communications
    
    
    1
    
    
    
    3
    
    
    
    142Transportation
    
    
    3⁄4
    
    
    
    7
    
    
    
    1Utilities
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    23Other Corporate
    
    
    3⁄4
    
    
    
    12
    
    
    
    19Total Corporate
    
    
    4
    
    
    
    47
    
    
    
    185Equity
    
    
    7
    
    
    
    21
    
    
    
    17Foreign government
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    11MBS  interest only securities
    
    
    2
    
    
    
    7
    
    
    
    3⁄4Total other-than-temporary impairments
    
    $
    25
    
    
    $
    162
    
    
    $
    380
 The decrease in other-than-temporary impairments during 2003 and 2004 in comparison to 2002 levels
is due to an improvement in the corporate credit environment, general economic conditions and
operating fundamentals, and improved pricing levels for ABS. In general, security issuers
operating fundamentals have improved due to reduced company leverage, improved liquidity and the
successful implementation of various cost cutting measures. Improvement in pricing levels for ABS
has been driven by a general stabilization in the performance of the underlying collateral and an
increase in demand for these asset types due to improved economic and operating fundamentals of the
underlying security issuers, better market liquidity and attractive yields. The following
discussion provides an analysis of significant other-than-temporary impairments recognized during
2004, 2003 and 2002, the related circumstances giving rise to the other-than-temporary impairments
and the potential impact such circumstances may have on other material investments held. 2004 During 2004 there were no significant other-than-temporary impairments (e.g. $15 or greater)
recorded on any single security or issuer. In aggregate, other-than-temporary impairments recorded
on ABS and corporate fixed maturity primarily relate to the decline in market values of certain
previously impaired securities. Other-than-temporary impairments recorded on equity securities
primarily related to variable rate perpetual preferred securities issued by two highly rated
financial services companies. These securities are variable rate securities with unique structural
interest rate reset characteristics that have sustained a decline in market value for an extended
period of time primarily as a result of the increase in short-term interest rates after the
securitys interest rate reset period. As of December 31, 2004, the Company did not hold other
perpetual preferred securities in an unrealized loss position with similar interest rate reset
characteristics. 2003 During 2003, other-than-temporary impairments were primarily recorded on ABS, corporate fixed
maturities and equity securities. The ABS other-than-temporary impairments were primarily due to
the continued deterioration of the underlying collateral supporting the various transactions. A
significant portion of corporate fixed maturity other-than-temporary impairments during 2003
resulted from various issuers who experienced fraud or accounting irregularities. In addition,
during the first half of the year, corporate debt issuers in the transportation sector,
specifically issuers in the airline sector, deteriorated as a result of the continued decline in
airline travel. During 2003, there was one security for which a significant (e.g. $15 or greater)
other-than-temporary impairment was recorded, the circumstances of which are discussed in more
detail below.  
    The $25 of impairments on corporate fixed maturities within the food and beverage sector
related to securities issued by the Italian dairy concern, Parmalat SpA. Parmalat filed for
bankruptcy in December 2003 due to liquidity problems when it was discovered that 4 billion
euros of liquid investments previously reported on its balance sheet were non-existent. 38




---



##### 



The following list identifies ABS and equity impairment losses recognized in 2003 that by issuer
did not exceed $15 but did when combined with securities supported with similar collateral or
equity security types. The circumstances giving rise to those losses are as follows:  
    The $29 of other-than-temporary impairments recognized on ABS
supported by aircraft lease receivables primarily consisted of
investments in lower tranches of four transactions. These
securities are supported by aircraft leases and enhanced equipment
trust certificates (together, aircraft lease receivables) issued
by multiple airlines that had sustained a steep decline in market
value and adverse change in expected cash flows due to continued
lower aircraft lease rates, airline bankruptcies and the prolonged
decline in airline travel.
    The $21 of CDO other-than-temporary impairments consisted of
approximately eight securities, the majority of which were
interests in the lower tranches of securities backed by high yield
corporate debt. These impairments were primarily the result of
continued high default rates in 2003 and lower expected recovery
rates on the CDOs underlying collateral.
    The $21 of the other-than-temporary impairments recorded on equity
securities primarily related to various diversified mutual funds.
The market values of these funds had fallen since the date of
purchase due to declines in primarily the equity markets and were
not expected to recover within a reasonable period of time. Due
to the severity of the price depression and length of time the
holdings were in an unrealized loss position, these securities
were deemed to be other-than-temporarily impaired. In addition to the impairments described above, fixed maturity and equity securities were sold at
losses during 2003, with no single security sold at a loss in excess of $8. 2002 During 2002, other-than-temporary impairments on ABS were primarily driven by collateral
deterioration associated with securities backed by aircraft lease receivables and high yield debt.
Impairments recognized on corporate fixed maturities were concentrated in the technology and
communications sector and were primarily driven by weakening economic conditions and operating
fundamentals in this sector. Other-than-temporary impairments were also recorded on equity
securities, the majority of which related to various diversified mutual funds. The market values
of these funds had fallen since the date of purchase due to declines in the bond and equity markets
and were not expected to recover within a reasonable period of time. Due to the severity of the
price depression and length of time the holdings were in an unrealized loss position, these
securities were deemed to be other-than-temporarily impaired. During 2002, there were 4 securities
for which a significant (e.g. $15 or greater) other-than-temporary impairment was recorded which
are discussed in more detail below.  
    Of the technology and communications sector impairments, $81
related to securities issued by WorldCom and its subsidiary MCI,
which filed for Chapter 11 bankruptcy protection in July 2002 as a
result of liquidity problems driven by economic and operating
weakness in this sector, and specific issues related to accounting
fraud.
    Of the $73 of impairments relating to ABS backed by aircraft lease
receivables, $33 related to investments in the lower tranches of
one transaction that experienced a steep decline in fair value as
a result of a significant decrease in aircraft lease payments and
lower appraised values on the underlying collateral. This
transaction was primarily supported by lower quality aircraft and
was significantly impacted by the decline in airline travel and
numerous airline bankruptcies resulting from the catastrophic
events of September 11, 2001. The remaining $40 of impairments on
aircraft lease receivables were primarily related to two other
transactions that were also adversely impacted by similar
circumstances surrounding the airline industry in 2002.
    In the technology and telecommunications sector, $22 of
impairments were recognized on fixed maturity securities issued by
a major U.S. telecom equipment manufacturer. This issuer had
amassed high levels of debt to acquire assets and subsequently
experienced liquidity difficulties due to the downturn in demand
and economic conditions within the technology and
telecommunications sector. As a result, this issuer initiated a
debt restructuring in 2002. The following identifies ABS impairment losses recognized in 2002 that by issuer did not exceed $15
but did when combined with securities supported with similar collateral. The circumstances giving
rise to those losses are as follows:  
    The $35 of CDO impairments consisted of approximately eight securities, the majority of
which were interests in the lower tranches of transactions backed by high yield corporate
debt. These impairments were primarily driven by deterioration in the underlying collateral
resulting from corporate bankruptcies and above average defaults on high yield bonds. In addition to the impairments described above, fixed maturity and equity securities were sold at
losses during 2002, with no single security sold at a loss in excess of $13. The favorable other-than-temporary impairments trend will depend on continued strong economic
fundamentals, political stability and collateral performance. In addition, as discussed in Note 2
of Notes to Consolidated Financial Statements, the future adoption of EITF Issue No. 03-1 could
result in the recognition of additional other-than-temporary impairments. While the ultimate
impact of the adoption of this standard is still unknown, depending on the nature of the ultimate
guidance, adoption of this standard could potentially result in the recognition of unrealized
losses, including those declines in value that are attributable to interest rate movements, as
other-than-temporary impairments, except those deemed to be minor in nature. As of December 31,
2004, the Company had $184 of total 39




---



##### 



gross unrealized losses. The amount of impairments to be recognized, if any, will depend on the
final standard, market conditions and managements intent and ability to hold securities with
unrealized losses at the time of the impairment evaluation. (For further discussion of risk
factors associated with sectors with significant unrealized loss positions, see the sector risk
factor commentary under the Total Available-for-Sale Securities with Unrealized Loss Greater than
Six Months by Type schedule in the Investment Credit Risk section of the MD&A.) INVESTMENT CREDIT RISK The Company has established investment credit policies that focus on the credit quality of
obligors and counterparties, limit credit concentrations, encourage diversification and require
frequent creditworthiness reviews. Investment activity, including setting of policy and defining
acceptable risk levels, is subject to regular review and approval by senior management and by the
Finance Committee of The Hartfords Board of Directors. The Company invests primarily in securities which are rated investment grade and has established
exposure limits, diversification standards and review procedures for all credit risks including
borrower, issuer and counterparty. Creditworthiness of specific obligors is determined by an
internal credit evaluation supplemented by consideration of external determinants of
creditworthiness, typically ratings assigned by nationally recognized ratings agencies. Obligor,
asset sector and industry concentrations are subject to established Company limits and monitored on
a regular basis. The Company is not exposed to any credit concentration risk of a single issuer greater than 10% of
the Companys stockholders equity other than certain U.S. government and government agencies. Derivative Instruments The Companys derivative counterparty exposure policy establishes market-based credit limits,
favors long-term financial stability and creditworthiness and typically requires credit
enhancement/credit risk reducing agreements. Credit risk is measured as the amount owed to the
Company based on current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are generally quantified daily, netted by counterparty
for each legal entity of the Company, and collateral is pledged to and held by, or on behalf of,
the Company to the extent the current value of derivatives exceeds the exposure policy thresholds
which do not exceed $10. The Company also minimizes the credit risk in derivative instruments by
entering into transactions with high quality counterparties rated Aa/A or better, which are
monitored by the Companys internal compliance unit and reviewed frequently by senior management.
In addition, the compliance unit monitors counterparty credit exposure on a monthly basis to ensure
compliance with Company policies and statutory limitations. The Company also maintains a policy of
requiring that all derivative contracts be governed by an International Swaps and Dealers
Association Master Agreement which is structured by legal entity and by counterparty and permits
right of offset. To date, the Company has not incurred any losses on derivative instruments due to
counterparty nonperformance. In addition to counterparty credit risk, the Company periodically enters into swap agreements in
which the Company assumes credit exposure from a single entity, referenced index or asset pool.
Total return swaps involve the periodic exchange of payments with other parties, at specified
intervals, calculated using the agreed upon index and notional principal amounts. Generally, no
cash or principal payments are exchanged at the inception of the contract. Typically, at the time
a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value. Credit default swaps involve a transfer of credit risk from one party to another in exchange for
periodic payments. One party to the contract will make a payment based on an agreed upon rate and
a notional amount. The second party, who assumes credit exposure will only make a payment when
there is a credit event, and such payment will be equal to the notional value of the swap contract
less the value of the referenced security issuer debt obligation. A credit event is generally
defined as default on contractually obligated interest or principal payments or bankruptcy. The
average S&P rating for these referenced security issuer debt obligations is A-. The Company also uses credit defaults swaps to reduce its credit exposure by entering into
agreements in which the Company pays a derivative counterparty a periodic fee in exchange for
compensation from the counterparty should a credit event occur on the part of the referenced
security issuer. The Company entered into these agreements as an efficient means to reduce credit
exposure to the specified issuers. The average S&P rating for all of these referenced securities
issuers is A. As of December 31, 2004 and 2003, the notional value of total return and credit default swaps
totaled $1.6 billion and $534, respectively, and the swap fair value totaled $6 and $(16),
respectively. 40




---



##### 



Fixed Maturities The following table identifies fixed maturity securities by type as of December 31, 2004 and 2003. Fixed Maturities by Type2004
    
    2003Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of TotalAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    ValueABS
    
    $
    6,346
    
    
    $
    76
    
    
    $
    (64
    )
    
    $
    6,358
    
    
    
    12.6
    %
    
    $
    5,397
    
    
    $
    113
    
    
    $
    (101
    )
    
    $
    5,409
    
    
    
    11.0
    %CMBS
    
    
    8,456
    
    
    
    370
    
    

    
    (20
    )
    
    
    8,806
    
    
    
    17.5
    %
    
    
    7,757
    
    
    
    432
    
    
    
    (21
    )
    
    
    8,168
    
    
    
    16.6
    %Collateralized mortgage
obligations (CMOs)
    
    
    1,084
    
    
    
    11
    
    
    
    (3
    )
    
    
    1,092
    
    
    
    2.2
    %
    
    
    1,023
    
    
    
    15
    
    
    
    (3
    )
    
    
    1,035
    
    
    
    2.1
    %CorporateBasic industry
    
    
    2,412
    
    
    
    192
    
    
    
    (6
    )
    
    
    2,598
    
    
    
    5.1
    %
    
    
    2,509
    
    
    
    176
    
    
    
    (10
    )
    
    
    2,675
    
    
    
    5.4
    %Capital goods
    
    
    1,554
    
    
    
    126
    
    
    
    (6
    )
    
    
    1,674
    
    
    
    3.3
    %
    
    
    1,555
    
    
    
    113
    
    
    
    (6
    )
    
    
    1,662
    
    
    
    3.4
    %Consumer cyclical
    
    
    2,426
    
    
    
    163
    
    
    
    (8
    )
    
    
    2,581
    
    
    
    5.1
    %
    
    
    2,513
    
    
    
    164
    
    
    
    (6
    )
    
    
    2,671
    
    
    
    5.4
    %Consumer non-cyclical
    
    
    2,506
    
    
    
    207
    
    
    
    (6
    )
    
    
    2,707
    
    
    
    5.4
    %
    
    
    2,735
    
    
    
    198
    
    
    
    (9
    )
    
    
    2,924
    
    
    
    5.9
    %Energy
    
    
    1,251
    
    
    
    122
    
    
    
    (1
    )
    
    
    1,372
    
    
    
    2.7
    %
    
    
    1,485
    
    
    
    118
    
    
    
    (5
    )
    
    
    1,598
    
    
    
    3.2
    %Financial services
    
    
    6,202
    
    
    
    482
    
    
    
    (22
    )
    
    
    6,662
    
    
    
    13.2
    %
    
    
    5,842
    
    
    
    442
    
    
    
    (28
    )
    
    
    6,256
    
    
    
    12.7
    %Technology and
communications
    
    
    3,570
    
    
    
    342
    
    
    
    (11
    )
    
    
    3,901
    
    
    
    7.7
    %
    
    
    3,771
    
    
    
    382
    
    
    
    (11
    )
    
    
    4,142
    
    
    
    8.5
    %Transportation
    
    
    622
    
    
    
    44
    
    
    
    (1
    )
    
    
    665
    
    
    
    1.3
    %
    
    
    633
    
    
    
    43
    
    
    
    (3
    )
    
    
    673
    
    
    
    1.4
    %Utilities
    
    
    2,317
    
    
    
    230
    
    
    
    (7
    )
    
    
    2,540
    
    
    
    5.0
    %
    
    
    2,118
    
    
    
    172
    
    
    
    (11
    )
    
    
    2,279
    
    
    
    4.6
    %Other
    
    
    785
    
    
    
    49
    
    
    
    (2
    )
    
    
    832
    
    
    
    1.6
    %
    
    
    638
    
    
    
    36
    
    
    
    (1
    )
    
    
    673
    
    
    
    1.4
    %Government/Government
agenciesForeign
    
    
    723
    
    
    
    67
    
    
    
    (2
    )
    
    
    788
    
    
    
    1.6
    %
    
    
    866
    
    
    
    87
    
    
    
    (1
    )
    
    
    952
    
    
    
    1.9
    %United States
    
    
    884
    
    
    
    19
    
    
    
    (5
    )
    
    
    898
    
    
    
    1.8
    %
    
    
    1,100
    
    
    
    30
    
    
    
    (4
    )
    
    
    1,126
    
    
    
    2.3
    %MBS  agency
    
    
    1,771
    
    
    
    20
    
    
    
    (3
    )
    
    
    1,788
    
    
    
    3.5
    %
    
    
    2,145
    
    
    
    32
    
    
    
    (2
    )
    
    
    2,175
    
    
    
    4.4
    %MunicipalTaxable
    
    
    700
    
    
    
    30
    
    
    
    (5
    )
    
    
    725
    
    
    
    1.4
    %
    
    
    401
    
    
    
    14
    
    
    
    (7
    )
    
    
    408
    
    
    
    0.9
    %Tax-exempt
    
    
    2,080
    
    
    
    191
    
    
    
    (1
    )
    
    
    2,270
    
    
    
    4.5
    %
    
    
    1,850
    
    
    
    168
    
    
    
    (1
    )
    
    
    2,017
    
    
    
    4.1
    %Redeemable preferred
stock
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    32
    
    
    
    1
    
    
    
    
    
    
    
    33
    
    
    
    0.1
    %Short-term
    
    
    2,261
    
    
    
    
    
    
    
    
    
    
    
    2,261
    
    
    
    4.5
    %
    
    
    2,319
    
    
    
    2
    
    
    
    
    
    
    
    2,321
    
    
    
    4.7
    %Total fixed maturities
    
    $
    47,962
    
    
    $
    2,742
    
    
    $
    (173
    )
    
    $
    50,531
    
    
    
    100.0
    %
    
    $
    46,689
    
    
    $
    2,738
    
    
    $
    (230
    )
    
    $
    49,197
    
    
    
    100.0
    %Total general account
fixed maturities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,569
    
    
    $
    2,051
    
    
    $
    (158
    )
    
    $
    37,462
    
    
    
    76.1
    %Total guaranteed
separate account fixed
maturities [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,120
    
    
    $
    687
    
    
    $
    (72
    )
    
    $
    11,735
    
    
    
    23.9
    %
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. The Companys fixed maturity portfolio gross unrealized gains and losses as of December 31,
2004 in comparison to December 31, 2003 were primarily impacted by changes in interest rates,
foreign currency exchange rates, credit spreads and security sales. The Companys fixed maturity
gross unrealized gains increased slightly from December 31, 2003 to December 31, 2004 primarily due
to credit spread tightening and changes in foreign currency exchange rates offset by sales of
securities in a gain position and the increase in interest rates (e.g. short-term through five-year
rates). The gross unrealized loss amount decreased from December 31, 2003 to December 31, 2004
primarily due to credit spread tightening, improved pricing levels for certain CDOs and ABS,
security sales and, to a lesser extent, other-than-temporary impairments, offset by interest rate
increases. (For further discussion of risk factors associated with sectors with significant unrealized loss
positions, see the sector risk factor commentary under the Total Available-for-Sale Securities with
Unrealized Loss Greater than Six Months by Type schedule in this section of the MD&A.) Investment sector allocations as a percentage of total fixed maturities have remained materially
consistent since December 31, 2003, except for ABS and CMBS. In 2004, HIM continued to overweight,
in comparison to the Lehman Aggregate Index, ABS supported by diversified pools of consumer loans
(e.g. home equity and auto loans and credit card receivables) and CMBS due to the securities
attractive spread levels and underlying asset diversification and quality. In general, CMBS
securities have lower prepayment risk than MBS due to contractual penalties. As of December 31, 2004 and 2003, 21% and 20% respectively, of the fixed maturities were invested
in private placement securities, including 13% and 13%, respectively, of Rule 144A offerings to
qualified institutional buyers. Private placement securities are generally less liquid than public
securities. Most of the private placement securities are rated by nationally recognized rating
agencies. 41




---



##### 



At the December 14th, 2004 Federal Open Market Committee policy meeting, the overnight funds rate
was raised a quarter-point for the fifth time in 2004 to 2.25%. The Fed members indicated that the
economy is growing at a moderate pace and the job market continues to show gradual improvement
despite higher energy and commodity prices. The Company continues to expect the Fed to raise
short-term interest rates at a measured pace for the foreseeable future unless inflationary
pressures accelerate. The risk of inflation could increase if energy and commodity prices continue
to rise, productivity growth slows or the U.S. dollar continues to devalue in comparison to foreign
currencies. Increases in future interest rates may result in lower fixed maturity valuations. The following table identifies fixed maturities by credit quality as of December 31, 2004 and 2003.
The ratings referenced below are based on the ratings of a nationally recognized rating
organization or, if not rated, assigned based on the Companys internal analysis of such
securities. Fixed Maturities by Credit Quality2004
    
    2003Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofAmortized
    
    
    
    
    
    
    Total Fair
    
    
    Amortized
    
    
    
    
    
    
    Total FairCost
    
    
    Fair Value
    
    
    Value
    
    
    Cost
    
    
    Fair Value
    
    
    ValueUnited States Government/Government agencies
    
    $
    3,762
    
    
    $
    3,803
    
    
    
    7.5
    %
    
    $
    4,291
    
    
    $
    4,361
    
    
    
    9.0
    %AAA
    
    
    9,920
    
    
    
    10,282
    
    
    
    20.4
    %
    
    
    8,285
    
    
    
    8,681
    
    
    
    17.6
    %AA
    
    
    5,024
    
    
    
    5,275
    
    
    
    10.4
    %
    
    
    4,243
    
    
    
    4,486
    
    
    
    9.1
    %A
    
    
    12,543
    
    
    
    13,531
    
    
    
    26.8
    %
    
    
    13,015
    
    
    
    13,901
    
    
    
    28.3
    %BBB
    
    
    12,598
    
    
    
    13,447
    
    
    
    26.6
    %
    
    
    12,277
    
    
    
    13,061
    
    
    
    26.5
    %BB & below
    
    
    1,854
    
    
    
    1,932
    
    
    
    3.8
    %
    
    
    2,259
    
    
    
    2,386
    
    
    
    4.8
    %Short-term
    
    
    2,261
    
    
    
    2,261
    
    
    
    4.5
    %
    
    
    2,319
    
    
    
    2,321
    
    
    
    4.7
    %Total fixed maturities
    
    $
    47,962
    
    
    $
    50,531
    
    
    
    100.0
    %
    
    $
    46,689
    
    
    $
    49,197
    
    
    
    100.0
    %Total general account fixed maturities
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,569
    
    
    $
    37,462
    
    
    
    76.1
    %Total guaranteed separate account fixed
maturities [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,120
    
    
    $
    11,735
    
    
    
    23.9
    %
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. As of December 31, 2004 and 2003, 95% or greater of the fixed maturity portfolio was invested
in short-term securities or securities rated investment grade (BBB and above). The following table presents the BIG fixed maturities by type as of December 31, 2004 and 2003. BIG Fixed Maturities by Type2004
    
    2003Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofAmortized
    
    
    
    
    
    
    Total Fair
    
    
    Amortized
    
    
    
    
    
    
    Total FairCost
    
    
    Fair Value
    
    
    Value
    
    
    Cost
    
    
    Fair Value
    
    
    ValueABS
    
    $
    224
    
    
    $
    198
    
    
    
    10.2
    %
    
    $
    259
    
    
    $
    234
    
    
    
    9.9
    %CMBS
    
    
    92
    
    
    
    101
    
    
    
    5.2
    %
    
    
    117
    
    
    
    120
    
    
    
    5.0
    %CorporateBasic industry
    
    
    191
    
    
    
    204
    
    
    
    10.6
    %
    
    
    243
    
    
    
    255
    
    
    
    10.7
    %Capital goods
    
    
    122
    
    
    
    122
    
    
    
    6.3
    %
    
    
    102
    
    
    
    106
    
    
    
    4.4
    %Consumer cyclical
    
    
    124
    
    
    
    132
    
    
    
    6.8
    %
    
    
    273
    
    
    
    295
    
    
    
    12.3
    %Consumer non-cyclical
    
    
    160
    
    
    
    169
    
    
    
    8.7
    %
    
    
    305
    
    
    
    317
    
    
    
    13.3
    %Energy
    
    
    55
    
    
    
    59
    
    
    
    3.1
    %
    
    
    62
    
    
    
    69
    
    
    
    2.9
    %Financial services
    
    
    22
    
    
    
    23
    
    
    
    1.2
    %
    
    
    20
    
    
    
    21
    
    
    
    0.9
    %Technology and communications
    
    
    315
    
    
    
    337
    
    
    
    17.5
    %
    
    
    291
    
    
    
    346
    
    
    
    14.5
    %Transportation
    
    
    8
    
    
    
    8
    
    
    
    0.4
    %
    
    
    38
    
    
    
    40
    
    
    
    1.7
    %Utilities
    
    
    293
    
    
    
    311
    
    
    
    16.1
    %
    
    
    357
    
    
    
    368
    
    
    
    15.4
    %Foreign government
    
    
    219
    
    
    
    240
    
    
    
    12.4
    %
    
    
    173
    
    
    
    195
    
    
    
    8.2
    %Other
    
    
    29
    
    
    
    28
    
    
    
    1.5
    %
    
    
    19
    
    
    
    20
    
    
    
    0.8
    %Total fixed maturities
    
    $
    1,854
    
    
    $
    1,932
    
    
    
    100.0
    %
    
    $
    2,259
    
    
    $
    2,386
    
    
    
    100.0
    %Total general account fixed maturities
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,513
    
    
    $
    1,604
    
    
    
    67.2
    %Total guaranteed separate account
fixed maturities [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    746
    
    
    $
    782
    
    
    
    32.8
    %
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. As of December 31, 2004 and 2003, the Company held no issuer of a BIG security with a fair
value in excess of 5% and 4%, respectively, of the total fair value for BIG securities. Total BIG
securities decreased since December 31, 2003 as a result of decisions to reduce exposure to lower
credit quality assets resulting from the securities significant credit spread tightening and
re-invest in higher quality securities. 42




---



##### 



The following table presents the Companys unrealized loss aging for total fixed maturity and
equity securities classified as available-for-sale as of December 31, 2004 and 2003, by length of
time the security was in an unrealized loss position. Unrealized Loss Aging of Total Available-for-Sale Securities2004
    
    2003Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    UnrealizedCost
    
    
    Value
    
    
    Loss
    
    
    Cost
    
    
    Value
    
    
    LossThree months or less
    
    $
    5,560
    
    
    $
    5,528
    
    
    $
    (32
    )
    
    $
    2,903
    
    
    $
    2,878
    
    
    $
    (25
    )Greater than three months to six months
    
    
    474
    
    
    
    470
    
    
    
    (4
    )
    
    
    1,943
    
    
    
    1,882
    
    
    
    (61
    )Greater than six months to nine months
    
    
    2,277
    
    
    
    2,237
    
    
    
    (40
    )
    
    
    265
    
    
    
    250
    
    
    
    (15
    )Greater than nine months to twelve months
    
    
    399
    
    
    
    383
    
    
    
    (16
    )
    
    
    138
    
    
    
    130
    
    
    
    (8
    )Greater than twelve months
    
    
    1,415
    
    
    
    1,323
    
    
    
    (92
    )
    
    
    1,661
    
    
    
    1,528
    
    
    
    (133
    )Total
    
    $
    10,125
    
    
    $
    9,941
    
    
    $
    (184
    )
    
    $
    6,910
    
    
    $
    6,668
    
    
    $
    (242
    )Total general account
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,887
    
    
    $
    4,717
    
    
    $
    (170
    )Total guaranteed separate accounts [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,023
    
    
    $
    1,951
    
    
    $
    (72
    )
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. The decrease in the unrealized loss amount since December 31, 2003 is primarily the result of
credit spread tightening, improved pricing levels for certain CDOs and ABS, asset sales, and, to a
lesser extent, other-than-temporary impairments, offset in part by an increase in the short-term
through five-year interest rates. (For further discussion, see the economic commentary under the
Fixed Maturities by Type table in this section of the MD&A.) As a percentage of amortized cost, the average security or fixed maturity unrealized loss at
December 31, 2004 and 2003 was less than 2% and 4%, respectively. As of December 31, 2004 and
2003, fixed maturities represented $173, or 94%, and $230, or 95%, respectively, of the Companys
total unrealized loss associated with securities classified as available-for-sale. There were no
fixed maturities as of December 31, 2004 and 2003 with a fair value less than 80% of the securitys
amortized cost basis for six continuous months other than certain ABS and CMBS subject to EITF
Issue No. 99-20. Other-than-temporary impairments for certain ABS and CMBS are recognized if the
fair value of the security, as determined by external pricing sources, is less than its carrying
amount and there has been a decrease in the present value of the expected cash flows since the last
reporting period. There were no ABS or CMBS included in the table above, as of December 31, 2004
and 2003, for which managements best estimate of future cash flows adversely changed during the
reporting period. (For further discussion of the other-than-temporary impairments criteria, see
Valuation of Investments and Derivative Instruments and Evaluation of Other-Than-Temporary
Impairments included in the Critical Accounting Estimates section of the MD&A and Note 2 of Notes
to Consolidated Financial Statements.) The Company held no securities of a single issuer that were at an unrealized loss position in
excess of 8% and 7% of the total unrealized loss amount as of December 31, 2004 and 2003,
respectively. 43




---



##### 



The total securities classified as available-for-sale in an unrealized loss position for longer
than six months by type as of December 31, 2004 and 2003 are presented in the following table. Total Available-for-Sale Securities with Unrealized Loss Greater Than Six Months by Type2004
    
    2003Percent of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalAmortized
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Value
    
    
    Loss
    
    
    Loss
    
    
    Cost
    
    
    Value
    
    
    Loss
    
    
    LossABSAircraft lease receivables
    
    $
    194
    
    
    $
    144
    
    
    $
    (50
    )
    
    
    33.8
    %
    
    $
    163
    
    
    $
    108
    
    
    $
    (55
    )
    
    
    35.3
    %CDOs
    
    
    63
    
    
    
    60
    
    
    
    (3
    )
    
    
    2.0
    %
    
    
    140
    
    
    
    120
    
    
    
    (20
    )
    
    
    12.8
    %Credit card receivables
    
    
    65
    
    
    
    64
    
    
    
    (1
    )
    
    
    0.7
    %
    
    
    123
    
    
    
    111
    
    
    
    (12
    )
    
    
    7.7
    %Other ABS
    
    
    397
    
    
    
    392
    
    
    
    (5
    )
    
    
    3.3
    %
    
    
    448
    
    
    
    441
    
    
    
    (7
    )
    
    
    4.5
    %CMBS
    
    
    614
    
    
    
    603
    
    
    
    (11
    )
    
    
    7.4
    %
    
    
    168
    
    
    
    161
    
    
    
    (7
    )
    
    
    4.5
    %CorporateFinancial services
    
    
    850
    
    
    
    824
    
    
    
    (26
    )
    
    
    17.5
    %
    
    
    678
    
    
    
    646
    
    
    
    (32
    )
    
    
    20.5
    %Technology and communications
    
    
    262
    
    
    
    250
    
    
    
    (12
    )
    
    
    8.1
    %
    
    
    39
    
    
    
    37
    
    
    
    (2
    )
    
    
    1.3
    %Transportation
    
    
    17
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    22
    
    
    
    (3
    )
    
    
    1.9
    %Utilities
    
    
    155
    
    
    
    149
    
    
    
    (6
    )
    
    
    4.1
    %
    
    
    85
    
    
    
    79
    
    
    
    (6
    )
    
    
    3.8
    %Other
    
    
    829
    
    
    
    808
    
    
    
    (21
    )
    
    
    14.3
    %
    
    
    181
    
    
    
    169
    
    
    
    (12
    )
    
    
    7.7
    %Other securities
    
    
    645
    
    
    
    632
    
    
    
    (13
    )
    
    
    8.8
    %
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    Total
    
    $
    4,091
    
    
    $
    3,943
    
    
    $
    (148
    )
    
    
    100.0
    %
    
    $
    2,064
    
    
    $
    1,908
    
    
    $
    (156
    )
    
    
    100.0
    %Total general accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,425
    
    
    $
    1,315
    
    
    $
    (110
    )
    
    
    70.5
    %Total guaranteed separate
accounts [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    639
    
    
    $
    593
    
    
    $
    (46
    )
    
    
    29.5
    %
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. The slight decrease in the unrealized loss greater than six months amount during 2004 was
primarily driven by improved pricing levels for certain CDOs and ABS, credit spread tightening,
asset sales and, to a lesser extent, other-than-temporary impairments. This increase was partially
offset by the aging of securities depressed due to interest rate changes from the date of purchase. With the exception of ABS, the majority of the securities in an unrealized loss position for six
months or more as of December 31, 2004 were depressed primarily due to interest rate changes from
the date of purchase. The sectors with the most significant concentration of unrealized losses
were ABS supported by aircraft lease receivables and corporate fixed maturities primarily within
the financial services sector. The Companys current view of risk factors relative to these fixed
maturity types is as follows: Aircraft lease receivables The decrease in the unrealized loss position during 2004 was primarily
the result of improving pricing levels for certain issuers in this sector, as well as by
other-than-temporary impairments taken during the year. In prior years, these securities had
suffered a decrease in value as a result of a prolonged decline in airline travel, the uncertainty
of a potential industry recovery and lack of market liquidity in this sector. Although uncertainty
surrounding the stability of domestic airlines continues to weigh heavily on this sector, worldwide
travel and aircraft demand appears to be improving. While the Company has seen modest price
increases and greater liquidity in this sector during 2004, any additional price recovery will
depend on continued improvement in economic fundamentals, political stability and airline operating
performance. Financial services As of December 31, 2004, the Company held approximately 80 different
securities in the financial services sector that had been in an unrealized loss position for
greater than six months. Substantially all of these securities are investment grade securities
priced at or greater than 90% of amortized cost as of December 31, 2004. These positions are a
mixture of fixed and variable rate securities with extended maturity dates, which have been
adversely impacted by changes in interest rates after the purchase date. Additional changes in
fair value of these securities are primarily dependent on future changes in interest rates. As part of the Companys ongoing security monitoring process by a committee of investment and
accounting professionals, the Company has reviewed its investment portfolio and concluded that
there were no additional other-than-temporary impairments as of December 31, 2004 and 2003. Due to
the issuers continued satisfaction of the securities obligations in accordance with their
contractual terms and the expectation that they will continue to do so, managements intent and
ability to hold these securities, as well as the evaluation of the fundamentals of the issuers
financial condition and other objective evidence, the Company believes that the prices of the
securities in the sectors identified above were temporarily depressed. The evaluation for other-than-temporary impairments is a quantitative and qualitative process,
which is subject to risks and uncertainties in the determination of whether declines in the fair
value of investments are other-than-temporary. The risks and uncertainties include changes in
general economic conditions, the issuers financial condition or near term recovery prospects and
the effects of changes in interest rates. In addition, for securitized financial assets with
contractual cash flows (e.g. ABS and CMBS), projections of expected future cash flows may change
based upon new information regarding the performance of the underlying 44




---



##### 



collateral. As of December 31, 2004 and 2003, managements expectation of the discounted future
cash flows on these securities was in excess of the associated securities amortized cost. (For a
further discussion, see Valuation of Investments and Derivative Instruments and Evaluation of
Other-Than-Temporary Impairments included in the Critical Accounting Estimates section of the MD&A
and Note 2 of Notes to Consolidated Financial Statements.) The following table presents the Companys unrealized loss aging for BIG and equity securities as
of December 31, 2004 and 2003. Unrealized Loss Aging of Available-for-Sale BIG and Equity Securities2004
    
    2003Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    UnrealizedCost
    
    
    Value
    
    
    Loss
    
    
    Cost
    
    
    Value
    
    
    LossThree months or less
    
    $
    206
    
    
    $
    203
    
    
    $
    (3
    )
    
    $
    57
    
    
    $
    55
    
    
    $
    (2
    )Greater than three months to six months
    
    
    14
    
    
    
    13
    
    
    
    (1
    )
    
    
    91
    
    
    
    87
    
    
    
    (4
    )Greater than six months to nine months
    
    
    128
    
    
    
    120
    
    
    
    (8
    )
    
    
    60
    
    
    
    54
    
    
    
    (6
    )Greater than nine months to twelve months
    
    
    79
    
    
    
    73
    
    
    
    (6
    )
    
    
    18
    
    
    
    17
    
    
    
    (1
    )Greater than twelve months
    
    
    225
    
    
    
    184
    
    
    
    (41
    )
    
    
    361
    
    
    
    302
    
    
    
    (59
    )Total
    
    $
    652
    

    
    $
    593
    
    
    $
    (59
    )
    
    $
    587
    
    
    $
    515
    
    
    $
    (72
    )Total general accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    467
    
    
    $
    411
    
    
    $
    (56
    )Total guaranteed separate accounts [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    120
    
    
    $
    104
    
    
    $
    (16
    )
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. The decrease in the BIG and equity security unrealized loss amount for securities classified
as available-for-sale during 2004 was primarily the result of credit spread tightening, improved
pricing levels for certain CDOs and ABS, asset sales and other-than-temporary impairments,
partially offset by rating agency downgrades for certain issuers in the aircraft lease receivables
sector. (For a further discussion, see the economic commentary under the Fixed Maturities by Type
table in this section of the MD&A.) The BIG and equity securities classified as available-for-sale in an unrealized loss position for
longer than six months by type as of December 31, 2004 and 2003 are presented in the following
table. Available-for-Sale BIG and Equity Securities with Unrealized Loss Greater Than Six Months by Type2004
    
    2003Percent of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalAmortized
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Value
    
    
    Loss
    
    
    Loss
    
    
    Cost
    
    
    Value
    
    
    Loss
    
    
    LossABSAircraft lease receivables
    
    $
    109
    
    
    $
    79
    
    
    $
    (30
    )
    
    
    54.5
    %
    
    $
    52
    
    
    $
    34
    
    
    $
    (18
    )
    
    
    27.3
    %CDOs
    
    
    25
    
    
    
    23
    
    
    
    (2
    )
    
    
    3.6
    %
    
    
    42
    
    
    
    32
    
    
    
    (10
    )
    
    
    15.1
    %Credit card receivables
    
    
    8
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    34
    
    
    
    (11
    )
    
    
    16.7
    %Other ABS
    
    
    4
    
    
    
    3
    
    
    
    (1
    )
    
    
    1.8
    %
    
    
    10
    
    
    
    8
    
    
    
    (2
    )
    
    
    3.0
    %CMBS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    34
    
    
    
    (5
    )
    
    
    7.6
    %CorporateFinancial services
    
    
    138
    
    
    
    128
    
    
    
    (10
    )
    
    
    18.2
    %
    
    
    113
    
    
    
    101
    
    
    
    (12
    )
    
    
    18.2
    %Utilities
    
    
    37
    
    
    
    34
    
    
    
    (3
    )
    
    
    5.5
    %
    
    
    71
    
    
    
    65
    
    
    
    (6
    )
    
    
    9.1
    %Other
    
    
    110
    
    
    
    101
    
    
    
    (9
    )
    
    
    16.4
    %
    
    
    62
    
    
    
    60
    
    
    
    (2
    )
    
    
    3.0
    %Other securities
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    Total
    
    $
    432
    
    
    $
    377
    
    
    $
    (55
    )
    
    
    100.0
    %
    
    $
    439
    
    
    $
    373
    
    
    $
    (66
    )
    
    
    100.0

    %Total general accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    340
    
    
    $
    289
    
    
    $
    (51
    )
    
    
    77.3
    %Total guaranteed separate
accounts [1]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    99
    
    
    $
    84
    
    
    $
    (15
    )
    
    
    22.7
    %
   [1]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general
account assets as a result of adopting SOP 03-1. The decrease in the available-for-sale BIG and equity securities greater than six months
unrealized loss amount since December 31, 2003 was primarily the result of credit spread
tightening, improved pricing levels for certain CDOs and ABS, other-than-temporary impairments and,
to a lesser extent, asset sales. This decrease was partially offset by rating agency downgrades
for certain issuers in the aircraft lease receivables sector and the aging of securities depressed
due to interest rate changes from the date of purchase. (For a further discussion of the Companys
current view of risk factors relative to certain security types listed above, see the Total
Available-for-Sale Securities with Unrealized Loss Greater Than Six Months by Type table in this
section of the MD&A.) 45




---



##### 



CAPITAL MARKETS RISK MANAGEMENT Hartford Life has a disciplined approach to managing risks associated with its capital markets
and asset/liability management activities. Investment portfolio management is organized to focus
investment management expertise on the specific classes of investments, while asset/liability
management is the responsibility of a dedicated risk management unit supporting the Company.
Derivative instruments are utilized in compliance with established Company policy and regulatory
requirements and are monitored internally and reviewed by senior management. Market Risk Hartford Life is exposed to market risk, primarily relating to the market price and/or cash flow
variability associated with changes in interest rates, market indices or foreign currency exchange
rates. The Company analyzes interest rate risk using various models including parametric models
that forecast cash flows of the liabilities and the supporting investments, including derivative
instruments under various market scenarios. Interest Rate Risk The Companys exposure to interest rate risk relates to the market price and/or cash flow
variability associated with the changes in market interest rates. The Company manages its exposure
to interest rate risk through asset allocation limits, asset/liability duration matching and
through the use of derivatives. The Company analyzes interest rate risk using various models
including parametric models that forecast cash flows of the liabilities and the supporting
investments, including derivative instruments under various market scenarios. Measures the Company
uses to quantify its exposure to interest rate risk inherent in its invested assets and interest
rate sensitive liabilities are duration and key rate duration. Duration is the weighted average
term-to-maturity of a securitys cash flows, and is used to approximate the percentage change in
the price of a security for a 100-basis-point change in market interest rates. For example, a
duration of 5 means the price of the security will change by approximately 5% for a 1% change in
interest rates. The key rate duration analysis considers the expected future cash flows of assets
and liabilities assuming non-parallel interest rate movements. To calculate duration, projections of asset and liability cash flows are discounted to a present
value using interest rate assumptions. These cash flows are then revalued at alternative interest
rate levels to determine the percentage change in fair value due to an incremental change in rates.
Cash flows from corporate obligations are assumed to be consistent with the contractual payment
streams on a yield to worst basis. The primary assumptions used in calculating cash flow
projections include expected asset payment streams taking into account prepayment speeds, issuer
call options and contract holder behavior. Asset-backed securities, collateralized mortgage
obligations and mortgage-backed securities are modeled based on estimates of the rate of future
prepayments of principal over the remaining life of the securities. These estimates are developed
using prepayment speeds provided in broker consensus data. Such estimates are derived from
prepayment speeds previously experienced at the interest rate levels projected for the underlying
collateral. Actual prepayment experience may vary from these estimates. The Company is also exposed to interest rate risk based upon the discount rate assumption
associated with the Companys pension and other postretirement benefit obligation. The discount
rate assumption is based upon an interest rate yield curve comprised of AAA/AA bonds with
maturities between zero and thirty years. Declines in long-term interest rates have had a negative
impact on the funded status of the plans. The Company believes that an increase in interest rates from the current levels is generally a
favorable development for the Company. Rate increases are expected to provide additional net
investment income, increase sales of fixed rate investment products, reduce the cost of the GMWB
hedging program, limit the potential risk of margin erosion due to minimum guaranteed crediting
rates in certain products and, if sustained, could reduce the Companys prospective pension
expense. Conversely, a rise in interest rates will reduce the net unrealized gain position of the
investment portfolio, and, if long-term interest rates rise dramatically within a six to twelve
month time period, certain businesses may be exposed to disintermediation risk. Disintermediation
risk refers to the risk that policyholders will surrender their contracts in a rising interest rate
environment requiring the Company to liquidate assets in an unrealized loss position. In
conjunction with the interest rate risk measurement and management techniques, significant portions
of the Companys fixed income product offerings have market value adjustment provisions at contract
surrender. Equity Risk The Companys primary exposure to equity risk relates to the potential for lower earnings
associated with certain businesses such as variable annuities where fee income is earned based upon
the fair value of the assets under management. In addition, the Company offers certain guaranteed
benefits, primarily associated with variable annuity products, which increases the Companys
potential benefit exposure as the equity markets decline. (For a further discussion, see Equity
Risk in the Key Market Risk Exposures section of the MD&A.) 46




---



##### 



The Company does not have significant equity risk exposure from invested assets. In March 2003,
the Company decided to liquidate certain equity securities and reinvest the proceeds into fixed
maturity investments, thereby reducing its exposure to equity price risk. The Company has not
materially changed other aspects of its overall asset allocation position or market risk since
December 31, 2003. The Company is also subject to equity risk based upon the expected long-term rate of return
assumption associated with the Companys pension and other postretirement benefit obligation. The
Company determines the long-term rate of return assumption for the plans portfolio based upon an
analysis of historical returns. Declines in equity returns have had a negative impact on the
funded status of the plans. Foreign Currency Exchange Risk The Companys currency exchange risk is related to nonU.S. dollar denominated investments, which
primarily consist of fixed maturity investments, the investment in the Japanese Life operation and
a yen denominated individual fixed annuity product and, to a lesser extent, its GMDB and GMIB
benefits associated with its Japanese variable annuities. A significant portion of the Companys
foreign currency exposure is mitigated through the use of derivatives. Derivative Instruments Hartford Life utilizes a variety of derivative instruments, including swaps, caps, floors,
forwards, futures and options, in compliance with Company policy and regulatory requirements to
mitigate interest rate, equity market or currency exchange rate risk or volatility. Interest rate swaps involve the periodic exchange of payments with other parties, at specified
intervals, calculated using the agreed upon rates and notional principal amounts. Generally, no
cash or principal payments are exchanged at the inception of the contract. Typically, at the time
a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value. Interest rate cap and floor contracts entitle the purchaser to receive from the issuer at specified
dates, the amount, if any, by which a specified market rate exceeds the cap strike rate or falls
below the floor strike rate, applied to a notional principal amount. A premium payment is made by
the purchaser of the contract at its inception and no principal payments are exchanged. Forward contracts are customized commitments to either purchase or sell designated financial
instruments, at a future date, for a specified price and may be settled in cash or through delivery
of the underlying instrument. Financial futures are standardized commitments to either purchase or sell designated financial
instruments, at a future date, for a specified price and may be settled in cash or through delivery
of the underlying instrument. Futures contracts trade on organized exchanges. Margin requirements
for futures are met by pledging securities, and changes in the futures contract values are settled
daily in cash. Option contracts grant the purchaser, for a premium payment, the right to either purchase from or
sell to the issuer a financial instrument at a specified price, within a specified period or on a
stated date. Foreign currency swaps exchange an initial principal amount in two currencies, agreeing to
re-exchange the currencies at a future date, at an agreed upon exchange rate. There may also be a
periodic exchange of payments at specified intervals calculated using the agreed upon rates and
exchanged principal amounts. Derivative activities are monitored by an internal compliance unit and reviewed frequently by
senior management. The notional amounts of derivative contracts represent the basis upon which pay
or receive amounts are calculated and are not reflective of credit risk. Notional amounts
pertaining to derivative instruments used in the management of market risk for both the general and
guaranteed separate accounts at December 31, 2004 and 2003 were $52.2 billion and $35.6 billion,
respectively. The increase in the derivative notional amount during 2004 was primarily due to the
embedded derivatives associated with the GMWB product feature. Key Market Risk Exposures The following discussions focus on the key market risk exposures within the Companys portfolios. The Company is responsible for maximizing after-tax returns within acceptable risk parameters,
including the management of the interest rate sensitivity of invested assets and the generation of
sufficient liquidity to support policyholder and corporate obligations. Fixed maturity portfolios
and certain investment contract and insurance product liabilities have material market exposure to
interest rate risk. In addition, the operations are significantly influenced by changes in the
equity markets. The Companys profitability depends largely on the amount of assets under
management, which is primarily driven by the level of sales, equity market appreciation and
depreciation and the persistency of the in-force block of business. The Companys foreign currency
exposure is primarily related to non-U.S. dollar denominated fixed income securities, the
investment in the Japanese Life operation and certain foreign currency based individual fixed
annuity contracts, and to a lesser extent, its GMDB and GMIB benefits associated with its Japanese
variable annuities. 47




---



##### 



Interest Rate Risk The Companys exposure to interest rate risk relates to the market price and/or cash flow
variability associated with changes in market interest rates. Changes in interest rates can
potentially impact the Companys profitability. In certain scenarios where interest rates are
volatile, the Company could be exposed to disintermediation risk and a reduction in net interest
rate spread or profit margins. The investments and liabilities primarily associated with interest
rate risk are included in the following discussion. Certain product liabilities, including those
containing guaranteed minimum withdrawal or death benefits, expose the Company to interest rate
risk but also have significant equity risk. These liabilities are discussed as part of the Equity
Risk section below. Fixed Maturity Investments The Companys general account investment portfolios, including guaranteed separate accounts as of
December 31, 2003, primarily consist of investment grade fixed maturity securities, including
corporate bonds, asset-backed securities, commercial mortgage-backed securities, tax-exempt
municipal securities and collateralized mortgage obligations. The fair value of these investments
was $50.5 billion and $49.2 billion at December 31, 2004 and 2003, respectively. The fair value of
these investments and other invested assets fluctuates depending on the interest rate environment
and other general economic conditions. During periods of declining interest rates, paydowns on
mortgage-backed securities and collateralized mortgage obligations increase as the underlying
mortgages are prepaid. During such periods, the Company generally will not be able to reinvest the
proceeds of any such prepayments at comparable yields. Conversely, during periods of rising
interest rates, the rate of prepayments generally declines, exposing the Company to the possibility
of asset/liability cash flow and yield mismatch. The weighted average duration of the fixed
maturity portfolio was approximately 5.0 and 4.8 as of December 31, 2004 and 2003, respectively.
In 2004, the duration of certain portfolios were modestly lengthened, which generated additional
interest income. Liabilities The Companys investment contracts and certain insurance product liabilities, other than
non-guaranteed separate accounts, include asset accumulation vehicles such as fixed annuities,
guaranteed investment contracts, other investment and universal life-type contracts and other
insurance products such as long-term disability. Asset accumulation vehicles primarily require a fixed rate payment, often for a specified period of
time. Product examples include fixed rate annuities with a market value adjustment feature and
fixed rate guaranteed investment contracts. The duration of these contracts generally range from
less than one year to ten years. In addition, certain products such as universal life contracts
and the general account portion of the variable annuity products, credit interest to policyholders
subject to market conditions and minimum interest rate guarantees. The duration of these products
is short-to-intermediate term. While interest rate risk associated with many of these products has been reduced through the use of
market value adjustment features and surrender charges, the primary risk associated with these
products is that the spread between investment return and credited rate may not be sufficient to
earn targeted returns. The Company also manages the risk of other insurance liabilities similarly to investment type
products due to the relative predictability of the aggregate cash flow payment streams. Products
in this category may contain significant actuarial (including mortality and morbidity) pricing and
cash flow risks. Product examples include structured settlement contracts, on-benefit annuities
(i.e., the annuitant is currently receiving benefits thereon) and short and long-term disability
contracts. The cash out flows associated with these policy liabilities are not interest rate
sensitive but do vary based on the timing and amount of benefit payments. The primary risks
associated with these products are that the benefits will exceed expected actuarial pricing and/or
that the actual timing of the cash flows will differ from those anticipated, resulting in an
investment return lower than that assumed in pricing. Contract duration can range from less than
one year to typically up to ten years. Derivatives The Company utilizes a variety of derivative instruments to mitigate interest rate risk. Interest
rate swaps are primarily used to convert interest receipts to a fixed or variable rate. In
addition, interest rate swaps are used to convert the contract rate on certain liability products
offered by the Company into a rate that trades in a more liquid and efficient market. The use of
such swaps enables the Company to customize contract terms and conditions to customer objectives
and satisfies the operations asset/liability duration matching policy. Occasionally, swaps are
also used to hedge the variability in the cash flow of a forecasted purchase or sale due to changes
in interest rates. Interest rate caps and floors, swaptions and option contracts are primarily used to hedge against
the risk of liability contract holder disintermediation in a rising interest rate environment, and
to offset the changes in fair value of corresponding derivatives embedded in certain of the
Companys fixed maturity investments. At December 31, 2004 and 2003, notional amounts pertaining to derivatives utilized to manage
interest rate risk totaled $9.9 billion and $9.5 billion, respectively ($7.7 billion and $7.8
billion, respectively related to insurance investments and $2.2 billion and $1.7 48




---



##### 



billion, respectively related to life insurance liabilities). The fair value of these derivatives
as reflected on the consolidated balance sheets was $41 and $142 as of December 31, 2004 and 2003,
respectively. Calculated Interest Rate Sensitivity The after-tax change in the net economic value of investment contracts (e.g. guaranteed investment
contracts) and certain other insurance product liabilities (e.g. short and long-term disability
contracts), for which the payment rates are fixed at contract issuance and the investment
experience is substantially absorbed by the Company, are included in the following table along with
the corresponding general and guaranteed separate account assets. Also included in this analysis
are the interest rate sensitive derivatives used by the Company to hedge its exposure to interest
rate risk. Certain financial instruments, such as limited partnerships, have been omitted from the
analysis because the investments lack sensitivity to interest rate changes. Non-guaranteed
separate account assets and liabilities and equity securities held for trading and the
corresponding liabilities associated with the variable annuity products sold in Japan are excluded
from the analysis because gains and losses in separate accounts accrue to policyholders. The
estimated change in net economic value below assumes a 100 basis point upward and downward parallel
shift in the yield curve. Change in Net Economic Value As of December 31,2004
    
    
    2003Basis point shift
    
    
    - 100
    
    
    
    + 100
    
    
    
    - 100
    
    
    
    + 100Amount
    
    $
    (73
    )
    
    $
    15
    
    
    $
    (27
    )
    
    $
    (19
    )
 The fixed liabilities included above represented approximately 50% and 60% of the Companys general
account liabilities as of December 31, 2004 and general and guaranteed separate account liabilities
as of December 31, 2003. The assets supporting the fixed liabilities are monitored and managed
within rigorous duration guidelines using scenario simulation techniques, and are evaluated on an
annual basis, in compliance with regulatory requirements. The after-tax change in fair value of the general account invested asset portfolios that support
certain universal life-type contracts and other insurance contracts that possess significant
mortality risk are shown in the following table. The cash flows associated with these liabilities
are less predictable than fixed liabilities. The Company identifies the most appropriate
investment strategy based upon the expected policyholder behavior and liability crediting needs.
The hypothetical calculation of the estimated change in fair value below assumes a 100 basis point
upward and downward parallel shift in the yield curve. Change in Fair Value As of December 31,2004
    
    2003Basis point shift
    
    
    - 100
    
    
    
    + 100
    
    
    
    - 100
    
    
    
    + 100Amount
    
    $
    501
    
    
    $
    (491
    )
    
    $
    481
    
    
    $
    (473
    )
 The selection of the 100 basis point parallel shift in the yield curve was made only as a
hypothetical illustration of the potential impact of such an event and should not be construed as a
prediction of future market events. Actual results could differ materially from those illustrated
above due to the nature of the estimates and assumptions used in the above analysis. The Companys
sensitivity analysis calculation assumes that the composition of invested assets and liabilities
remain materially consistent throughout the year and that the current relationship between
short-term and long-term interest rates will remain constant over time. As a result, these
calculations may not fully capture the impact of portfolio re-allocations, significant product
sales or non-parallel changes in interest rates. Equity Risk The Companys operations are significantly influenced by changes in the equity markets. The
Companys profitability depends largely on the amount of assets under management, which is
primarily driven by the level of sales, equity market appreciation and depreciation and the
persistency of the in-force block of business. Prolonged and precipitous declines in the equity
markets can have a significant impact on the Companys operations, as sales of variable products
may decline and surrender activity may increase, as customer sentiment towards the equity market
turns negative. Lower assets under management will have a negative impact on the Companys
financial results, primarily due to lower fee income related to the Retail Products Group and
Institutional Solutions Group and, to a lesser extent, the Individual Life segments, where a heavy
concentration of equity linked products are administered and sold. Furthermore, the Company may
experience a reduction in profit margins if a significant portion of the assets held in the
variable annuity separate accounts move to the general account and the Company is unable to earn an
acceptable investment spread, particularly in light of the low interest rate environment and the
presence of contractually guaranteed minimum interest credited rates, which for the most part are
at a 3% rate. In addition, prolonged declines in the equity market may also decrease the Companys expectations
of future gross profits, which are utilized to determine the amount of DAC to be amortized in a
given financial statement period. A significant decrease in the Companys estimated gross profits
would require the Company to accelerate the amount of DAC amortization in a given period,
potentially causing a material adverse deviation in that periods net income. Although an
acceleration of DAC amortization would have a negative impact on the Companys earnings, it would
not affect the Companys cash flow or liquidity position. 49




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##### 



The Company sells variable annuity contracts that offer one or more benefit guarantees that
generally increase with declines in equity markets. As is described in more detail below, the
Company manages the equity market risks embedded in these guarantees through reinsurance, product
design and hedging programs. The Company believes its ability to manage these equity market risks
by these means gives it a competitive advantage; and, in particular, its ability to create
innovative product designs that allow the Company to meet identified customer needs while
generating manageable amounts of equity market risk. The Companys relative sales and variable
annuity market share have generally increased during periods when it has recently introduced new
products to the market. In contrast, the Companys relative sales and market share have generally
decreased when competitors introduce products that cause an issuer to assume larger amounts of
equity and other market risk than the Company is confident it can prudently manage. The Company
believes its long-term success in the variable annuity market will continue to be aided by
successful innovation in both product design and in equity market risk management and that, in the
absence of this innovation, its market share could decline. The Company sells variable annuity contracts that offer various guaranteed death and income
benefits. The Company maintains a liability for the death benefit costs, net of reinsurance, of
$138, as of December 31, 2004. Declines in the equity market may increase the Companys net
exposure to death benefits under these contracts. The majority of the contracts with the
guaranteed death benefit feature are sold by the Retail Products Group segment. For certain
guaranteed death benefits, The Hartford pays the greater of (1) the account value at death; (2) the
sum of all premium payments less prior withdrawals; or (3) the maximum anniversary value of the
contract, plus any premium payments since the contract anniversary, minus any withdrawals following
the contract anniversary. For certain guaranteed death benefits sold with variable annuity
contracts beginning in June 2003, the Retail Products Group segment pays the greater of (1) the
account value at death; or (2) the maximum anniversary value; not to exceed the account value plus
the greater of (a) 25% of premium payments, or (b) 25% of the maximum anniversary value of the
contract. The Company currently reinsures a significant portion of these death benefit guarantees
associated with its in-force block of business. The Companys total gross exposure (i.e. before reinsurance) to these guaranteed death benefits as
of December 31, 2004 is $8.3 billion. Due to the fact that 80% of this amount is reinsured, the
Companys net exposure is $1.6 billion. This amount is often referred to as the retained net
amount at risk. However, the Company will incur these guaranteed death benefit payments in the
future only if the policyholder has an in-the-money guaranteed death benefit at their time of
death. In addition, the Company offers certain variable annuity products with a GMWB rider. Declines in
the equity market may increase the Companys exposure to benefits under the GMWB contracts. For
all contracts in effect through July 6, 2003, the Company entered into a reinsurance arrangement to
offset its exposure to the GMWB for the remaining lives of those contracts. As of July 6, 2003,
the Company exhausted all but a small portion of the reinsurance capacity for new business under
the current arrangement and will be ceding only a very small number of new contracts subsequent to
July 6, 2003. Substantially all new contracts with the GMWB are not covered by reinsurance. These
unreinsured contracts are expected to generate volatility in net income as the underlying embedded
derivative liabilities are recorded at fair value each reporting period, resulting in the
recognition of net realized capital gains or losses in response to changes in certain critical
factors including capital market conditions and policyholder behavior. In order to minimize the
volatility associated with the unreinsured GMWB liabilities, the Company established an alternative
risk management strategy. During the third quarter of 2003, the Company began hedging its
unreinsured GMWB exposure using interest rate futures, Standard and Poors (S&P) 500 and NASDAQ
index put options and futures contracts. During the first quarter of 2004, the Company entered
into Europe, Australasia and Far East (EAFE) Index swaps to hedge GMWB exposure to international
equity markets. The hedging program involves a detailed monitoring of policyholder behavior and
capital markets conditions on a daily basis and rebalancing of the hedge position as needed. While
the Company actively manages this hedge position, hedge ineffectiveness may result due to factors
including, but not limited to, policyholder behavior, capital markets dislocation or discontinuity
and divergence between the performance of the underlying funds and the hedging indices. The net impact of the change in value of the embedded derivative net of the results of the hedging
program was an $8 gain before deferred policy acquisition costs and tax effects for the year ended
December 31, 2004. As of December 31, 2004, the notional and fair value related to the embedded
derivatives, the hedging strategy, and reinsurance was $37.7 billion and $170. In December 2004, the Company purchased one and two year S&P 500 put option contracts to
economically hedge certain liabilities that could increase if the equity markets decline. As of
December 31, 2004, the notional and market value related to this strategy was $1.9 billion and $32,
respectively. Because this strategy is intended to partially hedge certain equity-market
sensitive liabilities calculated under statutory accounting (see Capital Resources and Liquidity),
changes in the value of the put options may not be closely aligned to changes in liabilities
determined in accordance with Generally Accepted Accounting Principles (GAAP), causing volatility
in GAAP net income. The Company anticipates employing similar strategies in the future, which
could further increase volatility in GAAP net income. Currency Exchange Risk Currency exchange risk exists with respect to investments in non-U.S. dollar denominated fixed
maturities, primarily denominated in Euro, Sterling, Yen and Canadian dollars, as well as the
Companys investment in foreign operations, primarily Japan, and the yen based individual fixed
annuity product and, to a lesser extent, its GMDB and GMIB benefits associated with its Japanese
variable annuities. 50




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##### 



The risk associated with the non-U.S. dollar denominated fixed maturities relates to potential
decreases in value and income resulting from unfavorable changes in foreign exchange rates. The
fair value of the non-U.S. dollar denominated fixed maturities at December 31, 2004 and 2003, were
approximately $2.5 billion and $2.0 billion, respectively. In order to manage its currency
exposures, the Company enters into foreign currency swaps and forwards to hedge the variability in
cash flow associated with certain foreign denominated fixed maturities. These foreign currency
swap agreements are structured to match the foreign currency cash flows of the hedged foreign
denominated securities. At December 31, 2004 and 2003, the derivatives used to hedge currency
exchange risk related to non-U.S. dollar denominated fixed maturities had a total notional value of
$1.7 billion and $1.4 billion, respectively, and total fair value of $(503) and $(299),
respectively. The functional currency of the Japanese operation is the Japanese yen. Accordingly, the premiums,
claims, commissions and investment income are paid or received in yen. In addition, most of the
Japanese operations investments are yen denominated. The net investment in the Japanese operation was approximately $673 and $250, as of December 31,
2004 and 2003, respectively. The Company has entered into yen denominated forwards to hedge a
substantial portion of the net investment in the Japanese operation. At December 31, 2004 and
2003, the derivatives used to hedge the net investment in the Japanese operation had a total
notional value of $401 and $200, respectively, and total fair value of $(23) and $(4),
respectively. The yen based fixed annuity product is written by Hartford Life Insurance KK, a wholly-owned
Japanese subsidiary of Hartford Life and Accident Insurance Company, and subsequently reinsured to
Hartford Life Insurance Company, a U.S. dollar based wholly-owned subsidiary of the Company. The
yen denominated fixed annuity product is recorded in the consolidated balance sheets in other
policyholder funds and benefits payable in U.S. dollars based upon the December 31, 2004 yen to
dollar spot rate. To mitigate the yen exposure associated with the product, during the fourth
quarter of 2004, the Company entered into pay fixed U.S. dollar receive fixed yen, zero coupon
currency swaps and forwards (dollar to yen derivatives). As of December 31, 2004 the dollar to yen
derivatives had a notional and fair value of $611 and $10, respectively. Based on the fair values of the Companys non-U.S. dollar denominated investments and derivative
instruments (including its yen based individual fixed annuity product) as of December 31, 2004 and
2003, management estimates that a 10% unfavorable change in exchange rates would decrease the fair
values by an after-tax total of $9 and $20, respectively. The estimated impact was based upon a
10% change in December 31 spot rates. The selection of the 10% unfavorable change was made only
for hypothetical illustration of the potential impact of such an event and should not be construed
as a prediction of future market events. Actual results could differ materially from those
illustrated above due to the nature of the estimates and assumptions used in the above analysis. 51




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##### 



CAPITAL RESOURCES AND LIQUIDITY Capital resources and liquidity represent the overall financial strength of Hartford Life and
its ability to generate cash flows from each of the business segments and borrow funds at
competitive rates to meet operating and growth needs. The Company maintained cash and short-term
investments totaling $3.2 billion and $2.2 billion as of December 31, 2004 and 2003, respectively. Liquidity Requirements The liquidity requirements of Hartford Life have been and will continue to be met by funds from
operations as well as the issuance of commercial paper, debt securities and borrowings from its
credit facilities. The principal sources of operating funds for its insurance entities are fees,
premiums and investment income as well as maturities and sales of invested assets. Hartford Life
is a holding company which relies upon operating cash flow in the form of dividends from its
subsidiaries, which enables it to service its debt, pay dividends to its parent, and pay certain
business expenses. As a holding company, Hartford Life, Inc. has no significant business
operations of its own and, therefore, relies mainly on the dividends from its insurance company
subsidiaries, which are primarily domiciled in Connecticut, as the principal source of cash to meet
its obligations (predominantly debt obligations) and pay stockholder dividends. The Companys Japanese life insurance operations are conducted through Hartford Insurance Life K.K.
a wholly owned subsidiary of Hartford Life and Accident (HLA), one of the companys principal
statutorily regulated operating subsidiaries. To date, the Company has funded the capital needs of
its Japanese operations through investments in the common stock of Hartford Life Insurance K.K. by
HLA, an investment that stood at $673 million at the end of 2004. This arrangement has generally
allowed some portion of the Companys investment in its Japanese operations to be included as part
of the aggregate statutory capital (for the purposes of regulatory and rating agency capital
adequacy measures) of HLA. The Company is currently in the process of evaluating capital structures that it believes in the
long-term could result in improved financial flexibility. Certain of these structures would no
longer allow a portion of the capital invested in our Japanese operations to be included in the
aggregate capital of HLA. This could reduce certain of the capital adequacy measures employed by
regulators and rating agencies to assess the capital strength of The Hartfords domestic life
insurance companies. At the current time, the Company believes it has sufficient financial
resources to maintain capital adequacy levels consistent with all of its rating objectives. Dividends to Hartford Life, Inc. from its direct subsidiary, Hartford Life and Accident Insurance
Company (HLA), are restricted. The payment of dividends by Connecticut-domiciled insurers is
limited under the insurance holding company laws of Connecticut. Under these laws, the insurance
subsidiaries may only make their dividend payments out of unassigned surplus. These laws require
notice to and approval by the state insurance commissioner for the declaration or payment of any
dividend, which, together with other dividends or distributions made within the preceding twelve
months, exceeds the greater of (i) 10% of the insurers policyholder surplus as of December 31 of
the preceding year or (ii) net income (or net gain from operations, if such company is a life
insurance company) for the twelve-month period ending on the thirty-first day of December last
preceding, in each case determined under statutory insurance accounting policies. In addition, if
any dividend of a Connecticut-domiciled insurer exceeds the insurers earned surplus, it requires
the prior approval of the Connecticut Insurance Commissioner. HLA declared to the Company
dividends of $332 in 2004 and accrued dividends of $4 as of December 31, 2004. The statutory net
gain was $1.0 billion in both 2004 and 2003. Statutory capital and surplus as of December 31, 2004
was $5.1 billion, a 15% increase over December 31, 2003. The insurance holding company laws of the jurisdictions in which Hartford Lifes insurance
subsidiaries are incorporated (or deemed commercially domiciled) limit the payment of dividends. The primary uses of funds are to pay claims, policy benefits, operating expenses and commissions,
and to purchase new investments. In addition, Hartford Life has a policy of carrying a
significant short-term investment positions and accordingly does not anticipate selling
intermediate and long-term fixed maturity investments to meet any liquidity needs. (For a
discussion of the Companys investment objectives and strategies, see the Investments and Capital
Markets Risk Management sections.) Sources of Liquidity Shelf Registration On May 15, 2001, Hartford Life filed with the Securities and Exchange Commission (SEC) a shelf
registration statement for the potential offering and sale of up to $1.0 billion in debt and
preferred securities. The registration statement was declared effective on May 29, 2001. As of
December 31, 2004, the Company had $1.0 billion remaining on its shelf. For a further discussion of the shelf registration statements, see Note 14 of Notes to Consolidated
Financial Statements. 52




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##### 



Contractual Obligations and Commitments The following table identifies the Companys contractual obligations by payment due period. Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsShort-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    2,989
    
    
    
    78
    
    
    
    349
    
    
    
    128
    
    
    
    2,434Total debt [1] [2]
    
    $
    2,989
    
    
    
    78
    
    
    
    349
    
    
    
    128
    
    
    
    2,434Operating leases
    
    
    297
    
    
    
    67
    
    
    
    111
    
    
    
    78
    
    
    
    41Policyholder obligations [3]
    
    
    281,998
    
    
    
    18,037
    
    
    
    37,318
    
    
    
    40,255
    
    
    
    186,388Purchase obligations [4]
    
    
    1,068
    
    
    
    994
    
    
    
    22
    
    
    
    
    
    
    
    52Other long-term liabilities [5]
    
    
    1,169
    
    
    
    1,169
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    287,521
    
    
    $
    20,345
    
    
    $
    37,800
    
    
    $
    40,461
    
    
    $
    189,915
   [1]
    
    Includes contractual interest and principal payments. Payments exclude amounts associated
with fair-value hedges of certain of the Companys long-term debt. All long-term debt
obligations have fixed rates of interest.[2]
    
    Long-term debt obligations also includes principal and interest payments of $200 and $691,
respectively, related to junior subordinated debentures which are callable beginning in 2006.[3]
    
    Estimated life, annuity and disability obligations include death and disability
claims, policy surrenders, policyholder dividends, and trail commissions
offset by expected future deposits and premiums on in-force contracts. Estimated
contractual policyholder obligations are based on mortality, morbidity and lapse assumptions
comparable with Lifes historical experience, modified for recent observed trends. Life has
also assumed market growth and interest crediting consistent with assumptions used in
amortizing deferred acquisition costs. In contrast to this table, the majority of
Lifes obligations are recorded on the balance sheet at the current account value, as
described in Critical Accounting Estimates, and do not incorporate an expectation of
future market growth, interest crediting, or future deposits. Therefore, the
estimated contractual policyholder obligations presented in this table significantly
exceed the liabilities recorded in reserve for future policy benefits and unpaid
claims and claim adjustment expenses, other policyholder funds and benefits payable
and separate account liabilities. Due to the significance of the assumptions used, the
amounts presented could materially differ from actual results. As separate
account obligations are legally insulated from general account obligations, the separate
account obligations will be fully funded by cash flows from separate account assets. Life
expects to fully fund the general account obligations from cash flows from general account
investments and future deposits and premiums.[4]
    
    Includes $473 in commitments to purchase investments, including $202 of limited
partnerships and $271 of mortgage loans in less than one year, since the timing of funding the
limited partnership commitments cannot be estimated. Payables for securities purchased of
$542, which are reflected on the consolidated balance sheet, are also included.[5]
    
    As of December 31, 2004, the Company has accepted cash collateral of $36 and securities
lending collateral of $1,133 in connection with the Companys derivative instruments. Since
the timing of the return of the collateral is uncertain, the return of the collateral has been
included in the payments due in less than one year. At December 31, 2004,
the Company has outstanding commitments totaling $452, of which $202 is
committed to fund limited partnership investments. These capital commitments can be called by the
partnership during the commitment period (on average 2 to 5 years) to fund working capital needs or
purchase new investments. Once the commitment period expires, the Company is under no obligation
to fund the remaining unfunded commitment but may elect to do so. The
remaining $250 of outstanding commitments are primarily related to various funding obligations associated with
investments in mortgage and construction loans. These have a commitment period of one month to 3
years. Acquisitions On December 31, 2003, the Company acquired CNA Financial Corporations group life and accident, and
short-term and long-term disability businesses for $485 in cash. Purchase consideration for this
transaction was obtained from a capital contribution by The Hartford to the Company. The purchase
price paid on December 31, 2003 was based on September 30, 2003 statutory surplus. During the
second quarter of 2004, the purchase price was finalized for $543 in cash based on the actual
statutory surplus at December 31, 2003. For a further discussion of these acquisitions, see Note 19 of Notes to Consolidated Financial
Statements. 53




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##### 



Capitalization The capital structure of Hartford Life as of December 31, 2004 and 2003 consisted of debt and
equity, summarized as follows: 2004
    
    
    2003Short-term debt (includes current maturities of long-term debt)
    
    $
    
    
    
    $
    505Long-term debt (1)
    
    
    1,050
    
    
    
    1,300Total debt
    
    $
    1,050
    
    
    $
    1,805Equity excluding net unrealized capital gains on securities, net of tax
    
    $
    7,994
    
    
    
    6,156Net unrealized capital gains on securities, net of tax
    
    
    1,178
    
    
    
    903Total stockholders equity
    
    $
    9,172
    
    
    $
    7,059Total capitalization
    
    $
    10,222
    
    
    $
    8,864Debt to equity
    
    
    11
    %
    
    
    26
    %Debt to capitalization
    
    
    10
    %
    
    
    20
    %
   (1)
    
    Includes junior subordinated debentures. The Companys total capitalization, excluding unrealized gains (losses) on securities and other,
net of tax, increased $1.1 billion, or 14%, from December 31, 2003 to December 31, 2004. The
increase was primarily the result of net income of $1.3 billion, a capital contribution from The
Hartford in the amount of $605 to finance the acquisition of the group life and accident, and short
term and long term disability business of CNA Financial Corporation, partially offset by
outstanding debt settlements of $755 and dividends declared of $145. The debt to equity and debt
to capitalization ratios (both exclude net unrealized capital gains on securities, net of tax)
decreased to 11% and 10% as of December 31, 2004, respectively, from 26% and 20% as of December 31,
2003, respectively. Net unrealized capital gains (losses) on securities, net of tax, increased
$276, or 31%, as December 31, 2004, as compared to December 31, 2003, primarily due to the
declining interest rate environment. Debt For a discussion of Debt, see Note 14 of Notes to Consolidated Financial Statements. Dividends The Company declared $145 in dividends to Hartford Holdings, Inc. for 2004. Future dividend
decisions will be based on, and affected by, a number of factors, including the operating results
and financial requirements of the Company on a stand-alone basis and the impact of regulatory
restrictions discussed in Liquidity Requirements below. Cash Flow 2004
    
    
    2003
    
    
    2002Cash provided by operating activities
    
    $
    1,674
    
    
    $
    1,425
    
    
    $
    1,058Cash used for investing activities
    
    
    (1,679
    )
    
    
    (4,424
    )
    
    
    (4,673
    )Cash provided by financing activities
    
    
    673
    
    
    
    3,089
    
    
    
    3,623Cash  end of year
    
    
    933
    
    
    
    265
    
    
    
    179
 2004 Compared to 2003- The increase in cash provided by operating activities was primarily the
result of the timing of funds received for policyholder accounts, net of the activity in the equity
securities, held for trading purposes, and timing of the settlement of receivables and payables.
The cash used for investing activities as compared to the prior year period was lower primarily due
to higher sales of investments, partially offset by slightly higher purchases of investments. The
decrease in net cash provided by financing activities was primarily due to a decrease in net
receipts from policyholders accounts related to investment and universal life contracts, the shift
in capital structure associated with debt repayments, and increased dividends to shareholders,
partially offset by capital contributions. Operating cash flows in both periods have been more
than adequate to meet liquidity requirements. 2003 Compared to 2002The increase in cash provided by operating activities was primarily the
result of the timing of the settlement of receivables, payables and other related liabilities. The
decrease in cash provided by financing activities primarily relates to the decrease in net general
account receipts from investment and universal life-type contracts charged against policyholder
accounts. Operating cash flows in the periods presented have been more than adequate to meet
liquidity requirements. Equity Markets For a discussion of equity markets impact to capital and liquidity, see the Capital Markets Risk
Management section under Market Risk. 54




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##### 



Ratings Ratings are an important factor in establishing the competitive position in the insurance and
financial services marketplace. There can be no assurance that the Companys ratings will continue
for any given period of time or that they will not be changed. In the event the Companys ratings
are downgraded, the level of revenues or the persistency of the Companys business may be adversely
impacted. On August 4, 2004, Moodys affirmed Hartford Life, Inc.s A3 senior debt ratings as well as the Aa3
insurance financial strength ratings of its life insurance operating subsidiaries. In addition,
Moodys changed the outlook for all of these ratings from negative to stable. Since the announcement of the suit filed by the New York Attorney Generals Office against Marsh &
McLennan Companies, Inc., and Marsh, Inc. on October 14, 2004, the major independent ratings
agencies have indicated that they continue to monitor developments relating to the suit. The
outlook on the life insurance subsidiaries and corporate debt was unaffected. The following table summarizes Hartford Lifes significant United States member companies
financial ratings from the major independent rating organizations as
of February 25, 2005. Standard &A.M. Best
    
    Fitch
    
    Poors
    
    MoodysInsurance RatingsHartford Life Insurance Company
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life and Accident
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life Group Insurance Company
    
    A+
    
    AA
    
    
    
    Hartford Life and Annuity
    
    A+
    
    AA
    
    AA-
    
    Aa3Hartford Life Insurance KK (Japan)
    
    
    
    
    
    AA-
    
    Other RatingsHartford Life, Inc.:Senior debt
    
    a-
    
    A
    
    A-
    
    A3Commercial paper
    
    
    
    F1
    
    A-2
    
    P-2Hartford Life, Inc.:Capital II trust preferred securities
    
    bbb
    
    A-
    
    BBB
    
    Baa1Hartford Life Insurance Company:Short Term Rating
    
    
    
    
    
    A-1+
    
    P-1
 The agencies consider many factors in determining the final rating of an insurance company. One
consideration is the relative level of statutory surplus necessary to support the business written.
Statutory surplus represents the capital of the insurance company reported in accordance with
accounting practices prescribed by the applicable state insurance department. Risk-Based Capital The National Association of Insurance Commissioners (NAIC) has regulations establishing minimum
capitalization requirements based on risk-based capital (RBC) formulas for both life and
property and casualty companies. The requirements consist of formulas, which identify companies
that are undercapitalized and require specific regulatory actions. The RBC formula for life
companies establishes capital requirements relating to insurance, business, asset and interest
rate risks. As of December 31, 2004, Hartford Life had more than sufficient capital to meet the
NAICs minimum RBC requirements. Terrorism Risk Insurance Act of 2002 The Terrorism Risk Insurance
Act of 2002 (the Act) created a program under which the
federal government will pay 90% of covered losses after an insurers losses
exceed a deductible determined by a statutorily prescribed formula, up
to a combined annual aggregate limit for the federal government and
all insurers of $100 billion. If an act of terrorism or acts of
terrorism result in covered losses exceeding the $100 billion annual
limit, insurers with losses exceeding their deductibles will not be
responsible for additional losses. The statutory formula for
determining a companys deductible for each year is based on the
companys direct commercial earned premium for the prior
calendar year multiplied by a specified percentage. The specified
percentage is 15% for 2005. On August 15, 2003, the
Treasury Department announced that it would not use its
legislatively-granted authority to include group life insurance under
the federal backstop for terrorism losses in the Terrorism Risk
Insurance Act of 2002. In announcing this decision, the Treasury
stated that they would continue to monitor the group life situation. 55




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##### 



Contingencies Legal Proceedings For a discussion regarding contingencies related to the Companys legal
proceedings, please see Item 3, Legal Proceedings. Dependence on Certain Third Party RelationshipsThe Company distributes its annuity and life
insurance products through a variety of distribution channels, including broker-dealers, banks,
wholesalers, its own internal sales force and other third party organizations. The Company
periodically negotiates provisions and renewals of these relationships and there can be no
assurance that such terms will remain acceptable to the Company or such third parties. An
interruption in the Companys continuing relationship with certain of these third parties could
materially affect the Companys ability to market its products. For a discussion regarding contingencies related to the manner in which the Company compensates
brokers and other producers, please see OverviewBroker Compensation above. Regulatory Developments For a discussion regarding contingencies related to regulatory
developments that affect the Company, please see OverviewRegulatory Developments above. On October 21, 2004, the Financial Services Agency (FSA), the Companys primary regulator in
Japan, issued regulations concerning new reserving methodologies and Solvency Margin Ratio (SMR)
standards for variable annuity contracts. The regulations allow a Standard methodology and an
Alternative methodology to determine required reserve levels and SMR standards. On December 27,
2004, the FSA also issued administrative guidelines that describe the detailed requirements under
the two methodologies. The regulations are scheduled to become effective on April 1, 2005. The new reserve methodologies and SMR standards would only apply to capital requirements for
Japanese regulatory purposes, and are not directly related to results under accounting principles
generally accepted in the United States. At this time, the Company has decided to adopt the
Standard methodology. While management is still evaluating the impact of the regulations on the
Companys Japanese operations, at this time, based on the Companys assessment, the Standard
methodology would require $400  $650 of additional capital during 2005. This estimate assumes that
the Company will successfully employ various capital management strategies within its discretion
and control, which may include, but are not limited to, product re-filing. The Company also is
currently evaluating certain reinsurance strategies which have the potential to reduce the
additional capital required to $100. These reinsurance strategies would be subject to regulatory
approval, which may not be granted. For further information on other contingencies, see Note 12 of Notes to Consolidated Financial
Statements. Legislative Initiatives On November 18, 2004, the House Financial Services Committee approved legislation which would have
extended the Terrorism Risk Insurance Act (TRIA) beyond its December 31, 2005, termination.
Efforts will continue in 2005 to extend TRIA and to enact permanent legislation. The prospects for
enactment of a simple extension or more permanent legislation are uncertain. Therefore, any
potential effect on the Companys financial condition or results of operations cannot be reasonably
estimated at this time. President Bush has proposed new investment vehicles with larger annual contribution limits for
individuals and permanent changes to the estate tax. These changes could have a material effect on
sales of the Companys life insurance and investment products. Prospects for enactment of this
legislation in 2005 are uncertain. Therefore, any potential effect on the Companys financial
condition or results of operations from such potential legislative changes cannot be reasonably
estimated at this time. The American Jobs Creation Act of 2004 imposes new restrictions on
non-qualified deferred compensation plans. The Company does not believe these changes will have a
material effect on the sale of its products. In addition, other tax proposals and regulatory initiatives which have been or are being considered
by Congress could have a material effect on the insurance business. These proposals and
initiatives include changes pertaining to the tax treatment of insurance companies and life
insurance products and annuities, and reductions in benefits currently received by the Company
stemming from the dividends received deduction. The President has also established an advisory
panel to study reform of the Internal Revenue Code. 56




---



##### 



The panel is scheduled to report its findings and make recommendations to the Secretary of the
Treasury by the end of July, 2005. Legislation to restructure the Social Security system and
expand private pension plans incentives also may be considered. Prospects for enactment and the
ultimate effect of these proposals are uncertain. Congress is expected to consider provisions regarding age discrimination in defined benefit plans,
transition relief for older and longer service workers affected by changes to traditional defined
benefit pension plans and the replacement of the interest rate used to determine pension plan
funding requirements. These changes could affect the Companys pension plan. The President has signed into law the Class Action Fairness Act of 2005. The Act will reduce the
number and type of national class actions certified by state judges by updating the federal rules
on diversity jurisdiction. Any potential effect on the Company cannot be reasonably estimated at this time. Congress may consider a number of other legal reform proposals this year. Prospects for enactment
of these proposals in 2005 are uncertain. Guaranty fund and Other Insurance-Related Assessments In all states, insurers licensed to transact certain classes of insurance are required to become
members of a guaranty fund. In most states, in the event of the insolvency of an insurer writing
any such class of insurance in the state, members of the fund are assessed to pay certain claims of
the insolvent insurer. A particular states fund assesses its members based on their respective
written premiums in the state for the classes of insurance in which the insolvent insurer is
engaged. Assessments are generally limited for any year to one or two percent of premiums written
per year depending on the state. There were no guaranty fund assessment payments or refunds in
2004 and 2003. There were guaranty fund assessment refunds of $2 in 2002. EFFECT OF INFLATION The rate of inflation as measured by the change in the average consumer price index has not
had a material effect on the revenues or operating results of Hartford Life during the three most
recent fiscal years. IMPACT OF NEW ACCOUNTING STANDARDS For a discussion of accounting standards, see Note 2 of Notes to Consolidated Financial
Statements. 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by Item 7A is set forth in the Capital Markets Risk Management
section of the Managements Discussion and Analysis of Financial Condition and Results of
Operations and is incorporated herein by reference. 
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules elsewhere herein. 
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE None. 
 Item 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures The Companys principal executive officer and its principal financial officer, based on their
evaluation of the Companys disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) have concluded that the Companys disclosure controls and procedures are effective for
the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of December 31,
2004. Changes in internal control over financial reporting There was no change in the Companys internal control over financial reporting that occurred during
the Companys fourth fiscal quarter of 2004 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting. 57




---



##### 



Item 9B. OTHER INFORMATION None. 
 PART III 
 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 9(e) of Schedule 14A with regard to the Companys ultimate
parent entity, The Hartford, is set forth in Item 14 of The Hartfords Form 10-K for the fiscal
year ended December 31, 2004, and is incorporated herein by reference. 
 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report:  (1)
    Consolidated Financial Statements.See Index to Consolidated Financial Statements and
Schedules elsewhere herein.(2)
    Consolidated Financial Statement Schedules.See Index to Consolidated Financial
Statement Schedules elsewhere herein.(3)
    Exhibits.See Exhibit Index elsewhere herein. 58




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##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Page(s)Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income for the three years ended December 31, 2004
    
    
    F-3Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Changes in Stockholders Equity for the three years ended
December 31, 2004
    
    
    F-5Consolidated Statements of Cash Flows for the three years ended December 31, 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-742Schedule I 3⁄4 Summary of Investments  Other Than Investments in Affiliates
    
    
    S-1Schedule II 3⁄4 Condensed Financial Information of Hartford Life, Inc.
    
    
    S-23Schedule III 3⁄4 Supplementary Insurance Information
    
    
    S-4Schedule IV 3⁄4 Reinsurance
    
    
    S-5Schedule V 3⁄4 Valuation and Qualifying Accounts
    
    
    S-6
 F - 1




---



##### 



Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholder of Hartford Life, Inc. Hartford, Connecticut We have audited the accompanying consolidated balance sheets of Hartford Life, Inc.
and its subsidiaries (collectively, the Company) as of December 31, 2004 and 2003,
and the related consolidated statements of income, changes in stockholders equity,
and cash flows for each of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedules listed in the Index to
Consolidated Financial Statements and Schedules. These financial statements and
financial statement schedules are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hartford Life, Inc. and subsidiaries as
of December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein. As discussed in Note 2 of the consolidated financial statements, the Company changed
its method of accounting and reporting for certain nontraditional long-duration
contracts and for separate accounts in 2004. DELOITTE & TOUCHE LLP Hartford, Connecticut February 24, 2005 F - 2




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 Consolidated Statements of Income
 For the years ended December 31,(In millions)
    
    2004
    
    
    2003
    
    
    2002RevenuesFee income and other
    
    $
    3,245
    
    
    $
    2,891
    
    
    $
    2,697Earned premiums
    
    
    4,072
    
    
    
    3,086
    
    
    
    2,697Net investment income
    
    
    3,894
    
    
    
    2,041
    
    
    
    1,849Net realized capital gains (losses)
    
    
    149
    
    
    
    40
    
    
    
    (308
    )Total revenues
    
    
    11,360
    
    
    
    8,058
    
    
    
    6,935Benefits, claims and expensesBenefits, claims and claim adjustment expenses
    
    
    6,630
    
    
    
    4,616
    
    
    
    4,158Insurance expenses and other
    
    
    2,116
    
    
    
    1,544
    
    
    
    1,405Amortization of deferred policy acquisition costs and present
value of future profits
    
    
    978
    
    
    
    769
    
    
    
    628Dividends to policyholders
    
    
    29
    
    
    
    63
    
    
    
    65Interest expense
    
    
    97
    
    
    
    117
    
    
    
    112Total benefits, claims and expenses
    
    
    9,850
    
    
    
    7,109
    
    
    
    6,368Income before income tax expense
and cumulative effect of
accounting changes
    
    
    1,510
    
    
    
    949
    
    
    
    567Income tax expense
    
    
    168
    
    
    
    180
    
    
    
    10Income before cumulative effect of
accounting changes
    
    
    1,342
    
    
    
    769
    
    
    
    557Cumulative effect of accounting changes, net of tax
    
    
    (23
    )
    
    
    
    
    
    
    Net income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557
 See Notes to Consolidated Financial Statements. F - 3




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 Consolidated Balance Sheets
 As of December 31,(In millions, except for share data)
    
    2004
    
    
    2003AssetsInvestmentsFixed
maturities, available for sale, at fair value (amortized cost of $47,962 and $35,569)
    
    $
    50,531
    
    
    $
    37,462Equity securities, available for sale, at fair value (cost of $506 and $335)
    
    
    525
    
    
    
    357Equity
securities, trading securities, at fair value (cost of $11,569 and
$-)
    
    
    13,634
    
    
    
    Policy loans, at outstanding balance
    
    
    2,662
    
    
    
    2,512Other investments
    
    
    1,364
    
    
    
    823Total investments
    
    
    68,716
    
    
    
    41,154Cash
    
    
    933
    
    
    
    265Premiums receivable and agents balances
    
    
    391
    
    
    
    335Reinsurance recoverables
    
    
    993
    
    
    
    604Deferred policy acquisition costs and present value of future profits
    
    
    7,437
    
    
    
    6,623Deferred income taxes
    
    
    (747
    )
    
    
    (486
    )Goodwill
    
    
    796
    
    
    
    796Other assets
    
    
    1,911
    
    
    
    1,668Separate account assets
    
    
    140,023
    
    
    
    136,633Total assets
    
    $
    220,453
    
    
    $
    187,592LiabilitiesReserve for future policy benefits
    
    $
    12,250
    
    
    $
    11,411Other policyholder funds
    
    
    52,833
    
    
    
    26,186Short-term debt
    
    
    
    
    
    
    505Long-term debt
    
    
    1,050
    
    
    
    1,300Other liabilities
    
    
    5,125
    
    
    
    4,498Separate account liabilities
    
    
    140,023
    
    
    
    136,633Total liabilities
    
    
    211,281
    
    
    
    180,533Commitments and Contingent Liabilities, Note 12
    
    
    
    
    
    
    Stockholders EquityCommon Stock - 1,000 shares authorized, issued and outstanding
Par value $0.01
    
    
    
    
    
    
    Capital surplus
    
    
    3,094
    
    
    
    2,489Accumulated other comprehensive incomeNet unrealized capital gains on securities, net of tax
    
    
    1,178
    
    
    
    903Foreign currency translation adjustments
    
    
    16
    
    
    
    (43
    )Total accumulated other comprehensive income
    
    
    1,194
    
    
    
    860Retained earnings
    
    
    4,884
    
    
    
    3,710Total stockholders equity
    
    
    9,172
    
    
    
    7,059Total liabilities and stockholders equity
    
    $
    220,453
    
    
    $
    187,592
 See Notes to Consolidated Financial Statements. F - 4




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 Consolidated Statements of Changes in Stockholders Equity
 Accumulated Other Comprehensive IncomeNet UnrealizedCapital
    
    
    Net Gain (Loss) on
    
    ForeignGains on
    
    
    Cash Flow Hedging
    
    CurrencyCommon
    
    
    Capital
    
    
    Securities,
    
    
    Instruments,
    
    Translation
   
    Retained
    
    
    Total Stockholders(In millions)
    
    Stock
    
    
    Surplus
    
    
    Net of Tax
    
    
    Net of Tax
    
    Adjustments
    
    Earnings
    
    
    Equity2004Balance, December 31, 2003
    
    $
    
    
    
    $
    2,489

    
    
    $
    928
    
    
    $
    (25
    )
    
    $
    (43
    )
    
    $
    3,710
    
    
    $
    7,059Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    1,319Other comprehensive income, net of tax (1)Cumulative effect of accounting change (2)
    
    
    
    
    
    
    
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Net change in unrealized capital gains
on securities (3)
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128Net loss on cash flow hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    
    
    
    
    
    
    
    
    (145
    )Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,653Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    (145
    )Capital contribution from parent
    
    
    
    
    
    
    605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605Balance, December 31, 2004
    
    $
    
    
    
    $
    3,094
    
    
    $
    1,348
    
    
    $
    (170
    )
    
    $
    16
    
    
    $
    4,884
    
    
    $
    9,1722003Balance, December 31, 2002
    
    $
    
    
    
    $
    1,970
    
    
    $
    621
    
    
    $
    126
    
    
    $
    (39
    )
    
    $
    3,010
    
    
    $
    5,688Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    769
    
    
    
    769Other comprehensive income, net of tax (1)Net change in unrealized capital gains
on securities (3)
    
    
    
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307Net loss on cash flow hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151
    )
    
    
    
    
    
    
    
    
    
    
    (151
    )Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    921Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    (69
    )Capital contribution from parent
    
    
    
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519Balance, December 31, 2003
    
    $
    
    
    
    $
    2,489
    
    
    $
    928
    
    
    $
    (25
    )
    
    $
    (43
    )
    
    $
    3,710
    
    
    $
    7,0592002Balance, December 31, 2001
    
    $
    
    
    
    $
    1,895
    
    
    $
    163
    
    
    $
    62
    
    
    $
    (29
    )
    
    $
    2,519
    
    
    $
    4,610Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557
    
    
    
    557Other comprehensive income, net of tax (1)Net change in unrealized capital gains
on securities (3)
    
    
    
    
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    458Net gain on cash flow hedging
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,069Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    (66
    )Capital contribution from parent
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Balance, December 31, 2002
    
    $
    
    
    
    $
    1,970
    
    
    $
    621
    
    
    $
    126
    
    
    $
    (39
    )
    
    $
    3,010
    
    
    $
    5,688
   (1)
    
    Net change in unrealized capital gain on securities is reflected net of tax provision of
$69, $165, and $247 for the years ended December 31, 2004, 2003 and 2002, respectively. Net
(loss) gain on cash flow hedging instruments is net of tax (benefit) provision of $(86) and
$(81) for the years ended December 31, 2004 and 2003, respectively. There is no tax effect
on cumulative translation adjustments.(2)
    
    Net change in unrealized capital gain on securities, net of tax, includes cumulative effect
of accounting change of $(23) to net income and $20 to net gain on cash flow hedging
instruments.(3)
    
    There were reclassification adjustments for after-tax gains (losses) realized in net income
of $97, $24, and $(187) for the years ended December 31, 2004, 2003 and 2002, respectively. See Notes to Consolidated Financial Statements. F - 5




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##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows
 For the years ended December 31,(In millions)
    
    2004
    
    
    2003
    
    
    2002Operating ActivitiesNet income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557Adjustments to reconcile net income to net cash provided by operating activitiesNet realized capital (gains) losses
    
    
    (149
    )
    
    
    (40
    )
    
    
    308Cumulative effect of accounting changes, net of tax
    
    
    23
    
    
    
    -
    
    
    
    -Amortization of deferred policy acquisition costs and present value of future
profits
    
    
    978
    
    
    
    769
    
    
    
    628Additions to deferred policy acquisition costs and present value of future profits
    
    
    (1,968
    )
    
    
    (1,626
    )
    
    
    (1,163
    )Depreciation and amortization (accretion)
    
    
    (39
    )
    
    
    137
    
    
    
    63Decrease (increase) in premiums receivable and agents balances
    
    
    (56
    )
    
    
    1
    
    
    
    21Increase (decrease) in other liabilities
    
    
    (83
    )
    
    
    467
    
    
    
    (177
    )Increase in receivables
    
    
    (290
    )
    
    
    (65
    )
    
    
    (44
    )Increase in accrued liabilities and payables
    
    
    235
    
    
    
    298
    
    
    
    75(Decrease) increase in accrued tax
    
    
    (31
    )
    
    
    (36
    )
    
    
    192Decrease (increase) in deferred income tax
    
    
    291
    
    
    
    153
    
    
    
    (26
    )Amortization of sales inducements
    
    
    30
    
    
    
    68
    
    
    
    67Additions to deferred sales inducements
    
    
    (141
    )
    
    
    (136
    )
    
    
    (106
    )Increase in future policy benefits
    
    
    872
    
    
    
    928
    
    
    
    631Net increase in equity securities, held for trading
    
    
    (7,409
    )
    
    
    
    
    
    
    Net receipts from investment contracts credited to policyholder accounts
associated with equity securities, held for trading
    
    
    7,909
    
    
    
    
    
    
    
    Decrease (increase) in reinsurance recoverables
    
    
    (41
    )
    
    
    35
    
    
    
    (12
    )(Increase) decrease in other assets
    
    
    224
    
    
    
    (297
    )
    
    
    44Net cash provided by operating activities
    
    
    1,674
    
    
    
    1,425
    
    
    
    1,058Investing ActivitiesPurchases of investments
    
    
    (19,882
    )
    
    
    (15,286
    )
    
    
    (14,727
    )Sales of investments
    
    
    14,788
    
    
    
    7,787
    
    
    
    7,510Maturity and principal paydowns of fixed maturity investments
    
    
    3,506
    
    
    
    3,540
    
    
    
    2,601Purchase of business/affiliate, net of cash acquired
    
    
    (58
    )
    
    
    (464
    )
    
    
    -Other
    
    
    (33
    )
    
    
    (1
    )
    
    
    (57
    )Net cash used for investing activities
    
    
    (1,679
    )
    
    
    (4,424
    )
    
    
    (4,673
    )Financing ActivitiesCapital contribution from parent
    
    
    605
    
    
    
    519
    
    
    
    75Repayment of short term debt
    
    
    (505
    )
    
    
    
    
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    230
    
    
    
    75Repayments of company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely parent junior subordinated debentures
    
    
    (250
    )
    
    
    -
    
    
    
    -Dividends paid
    
    
    (139
    )
    
    
    (69
    )
    
    
    (66
    )Net receipts from investment and universal lifetype contracts charged against
policyholder accounts
    
    
    962
    
    
    
    2,409
    
    
    
    3,539Net cash provided by financing activities
    
    
    673
    
    
    
    3,089
    
    
    
    3,623Net increase in cash
    
    
    668
    
    
    
    90
    
    
    
    8Impact of foreign exchange
    
    
    
    
    
    
    (4
    )
    
    
    4Cash  beginning of year
    
    
    265
    
    
    
    179
    
    
    
    167Cash  end of year
    
    $
    933
    
    
    $
    265
    
    
    $
    179Supplemental Disclosure of Cash Flow InformationNet Cash Paid (received) During the Year forIncome taxes
    
    $
    66
    
    
    $
    50
    
    
    $
    48Interest
    
    $
    94
    
    
    $
    115

 
    
    $
    110
 See Notes to Consolidated Financial Statements F - 6




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##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar amounts in millions, unless otherwise stated) Note 1. Organization and Description of Business Hartford Life, Inc. (a Delaware corporation), together with its consolidated subsidiaries
(Hartford Life or the Company), is a leading financial services and insurance organization
which provides, primarily in the United States, investment, retirement, estate planning and group
benefits products. Hartford Life, Inc. was formed on December 13, 1996 and capitalized on December
16, 1996 with the contribution of all the outstanding common stock of Hartford Life and Accident
Insurance Company (HLA), a subsidiary of The Hartford Financial Services Group, Inc. (The
Hartford). Pursuant to an initial public offering (the IPO) on May 22, 1997, Hartford Life sold
to the public 26 million shares of Class A Common Stock at $28.25 per share and received proceeds,
net of offering expenses, of $687. The 26 million shares sold in the IPO represented approximately
18.6% of the equity ownership in Hartford Life. On June 27, 2000, The Hartford acquired all of the
outstanding common shares of Hartford Life not already owned by The Hartford (The Hartford
Acquisition). As a result of The Hartford Acquisition, Hartford Life became a direct subsidiary
of Hartford Fire Insurance Company (Hartford Fire), a direct wholly-owned subsidiary of The
Hartford. During the third quarter of 2002, Hartford Life became a direct subsidiary of Hartford
Holdings, Inc., a direct wholly owned subsidiary of The Hartford. Hartford Life, Inc. is a holding
company, and as such, has no material business of its own. Note 2. Basis of Presentation and Accounting Policies Basis of Presentation The consolidated financial statements have been prepared on the basis of accounting principles
generally accepted in the United States of America (GAAP), which differ materially from the
accounting practices prescribed by various insurance regulatory authorities. The financial
statements include the accounts of Hartford Life and its wholly-owned as well as controlled
majority owned subsidiaries. Investments in companies in which the Company exercises significant
influence over operating and financial policies are accounted for using the equity method. All
material intercompany transactions and balances between Hartford Life, its subsidiaries and
affiliates have been eliminated. In 2004, the Company sponsored and purchased an investment interest in a synthetic collateralized
loan obligation transaction, a variable interest entity (VIE) for which the Company determined
itself to be the primary beneficiary. Accordingly, the assets, liabilities and results of
operations of the entity are included in the Companys consolidated financial statements. For
further discussion of the synthetic collateralized loan transaction see Note 4. Use of Estimates The preparation of financial statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The most significant estimates include those used in determining reserves for future policyholder
benefits, deferred policy acquisition costs, valuation of investments and derivative instruments
and evaluation of other-than-temporary impairments, income taxes and contingencies. Reclassifications Certain reclassifications have been made to prior year financial information to conform to the
current period classifications. Adoption of New Accounting Standards In July 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 03-1, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). SOP 03-1 addresses
a wide variety of topics, some of which have a significant impact on the Company. The major
provisions of SOP 03-1 require: F - 7




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##### 




    Recognizing expenses for a variety of contracts and
contract features, including guaranteed minimum death
benefits (GMDB), certain death benefits on universal-life
type contracts and annuitization options, on an accrual basis
versus the previous method of recognition upon payment;
    Reporting and measuring assets and liabilities of
certain separate account products as general account assets
and liabilities when specified criteria are not met;
    Reporting and measuring the Companys interest in its
separate accounts as general account assets based on the
insurers proportionate beneficial interest in the separate
accounts underlying assets; and
    Capitalizing sales inducements that meet specified
criteria and amortizing such amounts over the life of the
contracts using the same methodology as used for amortizing
deferred acquisition costs (DAC). SOP 03-1 was effective for financial statements for fiscal years beginning after December 15, 2003.
At the date of initial application, January 1, 2004, the cumulative effect of the adoption of SOP
03-1 on net income and other comprehensive income was comprised of the following individual impacts
shown net of income tax benefit of $12: Components of Cumulative Effect of Adoption
    
    Net Income
    
    
    Other Comprehensive IncomeEstablishing GMDB and other benefit reserves for annuity contracts
    
    $
    (54
    )
    
    $
    Reclassifying certain separate accounts to general account
    
    
    30
    
    
    
    294Other
    
    
    1
    
    
    
    (2
    )Total cumulative effect of adoption
    
    $
    (23
    )
    
    $
    292
 In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial instruments that embody obligations of
the issuer and have characteristics of both liabilities and equity. Generally, SFAS No. 150
requires liability classification for two broad classes of financial instruments: (a) instruments
that represent, or are indexed to, an obligation to buy back the issuers shares regardless of
whether the instrument is settled on a net-cash or gross-physical basis and (b) obligations that
(i) can be settled in shares but derive their value predominately from another underlying
instrument or index (e.g. security prices, interest rates, and currency rates), (ii) have a fixed
value, or (iii) have a value inversely related to the issuers shares. Mandatorily redeemable
equity and written options requiring the issuer to buyback shares are examples of financial
instruments that should be reported as liabilities under this new guidance. SFAS No. 150 specifies
accounting only for certain freestanding financial instruments and does not affect whether an
embedded derivative must be bifurcated and accounted for separately. SFAS No. 150 was effective
for instruments entered into or modified after May 31, 2003 and for all other instruments beginning
with the first interim reporting period beginning after June 15, 2003. Adoption of this statement
did not have a material impact on the Companys consolidated financial condition or results of
operations. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN 46), which required an enterprise to assess
whether consolidation of an entity is appropriate based upon its interests in a variable interest
entity. A VIE is an entity in which the equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other parties. The initial
determination of whether an entity is a VIE shall be made on the date at which an enterprise
becomes involved with the entity. An enterprise shall consolidate a VIE if it has a variable
interest that will absorb a majority of the VIEs expected losses if they occur, receive a majority
of the entitys expected residual returns if they occur or both. FIN 46 was effective immediately
for new VIEs established or purchased subsequent to January 31, 2003. For VIEs established or
purchased subsequent to January 31, 2003, the adoption of FIN 46 did not have a material impact on
the Companys consolidated financial condition or results of operations as there were no material
VIEs which required consolidation. In December 2003, the FASB issued a revised version of FIN 46 (FIN 46R), which incorporated a
number of modifications and changes made to the original version. FIN 46R replaced the previously
issued FIN 46 and, subject to certain special provisions, was effective no later than the end of
the first reporting period that ends after December 15, 2003 for entities considered to be
special-purpose entities and no later than the end of the first reporting period that ends after
March 15, 2004 for all other VIEs. Early adoption was permitted. The Company adopted FIN 46R in
the fourth quarter of 2003. The adoption of FIN 46R did not result in the consolidation of any
material VIEs but resulted in the deconsolidation of VIEs that issued Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts (trust preferred securities). The Company is not the
primary beneficiary of the VIEs, which issued the trust preferred securities. The Company does not
own any of the trust preferred securities which were issued to unrelated third parties. These
trust preferred securities are considered the principal variable interests issued by the VIEs. As
a result, the VIEs, which the Company previously consolidated, are no longer consolidated. The
sole assets of the VIEs are junior subordinated debentures issued by the Company with payment terms
identical to the trust preferred securities. Previously, the trust preferred securities were
reported as a separate liability on the Companys consolidated balance sheets as company obligated
mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated
debentures. At December 31, 2003, the impact of deconsolidation was to increase long-term debt
and decrease the trust preferred securities by $450. (For further discussion, see Note 14 for
disclosure of information related to these VIEs as required under FIN 46R.) F - 8




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##### 



Future Adoption of New Accounting Standards In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No.
123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and
supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires
all companies to recognize compensation costs for share-based payments to employees based on the
grant-date fair value of the award for financial statements for reporting periods beginning after
June 15, 2005. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be
an alternative to financial statement recognition. The transition methods include prospective and
retrospective adoption options. The prospective method requires that compensation expense be
recorded for all unvested stock-based awards including those granted prior to adoption of the fair
value recognition provisions of SFAS No. 123, at the beginning of the first quarter of adoption of
SFAS No. 123R, while the retrospective methods would record compensation expense for all unvested
stock-based awards beginning with the first period restated. The Hartford will adopt SFAS No. 123R
in the third quarter of fiscal 2005 using the prospective method. In January 2003, The Hartford
began expensing all stock-based compensation awards granted or modified after January 1, 2003 under
the fair value recognition provisions of SFAS No. 123 and therefore, the adoption is not expected
to have a material impact on the Companys consolidated financial condition or results of
operations. EITF Issue No. 03-1 In March 2004, the Emerging Issues Task Force (EITF) reached a final consensus on EITF Issue No.
03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
(EITF Issue No. 03-1). EITF Issue No. 03-1 was effective for periods beginning after June 15,
2004 and adopts a three-step impairment model for securities within its scope. The three-step
model must be applied on a security-by-security basis as follows:  Step 1:
    Determine whether an investment is impaired. An investment is
impaired if the fair value of the investment is less than its cost
basis.  Step 2:
    Evaluate whether an impairment is other-than-temporary. For debt
securities that cannot be contractually prepaid or otherwise
settled in such a way that the investor would not recover
substantially all of its cost, an impairment is deemed
other-than-temporary if the investor does not have the ability and
intent to hold the investment until a forecasted market price
recovery or it is probable that the investor will be unable to
collect all amounts due according to the contractual terms of the
debt security.  Step 3:
    If the impairment is other-than-temporary, recognize an impairment
loss equal to the difference between the investments cost basis
and its fair value. Subsequent to an other-than-temporary impairment loss, a debt security should be accounted for in
accordance with SOP 03-3, Accounting for Certain Loans and Debt Securities Acquired in a Transfer
(SOP 03-3). SOP 03-3 requires that the amount of a securitys expected cash flows in excess of
the investors initial cost or amortized cost investment be recognized as interest income on a
level-yield basis over the life of the security. EITF Issue No. 03-1 does not replace the
impairment guidance for investments accounted for under EITF Issue No. 99-20, Recognition of
Interest Income and Impairments on Purchased and Retained Beneficial Interests in Securitized
Financial Assets (EITF Issue No. 99-20), however, it requires investors to determine if a
security is other-than-temporarily impaired under EITF Issue No. 03-1 if the security is determined
not to be other-than-temporarily impaired under EITF Issue No. 99-20. In September 2004, the FASB staff issued clarifying guidance for comment in FASB Staff Position
(FSP) EITF Issue No. 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, (FSP Issue No. 03-1-a) and subsequently voted to delay the implementation of the
impairment measurement and recognition guidance contained in paragraphs 1020 of EITF Issue No.
03-1 in order to redeliberate certain aspects of the consensus as well as the implementation
guidance included in FSP Issue No. 03-1-a. The disclosure requirements including quantitative and
qualitative information regarding investments in an unrealized loss position remain effective and
are included in Note 4. The ultimate impact the adoption of EITF Issue No. 03-1 will have on the Companys consolidated
financial condition and results of operations is still unknown. Depending on the nature of the
ultimate guidance, adoption of the standard could potentially result in the recognition of
unrealized losses, including those declines in value that are attributable to interest rate
movements, as other-than-temporary impairments, except those deemed to be minor in nature. As of
December 31, 2004, the Company had $184 of total gross unrealized losses. The amount of
impairments to be recognized, if any, will depend on the final standard, market conditions and
managements intent and ability to hold securities with unrealized losses at the time of the
impairment evaluation. Stock-based compensation In January 2003, The Hartford adopted the fair value recognition provisions of SFAS No. 123,
Accounting for Stock Issued to Employees, and used the prospective transition method. Under the
prospective method, stock-based compensation expense is recognized for awards granted or modified
after the beginning of the fiscal year in which the change is made. The Hartford expenses all
stock-based compensation awards granted after January 1, 2003. The allocated expense to the
Company from The Hartford associated with these awards for the year ended December 31, 2003, was
immaterial. F - 9




---



##### 



All stock-based compensation awards granted or modified prior to January 1, 2003, will continue to
be valued using the intrinsic value-based provisions set forth in Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under the intrinsic value
method, compensation expense is determined on the measurement date, which is the first date on
which both the number of shares the employee is entitled to receive and the exercise price are
known. Compensation expense, if any, is measured based on the awards intrinsic value, which is
the excess of the market price of the stock over the exercise price on the measurement date, and is
recognized over the awards vesting period. The expense, including non-option plans, related to
stock-based employee compensation included in the determination of net income for the years ended
December 31, 2004, 2003 and 2002 is less than that which would have been recognized if the fair
value method had been applied to all awards granted since the effective date of SFAS No. 123. For
further discussion of The Hartfords stock-based compensation plans, see Note 17 of Notes to
Consolidated Financial Statements. Investments Hartford Lifes investments in fixed maturities, which include bonds, redeemable preferred stock
and commercial paper; and certain equity securities, which include common and non-redeemable
preferred stocks, are classified as available-for-sale as defined in SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS No. 115). Accordingly, these
securities are carried at fair value with the after-tax difference from amortized cost, as adjusted
for the effect of deducting the life and pension policyholders share of the immediate
participation guaranteed contracts and certain life and annuity deferred policy acquisition costs,
reflected in stockholders equity as a component of accumulated other comprehensive income
(AOCI). The equity investments associated with the variable annuity products offered in Japan
are recorded at fair value and are classified as trading as defined in SFAS No. 115, with changes
in fair value recorded in net investment income. Policy loans are carried at outstanding balance,
which approximates fair value. Other investments primarily consist of limited partnership
interests, derivatives and mortgage loans. Limited partnerships are accounted for under the equity
method and accordingly the Companys share of partnership earnings are included in net investment
income. Derivatives are carried at fair value and mortgage loans on real estate are recorded at
the outstanding principal balance adjusted for amortization of premiums or discounts and net of
valuation allowances, if any. Valuation of Fixed Maturities The fair value for fixed maturity securities is largely determined by one of three primary pricing
methods: independent third party pricing service market quotations, independent broker quotations
or pricing matrices, which use data provided by external sources. With the exception of short-term
securities for which amortized cost is predominantly used to approximate fair value, security
pricing is applied using a hierarchy or waterfall approach whereby prices are first sought from
independent pricing services with the remaining unpriced securities submitted to brokers for prices
or lastly priced via a pricing matrix. Prices from independent pricing services are often unavailable for securities that are rarely
traded or are traded only in privately negotiated transactions. As a result, certain of the
Companys asset-backed and commercial mortgage-backed securities are priced via broker quotations.
A pricing matrix is used to price securities for which the Company is unable to obtain either a
price from an independent third party service or an independent broker quotation. The pricing
matrix begins with current treasury rates and uses credit spreads and issuer-specific yield
adjustments received from an independent third party source to determine the market price for the
security. The credit spreads incorporate the issuers credit rating as assigned by a nationally
recognized rating agency and a risk premium, if warranted, due to the issuers industry and the
securitys time to maturity. The issuer-specific yield adjustments, which can be positive or
negative, are updated twice annually, as of June 30 and December 31, by an independent third-party
source and are intended to adjust security prices for issuer-specific factors. The matrix-priced
securities at December 31, 2004 and 2003, primarily consisted of non-144A private placements and
have an average duration of 4.8 and 4.5, respectively. The following table identifies the fair value of fixed maturity securities by pricing source as of
December 31, 2004 and 2003: 2004
    
    2003General Account
    
    
    Percentage
    
    
    General Account
    
    
    PercentageFixed Maturity at
    
    
    of Total
    
    
    Fixed Maturity at
    
    
    of TotalFair Value
    
    
    Fair Value
    
    
    Fair Value
    
    
    Fair ValuePriced via independent market quotations
    
    $
    40,902
    
    
    
    80.9
    %
    
    $
    30,576
    
    
    
    81.6
    %Priced via broker quotations
    
    
    3,319
    
    
    
    6.6
    %
    
    
    2,250
    
    
    
    6.0
    %Priced via matrices
    
    
    4,018
    
    
    
    7.9
    %
    
    
    2,488
    
    
    
    6.6
    %Priced via other methods
    
    
    31
    
    
    
    0.1
    %
    
    
    172
    
    
    
    0.5
    %Short-term investments [1]
    
    
    2,261
    
    
    
    4.5
    %
    
    
    1,976
    
    
    
    5.3
    %Total [2]
    
    $
    50,531
    
    
    
    100.0
    %
    
    $
    37,462
    
    
    
    100.0
    %
   [1]
    
    Short-term investments are primarily valued at amortized cost, which approximates fair value.[2]
    
    Effective January 1, 2004, guaranteed separate account assets were included with general account assets as a result of adopting SOP 03-1. The fair value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between knowledgeable, unrelated willing parties. As such, the
estimated fair value of a financial instrument may differ significantly from the amount that could
be realized if the security was sold immediately. F - 10




---



##### 



Other-Than-Temporary Impairments One of the significant estimations inherent in the valuation of investments is the evaluation of
other-than-temporary impairments. The evaluation of impairments is a quantitative and qualitative
process, which is subject to risks and uncertainties and is intended to determine whether declines
in the fair value of investments should be recognized in current period earnings. The risks and
uncertainties include changes in general economic conditions, the issuers financial condition or
near term recovery prospects and the effects of changes in interest rates. The Companys
accounting policy requires that a decline in the value of a security below its amortized cost basis
be assessed to determine if the decline is other-than-temporary. If the security is deemed to be
other-than-temporarily impaired, a charge is recorded in net realized capital losses equal to the
difference between the fair value and amortized cost basis of the security. In addition, for
securities expected to be sold, an other-than-temporary impairment charge is recognized if the
Company does not expect the fair value of a security to recover to amortized cost prior to the
expected date of sale. The fair value of the other-than-temporarily impaired investment becomes
its new cost basis. The Company has a security monitoring process overseen by a committee of
investment and accounting professionals (the committee) that identifies securities that, due to
certain characteristics, as described below, are subjected to an enhanced analysis on a quarterly
basis. Securities not subject to EITF Issue No. 99-20 (non-EITF Issue No. 99-20 securities) that are in
an unrealized loss position, are reviewed at least quarterly to determine if an
other-than-temporary impairment is present based on certain quantitative and qualitative factors.
The primary factors considered in evaluating whether a decline in value for non-EITF Issue No.
99-20 securities is other-than-temporary include: (a) the length of time and the extent to which
the fair value has been less than cost, (b) the financial condition, credit rating and near-term
prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and
principal payments and (d) the intent and ability of the Company to retain the investment for a
period of time sufficient to allow for recovery. Non-EITF Issue No. 99-20 securities depressed by
twenty percent or more for six months are presumed to be other-than-temporarily impaired unless
significant objective verifiable evidence supports that the security price is temporarily depressed
and is expected to recover within a reasonable period of time. The evaluation of non-EITF Issue
No. 99-20 securities depressed more than ten percent is documented and discussed quarterly by the
committee. For certain securitized financial assets with contractual cash flows (including asset-backed
securities), EITF Issue No. 99-20 requires the Company to periodically update its best estimate of
cash flows over the life of the security. If the fair value of a securitized financial asset is
less than its carrying amount and there has been a decrease in the present value of the estimated
cash flows since the last revised estimate, considering both timing and amount, then an
other-than-temporary impairment charge is recognized. Estimating future cash flows is a
quantitative and qualitative process that incorporates information received from third party
sources along with certain internal assumptions and judgments regarding the future performance of
the underlying collateral. As a result, actual results may differ from current estimates. In
addition, projections of expected future cash flows may change based upon new information regarding
the performance of the underlying collateral. Once an impairment charge has been recorded, the Company then continues to review the
other-than-temporarily impaired securities for additional other-than-temporary impairments. The
ultimate completion of EITF Issue No. 03-1 The Meaning of Other-Than-Temporary Impairments and Its
Application to Certain Investments may impact the Companys current other-than-temporary
impairment evaluation process. (For further discussion of EITF Issue No. 03-1, see the Future
Adoption of New Accounting Standards section of Note 2.) Net Realized Capital Gains and Losses Net realized capital gains and losses, after deducting the life and pension policyholders share
and related amortization of deferred policy acquisition costs for certain products, are reported as
a component of revenues and are determined on a specific identification basis. Net realized
capital gains and losses on security transactions associated with the Companys immediate
participation guaranteed contracts are recorded and offset by amounts owed to policyholders and
were less than $1 for the year ended December 31, 2004 and were $1 for the years ended December 31,
2003 and 2002. Under the terms of the contracts, the net realized capital gains and losses will be
credited to policyholders in future years as they are entitled to receive them. Net Investment Income Interest income from fixed maturities is recognized when earned on a constant effective yield basis
based on estimated principal repayments, if applicable. Prepayment fees are recorded in net
investment income when earned. The Company stops recognizing interest income when it does not
expect to receive amounts in accordance with the contractual terms of the security. Interest
income on these investments is recognized only when interest payments are received. F - 11




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##### 



Derivative Instruments Overview The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards,
futures and options through one of four Company-approved objectives: to hedge risk arising from
interest rate, price or currency exchange rate volatility; to manage liquidity; to control
transaction costs; or to enter into replication transactions. (For a further discussion, see Note
4.) The Companys derivative transactions are permitted uses of derivatives under the derivatives use
plan filed and/or approved, as applicable, by the State of Connecticut, the State of Illinois and
the State of New York insurance departments. The Company does not make a market or trade in these
instruments for the express purpose of earning short-term trading profits. Accounting and Financial Statement Presentation of Derivative Instruments and Hedging
Activities Derivatives are recognized on the balance sheet at fair value. Fair value is based upon either
independent market quotations or pricing valuation models which utilize independent third party
data as inputs. The derivative contracts are reported as assets or liabilities in other
investments and other liabilities, respectively, in the consolidated balance sheets, excluding
embedded derivatives and guaranteed minimum withdrawal benefits (GMWB) reinsurance contracts.
Embedded derivatives are recorded in the consolidated balance sheets with the associated host
instrument. GMWB reinsurance contract amounts are recorded in reinsurance recoverables in the
consolidated balance sheets. On the date the derivative contract is entered into, the Company designates the derivative as (1) a
hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a
forecasted transaction or of the variability of cash flows to be received or paid related to a
recognized asset or liability (cash-flow hedge), (3) a foreign-currency, fair value or cash-flow
hedge (foreign-currency hedge), (4) a hedge of a net investment in a foreign operation or (5)
held for other investment and risk management activities, which primarily involve managing asset or
liability related risks which do not qualify for hedge accounting. Fair-Value Hedges Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge,
along with the changes in the fair value of the hedged asset or liability that is attributable to
the hedged risk, are recorded in current period earnings with any differences between the net
change in fair value of the derivative and the hedged item representing the hedge ineffectiveness.
Periodic derivative net coupon settlements are recorded in net investment income. Cash-Flow Hedges Changes in the fair value of a derivative that is designated and qualifies as a cash-flow hedge are
recorded in AOCI and are reclassified into earnings when the variability of the cash flow of the
hedged item impacts earnings. Gains and losses on derivative contracts that are reclassified from
AOCI to current period earnings are included in the line item in the consolidated statements of
income in which the hedged item is recorded. Any hedge ineffectiveness is recorded immediately in
current period earnings as net realized capital gains and losses. Periodic derivative net coupon
settlements are recorded in net investment income. Foreign-Currency Hedges Changes in the fair value of derivatives that are designated and qualify as foreign-currency hedges
are recorded in either current period earnings or AOCI, depending on whether the hedged transaction
is a fair-value hedge or a cash-flow hedge, respectively. Any hedge ineffectiveness is recorded
immediately in current period earnings as net realized capital gains and losses. Periodic
derivative net coupon settlements are recorded in net investment income. Net Investment in a Foreign Operation Hedges Changes in fair-value of a derivative used as a hedge of a net investment in a foreign operation,
to the extent effective as a hedge, are recorded in the foreign currency translation adjustments
account within AOCI. Cumulative changes in fair value recorded in AOCI are reclassified into
earnings upon the sale or complete or substantially complete liquidation of the foreign entity.
Any hedge ineffectiveness is recorded immediately in current period earnings as net realized
capital gains and losses. Periodic derivative net coupon settlements are recorded in net
investment income. Other Investment and Risk Management Activities The Companys other investment and risk management activities primarily relate to strategies used
to reduce economic risk or enhance income, and do not receive hedge accounting treatment. Changes
in the fair value, including periodic net coupon settlements, of derivative instruments held for
other investment and risk management purposes are reported in current period earnings as net
realized capital gains and losses. F - 12




---



##### 



Hedge Documentation and Effectiveness Testing To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the
designated change in value of the hedged item. At hedge inception, the Company formally documents
all relationships between hedging instruments and hedged items, as well as its risk-management
objective and strategy for undertaking each hedge transaction. The documentation process includes
linking all derivatives that are designated as fair-value, cash-flow, foreign-currency or
net-investment hedges to specific assets or liabilities on the balance sheet or to specific
forecasted transactions. The Company also formally assesses, both at the hedges inception and on
an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness
is assessed using qualitative and quantitative methods. Qualitative methods may include comparison
of critical terms of the derivative to the hedged item. Depending on the hedging strategy,
quantitative methods may include the Change in Variable Cash Flows Method, the Change in Fair
Value Method and the Hypothetical Derivative Method. In addition, certain hedging relationships
are considered highly effective if the changes in the fair value or discounted cash flows of the
hedging instrument are within a ratio of 80-125% of the inverse changes in the fair value or
discounted cash flows of the hedged item. If it is determined that a derivative is no longer
highly effective as a hedge, the Company discontinues hedge accounting in the period in which the
derivative became ineffective and prospectively, as discussed below under discontinuance of hedge
accounting. Discontinuance of Hedge Accounting The Company discontinues hedge accounting prospectively when (1) it is determined that the
derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a
hedged item; (2) the derivative is dedesignated as a hedging instrument, because it is unlikely
that a forecasted transaction will occur; or (3) the derivative expires or is sold, terminated, or
exercised. When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the derivative continues to be carried at fair value on
the balance sheet with changes in its fair value recognized in current period earnings. When hedge accounting is discontinued because the Company becomes aware that it is not probable
that the forecasted transaction will occur, the derivative continues to be carried on the balance
sheet at its fair value, and gains and losses that were accumulated in AOCI are recognized
immediately in earnings. In other situations in which hedge accounting is discontinued on a cash-flow hedge, including those
where the derivative is sold, terminated or exercised, amounts previously deferred in AOCI are
amortized into earnings when earnings are impacted by the variability of the cash flow of the
hedged item. Embedded Derivatives The Company purchases financial instruments and issues products, such as GMWB, that contain a
derivative instrument that is embedded in the financial instruments or products. When it is
determined that (1) the embedded derivative possesses economic characteristics that are not clearly
and closely related to the economic characteristics of the host contract, and (2) a separate
instrument with the same terms would qualify as a derivative instrument, the embedded derivative is
bifurcated from the host for measurement purposes. The embedded derivative, which is reported with
the host instrument in the consolidated balance sheets, is carried at fair value with changes in
fair value reported in net realized capital gains and losses. Credit Risk The Companys derivatives counterparty exposure policy establishes market-based credit limits,
favors long-term financial stability and creditworthiness, and typically requires credit
enhancement/credit risk reducing agreements. By using derivative instruments, the Company is
exposed to credit risk, which is measured as the amount owed to the Company based on current market
conditions and potential payment obligations between the Company and its counterparties. When the
fair value of a derivative contract is positive, this indicates that the counterparty owes the
Company, and, therefore, exposes the Company to credit risk. Credit exposures are generally
quantified daily, netted by counterparty for each legal entity of the Company, and then collateral
is pledged to and held by, or on behalf of, the Company to the extent the current value of
derivatives exceeds exposure policy thresholds. The Company also minimizes the credit risk in
derivative instruments by entering into transactions with high quality counterparties that are
monitored by the Companys internal compliance unit and reviewed frequently by senior management.
In addition, the compliance unit monitors counterparty credit exposure on a monthly basis to ensure
compliance with Company policies and statutory limitations. The Company also maintains a policy of
requiring that all derivative contracts be governed by an International Swaps and Derivatives
Association Master Agreement which is structured by legal entity and by counterparty and permits
the right of offset. In addition, the Company periodically enters into swap agreements in which
the Company assumes credit exposure from a single entity, referenced index or asset pool. Product Derivatives and Risk Management The Company offers certain variable annuity products with a guaranteed minimum withdrawal benefit
(GMWB) rider. The GMWB provides the policyholder with a guaranteed remaining balance (GRB) if
the account value is reduced to zero through a combination of market declines and withdrawals. The
GRB is generally equal to premiums less withdrawals. However, annual withdrawals that exceed a F - 13




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##### 



specific percentage of the premiums paid may reduce the GRB by an amount greater than the
withdrawals and may also impact the guaranteed annual withdrawal amount that subsequently applies
after the excess annual withdrawals occur. For certain of the withdrawal benefit features, the
policyholder also has the option, after a specified time period, to reset the GRB to the
then-current account value, if greater. The GMWB represents an embedded derivative in the variable
annuity contract that is required to be reported separately from the host variable annuity
contract. It is carried at fair value and reported in other policyholder funds. The fair value of
the GMWB obligations is calculated based on actuarial assumptions related to the projected cash
flows, including benefits and related contract charges, over the lives of the contracts,
incorporating expectations concerning policyholder behavior. Because of the dynamic and complex
nature of these cash flows, stochastic techniques under a variety of market return scenarios and
other best estimate assumptions are used. Estimating these cash flows involves numerous estimates
and subjective judgments including those regarding expected market rates of return, market
volatility, correlations of market returns and discount rates. In valuing the embedded derivative, the Company attributes to the derivative a portion of the fees
collected from the policyholder equal to the present value of future GMWB claims (the Attributed
Fees). All changes in the fair value of the embedded derivative are recorded in net realized
capital gains and losses. The excess of fees collected from the policyholder for the GMWB over the
Attributed Fees are associated with the host variable annuity contract recorded in fee income. For contracts issued prior to July 2003, the Company has a reinsurance arrangement in place to
offset its exposure to the GMWB. This arrangement is recognized as a derivative and carried at
fair value in reinsurance recoverables. Changes in the fair value of both the derivative assets
and liabilities related to the reinsured GMWB are recorded in net realized capital gains and
losses. As of July 2003, the Company had substantially exhausted all of its reinsurance capacity,
with respect to contracts issued after July 2003, and began hedging its exposure to the GMWB rider
using a sophisticated program involving interest rate futures, Standard and Poors (S&P) 500 and
NASDAQ index put options and futures contracts and Europe, Australasia and Far East (EAFE) Index
swaps to hedge GMWB exposure to international equity markets. For the year ended December 31, 2004
and 2003, net realized capital gains and losses included the change in market value of the embedded
derivative related to the GMWB liability, the derivative reinsurance arrangement and the related
derivative contracts that were purchased as economic hedges, the net effect of which was a $8 and
$6 gain before deferred policy acquisition costs and tax effects, respectively. Deferred Policy Acquisition Costs and Present Value of Future Profits Policy acquisition costs include commissions and certain other expenses that vary with and are
primarily associated with acquiring business. Present value of future profits is an intangible
asset recorded upon applying purchase accounting in an acquisition of a life insurance company.
Deferred policy acquisition costs and the present value of future profits intangible asset are
amortized in the same way. Both are amortized over the estimated life of the contracts acquired,
usually 20 years. Within the following discussion, deferred policy acquisition costs and the
present value of future profits intangible asset will be referred to as DAC. At December 31,
2004 and 2003, the carrying value of the Companys DAC was $7.4 billion and $6.6 billion,
respectively. For statutory accounting purposes, such costs are expensed as incurred. DAC related to traditional policies are amortized over the premium-paying period in proportion
to the present value of annual expected premium income. DAC related to investment contracts and
universal life-type contracts are deferred and amortized using the retrospective deposit method.
Under the retrospective deposit method, acquisition costs are amortized in proportion to the
present value of estimated gross profits (EGPs), arising principally from projected investment,
mortality and expense margins and surrender charges. The attributable portion of the DAC
amortization is allocated to realized gains and losses on investments. The DAC balance is also
adjusted through other comprehensive income by an amount that represents the amortization of
deferred policy acquisition costs that would have been required as a charge or credit to operations
had unrealized gains and losses on investments been realized. Actual gross profits can vary from
managements estimates, resulting in increases or decreases in the rate of amortization. The Company regularly evaluates its EGPs to determine if actual experience or other evidence
suggests that earlier estimates should be revised. In the event that the Company were to revise
its EGPs, the cumulative DAC amortization would be adjusted to reflect such revised EGPs in the
period the revision was determined to be necessary. Several assumptions considered to be
significant in the development of EGPs include separate account fund performance, surrender and
lapse rates, estimated interest spread and estimated mortality. The separate account fund
performance assumption is critical to the development of the EGPs related to the Companys variable
annuity and to a lesser extent, variable universal life insurance businesses. The average annual
long-term rate of assumed separate account fund performance (before mortality and expense charges)
used in estimating gross profits for the variable annuity and variable universal life business was
9% for the years ended December 31, 2004 and 2003. For other products including fixed annuities
and other universal life-type contracts, the average assumed investment yield ranged from 5.7% to
7.9% for both years ended December 31, 2004 and 2003. The Company had developed models to evaluate its DAC asset, which allowed it to run a large number
of stochastically determined scenarios of separate account fund performance. These scenarios were
then utilized to calculate a statistically significant range of reasonable estimates of EGPs. This
range was then compared to the present value of EGPs currently utilized in the DAC amortization
model. As of December 31, 2004, the present value of the EGPs utilized in the DAC amortization
model fall within a reasonable range of statistically calculated present value of EGPs. As a
result, the Company does not believe there is sufficient evidence to suggest that a revision to the
EGPs (and therefore, a F - 14




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##### 



revision to the DAC) as of December 31, 2004 is necessary; however, if in the future the EGPs
utilized in the DAC amortization model were to exceed the margin of the reasonable range of
statistically calculated EGPs, a revision could be necessary. Additionally, the Company continues to perform analyses with respect to the potential impact of a
revision to future EGPs. If such a revision to EGPs were deemed necessary, the Company would
adjust, as appropriate, all of its assumptions for products accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 97, Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments, and reproject its future EGPs based on current account values at the end of the
quarter in which a revision is deemed to be necessary. Aside from absolute levels and timing of market performance assumptions, additional factors that
will influence the determination to adjust assumptions include the degree of volatility in separate
account fund performance and shifts in asset allocation within the separate account made by
policyholders. The overall return generated by the separate account is dependent on several
factors, including the relative mix of the underlying sub-accounts among bond funds and equity
funds as well as equity sector weightings. The Companys overall separate account fund performance
has been reasonably correlated to the overall performance of the S&P 500 Index (which closed at
1,212 on December 31, 2004), although no assurance can be provided that this correlation will
continue in the future. The overall recoverability of the DAC asset is dependent on the future profitability of the
business. The Company tests the aggregate recoverability of the DAC asset by comparing the amounts
deferred to the present value of total EGPs. In addition, the Company routinely stress tests its
DAC asset for recoverability against severe declines in its separate account assets, which could
occur if the equity markets experienced another significant sell-off, as the majority of
policyholders funds in the separate accounts is invested in the equity market. Reserve for Future Policy Benefits and Unpaid Claims and Claim Adjustment Expenses Liabilities for the Companys group life and disability contracts as well its individual term life
insurance policies include amounts for unpaid claims and future policy benefits. Liabilities for
unpaid claims include estimates of amounts to fully settle known reported claims as well as claims
related to insured events that the Company estimates have been incurred but have not yet been
reported. Liabilities for future policy benefits are calculated by the net level premium method
using interest, withdrawal and mortality assumptions appropriate at the time the policies were
issued. The methods used in determining the liability for unpaid claims and future policy benefits
are standard actuarial methods recognized by the American Academy of Actuaries. For the tabular
reserves, discount rates are based on the Companys earned investment yield and the
morbidity/mortality tables used are standard industry tables modified to reflect the Companys
actual experience when appropriate. In particular, for the Companys group disability known claim
reserves, the morbidity table for the early durations of claim is based exclusively on the
Companys experience, incorporating factors such as sex, elimination period and diagnosis. These
reserves are computed such that they are expected to meet the Companys future policy obligations.
Future policy benefits are computed at amounts that, with additions from estimated premiums to be
received and with interest on such reserves compounded annually at certain assumed rates, are
expected to be sufficient to meet the Companys policy obligations at their maturities or in the
event of an insureds death. Changes in or deviations from the assumptions used for mortality,
morbidity, expected future premiums and interest can significantly affect the Companys reserve
levels and related future operations and, as such, provisions for adverse deviation are built into
the long-tailed liability assumptions. Other Policyholder Funds and Benefits Payable The Company has classified its fixed and variable annuities, 401(k), certain governmental
annuities, private placement life insurance (PPLI), variable universal life insurance, universal
life insurance and interest sensitive whole life insurance as universal life-type contracts. The

liability for universal life-type contracts is equal to the balance that accrues to the benefit of
the policyholders as of the financial statement date (commonly referred to as the account value),
including credited interest, amounts that have been assessed to compensate the Company for services
to be performed over future periods, and any amounts previously assessed against policyholders that
are refundable on termination of the contract. Certain contracts classified as universal life-type
may also include additional death or other insurance benefit features, such as guaranteed minimum
death or income benefits offered with variable annuity contracts or no lapse guarantees offered
with universal life insurance contracts. An additional liability is established for these benefits
by estimating the expected present value of the benefits in excess of the projected account value
in proportion to the present value of total expected assessments. Excess benefits are accrued as a
liability as actual assessments are recorded. Determination of the expected value of excess
benefits and assessments are based on a range of scenarios and assumptions including those related
to market rates of return and volatility, contract surrender rates and mortality experience. The Company has classified its institutional and governmental products, without life contingencies,
including funding agreements, certain structured settlements and guaranteed investment contracts,
as investment contracts. The liability for investment contracts is equal to the balance that
accrues to the benefit of the contract holder as of the financial statement date, which includes
the accumulation of deposits plus credited interest, less withdrawals and amounts assessed through
the financial statement date. F - 15




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##### 



Revenue Recognition For investment and universal life-type contracts, the amounts collected from policyholders are
considered deposits and are not included in revenue. Fee income for investment and universal
life-type contracts consists of policy charges for policy administration, cost of insurance charges
and surrender charges assessed against policyholders account balances and are recognized in the
period in which services are provided. The Companys traditional life and group disability
products are classified as long duration contracts, and premiums are recognized as revenue when due
from policyholders. Foreign Currency Translation Foreign currency translation gains and losses are reflected in stockholders equity as a component
of accumulated other comprehensive income. The Companys foreign subsidiaries balance sheet
accounts are translated at the exchange rates in effect at each year end and income statement
accounts are translated at the average rates of exchange prevailing during the year. Gains and
losses on foreign currency transactions are reflected in earnings. The national currencies of the
international operations are their functional currencies. Dividends to Policyholders Policyholder dividends are accrued using an estimate of the amount to be paid based on underlying
contractual obligations under policies and applicable state laws. Participating life insurance inforce accounted for 5%, 6%, and 6% as of December 31, 2004, 2003 and
2002, respectively, of total life insurance in force. Dividends to policyholders were $29, $63,
and $65 for the years ended December 31, 2004, 2003 and 2002, respectively. There were no
additional amounts of income allocated to participating policyholders. If limitations exist on the
amount of net income from participating life insurance contracts that may be distributed to
stockholders, the policyholders share of net income on those contracts that cannot be distributed
is excluded from stockholders equity by a charge to operations and a credit to a liability. Mutual Funds The Company maintains a retail mutual fund operation, whereby the Company, through wholly-owned
subsidiaries, provides investment management and administrative services to The Hartford Mutual
Funds, Inc. and The Hartford Mutual Funds II, Inc. (The Hartford mutual funds), families of 40
mutual funds. The Company charges fees to the shareholders of the mutual funds, which are recorded
as revenue by the Company. Investors can purchase shares in the mutual funds, all of which are
registered with the Securities and Exchange Commission SEC, in accordance with the Investment
Company Act of 1940. The mutual funds are owned by the shareholders of those funds and not by the
Company. As such, the mutual fund assets and liabilities and related investment returns are not
reflected in the Companys consolidated financial statements since they are not assets, liabilities
and operations of the Company. Reinsurance Written premiums, earned premiums and incurred insurance losses and loss adjustment expense all
reflect the net effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers
to our acceptance of certain insurance risks that other insurance companies have underwritten.
Ceded reinsurance means other insurance companies have agreed to share certain risks the Company
has underwritten. Reinsurance accounting is followed for assumed and ceded transactions when the
risk transfer provisions of SFAS No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts, have been met. Income Taxes The Company recognizes taxes payable or refundable for the current year and deferred taxes for the
future tax consequences of differences between the financial reporting and tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years the temporary differences are expected to reverse. Note 3. Segment Information The Company has changed its reportable operating segments in 2004 from Investment Products,
Individual Life, Group Benefits and Corporate Owned Life Insurance (COLI) to Retail Products
Group (Retail), Institutional Solutions Group (Institutional), Individual Life and Group
Benefits. Retail offers individual variable and fixed annuities, mutual funds, retirement plan
products and services to corporations under Section 401(k) plans and other investment products.
Institutional primarily offers retirement plan products and services to municipalities under
Section 457 plans, other institutional investment products, structured settlements, and private
placement life insurance (formerly COLI). Individual Life sells a variety of life insurance
products, including variable universal life, universal life, interest sensitive whole life and term
life insurance. Group Benefits sells group insurance products, including group life and group
disability insurance as well as other products, including medical stop loss and supplementary
medical coverages to employers and employer sponsored plans, accidental death and dismemberment,
travel accident and other special risk coverages to employers and associations. The Company also
includes in an F - 16




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##### 



Other category its international operations, which are primarily located in Japan and Brazil; as
well as Corporate, which includes net realized capital gains and losses other than periodic net
coupon settlements on non-qualifying derivatives, net realized capital gains and losses related to
guaranteed minimum withdrawal benefits, corporate items not directly allocated to any of its
reportable operating segments, interest expense, and intersegment eliminations. Periodic net
coupon settlements on non-qualifying derivatives and net realized capital gains and losses related
to guaranteed minimum withdrawal benefits are reflected in each applicable segment in net realized
capital gains and losses. The accounting policies of the reportable operating segments are the same as those described in the
summary of significant accounting policies in Note 2. The Company evaluates performance of its
segments based on revenues, net income and the segments return on allocated capital. The Company
charges direct operating expenses to the appropriate segment and allocates the majority of indirect
expenses to the segments based on an intercompany expense arrangement. Intersegment revenues
primarily occur between the Other category and the operating segments. These amounts primarily
include interest income on allocated surplus, interest charges on excess separate account surplus,
the allocation of net realized capital gains and losses and the allocation of credit risk charges.
Each operating segment is allocated corporate surplus as needed to support its business. Portfolio
management is a corporate function and net realized capital gains and losses on invested assets are
recognized in the Other category. Those net realized capital gains and losses that are interest
rate related are subsequently allocated back to the operating segments in future periods, with
interest, over the average estimated duration of the operating segments investment portfolios,
through an adjustment to each respective operating segments net investment income, with an
offsetting adjustment in the Other category. Credit related net capital losses are retained by
Corporate. However, in exchange for retaining credit related losses, the Other category charges
each operating segment a credit-risk fee through net investment income. The credit-risk fee
covers fixed income assets included in each operating segments general account and guaranteed
separate accounts. The credit-risk fee is based upon historical default rates in the corporate
bond market, the Companys actual default experience and estimates of future losses. The Companys
revenues are primarily derived from customers within the United States. The Companys long-lived
assets primarily consist of deferred policy acquisition costs and deferred tax assets from within
the United States. The following tables present summarized financial information concerning the
Companys segments. For the years ended December 31,2004
    
    
    2003
    
    
    2002RevenuesPremiums, fees and other considerationsRetail Products GroupIndividual annuity
    
    $
    1,618
    
    
    $
    1,310
    
    
    $
    1,236Retail mutual funds
    
    
    393
    
    
    
    303
    
    
    
    291401(k)
    
    
    77
    
    
    
    49
    
    
    
    35Other
    
    
    17
    
    
    
    10
    
    
    
    5Retail Products Group Total
    
    
    2,105
    
    
    
    1,672
    
    
    
    1,567Institutional Solutions GroupInstitutional
    
    
    474
    
    
    
    790
    
    
    
    417Governmental
    
    
    50
    
    
    
    46
    
    
    
    45PPLI
    
    
    254
    
    
    
    267
    
    
    
    315Institutional Solutions Group Total
    
    
    778
    
    
    
    1,103
    
    
    
    777Individual Life Total
    
    
    746
    
    
    
    727
    
    
    
    697Group BenefitsGroup disability
    
    
    1,602
    
    
    
    1,010
    
    
    
    990Group life
    
    
    1,655
    
    
    
    1,012
    
    
    
    968Other
    
    
    395
    
    
    
    340
    
    
    
    369Group Benefits Total
    
    
    3,652
    
    
    
    2,362
    
    
    
    2,327Other
    
    
    36
    
    
    
    113
    
    
    
    26Total premiums, fees and other considerations
    
    
    7,317
    
    
    
    5,977
    
    
    
    5,394Net investment income
    
    
    3,894
    
    
    
    2,041
    
    
    
    1,849Realized gains and losses
    
    
    149
    
    
    
    40
    
    
    
    (308
    )Total revenues
    
    $
    11,360
    
    
    $
    8,058
    
    
    $
    6,935
 F - 17




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##### 



For the years ended December 31,2004
    
    
    2003
    
    
    2002Net Investment IncomeRetail Products Group
    
    $
    1,077
    
    
    $
    494
    
    
    $
    368Institutional Solutions Group
    
    
    1,061
    
    
    
    995
    
    
    
    977Individual Life
    
    
    302
    
    
    
    256
    
    
    
    262Group Benefits
    
    
    375
    
    
    
    264
    
    
    
    258Other
    
    
    1,079
    
    
    
    32
    
    
    
    (16
    )Total net investment income
    
    $
    3,894
    
    
    $
    2,041
    
    
    $
    1,849Amortization of DACRetail Products Group
    
    $
    661
    
    
    $
    509
    
    
    $
    436Institutional Solutions Group
    
    
    37
    
    
    
    34
    
    
    
    8Individual Life
    
    
    180
    
    
    
    176
    
    
    
    160Group Benefits
    
    
    23
    
    
    
    18
    
    
    
    17Other
    
    
    77
    
    
    
    32
    
    
    
    7Total amortization of DAC
    
    $
    978
    
    
    $
    769
    
    
    $
    628Income Tax Expense (Benefit)Retail Products Group
    
    $
    114
    
    
    $
    78
    
    
    $
    96Institutional Solutions Group
    
    
    44
    
    
    
    32
    
    
    
    48Individual Life
    
    
    70
    
    
    
    64
    
    
    
    63Group Benefits
    
    
    84
    
    
    
    43
    
    
    
    35Other [1]
    
    
    (144
    )
    
    
    (37
    )
    
    
    (232
    )Total income tax expense
    
    $
    168
    
    
    $
    180
    
    
    $
    10Net Income (Loss)Retail Products Group
    
    $
    526
    
    
    $
    430
    
    
    $
    356Institutional Solutions Group
    
    
    124
    
    
    
    83
    
    
    
    108Individual Life
    
    
    153
    
    
    
    145
    
    
    
    133Group Benefits
    
    
    229
    
    
    
    148
    
    
    
    128Other [1]
    
    
    287
    
    
    
    (37
    )
    
    
    (168
    )Total net income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557
  [1] Includes tax benefits reflecting the impact of audit settlements of $190, $0, and $76 for
the years ended December 31, 2004, 2003, and 2002. December 31,2004
    
    
    2003AssetsRetail Products Group
    
    $
    122,214
    
    
    $
    106,409Institutional Solutions Group
    
    
    58,325
    
    
    
    51,562Individual Life
    
    
    12,489
    
    
    
    11,791Group Benefits
    
    
    8,244
    
    
    
    7,993Other
    
    
    19,181
    
    
    
    9,837Total assets
    
    $
    220,453
    
    
    $
    187,592DACRetail Products Group
    
    $
    4,564
    
    
    $
    4,365Institutional Solutions Group
    
    
    159
    
    
    
    105Individual Life
    
    
    1,813
    
    
    
    1,700Group Benefits
    
    
    70
    
    
    
    101Other
    
    
    831
    
    
    
    352Total DAC
    
    $
    7,437
    
    
    $
    6,623
 F - 18




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##### 



Note 4. Investments and Derivative Instruments For the years ended December 31,Components of Net Investment Income
    
    2004
    
    
    2003
    
    
    2002Fixed maturities
    
    $
    2,493
    
    
    $
    1,673
    
    
    $
    1,485Policy loans
    
    
    186
    
    
    
    210
    
    
    
    254Equity trading securities
    
    
    1,018
    
    
    
    
    
    
    
    Other investments
    
    
    232
    
    
    
    181
    
    
    
    131Gross investment income
    
    
    3,929
    
    
    
    2,064
    
    
    
    1,870Less: Investment expenses
    
    
    35
    
    

    
    23
    
    
    
    21Net investment income
    
    $
    3,894
    
    
    $
    2,041
    
    
    $
    1,849Components of Net Realized Capital Gains (Losses)Fixed maturities
    
    $
    181
    
    
    $
    19
    
    
    $
    (296
    )Equity securities
    
    
    5
    
    
    
    (7
    )
    
    
    (22
    )Periodic net coupon settlements on non-qualifying derivatives
    
    
    6
    
    
    
    26
    
    
    
    9Sale of affiliates
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )Other [1]
    
    
    (43
    )
    
    
    2
    
    
    
    4Change in liability to policyholders for net realized capital gains
    
    
    
    
    
    
    1
    
    
    
    1Net realized capital gains (losses)
    
    $
    149
    
    
    $
    40
    
    
    $
    (308
    )
  [1] Primarily consists of changes in fair value on non-qualifying derivatives and hedge
ineffectiveness on qualifying derivate instruments, net gains associated with the GMWB hedging
program, as well as, the amortization of deferred acquisition costs. Components of Unrealized Gains (Losses) on Available-for-Sale Equity SecuritiesGross unrealized gains
    
    $
    30
    
    
    $
    34
    
    
    $
    10Gross unrealized losses
    
    
    (11
    )
    
    
    (12
    )
    
    
    (35
    )Net unrealized gains (losses)
    
    
    19
    
    
    
    22
    
    
    
    (25
    )Deferred income taxes and other items
    
    
    7
    
    
    
    8
    
    
    
    (9
    )Net unrealized gains (losses), net of tax
    
    
    12
    
    
    
    14
    
    
    
    (16
    )Balance  beginning of year
    
    
    14
    
    
    
    (16
    )
    
    
    (13
    )Change in unrealized gains (losses) on
available-for-sale equity securities
    
    $
    (2
    )
    
    $
    30
    
    
    $
    (3
    )
 The change in net unrealized gain or loss on equity securities classified as trading included in
net investment income during the year ended December 31, 2004, and substantially offset by amounts
credited to policyholders, was $677. This amount was not included in the gross unrealized gains
losses in the chart above. The Company had no securities classified as trading in 2003 or 2002. For the years ended December 31,Components of Unrealized Gains (Losses) on Fixed Maturities
    
    2004
    
    
    2003
    
    
    2002Gross unrealized gains
    
    $
    2,742
    
    
    $
    2,051
    
    
    $
    1,704Gross unrealized losses
    
    
    (173
    )
    
    
    (158
    )
    
    
    (309
    )Net unrealized gains credited to policyholders
    
    
    (20
    )
    
    
    (63
    )
    
    
    (58
    )Net unrealized gains
    
    
    2,549
    
    
    
    1,830
    
    
    
    1,337Deferred income taxes and other items
    
    
    1,213
    
    
    
    916
    
    
    
    700Net unrealized gains, net of tax
    
    
    1,336
    
    
    
    914
    
    
    
    637Balance  beginning of year
    
    
    914
    
    
    
    637
    
    
    
    176Change in unrealized gains (losses) on fixed maturities
    
    $
    422
    
    
    $
    277
    
    
    $
    461
 F-19




---



##### 



Components of Fixed Maturity Investments As of December 31, 2004
    
    
    As of December 31, 2003Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueBonds and NotesAsset-backed securities (ABS)
    
    $
    6,346
    
    
    $
    76
    
    
    $
    (64
    )
    
    $
    6,358
    
    
    $
    4,055
    
    
    $
    95
    
    
    $
    (73
    )
    
    $
    4,077Collateralized mortgage
obligations (CMOs)
Agency backed
    
    
    1,036
    
    
    
    11
    
    
    
    (3
    )
    
    
    1,044
    
    
    
    848
    
    
    
    10
    
    
    
    
    
    
    
    858Non-agency backed
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Commercial mortgage-backed
securities (CMBS)Agency backed
    
    
    72
    
    
    
    2
    
    
    
    (1
    )
    
    
    73
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Non-agency backed
    
    
    8,384
    
    
    
    368
    
    
    
    (19
    )
    
    
    8,733
    
    
    
    5,595
    
    
    
    295
    
    
    
    (14
    )
    
    
    5,876Corporate
    
    
    23,645
    
    
    
    1,957
    
    
    
    (70
    )
    
    
    25,532
    
    
    
    17,618
    
    
    
    1,372
    
    
    
    (56
    )
    
    
    18,934Government/Government agenciesForeign
    
    
    723
    
    
    
    67
    
    
    
    (2
    )
    
    
    788
    
    
    
    697
    
    
    
    65
    
    
    
    (1
    )
    
    
    761United States
    
    
    884
    
    
    
    19
    
    
    
    (5
    )
    
    
    898
    
    
    
    759
    
    
    
    9
    
    
    
    (2
    )
    
    
    766Mortgage-backed securities
(MBS)  U.S.
Government/Government agencies
    
    
    1,771
    
    
    
    20
    
    
    
    (3
    )
    
    
    1,788
    
    
    
    1,750
    
    
    
    27
    
    
    
    (4
    )
    
    
    1,773States, municipalities and
political subdivisions
    
    
    2,780
    
    
    
    221
    
    
    
    (6
    )
    
    
    2,995
    
    
    
    2,184
    
    
    
    174
    
    
    
    (8
    )
    
    
    2,350Redeemable preferred stock
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    13
    
    
    
    31
    
    
    
    2
    
    
    
    
    
    
    
    33Short-term investments
    
    
    2,261
    
    
    
    
    
    
    
    
    
    
    
    2,261
    
    
    
    1,974
    
    
    
    2
    
    
    
    
    
    
    
    1,976Total fixed maturities
    
    $
    47,962
    
    
    $
    2,742
    
    
    $
    (173
    )
    
    $
    50,531
    
    
    $
    35,569
    
    
    $
    2,051
    
    
    $
    (158
    )
    
    $
    37,462
 Included in the fair value of total fixed maturities as of December 31, 2004 are $11.7 billion
of guaranteed separate account assets. Guaranteed separate account assets were reclassified to the
general account on January 1, 2004 as a result of the adoption of SOP 03-1. (For further
discussion, see the Adoption of New Accounting Standards section of Note 2.) The amortized cost and estimated fair value of fixed maturity investments at December 31, 2004 by
contractual maturity year are shown below. Estimated maturities may differ from contractual
maturities due to call or prepayment provisions. Asset-backed securities, including MBS and CMOs,
are distributed to maturity year based on the Companys estimates of the rate of future prepayments
of principal over the remaining lives of the securities. These estimates are developed using
prepayment speeds provided in broker consensus data. Such estimates are derived from prepayment
speeds experienced at the interest rate levels projected for the applicable underlying collateral.
Actual prepayment experience may vary from these estimates. Maturity
    
    Amortized Cost
    
    
    Fair ValueOne year or less
    
    $
    5,346
    
    
    $
    5,380Over one year through five years
    
    
    14,303
    
    
    
    14,911Over five years through ten years
    
    
    13,559
    
    
    
    14,284Over ten years
    
    
    14,754
    
    
    
    15,956Total
    
    $
    47,962
    
    
    $
    50,531
 Non-Income Producing Investments Investments that were non-income producing as of December 31, are as follows: 2004
    
    
    2003Security Type
    
    Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair ValueABS
    
    $
    5
    
    
    $
    4
    
    
    $
    2
    
    
    $
    3CMOs
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1CMBS
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Corporate
    
    
    4
    
    
    
    7
    
    
    
    11
    
    
    
    30Government/Government agencies - foreign
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    1Total
    
    $
    13
    
    
    $
    15
    
    
    $
    14
    
    
    $
    35
 For 2004, 2003 and 2002, net investment income was $12, $18 and $14, respectively, lower than it
would have been if interest on non-accrual securities had been recognized in accordance with the
original terms of these investments. F-20




---



##### 



Sales of Fixed Maturity and Equity Security Investments For the years ended December 31,2004
    
    
    2003
    
    
    2002Sale of Fixed MaturitiesSale proceeds
    
    $
    14,317
    
    
    $
    7,036
    
    
    $
    6,910Gross gains
    
    
    338
    
    
    
    236
    
    
    
    143Gross losses
    
    
    (139
    )
    
    
    (75
    )
    
    
    (71
    )Sale of Available-for-Sale Equity SecuritiesSale proceeds
    
    $
    114
    
    
    $
    169
    
    
    $
    11Gross gains
    
    
    17
    
    
    
    14
    
    
    
    1Gross losses
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
 Concentration of Credit Risk The Company is not exposed to any credit concentration risk of a single issuer greater than 10% of
the Companys stockholders equity other than certain U.S. government and government agencies. Security Unrealized Loss Aging The Company has a security monitoring process overseen by a committee of investment and accounting
professionals that, on a quarterly basis, identifies securities in an unrealized loss position that
could potentially be other-than-temporarily impaired. (For further discussion regarding the
Companys other-than-temporary impairment policy, see the Investments section of Note 2.) Due to
the issuers continued satisfaction of the securities obligations in accordance with their
contractual terms and the expectation that they will continue to do so, managements intent and
ability to hold these securities for a period of time sufficient to allow for any anticipated
recovery in market value, as well as the evaluation of the fundamentals of the issuers financial
condition and other objective evidence, the Company believes that the prices of the securities in
the sectors identified in the tables below were temporarily depressed as of December 31, 2004 and
2003. The following table presents amortized cost, fair value and unrealized losses for the Companys
fixed maturity and available-for-sale equity securities, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position as of
December 31, 2004. 2004Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalAmortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    UnrealizedCost
    
    
    Value
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    LossesABS
    
    $
    1,260
    
    
    $
    1,247
    
    
    $
    (13
    )
    
    $
    365
    
    
    $
    314
    
    
    $
    (51
    )
    
    $
    1,625
    
    
    $
    1,561
    
    
    $
    (64
    )CMOsAgency backed
    
    
    521
    
    
    
    518
    
    
    
    (3
    )
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    523
    
    
    
    520
    
    
    
    (3
    )Non-agency backed
    
    
    39
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39
    
    
    
    CMBSAgency backed
    
    
    26
    
    
    
    25
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    25
    
    
    
    (1
    )Non-agency backed
    
    
    1,894
    
    
    
    1,878
    
    
    
    (16
    )
    
    
    75
    
    
    
    72
    
    
    
    (3
    )
    
    
    1,969
    
    
    
    1,950
    
    
    
    (19
    )Corporate
    
    
    3,411
    
    
    
    3,368
    
    
    
    (43
    )
    
    
    798
    
    
    
    771
    
    
    
    (27
    )
    
    
    4,209
    
    
    
    4,139
    
    
    
    (70
    )Government/Government agencies
Foreign
    
    
    134
    
    
    
    133
    
    
    
    (1
    )
    
    
    27
    
    
    
    26
    
    
    
    (1
    )
    
    
    161
    
    
    
    159
    
    
    
    (2
    )United States
    
    
    525
    
    
    
    520
    
    
    
    (5
    )
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    532
    
    
    
    527
    
    
    
    (5
    )MBS  U.S. Government/Government
agencies
    
    
    474
    
    
    
    472
    
    
    
    (2
    )
    
    
    25
    
    
    
    24
    
    
    
    (1
    )
    
    
    499
    
    
    
    496
    
    
    
    (3
    )States, municipalities and political
subdivisions
    
    
    276
    
    
    
    270
    
    
    
    (6
    )
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    278
    
    
    
    272
    
    
    
    (6
    )Short-term investments
    
    
    74
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74
    
    
    
    Total fixed maturities
    
    
    8,634
    
    
    
    8,544
    
    
    
    (90
    )
    
    
    1,301
    
    
    
    1,218
    
    
    
    (83
    )
    
    
    9,935
    
    
    
    9,762
    
    
    
    (173
    )Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Nonredeemable preferred stock
    
    
    76
    
    
    
    74
    
    
    
    (2
    )
    
    
    113
    
    
    
    104
    
    
    
    (9
    )
    
    
    189
    
    
    
    178
    
    
    
    (11
    )Total equity
    
    
    76
    
    
    
    74
    
    
    
    (2
    )
    
    
    114
    
    
    
    105
    
    
    
    (9
    )
    
    
    190
    
    
    
    179
    
    
    
    (11
    )Total temporarily impaired securities
    
    $
    8,710
    
    
    $
    8,618
    
    
    $
    (92
    )
    
    $
    1,415
    
    
    $
    1,323
    
    
    $
    (92
    )
    
    $
    10,125
    
    
    $
    9,941
    
    
    $
    (184
    )
 As of December 31, 2004, fixed maturities represented approximately 94% of the Companys total
unrealized loss amount, which was comprised of approximately 1,400 different securities. The
Company held no securities as of December 31, 2004 that were in an unrealized loss position in
excess of $11. There were no fixed maturities or equity securities as of December 31, 2004, with a
fair value less than 80% of the securitys amortized cost for six continuous months other than
certain ABS and CMBS. Other-than-temporary impairments for certain ABS and CMBS are recognized if
the fair value of the security, as determined by external pricing sources, is less than its
carrying amount and F-21




---



##### 



there has been a decrease in the present value of the expected cash flows since the last
reporting period. Based on managements best estimate of future cash flows, there were no such ABS
and CMBS in an unrealized loss position as of December 31, 2004 that were deemed to be
other-than-temporarily impaired. Securities in an unrealized loss position for less than twelve months were comprised of over 1,200
securities of which 90%, or $83, were comprised of securities with fair value to amortized cost
ratios at or greater than 90%. The majority of these securities are investment grade fixed
maturities depressed due to changes in interest rates from the date of purchase. The securities depressed for twelve months or more as of December 31, 2004 were comprised of
approximately 200 securities, with the majority of the unrealized loss amount relating to ABS and
corporate fixed maturities within the financial services sector. A description of these events
contributing to the security types unrealized loss position and the factors considered in
determining that recording an other-than-temporary impairment was not warranted are outlined below. ABS ABS represents $51 of the securities in an unrealized loss position for twelve months or
more. These securities were primarily supported by aircraft lease receivables that had suffered a
decrease in value in recent years as a result of a prolonged decline in airline travel, the
uncertainty of a potential industry recovery and lack of market liquidity in this sector. Although
uncertainty surrounding the stability of domestic airlines continues to weigh heavily on this
sector, worldwide travel and aircraft demand appears to be improving, resulting in a modest
increase in market prices and greater liquidity in this sector during 2004. As of December 31,
2004, the estimated future cash flows for these securities indicated full recovery and as a result,
based on managements intent and ability to hold these securities, the prices of these securities
were deemed to be temporarily depressed. Financial services Financial services represents approximately $14 of the securities in an
unrealized loss position for twelve months or more. These securities are investment grade
securities priced at or greater than 90% of amortized cost. As of December 31, 2004, the financial
services twelve months or more unrealized loss amount primarily related to variable rate securities
with extended maturity dates, which have been adversely impacted by the reduction in forward
interest rates after the purchase date, resulting in lower expected cash flows. Unrealized losses
for these securities have declined during the year as interest rates have risen. Additional
changes in fair value of these securities are primarily dependent on future changes in forward
interest rates. The majority of these variable rate securities are currently hedged with interest
rate swaps, which convert the variable rate earned on the securities to a fixed amount. The swaps
generally receive cash flow hedge accounting treatment and are currently in an unrealized gain
position. The remaining balance of $27 in the twelve months or more unrealized loss category is comprised of
approximately 98 securities, substantially all of which were depressed only a minor extent with
fair value to amortized cost ratios at or greater than 90% as of December 31, 2004. The decline in
market value for these securities is primarily attributable to changes in interest rates. The following table presents the Companys unrealized loss, fair value and amortized cost for fixed
maturity and equity securities, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position as of December 31, 2003. 2003Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalAmortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    Amortized
    
    
    Fair
    
    
    UnrealizedCost
    
    
    Value
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    Losses
    
    
    Cost
    
    
    Value
    
    
    LossesABS
    
    $
    257
    
    
    $
    253
    
    
    $
    (4
    )
    
    $
    85
    
    
    $
    84
    
    
    $
    (1
    )
    
    $
    342
    
    
    $
    337
    
    
    $
    (5
    )CMOsAgency backed
    
    
    246
    
    
    
    246
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    247
    
    
    
    247
    
    
    
    Non-agency backed
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    CMBSNon-agency backed
    
    
    584
    
    
    
    578
    
    
    
    (6
    )
    
    
    57
    
    
    
    57
    
    
    
    
    
    
    
    641
    
    
    
    635
    
    
    
    (6
    )Corporate
    
    
    1,498
    
    
    
    1,463
    
    
    
    (35
    )
    
    
    438
    
    
    
    418
    
    
    
    (20
    )
    
    
    1,936
    
    
    
    1,881
    
    
    
    (55
    )Government/Government agenciesForeign
    
    
    31
    
    
    
    30
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    30
    
    
    
    (1
    )United States
    
    
    262
    
    
    
    260
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    260
    
    
    
    (2
    )MBS  U.S. Government/Government
agencies
    
    
    179
    
    
    
    175
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    175
    
    
    
    (4
    )States, municipalities and
political subdivisions
    
    
    217
    
    
    
    209
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    209
    
    
    
    (8
    )Total fixed maturities
    
    
    3,278
    
    
    
    3,218
    
    
    
    (60
    )
    
    
    581
    
    
    
    560
    
    
    
    (21
    )
    
    
    3,859
    
    
    
    3,778
    
    
    
    (81
    )Common stock
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    6
    
    
    
    6
    
    
    
    Nonredeemable preferred stock
    
    
    55
    
    
    
    50
    
    
    
    (5
    )
    
    
    65
    
    
    
    59
    
    
    
    (6
    )
    
    
    120
    
    
    
    109
    
    
    
    (11
    )Total equity
    
    
    57
    
    
    
    52
    
    
    
    (5
    )
    
    
    69
    
    
    
    63
    
    
    
    (6
    )
    
    
    126
    
    
    
    115
    
    
    
    (11
    )Total temporarily impaired
securities [1]
    
    $
    3,335
    
    
    $
    3,270
    
    
    $
    (65
    )
    
    $
    650
    
    
    $
    623
    
    
    $
    (27
    )
    
    $
    3,985
    
    
    $
    3,893
    
    
    $
    (92
    )
   [1] Excludes securities subject to EITF Issue No. 99-20 and guaranteed separate account assets. F-22




---



##### 



There were no fixed maturities or equity securities as of December 31, 2003, with a fair value
less than 80% of the securitys amortized cost for six continuous months. As of December 31, 2003,
fixed maturities represented approximately 88% of the Companys unrealized loss amount, which was
comprised of approximately 475 different securities. As of December 31, 2003, the Company held no
securities presented in the table above that were at an unrealized loss position in excess of $4.2. The majority of the securities in an unrealized loss position for less than twelve months were
depressed due to the rise in long-term interest rates. This group of securities was comprised of
over 400 securities. Of the less than twelve months total unrealized loss amount $56, or 86%, was
comprised of securities with fair value to amortized cost ratios as of December 31, 2003 at or
greater than 90%. As of December 31, 2003, $55 of the less than twelve months total unrealized
loss amount was comprised of securities in an unrealized loss position for less than six continuous
months. The securities depressed for twelve months or more were comprised of less than 100 securities. Of
the twelve months or more unrealized loss amount $22, or 82%, was comprised of securities with fair
value to amortized cost ratios as of December 31, 2003 at or greater than 90%. As of December 31, 2003, the securities in an unrealized loss position for twelve months or more
were primarily interest rate related. The sector in the greatest gross unrealized loss position in
the table above was financial services, which is included within the corporate category above. A
description of the events contributing to the security types unrealized loss position and the
factors considered in determining that recording an other-than-temporary impairment was not
warranted are outlined below. Financial services Financial services represents approximately $19 of the securities in an
unrealized loss position for twelve months or more. All of these positions were priced at or
greater than 80% of amortized cost as of December 31, 2003. The financial services securities in
an unrealized loss position are primarily investment grade variable rate securities with extended
maturity dates, which have been adversely impacted by the reduction in forward interest rates after
the purchase date, resulting in lower expected cash flows. Unrealized loss amounts for these
securities declined during 2003 as interest rates increased. Additional changes in fair value of
these securities are primarily dependent on future changes in forward interest rates. A
substantial percentage of these securities are currently hedged with interest rate swaps, which
convert the variable rate earned on the securities to a fixed amount. The swaps generally receive
cash flow hedge accounting treatment and are currently in an unrealized gain position. The remaining balance of $8 in the twelve months or more unrealized loss category is comprised of
approximately 50 securities with fair value to amortized cost ratios at or greater than 80%. Investment Management Activities During 2004, Hartford Investment Management Company issued one and began serving as the collateral
asset manager for an additional synthetic collateralized loan obligation (CLO), both of which the
Company has an investment in. The synthetic CLOs invest in senior secured bank loans through total
return swaps (referenced bank loan portfolios). The notional value of the referenced bank loan
portfolios from the two synthetic CLOs as of December 31, 2004 was approximately $700. The
synthetic CLOs issued approximately $135 of notes and preferred shares (CLO issuances),
approximately $120 of which was to third party investors. The proceeds from the CLO issuances were
invested in collateral accounts consisting of high credit quality securities that were pledged to
the referenced bank loan portfolios swap counterparties. Investors in the CLO issuances receive
the net proceeds from the referenced bank loan portfolios. Any principal losses incurred by the
swap counterparties associated with the referenced bank loan portfolios are borne by the CLO
issuances investors through the total return swaps. Pursuant to the requirements of FIN 46R, the Company has concluded that the two synthetic CLOs are
VIEs and that the Company is the primary beneficiary and must consolidate the CLO issued in 2004.
Accordingly, the Company has recorded in the consolidated balance sheets $65 of cash and invested
assets, total return swaps with a fair value of $3 in other assets, which reference a bank loan
portfolio with a maximum notional of $400, and $52 in other liabilities related to the CLO
issuances. The total return from the referenced bank loan portfolio of $3 was received via the
total return swap and recorded in realized capital gains and losses. Income from the fixed
maturity collateral account and CLO issuance investor payments were recorded in net investment
income in the consolidated statements of income. The Companys investment in the consolidated
synthetic CLO issuance is $14, which is its maximum exposure to loss. In addition, the Company has
a $2 preferred share investment in the non-consolidated synthetic CLO issuance, which is its
maximum exposure to loss. The investors in the two synthetic CLO issuances have recourse only to
the VIE assets and not to the general credit of the Company. F-23




---



##### 



Derivative Instruments Derivative instruments are recorded at fair value and presented in the consolidated balance sheets
as of December 31, as follows: Asset Values
    
    
    Liability Values2004
    
    
    2003
    
    
    2004
    
    
    2003Other investments
    
    $
    185
    
    
    $
    178
    
    
    $
    
    
    
    $
    Reinsurance recoverables
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    89Other policyholder funds and benefits payable
    
    
    129
    
    
    
    115
    
    
    
    
    
    
    
    Fixed maturities
    
    
    4
    
    
    
    7
    
    
    
    
    
    
    
    Other liabilities
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    257Total
    
    $
    318
    
    
    $
    300
    
    
    $
    585
    
    
    $
    346
 The following table summarizes the primary derivative instruments used by the Company and the
hedging strategies to which they relate. Derivatives in the Companys separate accounts are not
included because the associated gains and losses accrue directly to policyholders. The notional
value of derivative contracts represent the basis upon which pay or receive amounts are calculated
and are not reflective of credit risk. The fair value amounts of derivative assets and liabilities
are presented on a net basis as of December 31. F-24




---



##### 



Notional Amount
    
    
    Fair ValueHedging Strategy
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Cash-Flow HedgesInterest rate swapsInterest rate swaps are
primarily used to convert
interest receipts on
floating-rate fixed
maturity investments to
fixed rates. These
derivatives are
predominantly used to
better match cash
receipts from assets with
cash disbursements
required to fund
liabilities. The Company
also enters into forward
starting swap agreements
to hedge the interest
rate exposure on
anticipated fixed-rate
asset purchases due to
changes in the benchmark
interest rate
London-Interbank Offered
Rate (LIBOR). These
derivatives were
structured to hedge
interest rate exposure
inherent in the
assumptions used to price
primarily certain
long-term disability
products.Interest rate swaps are
also used to hedge a
portion of the Companys
floating rate guaranteed
investment contracts.
These derivatives convert
the floating rate
guaranteed investment
contract payments to a
fixed rate to better
match the cash receipts
earned from the
supporting investment
portfolio.
    
    $
    5,794
    
    
    $
    2,549
    
    
    $
    56
    
    
    $
    91Foreign currency swapsForeign currency swaps
are used to convert
foreign denominated cash
flows associated with
certain foreign
denominated fixed
maturity investments to
U.S. dollars. The
foreign fixed maturities
are primarily denominated
in euros and are swapped
to minimize cash flow
fluctuations due to
changes in currency
rates.
    
    
    1,374
    
    
    
    736
    
    
    
    (430
    )
    
    
    (149
    )Fair-Value HedgesInterest rate swapsA portion of the
Companys fixed debt is
hedged against increases
in LIBOR, the designated
benchmark interest rate.
In addition, interest
rate swaps are used to
hedge the changes in fair
value of certain fixed
rate liabilities due to
changes in LIBOR.
    
    
    201
    
    
    
    112
    
    
    
    (4
    )
    
    
    (5
    )Interest rate caps and floorsInterest rate caps and
floors are used to offset
the changes in fair value
related to corresponding
interest rate caps and
floors that exist in
certain of the Companys
variable-rate fixed
maturity investments.
    
    
    148
    
    
    
    80
    
    
    
    (1
    )
    
    
    (1
    )SwaptionsSwaption arrangements are
utilized to offset the
change in the fair value
of call options embedded
in certain municipal
fixed maturity
securities. The
swaptions give the
Company the option to
enter into a received
fixed swap. The purpose
of the swaptions is to
mitigate reinvestment
risk arising from the
call option embedded in
the municipal security,
providing for a fixed
return over the original
term to maturity.
    
    
    14
    
    
    
    14
    
    
    
    1
    
    
    
    1Net Investment HedgesForwardsYen denominated forwards
are used to hedge the net
investment in the
Japanese Life operation
from potential volatility
in the yen to U.S. dollar
exchange rate.
    
    
    401
    
    
    
    200
    
    
    
    (23
    )
    
    
    (4
    )
 F-25




---



##### 



Notional Amount
    
    
    Fair ValueHedging Strategy
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Other Investment and Risk Management ActivitiesInterest rate caps and swaption contractsThe Company is exposed to policyholder surrenders
during a rising interest rate environment. Interest
rate cap and swaption contracts are used to mitigate
the Companys loss in a rising interest rate
environment. The increase in yield from the cap and
swaption contract in a rising interest rate
environment may be used to raise credited rates,
thereby increasing the Companys competitiveness and
reducing the policyholders incentive to surrender.
These derivatives are also used to reduce the
duration risk in certain investment portfolios.
These derivative instruments are structured to hedge
the durations of fixed maturity investments to match
certain products in accordance with the Companys
asset and liability management policy.The Company also uses an interest rate cap as an
economic hedge of the interest rate risk related to
fixed rate debt. In a rising interest rate
environment, the cap will limit the net interest
expense on the hedged fixed rate debt.
    
    $
    1,466
    
    
    $
    1,466
    
    
    $
    2
    
    
    $
    11Interest rate swapsThe Company enters into interest rates swaps to
terminate existing swaps in hedging relationships,
and thereby offsetting the changes in value in the
original swap. In addition, the Company uses
interest rate swaps to manage duration risk between
assets and liabilities.
    
    
    2,206
    
    
    
    3,077
    
    
    
    (13
    )
    
    
    11Foreign currency swaps, forwards and put and call optionsThe Company enters into foreign currency swaps and
forwards and purchases foreign put options and writes
foreign call options to hedge the foreign currency
exposures in certain of its foreign fixed maturity
investments. Currency options were closed in January
2003 for a loss of $3, after-tax.The Company enters into foreign currency swaps and
forwards and purchases foreign put options and writes
foreign call options to hedge the foreign currency
exposures in certain of its foreign fixed maturity
investments. Currency options were closed in January
2003 for a loss of $3, after-tax.
    
    
    973
    
    
    
    104
    
    
    
    (64
    )
    
    
    (31
    )Credit default and total return swapsThe Company enters into swap agreements in which the
Company assumes credit exposure from an individual
entity, referenced index or asset pool. The Company
assumes credit exposure to individual entities
through credit default swaps. These contracts
entitle the company to receive a periodic fee in
exchange for an obligation to compensate the
derivative counterparty should a credit event occur
on the part of the referenced security issuer.
Credit events typically include failure on the part
of the referenced security issuer to make a fixed
dollar amount of contractual interest or principal,
payments or bankruptcy. The maximum potential future
exposure to the Company is the notional value of the
swap contracts, $200 and $62, after-tax, as of
December 31, 2004 and 2003, respectively.The Company also assumes exposure to the change in
value of indices or asset pools through total return
swaps. As of December 31, 2004 and 2003, the maximum
potential future exposure to the Company from such
contracts is $571 and $172, after-tax, respectively.The Company enters into credit default swaps
agreements, in which the Company pays a derivative
counterparty a periodic fee in exchange for
compensation from the counterparty should a credit
event occur on the part of the referenced security
issuer. The Company entered into these agreements as
an efficient means to reduce credit exposure to
specified issuers.
    
    
    1,613
    
    
    
    360
    
    
    
    6
    
    
    
    (18
    )
 F-26




---



##### 



Notional Amount
    
    
    Fair ValueHedging Strategy
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003OptionsThe Company writes option
contracts for a premium to
monetize the option embedded in
certain of its fixed maturity
investments. The written option
grants the holder the ability to
call the bond at a predetermined
strike value. The maximum
potential future economic
exposure is represented by the
then fair value of the bond in
excess of the strike value, which
is expected to be entirely offset
by the appreciation in the value
of the embedded long option.
    
    $
    95
    
    
    $
    276
    
    
    $
    1
    
    
    $
    1Product derivativesThe Company offers certain
variable annuity products with a
GMWB rider. The GMWB is an
embedded derivative that provides
the policyholder with a
guaranteed remaining balance
(GRB) if the account value is
reduced to zero through a
combination of market declines
and withdrawals. The GRB is
generally equal to premiums less
withdrawals. The policyholder
also has the option, after a
specified time period, to reset
the GRB to the then-current
account value, if greater. (For
a further discussion, see the
Derivative Instruments section of
Note 2). The notional value of
the embedded derivative is the
GRB balance.
    
    
    25,433
    
    
    
    14,961
    
    
    
    129
    
    
    
    115Reinsurance contractsReinsurance arrangements are used
to offset the Companys exposure
to the GMWB embedded derivative
for the lives of the host
variable annuity contracts. The
notional amount of the
reinsurance contracts is the GRB
amount.
    
    
    9,107
    
    
    
    9,139
    
    
    
    (67
    )
    
    
    (89
    )GMWB hedging instrumentsThe Company enters into interest
rate futures, Standard and Poors
(S&P) 500 and NASDAQ index
futures contracts and put and
call options, as well as interest
rate swap contracts to hedge
exposure to the volatility
associated with the portion of
the GMWB liabilities which are
not reinsured.
    
    
    3,117
    
    
    
    544
    
    
    
    108
    
    
    
    21Statutory Reserve hedging instrumentsThe Company purchased one and two
year S&P500 put option contracts
to economically hedge the
statutory reserve impact of
equity exposure arising primarily
from GMDB obligations against a decline in the equity markets.
    
    
    1,921
    
    
    
    
    
    
    
    32
    
    
    
    Total
    
    $
    53,863
    
    
    $
    33,618
    
    
    $
    (267
    )
    
    $
    (46
    )
 The increase in notional amount since December 31, 2003 is primarily due to an increase in embedded
derivatives associated with GMWB product sales, and, to a lesser extent, derivatives transferred to
the general account as a result of the adoption of SOP 03-1 and new hedging strategies. The
decrease in the net fair value of derivative instruments since December 31, 2003 was primarily due
to the changes in foreign currency exchange rates, the rise in short-term interest rates during
2004 and derivatives transferred to the general account pursuant to the adoption of SOP 03-1,
partially offset by the increase in derivatives associated with GMWB. Due to the adoption of SOP 03-1, derivatives previously included in separate accounts were
reclassified into various other balance sheet classifications. On January 1, 2004, the notional
amount and net fair value of derivative instruments reclassified totaled $2.9 billion and $(71),
respectively. For the year ended December 31, 2004, gross gains and losses representing the total ineffectiveness
of all fair-value and net investment hedges were immaterial. For the year ended December 31, 2004,
the Companys net gain and loss representing hedge ineffectiveness on cash flow hedges was $(11),
after-tax. For the years ended December 31, 2003 and 2002, the Companys gross gains and losses
representing the total ineffectiveness of all cash-flow, fair-value and net investment hedges were
immaterial. The total change in value for other derivative-based strategies which do not qualify for hedge
accounting treatment, including periodic net coupon settlements, are reported as net realized
capital gains and losses in the consolidated statements of income. For the years ended
December 31, 2004, 2003 and 2002, the Company recognized an after-tax net (loss) gain of $(2), $(2)
and $2 respectively, for derivative-based strategies, which do not qualify for hedge accounting
treatment. The net, after-tax, GMWB activity (including the embedded derivative F-27




---



##### 



liability, reinsurance contracts and futures, swaps and option contracts) is included in this amount and
totaled $5, $4 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, the after-tax deferred net gains on derivative instruments
accumulated in AOCI that are expected to be reclassified to earnings during the next twelve months
are $7. This expectation is based on the anticipated interest payments on hedged investments in
fixed maturity securities that will occur over the next twelve months, at which time the Company
will recognize the deferred net gains (losses) as an adjustment to interest income over the term of
the investment cash flows. The maximum term over which the Company is hedging its exposure to the
variability of future cash flows (for all forecasted transactions, excluding interest payments on
variable-rate debt) is twenty-four months. For the years ended December 31, 2004, 2003 and 2002,
the net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow
hedges were immaterial. The net investment hedge of the Japanese Life operation was established in the fourth quarter of
2003. The after-tax amount of gain (loss) included in the foreign currency translation adjustment
associated with the net investment hedge was $(14) as of December 31, 2004. The net amount of
gains (losses) recorded in the foreign currency translation adjustments account pertaining to the
net investment hedge for the years ended December 31, 2004 and 2003 was $(14) and $(3),
respectively. The Company began issuing a yen denominated individual fixed annuity product in the fourth quarter
of 2004. The yen denominated fixed annuity product is recorded in the consolidated balance sheets
in other policyholder funds and benefits payable in U.S. dollars based upon the December 31, 2004
yen to dollar spot rate. To mitigate the yen exposure associated with
the product, during the fourth quarter of 2004, the Company entered into pay fixed U.S. dollar
receive fixed yen, zero coupon currency swaps (dollar to yen derivatives). As of December 31, 2004
the dollar to yen derivatives had a notional and fair value of $408 and $9, respectively. Changes
in fair value of the dollar to yen derivatives totaled $9 for the year ended December 31, 2004. Although economically an effective hedge, a
divergence between the yen denominated fixed annuity product liability and the dollar to yen
derivatives exists primarily due to the difference in the basis of accounting between the liability
and the derivative instruments (i.e. historical cost versus fair value). The yen denominated fixed
annuity product liabilities are recorded on a historical cost basis and are only adjusted for
changes in foreign spot rates and accrued income. The dollar to yen derivatives are recorded at
fair value incorporating changes in value due to changes in forward foreign exchange rates,
interest rates and accrued income. Securities Lending and Collateral Arrangements The Company participates in a securities lending program to generate additional income, whereby
certain domestic fixed income securities are loaned for a short period of time from the Companys
portfolio to qualifying third parties, via a lending agent. Borrowers of these securities provide
collateral of 102% of the market value of the loaned securities. Acceptable collateral may be in
the form of cash or U.S. Government securities. The market value of the loaned securities is
monitored and additional collateral is obtained if the market value of the collateral falls below
100% of the market value of the loaned securities. Under the terms of the securities lending
program, the lending agent indemnifies the Company against borrower defaults. As of December 31,
2004 and 2003, the fair value of the loaned securities was approximately $1.1 billion and $0.8
billion, respectively, and was included in fixed maturities in the consolidated balance sheets.
The Company retains a portion of the income earned from the cash collateral or receives a fee from
the borrower. The Company recorded before-tax income from securities lending transactions, net of
lending fees, of $1.4 and $0.6 for the years ended December 31, 2004 and 2003, respectively, which
was included in net investment income. The Company enters into various collateral arrangements, which require both the pledging and
accepting of collateral in connection with its derivative instruments. As of December 31, 2004 and
2003, collateral pledged of $323 and $275, respectively, was included in fixed maturities in the
consolidated balance sheets. The classification and carrying amount of the loaned securities associated with the lending program
and the collateral pledged at December 31, 2004 and 2003 were as follows: Loaned Securities and Collateral Pledged
    
    2004
    
    
    2003ABS
    
    
    40
    
    
    
    41CMBS
    
    
    173
    
    
    
    155Corporate
    
    
    773
    
    
    
    413Government/Government AgenciesForeign
    
    
    17
    
    
    
    11United States
    
    
    451
    
    
    
    487Total
    
    $
    1,454
    
    
    $
    1,107
 As of December 31, 2004 and 2003, the Company had accepted collateral relating to the securities
lending program and collateral arrangements consisting of cash, U.S. Government, and U.S.
Government agency securities with a fair value of $1.2 billion and $1.1 billion, respectively. At
December 31, 2004 and 2003, cash collateral of $1.2 billion and $0.9 billion, respectively, was
invested and recorded in the consolidated balance sheets in fixed maturities with a corresponding
amount recorded in other liabilities. The Company is only permitted by F-28




---



##### 



contract to sell or repledge the noncash collateral in the event of a default by the counterparty and none of the
collateral has been sold or repledged at December 31, 2004 and 2003. As of December 31, 2004 and
2003, all collateral accepted was held in separate custodial accounts. Note 5. Fair Value of Financial Instruments SFAS No. 107, Disclosure about Fair Value of Financial Instruments, requires disclosure of
fair value information of financial instruments. For certain financial instruments where quoted
market prices are not available, other independent valuation techniques and assumptions are used.
Because considerable judgment is used, these estimates are not necessarily indicative of amounts
that could be realized in a current market exchange. SFAS No. 107 excludes certain financial
instruments from disclosure, including insurance contracts, other than financial guarantees and
investment contracts. Hartford Life uses the following methods and assumptions in estimating the
fair value of each class of financial instrument. Fair value for fixed maturities and marketable equity securities approximates those quotations
published by applicable stock exchanges or received from other reliable sources. For policy loans, carrying amounts approximate fair value. Fair value of limited partnerships and trusts is based on external market valuations from
partnership and trust management. Derivative instruments are reported at fair value based upon internally established valuations that
are consistent with external valuation models, quotations furnished by dealers in such instrument
or market quotations. Other policyholder funds and benefits payable fair value information is
determined by estimating future cash flows, discounted at the current market rate. For short-term debt, carrying amounts approximate fair value. Fair value for long-term debt is based on market quotations from independent third party pricing
services. The carrying amounts and fair values of Hartford Lifes financial instruments at December 31, 2004
and 2003 were as follows: 2004
    
    
    2003Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair ValueAssetsFixed maturities
    
    $
    50,531
    
    
    $
    50,531
    
    
    $
    37,462
    
    
    $
    37,462Equity securities, available for sale
    
    
    525
    
    
    
    525
    
    
    
    357
    
    
    
    357Equity securities, trading
    
    
    13,634
    
    
    
    13,634
    
    
    
    
    
    
    
    Policy loans
    
    
    2,662
    
    
    
    2,662
    
    
    
    2,512
    
    
    
    2,512Limited partnerships [1]
    
    
    256
    
    
    
    256
    
    
    
    177
    
    
    
    177Other investments [2]
    
    
    1,108
    
    
    
    1,108
    
    
    
    646
    
    
    
    646LiabilitiesOther policyholder funds [3]
    
    $
    9,249
    
    
    $
    9,081
    
    
    $
    7,659
    
    
    $
    7,893Short-term debt
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    205Long-term debt
    
    
    1,050
    
    
    
    1,194
    
    
    
    1,300
    
    
    
    1,461Related Party Debt
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    305Derivative related liabilities [4]
    
    
    518
    
    
    
    518
    
    
    
    257
    
    
    
    257
   [1] Included in other investments on the balance sheet.[2] 2004 and 2003 include $185 and $178 of derivative related assets, respectively.[3] Excludes group accident and health and universal life insurance contracts, including corporate owned life insurance.[4] Included in other liabilities on the consolidated balance sheets.
 F-29




---



##### 



Note 6. Reinsurance Hartford Life cedes insurance to other insurers in order to limit its maximum losses and to
diversify its exposures. Such transfer do not relieve Hartford Life of its primary liability and,
as such, failure of reinsurers to honor their obligations could result in losses to Hartford Life.
The Company also assumes reinsurance from other insurers and is a member of and participates in
several reinsurance pools and associations. Hartford Life evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk. As of December 31, 2004, Hartford Life had
no reinsurance recoverables and related concentrations of credit risk greater than 10% of the
Companys stockholders equity. In accordance with normal industry practice, Hartford Life is involved in both the cession and
assumption of insurance with other insurance and reinsurance companies. As of December 31, 2004,
the largest amount of life insurance retained on any one life by any one of the life operations was
approximately $2.9. In addition, the Company reinsures the majority of the minimum death benefit
guarantees as well as the guaranteed withdrawal benefits on contracts issued prior to July 2003
offered in connection with its variable annuity contracts. Insurance fees, earned premiums and other were comprised of the following: For the years ended December 31,2004
    
    
    2003
    
    
    2002Gross fee income,
earned premiums and
other
    
    $
    7,004
    
    
    $
    6,247
    
    
    $
    5,634Reinsurance assumed
    
    
    811
    
    
    
    195
    
    
    
    180Reinsurance ceded
    
    
    (498
    )
    
    
    (465
    )
    
    
    (420
    )Net fee income,
earned premiums
and other
    
    $
    7,317
    
    
    $
    5,977
    
    
    $
    5,394
 Hartford Life reinsures certain of its risks to other reinsurers under yearly renewable term,
coinsurance, and modified coinsurance arrangements. Yearly renewable term and coinsurance
arrangements result in passing a portion of the risk to the reinsurer. Generally, the reinsurer
receives a proportionate amount of the premiums less an allowance for commissions and expenses and
is liable for a corresponding proportionate amount of all benefit payments. Modified coinsurance
is similar to coinsurance except that the cash and investments that support the liabilities for
contract benefits are not transferred to the assuming company, and settlements are made on a net
basis between the companies. Hartford Life also purchases reinsurance covering the death benefit guarantees on a portion of its
variable annuity business. On March 16, 2003, a final decision and award was issued in the
previously disclosed arbitration between subsidiaries of the Company and one of their primary
reinsurers relating to policies with death benefits written from 1994 to 1999. The cost of reinsurance related to long-duration contracts is accounted for over the life of the
underlying reinsured policies using assumptions consistent with those used to account for the
underlying policies. Insurance recoveries on ceded reinsurance contracts, which reduce death and
other benefits were $478, $541, and $484 for the years ended December 31, 2004, 2003 and 2002,
respectively. Hartford Life also assumes reinsurance from other insurers. Hartford Life records a receivable for reinsured benefits paid and the portion of insurance
liabilities that are reinsured, net of a valuation allowance, if necessary. The amounts
recoverable from reinsurers are estimated based on assumptions that are consistent with those used
in establishing the reserves related to the underlying reinsured contracts. Management believes the
recoverables are appropriately established; however, in the event that future circumstances and
information require Hartford Life to change its estimates of needed loss reserves, the amount of
reinsurance recoverables may also require adjustments. Reinsurance Recapture On June 30, 2003, the Company recaptured a block of business previously reinsured with an
unaffiliated reinsurer. Under this treaty, Hartford Life reinsured a portion of the GMDB feature
associated with certain of its annuity contracts. As consideration for recapturing the business
and final settlement under the treaty, the Company has received assets valued at approximately $32
and one million warrants exercisable for the unaffiliated companys stock. This amount represents
to the Company an advance collection of its future recoveries under the reinsurance agreement and
will be recognized as future losses are incurred. Prospectively, as a result of the recapture,
Hartford Life will be responsible for all of the remaining and ongoing risks associated with the
GMDBs related to this block of business. The recapture increased the net amount at risk retained
by the Company, which is included in the net amount at risk discussed in Note 9. On January 1,
2004, upon adoption of the SOP, the $32 was included in the Companys GMDB reserve calculation as
part of the net reserve benefit ratio and as a claim recovery to date. F-30




---



##### 



Note 7. Deferred Policy Acquisition Costs and Present Value of Future Profits Changes in deferred policy acquisition costs and present value of future profits is as follows: 2004
    
    
    2003
    
    
    2002Balance, January 1
    
    $
    6,623
    
    
    $
    5,758
    
    
    $
    5,572Capitalization
    
    
    1,968
    
    
    
    1,626
    
    
    
    1,160Amortization  Deferred Policy Acquisitions costs
    
    
    (938
    )
    
    
    (730
    )
    
    
    (589
    )Amortization  Present Value of Future Profits
    
    
    (40
    )
    
    
    (39
    )
    
    
    (39
    )Amortization  Realized Capital Gains/Losses
    
    
    (15
    )
    
    
    14
    
    
    
    7Adjustments to unrealized gains and losses on
securities available-for-sale and other
    
    
    (75
    )
    
    
    (59
    )
    
    
    (353
    )Cumulative effect of accounting changes (SOP 03-1)
    
    
    (105
    )
    
    
    
    
    
    
    Effect of currency translation
    
    
    72
    
    
    
    
    
    
    
    Acquisition of Harford Life Group Insurance Company [1]
    
    
    (53
    )
    
    
    53
    
    
    
    Balance, December 31
    
    $
    7,437
    
    
    $
    6,623
    
    
    $
    5,758
    The following table shows the carrying amount and accumulated net amortization of the present value
of future profits for the years ended December 31, 2004 and 2003. 2004
    
    2003Carrying
    
    Accumulated Net
    
    Carrying
    
    Accumulated NetAmount
    
    Amortization
    
    Amount
    
    AmortizationPresent value of future profits
    
    $
    608
    
    
    $
    155
    
    
    $
    658
    
    
    $
    115
 Net amortization expense for the years ended December 31, 2004, 2003 and 2002 was $40, $39, and
$39, respectively. Assuming no future acquisitions, dispositions or impairments of intangible assets, estimated future
net amortization expense for the succeeding five years is as follows. For the year ended December 31,2005
    
    $
    392006
    
    $
    352007
    
    $
    312008
    
    $
    282009
    
    $
    26
 Note 8. Goodwill and Other Intangible Assets Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible
Assets, and accordingly ceased all amortization of goodwill. As of December 31, 2004 and December
31, 2003, the carrying amount of goodwill for the Companys Retail Products segment was $356 and
the Companys Individual Life segment was $440. The Companys tests of its goodwill for other-than-temporary impairment in accordance with SFAS No.
142 resulted in no write-downs for the years ended December 31, 2004 and 2003. For a discussion of the Companys acquired intangible assets that continue to be subject to
amortization and aggregate amortization expense, see Note 7. Except for goodwill, the Company has
no material intangible assets with indefinite useful lives. F-31




---



##### 



Note 9. Separate Accounts, Death Benefits and Other Insurance Benefit Features The Hartford records the variable portion of individual variable annuities, 401(k),
institutional, governmental, private placement life and variable life insurance products within
separate account assets and liabilities, which are reported at fair value. Separate account assets
are segregated from other investments. Investment income and gains and losses from those separate
account assets, which accrue directly to, and whereby investment risk is borne by, the
policyholder, are offset by the related liability changes within the same line item in the
statement of income. The fees earned for administrative and contract holder maintenance services
performed for these separate accounts are included in fee income. During 2004, there were no gains
or losses on transfers of assets from the general account to the separate account. The Company had
recorded certain market value adjusted (MVA) fixed annuity products and modified guarantee life
insurance (primarily the Companys Compound Rate Contract (CRC) and associated assets) as
separate account assets and liabilities through December 31, 2003. Notwithstanding the market
value adjustment feature in this product, all of the investment performance of the separate account
assets is not being passed to the contract holder. Therefore, it does not meet the conditions for
separate account reporting under SOP 03-1. Separate account assets and liabilities related to CRC
of $11.7 billion were reclassified to, and revalued in, the general account upon adoption of SOP
03-1 on January 1, 2004. Prior to the adoption of SOP 03-1, the Company had also recorded its variable annuity products
offered in Japan in separate account assets and liabilities through December 31, 2003. These
assets are not legally insulated from general creditors and therefore did not meet the conditions
for separate account reporting under SOP 03-1. On January 1, 2004, separate account assets and
liabilities in Japan of $6.2 billion were reclassified to the general account with no change in
value. The investment assets were recorded at fair value in a trading securities portfolio. As of
December 31, 2004, due to additional sales of Japan variable annuity products and positive
performance of the Japanese equity markets these assets had increased to $14.1 billion Many of the variable annuity contracts issued by the Company offer various guaranteed minimum
death, withdrawal and income benefits. Guaranteed minimum death and income benefits are offered in
various forms as described in the footnotes to the table below. The Company currently reinsures a
significant portion of the death benefit guarantees associated with its in-force block of business.
Upon adoption of SOP 03-1, the Company recorded a liability for GMDB and guaranteed minimum income
benefits (GMIB) offered only in Japan sold with variable annuity products of $225 and a related
GMDB reinsurance recoverable asset of $108. As of December 31, 2004, the liability from GMDB sold
with annuity products offered in the United States and GMDB/GMIB sold with annuity products offered
in Japan was $174 and $28, respectively. The reinsurance recoverable asset, related to the U.S.
GMDB was $64 as of December 31, 2004. During 2004, the Company incurred guaranteed death benefits
on U.S. products and death and income benefits on Japanese products of $123 and $21, and paid
guaranteed death benefits on U.S. products and death and income benefits on Japanese products of
$166 and $1, respectively. Guaranteed minimum death benefits on U.S. products and death and income
benefits on Japanese products paid during 2003 were $289 and $4, respectively. Guaranteed minimum
death benefits paid during 2002 were $265. The net GMDB and GMIB liability is established by estimating the expected value of net reinsurance
costs and death and income benefits in excess of the projected account balance. The excess death
and income benefits and net reinsurance costs are recognized ratably over the accumulation period
based on total expected assessments. The GMDB and GMIB liabilities are recorded in Future Policy
Benefits on the Companys balance sheet. Changes in the GMDB and GMIB liability are recorded in
Benefits, Claims and Claims Adjustment Expenses on the Companys statement of income. The Company
regularly evaluates estimates used and adjusts the additional liability balances, with a related
charge or credit to benefit expense, if actual experience or other evidence suggests that earlier
assumptions should be revised. The determination of the GMDB and GMIB liabilities and related GMDB reinsurance recoverable is
based on models that involve a range of scenarios and assumptions, including those regarding
expected market rates of return and volatility, contract surrender rates and mortality experience.
The following assumptions were used to determine the GMDB and GMIB liabilities as of December 31,
2004: U.S GMDB:  
    250 stochastically generated investment performance scenarios  
    Returns, representing the Companys long-term assumptions, varied by asset class with a low of 3% for cash,
a high of 11% for aggressive equities, and a weighted average of 9%.  
    Volatilities also varied by asset class with a low of 1% for cash, a high of 15% for aggressive equities,
and a weighted average of 12%  
    80% of the 1983 GAM mortality table was used for mortality assumptions  
    Lapse rates by calendar year vary from a low of 8% to a high of 14%, with an average of 12%  
    Discount rate of 7.5% F-32




---



##### 



Japan GMDB and GMIB:  
    250 stochastically generated investment performance scenarios  
    Returns, representing the Companys long-term assumptions, varied by asset class with a low of 3.3% for
Japan bonds, a high of 8.5% for foreign equities and a weighted average of 6%  
    Volatilities also varied by asset class with a low of 8.9% for Japan bonds, a high of 18.4% for foreign
equities and a weighted average of 14.2%  
    70% of the 1996 Japan Standard Mortality Table was used for mortality assumptions  
    Lapse rates by age vary from a low of 1% to a high of 6%, with an average of 4%  
    Average discount rate of 3.0% The following table provides details concerning GMDB and GMIB exposure: Breakdown of Variable Annuity Account Value by GMDB/GMIB TypeRetained Net
    
    
    Weighted AverageAccount
    
    
    Net Amount
    
    
    Amount
    
    
    Attained Age ofMaximum anniversary value (MAV) [1]
    
    Value
    
    
    at Risk
    
    
    at Risk
    
    
    AnnuitantMAV only
    
    $
    61,675
    
    
    $
    6,568
    
    
    $
    683
    
    
    
    63With 5% rollup [2]
    
    
    4,204
    
    
    
    575
    
    
    
    104
    
    
    
    62With Earnings Protection Benefit Rider (EPB) [3]
    
    
    4,849
    
    
    
    228
    
    
    
    67
    
    
    
    59With 5% rollup & EPB
    
    
    1,499
    
    
    
    124
    
    
    
    21
    
    
    
    61Total MAV
    
    
    72,227
    
    
    
    7,495
    
    
    
    875
    
    
    
    63Asset Protection Benefit (APB) [4]
    
    
    17,173
    
    
    
    5
    
    
    
    4
    
    
    
    61Ratchet [5] (5 years)
    
    
    40
    
    
    
    2
    
    
    
    
    
    
    
    65Reset [6] (5-7 years)
    
    
    8,262
    
    
    
    640
    
    
    
    640
    
    
    
    60Return of Premium [7]/Other
    
    
    8,548
    
    
    
    18
    
    
    
    18
    
    
    
    60Subtotal U.S. Guaranteed Minimum Death Benefits
    
    
    106,250
    
    
    
    8,160
    
    
    
    1,537
    
    
    
    63Japan Guaranteed Minimum Death and Income Benefit [8]
    
    
    14,129
    
    
    
    99
    
    
    
    99
    
    
    
    67Total
    
    $
    120,379
    
    
    $
    8,259
    
    
    $
    1,636
    
    
    
    63
   [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]
    Ratchet: the death benefit is the greatest of current account value, net premiums
paid and the highest account value on any specified anniversary before age 85 (adjusted for
withdrawals).  [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) as described above
and income benefits include a guarantee to return initial investment, adjusted for
earnings liquidity, through a fixed annuity, after a minimum deferral period of 10, 15, or
20 years. The Company offers certain variable annuity products with a GMWB rider. The GMWB provides the
policyholder with a guaranteed remaining balance (GRB) if the account value is reduced to zero
through a combination of market declines and withdrawals. The GRB is generally equal to premiums
less withdrawals. However, annual withdrawals that exceed a specified percentage of the premiums
paid may reduce the GRB by an amount greater than the withdrawals and may also impact the
guaranteed annual withdrawal amount that subsequently applies after the excess annual withdrawals
occur. In certain contracts, the policyholder also has the option, after a specified time period,
to reset the GRB to the then-current account value, if greater. The GMWB represents an embedded
derivative liability in the variable annuity contract that is required to be reported separately
from the host variable annuity contract. It is carried at fair value and reported in other
policyholder funds. The fair value of the GMWB obligations are calculated based on actuarial
assumptions related to the projected cash flows, including benefits and related contract charges,
over the lives of the contracts, incorporating expectations concerning policyholder behavior.
Because of the dynamic and complex nature of these cash flows, stochastic techniques under a
variety of market return scenarios and other best estimate assumptions are used. Estimating cash
flows involves numerous estimates and subjective judgments including those regarding expected
market rates of return, market volatility, correlations of market returns and discount rates. F-33




---



##### 



As of December 31, 2004 and December 31, 2003, the embedded derivative asset recorded for GMWB,
before reinsurance or hedging, was $129 and $115, respectively. During 2004 and 2003, the change
in value of the GMWB, before reinsurance and hedging, reported in realized gains was $33 and $165
was incurred, respectively. There were no payments made for the GMWB during 2004, 2003 or 2002. As of December 31, 2004 and December 31, 2003, $18.1 billion, or 61%, and $6.2 billion, or 36%,
respectively, of account value representing substantially all of the contracts written after July
2003, with the GMWB feature was unreinsured. In order to minimize the volatility associated with
the unreinsured GMWB liabilities, the Company has established an alternative risk management
strategy. In 2003, the Company began hedging its unreinsured GMWB exposure using interest rate
futures, and Standard and Poors (S&P) 500 and NASDAQ index options and futures contracts.
During 2004, the Company began using Europe, Australasia and Far East (EAFE) Index swaps to
hedge GMWB exposure to international equity markets. The GRB as of December 31, 2004 and 2003
was $32.7 billion and $15.5 billion, respectively Account balances of contracts with guarantees were invested in variable separate accounts as
follows: Asset type
    
    As of December 31, 2004Equity securities (including mutual funds)
    
    $
    88,782Cash and cash equivalents
    
    
    7,379Total
    
    $
    96,161
 As of December 31,
2004, approximately 16% of the equity securities above were invested
in fixed income securities through these funds and
approximately 84% were invested in equity securities. The Individual Life segment sells universal life-type contracts with and without certain secondary
guarantees, such as a guarantee that the policy will not lapse, even if the account value is
reduced to zero, as long as the policyholder makes scheduled premium payments. The cumulative
effect on net income upon recording additional liabilities for universal life-type contracts and
the related secondary guarantees, in accordance with SOP 03-1, was not material. As of December
31, 2004, the liability for secondary guarantees as well as the amounts incurred and paid during
the year was immaterial. Note 10. Sales Inducements The Company currently offers enhanced crediting rates or bonus payments to contract holders on
certain of its individual and group annuity products. Through December 31, 2003, the expense
associated with offering certain of these bonuses was deferred and amortized over the contingent
deferred sales charge period. Others were expensed as incurred. Effective January 1, 2004, upon
the Companys adoption of SOP 03-1, the expense associated with offering a bonus is deferred and
amortized over the life of the related contract in a pattern consistent with the amortization of
deferred policy acquisition costs. Also, effective January 1, 2004, amortization expense
associated with expenses previously deferred is recorded over the remaining life of the contract
rather than over the contingent deferred sales charge period. Changes in deferred sales inducement activity were as follows for the year ended December 31, 2004: Balance, beginning of period
    
    $
    198Sales inducements deferred
    
    
    141Amortization charged to income
    
    
    (30
    )Balance at December 31
    
    $
    309
 F-34




---



##### 



Note 11. Reserve for Future Policy Benefits The following table displays the development of the claim reserves (included in reserve for
future policy benefits and unpaid claims and claim adjustment expenses in the Consolidated Balance
Sheets) resulting primarily from group disability products. For the years ended December 31,2004
    
    
    2003
    
    
    2002Beginning claim reserves-gross
    
    $
    4,480

    
    
    $
    2,914
    
    
    $
    2,764PGAAP adjustment
    
    
    20
    
    
    
    
    
    
    
    Reinsurance recoverables
    
    
    250
    
    
    
    275
    
    
    
    264Beginning claim reserves-net
    
    
    4,210
    
    
    
    2,639
    
    
    
    2,500Incurred expenses related toCurrent year
    
    
    1,864
    
    
    
    1,149
    
    
    
    1,164Prior years
    
    
    (73
    )
    
    
    (10
    )
    
    
    31Total incurred
    
    
    1,791
    
    
    
    1,139
    
    
    
    1,195Paid expenses related toCurrent year
    
    
    564
    
    
    
    376
    
    
    
    396Prior years
    
    
    1,020
    
    
    
    669
    
    
    
    660Total paid
    
    
    1,584
    
    
    
    1,045
    
    
    
    1,056Ending claim reserves-net
    
    
    4,417
    
    
    
    2,733
    
    
    
    2,639Acquisition of claim reserves
    
    
    
    
    
    
    1,497
    
    
    
    Reinsurance recoverables
    
    
    297
    
    
    
    250
    
    
    
    275Ending claim reserves-gross
    
    $
    4,714
    
    
    $
    4,480
    
    
    $
    2,914
 During 2004, incurred and paid expenses increased from 2003 due to the acquisition of CNA.
Incurred expenses related to prior years, for the year ended
December 31, 2004, were due to
favorable claims experience. The liability for future policy benefits and unpaid claims and claim adjustment expenses is
comprised of the following: 2004
    
    
    2003Group
Disability and Accident and other unpaid claims
and claim adjustment expenses
    
    $
    4,714
    
    
    $
    4,480Group Life Unpaid Claim
and Claim Adjustment Expenses
    
    
    885
    
    
    
    893Individual Life unpaid claims and claim
adjustment expenses
    
    
    88
    
    
    
    89Future Policy Benefits
    
    
    6,563
    
    
    
    5,949Future Policy Benefits and Unpaid Claim
and Claim Adjustment Expenses
    
    $
    12,250
    
    
    $
    11,411
 F-35




---



##### 



The liability for future policy benefits and unpaid claims and claim adjustment expenses by
segment/product is as follows: 2004
    
    
    2003Retail Products GroupIndividual annuity  variable
    
    $
    174
    
    
    $
    Individual annuity  fixed
    
    
    582
    
    
    
    435401(k)
    
    
    54
    
    
    
    55Other
    
    
    5
    
    
    
    Total Retail Products Group
    
    
    815
    
    
    
    490Institutional Solutions GroupStructured settlements
    
    
    2,502
    
    
    
    2,117Institutional annuities
    
    
    2,025
    
    
    
    1,892Governmental
    

    
    333
    
    
    
    354PPLI
    
    
    269
    
    
    
    291Total Institutional Solutions Group
    
    
    5,129
    
    
    
    4,654Individual LifeVariable universal life
    
    
    21
    
    
    
    21Universal life/other interest sensitive
    
    
    87
    
    
    
    75Term Life and other
    
    
    480
    
    
    
    485Total Individual Life
    
    
    588
    
    
    
    581Group BenefitsGroup disability
    
    
    4,162
    
    
    
    3,971Group life
and accident
    
    
    1,334
    
    
    
    1,441Other
    
    
    188
    
    
    
    184Total Group Benefits
    
    
    5,684
    
    
    
    5,596Other
    
    
    34
    
    
    
    90Total
    
    $
    12,250
    
    
    $
    11,411
 The liability for other policyholder funds and benefits payable by segment/product is as follows: 2004
    
    
    2003Retail Products GroupIndividual annuity  variable
    
    $
    7,452
    
    
    $
    8,230Individual annuity  fixed [1]
    
    
    10,952
    
    
    
    510401(k)
    
    
    1,075
    
    
    
    1,015Other
    
    
    22
    
    
    
    24Total Retail Products Group
    
    
    19,501
    
    
    
    9,779Institutional Solutions GroupStructured settlements
    
    
    1,503
    
    
    
    1,168Stable value/Funding agreements
    
    
    1,468
    
    
    
    1,312GICs
    
    
    3,174
    
    
    
    3,361Governmental
    
    
    3,715
    
    
    
    3,465Leveraged PPLI [1]
    
    
    2,791
    
    
    
    2,638Other
    
    
    800
    
    
    
    126Total Institutional Solutions Group
    
    
    13,451
    
    
    
    12,070Individual LifeVariable universal life
    
    
    425
    
    
    
    373Universal life/other interest sensitive
    
    
    4,059
    
    
    
    3,407Other
    
    
    192
    
    
    
    192Total Individual Life
    
    
    4,676
    
    
    
    3,972Group BenefitsGroup disability
    
    
    
    
    
    
    Group life
and accident
    
    
    558
    
    
    
    391Other
    
    
    
    
    
    
    Total Group Benefits
    
    
    558
    
    
    
    391Other[1]
    
    
    14,647
    
    
    
    (26
    )Total
    
    $
    52,833
    
    
    $
    26,186
   [1]
    
    With the adoption of SOP 03-01 certain annuity products were reclassified from the
separate account to the general account. This change in accounting resulted in an increase
of $17.4 billion in the liability for other policy holder funds and benefits payable in
2004. F-36




---



##### 



Note 12. Commitments and Contingencies Litigation The Hartford Financial Services Group, Inc. and its consolidated subsidiaries (The Hartford) is involved in various legal actions arising in the ordinary course of business, some
of which assert claims for substantial amounts. These actions include, among others, putative
state and federal class actions seeking certification of a state or national class. Such putative
class actions have alleged, for example, improper sales practices in connection with the sale of
life insurance and other investment products; and improper fee arrangements in connection with
mutual funds. The Hartford also is involved in individual actions in which punitive damages are
sought, such as claims alleging bad faith in the handling of insurance claims. Management expects
that the ultimate liability, if any, with respect to such lawsuits, after consideration of
provisions made for estimated losses, will not be material to the consolidated financial condition
of the Company. Nonetheless, given the large or indeterminate amounts sought in certain of these
actions, and the inherent unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the Companys
consolidated results of operations or cash flows in particular quarterly or annual periods. Broker Compensation Litigation- On October 14, 2004, the New York Attorney Generals Office filed
a civil complaint (the NYAG Complaint) against Marsh Inc. and Marsh & McLennan Companies, Inc.
(collectively, Marsh) alleging, among other things, that certain insurance companies, including
The Hartford, participated with Marsh in arrangements to submit inflated bids for business
insurance and paid contingent commissions to ensure that Marsh would direct business to them. The
Hartford is not joined as a defendant in the action. Since the filing of the NYAG Complaint,
several private actions have been filed against The Hartford asserting claims arising from the
allegations of the NYAG Complaint. Two securities class actions have been filed in the United States District Court for the District
of Connecticut alleging claims against The Hartford and five of its executive officers under
Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The complaints allege on behalf
of a putative class of shareholders that The Hartford and the five named individual defendants, as
control persons of The Hartford, disseminated false and misleading financial statements by
concealing that [The Hartford] was paying illegal and concealed contingent commissions pursuant
to illegal contingent commission agreements. The class period alleged is November 5, 2003
through October 13, 2004, the day before the NYAG Complaint was filed. The complaints seek damages
and attorneys fees. The Hartford and the individual defendants dispute the allegations and intend
to defend these actions vigorously. In addition, three putative class actions have been filed in the same court on behalf of
participants in The Hartfords 401(k) plan against The Hartford, Hartford Fire Insurance Company,
The Hartfords Pension Fund Trust and Investment Committee, The Hartfords Pension Administration
Committee, The Hartfords Chief Financial Officer, and John/Jane Does 1-15. The suits assert
claims under the Employee Retirement Income Security Act of 1974, as amended (ERISA), alleging
that The Hartford and the other named defendants breached their fiduciary duties to plan
participants by, among other things, failing to inform them of the risk associated with investment
in The Hartfords stock as a result of the activity alleged in the NYAG Complaint. The class
period alleged is November 5, 2003 through the present. The complaints seek restitution of losses
to the plan, declaratory and injunctive relief, and attorneys fees. All defendants dispute the
allegations and intend to defend these actions vigorously. Two corporate derivative actions also have been filed in the same court. The complaints, brought
in each case by a shareholder on behalf of The Hartford against its directors and an executive
officer, allege that the defendants knew adverse non-public information about the activities
alleged in the NYAG Complaint and concealed and misappropriated that information to make profitable
stock trades, thereby breaching their fiduciary duties, abusing their control, committing gross
mismanagement, wasting corporate assets, and unjustly enriching themselves. The complaints seek
damages, injunctive relief, disgorgement, and attorneys fees. All defendants dispute the
allegations and intend to defend these actions vigorously. Seven putative class actions also have been filed by alleged policyholders in federal district
courts, one in the Southern District of New York, two in the Eastern District of Pennsylvania,
three in the Northern District of Illinois, and one in the Northern District of California, against
several brokers and insurers, including The Hartford. These actions assert, on behalf of a class
of persons who purchased insurance through the broker defendants, claims under the Sherman Act and
state law, and in some cases the Racketeer Influenced and Corrupt Organizations Act (RICO),
arising from the conduct alleged in the NYAG Complaint. The class period alleged is 1994 through
the date of class certification, which has not yet occurred. The complaints seek treble damages,
injunctive and declaratory relief, and attorneys fees. Putative
class actions also have been
filed in the Circuit Court for Cook County, Illinois, Chancery
Division, and in the Circuit Court for Seminole County, Florida,
Civil Division, on behalf of a class of
all persons who purchased insurance from a class of defendant
insurers. These state court actions
assert unjust enrichment claims and violations of state unfair trade
practices acts arising from the conduct alleged in the NYAG Complaint
and seek remedies including restitution of premiums, and, in the Cook
County action, imposition of a constructive trust, and declaratory and injunctive relief.
The class period alleged is 1994 through the present. The Hartford has removed the Cook County
action to the United States District Court for the Northern District of Illinois. Pursuant to an
order of the Judicial Panel on Multidistrict Litigation, it is likely that most or all of these
actions will be transferred to the United States District Court for the District of New Jersey.
The Hartford disputes the allegations in all of these actions and intends to defend the actions
vigorously. F-37




---



##### 



Additional complaints may be filed against The Hartford in various courts alleging claims under
federal or state law arising from the conduct alleged in the NYAG Complaint. The Hartfords
ultimate liability, if any, in the pending and possible future suits is highly uncertain and
subject to contingencies that are not yet known, such as how many suits will be filed, in which
courts they will be lodged, what claims they will assert, what the outcome of investigations by the
New York Attorney Generals Office and other regulatory agencies will be, the success of defenses
that The Hartford may assert, and the amount of recoverable damages if liability is established.
In the opinion of management, it is possible that an adverse outcome in one or more of these suits
could have a material adverse effect on the Companys consolidated results of operations or cash
flows in particular quarterly or annual periods. Bancorp Services, LLC- In the third quarter of 2003, Hartford Life Insurance Company and its
affiliate International Corporate Marketing Group, LLC settled their intellectual property dispute
with Bancorp Services, LLC (Bancorp). The dispute concerned, among other things, Bancorps
claims for alleged patent infringement, breach of a confidentiality agreement, and misappropriation
of trade secrets related to certain stable value corporate-owned life insurance products. The
settlement provided that The Hartford would pay a minimum of $70 and a maximum of $80, depending on
the outcome of the patent appeal, to resolve all disputes between the parties. The settlement
resulted in the recording of an additional charge of $40, after-tax, in the third quarter of 2003,
reflecting the maximum amount payable under the settlement, and in November of 2003, The Hartford
paid the initial $70 of the settlement. On March 1, 2004, the Federal Circuit Court of Appeals
decided the patent appeal adversely to The Hartford, and on March 22, 2004, The Hartford paid
Bancorp an additional $10 in full and final satisfaction of its obligations under the settlement.
Because the charge taken in the third quarter of 2003 reflected the maximum amount payable under
the settlement, the amount paid in the first quarter of 2004 had no effect on the Companys results
of operations. Reinsurance Arbitration- On March 16, 2003, a final decision and award was issued in the
previously disclosed reinsurance arbitration between subsidiaries of The Hartford and one of their
primary reinsurers relating to policies with guaranteed death benefits written from 1994 to 1999.
The arbitration involved alleged breaches under the reinsurance treaties. Under the terms of the
final decision and award, the reinsurers reinsurance obligations to The Hartfords subsidiaries
were unchanged and not limited or reduced in any manner. The award was confirmed by the Connecticut
Superior Court on May 5, 2003. Regulatory Developments In June 2004, The Hartford received a subpoena from the New York Attorney Generals Office in
connection with its inquiry into compensation arrangements between brokers and carriers. In
mid-September 2004 and subsequently, The Hartford has received additional subpoenas from the New
York Attorney Generals Office, which relate more specifically to possible anti-competitive
activity among brokers and insurers. Since the beginning of October
2004, The Hartford has received
subpoenas or other information requests from Attorneys General and regulatory agencies in more than
a dozen jurisdictions regarding broker compensation and possible anti-competitive activity. The
Hartford may receive additional subpoenas and other information requests from Attorneys General or
other regulatory agencies regarding similar issues. The Hartford also has received a subpoena from
the New York Attorney Generals Office requesting information related to The Hartfords
underwriting practices with respect to legal professional liability insurance. In addition, The
Hartford has received a request for information from the New York Attorney Generals Office
concerning The Hartfords compensation arrangements in connection with the administration of
workers compensation plans. The Hartford intends to continue cooperating fully with these
investigations, and is conducting an internal review, with the assistance of outside counsel,
regarding the issues under investigation. On October 14, 2004, the New York Attorney Generals Office filed a civil complaint against Marsh &
McLennan Companies, Inc., and Marsh, Inc. (collectively, Marsh). The complaint alleges, among
other things, that certain insurance companies, including The Hartford, participated with Marsh in
arrangements to submit inflated bids for business insurance and paid contingent commissions to
ensure that Marsh would direct business to them. The Hartford is not joined as a defendant in the
action. Although no regulatory action has been initiated against The Hartford in connection with
the allegations described in the civil complaint, it is possible that the New York Attorney
Generals Office or one or more other regulatory agencies may pursue action against The Hartford or
one or more of its employees in the future. The potential timing of any such action is difficult
to predict. If such an action is brought, it could have a material adverse effect on the Company. On October 29, 2004, the New York Attorney Generals Office informed The Hartford that the Attorney
General is conducting an investigation with respect to the timing of the previously disclosed sale
by Thomas Marra, a director and executive officer of The Hartford, of 217,074 shares of The
Hartfords common stock on September 21, 2004. The sale occurred shortly after the issuance of two
additional subpoenas dated September 17, 2004 by the New York Attorney Generals Office. The
Hartford has engaged outside counsel to review the circumstances related to the transaction and is
fully cooperating with the New York Attorney Generals Office. On the basis of the review, The
Hartford has determined that Mr. Marra complied with The Hartfords applicable internal trading
procedures and has found no indication that Mr. Marra was aware of the additional subpoenas at the
time of the sale. There continues to be significant federal and state regulatory activity relating to financial
services companies, particularly mutual funds companies. These regulatory inquiries have focused
on a number of mutual fund issues, including market timing and late trading, revenue sharing and
directed brokerage, fees, transfer agents and other fund service providers, and other mutual-fund
related issues. The Hartford has received requests for information and subpoenas from the
Securities and Exchange Commission (SEC), subpoenas from the New York Attorney Generals Office,
requests for information from the Connecticut Securities and Investments Division of the Department
of Banking, F-38




---



##### 



and requests for information from the New York Department of Insurance, in each case requesting
documentation and other information regarding various mutual fund regulatory issues. The SECs Division of Enforcement and the New York Attorney Generals Office are investigating
aspects of The Hartfords variable annuity and mutual fund operations related to market timing.
The Hartfords mutual funds are available for purchase by the separate accounts of different
variable universal life insurance policies, variable annuity
products, and funding agreements, and they are offered directly to certain qualified retirement plans. Although existing products
contain transfer restrictions between subaccounts, some products, particularly older variable
annuity products, do not contain restrictions on the frequency of transfers. In addition, as a
result of the settlement of litigation against The Hartford with respect to certain owners of older
variable annuity products, The Hartfords ability to restrict transfers by these owners is limited.
In February 2005, the Company agreed in principle with the Boards of
Directors of the mutual funds to idemnify the mutual funds for any
material harm caused to the funds from frequent trading by these
owners.
The specific terms of the indemnification have not been determined.
The SECs Division of Enforcement also is investigating aspects of The Hartfords variable annuity
and mutual fund operations related to directed brokerage and revenue sharing. The Hartford
discontinued the use of directed brokerage in recognition of mutual fund sales in late 2003. The
Hartford also has received a subpoena from the New York Attorney Generals Office requesting
information related to The Hartfords group annuity products. The Hartford continues to cooperate
fully with the SEC, the New York Attorney Generals Office and other regulatory agencies. A number of companies have announced settlements of enforcement actions with various regulatory
agencies, primarily the SEC and the New York Attorney Generals Office, which have included a range
of monetary penalties and restitution. While no such action has been initiated against The
Hartford, the SEC, and the New York Attorney Generals Office are likely to take some action at the
conclusion of the on-going investigations related to market timing and directed brokerage. The
potential timing of any such action is difficult to predict, and The Hartfords ultimate liability,
if any, from any such action is not reasonably estimable at this time. If such an action is brought, it could
have a material adverse effect on the Companys consolidated results of operations or cash flows in
particular quarterly or annual periods. Leases The rent paid to Hartford Fire for operating leases entered into by the Company was $67, $51, and
$52 for the years ended December 31, 2004, 2003 and 2002, respectively. Included in Hartford
Fires operating leases are Hartford Lifes principal executive offices, which are located in
Simsbury, Connecticut. Rental expense is recognized on a level basis for the facility located in
Simsbury, Connecticut, which expires on December 31, 2009, and amounted to approximately $25, $20,
and $17 for the years ended December 31, 2004, 2003 and 2002, respectively. In addition, Hartford Life has entered into operating leases for its international operations,
which expire in 2007, 2009, and 2014. The rental expense on international leases was $10, $5 and
$2 for the years ended December 31, 2004, 2003 and 2002, respectively. Future minimum rental commitments on all operating leases are as follows: 2005
    
    $
    672006
    
    
    632007
    
    
    482008
    
    
    422009
    
    
    36Thereafter
    
    
    41Total
    
    $
    297
 Tax Matters The Companys federal income tax returns are routinely audited by the Internal Revenue Service
(IRS). During the third quarter of 2004, the IRS completed its examination of the 1998-2001 tax
years, and the IRS and the Company agreed upon all adjustments. As a result, during the third
quarter of 2004 the Company booked a $190 tax benefit to reflect the impact of the audit settlement
on tax years covered by the examination as well as other tax years prior to 2004. The benefit
relates primarily to the separate account DRD and interest. During the fourth quarter of 2004, the
IRS issued a Revenue Agents Report, reflecting the adjustments computed and agreed upon in the
prior quarter with respect to the Companys federal taxes for the years under examination. No
additional tax adjustments were recorded, as the results reflected in the Report were included in
the tax benefit recorded in the third quarter. The IRS is expected to begin its audit of the
2002-2004 tax years sometime in 2005. Management believes that adequate provision has been made in
the financial statements for any potential assessments that may result from future tax examinations
and other tax-related matters for all open tax years. Unfunded Commitments At December 31, 2004, Hartford Life has outstanding commitments totaling $452, of which $202 is
committed to fund limited partnership investments. These capital commitments can be called by the
partnership during the commitment period (on average 2 to 5 years) to fund working capital needs or
purchase new investments. Once the commitment period expires, the Company is under no obligation
to fund the F-39




---



##### 



remaining unfunded commitment but may elect to do so. The remaining $250 of outstanding
commitments are primarily related to various funding obligations associated with investments in
mortgage and construction loans. These have a commitment period of one month to 3 years. Guaranty fund and Other Insurance-Related Assessments In all states, insurers licensed to transact certain classes of insurance are required to become
members of a guaranty fund. In most states, in the event of the insolvency of an insurer writing
any such class of insurance in the state, members of the fund are assessed to pay certain claims of
the insolvent insurer. A particular states fund assesses its members based on their respective
written premiums in the state for the classes of insurance in which the insolvent insurer is
engaged. Assessments are generally limited for any year to one or two percent of premiums written
per year depending on the state. There were no guaranty fund assessment payments or refunds in
2004 and 2003. There were guaranty fund assessment refunds of $2 in 2002. Note 13. Income Tax Hartford Life and The Hartford have entered into a tax sharing agreement under which each
member in the consolidated U.S. federal income tax return will make payments between them such
that, with respect to any period, the amount of taxes to be paid by the Company, subject to certain
adjustments, generally will be determined as though the Company were filing a separate Federal
income tax return with current credit for net losses to the extent the losses provide a benefit in
the consolidated return. The Company is included in The Hartfords consolidated Federal income tax return. The Companys
effective tax rate was 11%, 19% and 2% in 2004, 2003 and 2002, respectively. Income tax expense (benefit) is as follows: For the years ended December 31,2004
    
    
    2003
    
    
    2002Current
    
    $
    (10
    )
    
    $
    (2
    )
    
    $
    29Deferred
    
    
    178
    
    
    
    182
    
    
    
    (19
    )Income tax expense
    
    $
    168
    
    
    $
    180
    
    
    $
    10
 A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision
(benefit) for income taxes is as follows: For the years ended December 31,2004
    
    
    2003
    
    
    2002Tax Provision at the U.S. statutory rate
    
    $
    529

    
    
    $
    332
    
    
    $
    198Tax-exempt interest
    
    
    (31
    )
    
    
    (29
    )
    
    
    (27
    )Dividends received deduction
    
    
    (134
    )
    
    
    (90
    )
    
    
    (66
    )IRS Audit Settlement (see Note 12)
    
    
    (190
    )
    
    
    
    
    
    
    (76
    )Tax adjustment
    
    
    (4
    )
    
    
    (30
    )
    
    
    Foreign Related Investments
    
    
    (5
    )
    
    
    (5
    )
    
    
    (14
    )Other
    
    
    3
    
    
    
    2
    
    
    
    (5
    )Provision for income tax
    
    $
    168
    
    
    $
    180
    
    
    $
    10
 F-40




---



##### 



Deferred tax assets (liabilities) include the following as of December 31: 2004
    
    
    2003Deferred Tax AssetsTax basis deferred policy acquisition costs
    
    $
    648
    
    
    $
    678Employee Benefits
    
    
    
    
    
    
    27Net Operating Loss Carryover
    
    
    227
    
    
    
    216Minimum Tax Credit
    
    
    154
    
    
    
    103Foreign Tax Credit Carryovers
    
    
    7
    
    
    
    17Other
    
    
    36
    
    
    
    Total Deferred Tax Assets
    
    
    1,072
    
    
    
    1,041Deferred Tax LiabilitiesFinancial statement deferred policy acquisition costs and reserves
    
    
    (838
    )
    
    
    (763
    )Net Unrealized Gains on Securities
    
    
    (799
    )
    
    
    (692
    )Employee Benefits
    
    
    (10
    )
    
    
    Other Investment-related items
    
    
    (107
    )
    
    
    (16
    )Depreciable & Amortizable assets
    
    
    (65
    )
    
    
    (50
    )Other
    
    
    
    
    
    
    (6
    )Total Deferred Tax Liabilities
    
    
    (1,819
    )
    
    
    (1,527
    )Total Deferred Tax Asset (Liability)
    
    $
    (747
    )
    
    $
    (486
    )
 Hartford Life had current federal income tax receivable of $75 and $3 as of December 31, 2004 and
2003, respectively. In managements judgment, the gross deferred tax asset will more likely than not be realized
through reductions of future taxes. Accordingly, no valuation has been recorded. Included in the
total net deferred tax liability is a deferred tax asset for net operating losses of $648,
consisting of U.S. losses of $136 which expire in 2023 and foreign losses of $512 which expire
during fiscal years 2006  2012. Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax Act of 1959 permitted
the deferral from taxation of a portion of statutory income under certain circumstances. In these
situations, the deferred income was accumulated in a Policyholders Surplus Account and would be
taxable only under conditions which management considered to be remote; therefore, no federal
income taxes have been provided on the balance in this account, which for tax return purposes was
$104 as of December 31, 2004. The American Jobs Creation Act of 2004, which was enacted in October
2004, allows distributions to be made from the Policyholders Surplus Account free of tax in 2005
and 2006. The Company anticipates that, based on currently available information, this change will
permanently eliminate the potential tax of $37 on such a distribution. Note 14. Debt December 31, 2004
    
    
    December 31, 2003Short-Term DebtRelated Party Debt
    
    $
    
    
    
    $
    305Current maturities of long-term debt
    
    
    
    
    
    
    200Total Short-Term Debt
    
    $
    
    
    
    $
    505Long -Term Debt
Senior Notes7.10% Notes, due 2007
    
    $
    200
    
    
    $
    2007.65% Notes, due 2027
    
    
    250
    
    
    
    2507.375% Notes, due 2031
    
    
    400
    
    
    
    400Total Senior Notes
    
    
    850
    
    
    
    850Junior Subordinated Debentures7.20% Notes, due 2038
    
    
    
    
    
    
    2507.625% Notes, due 2050
    
    
    200
    
    
    
    200Total Long-Term Debt
    
    $
    1,050
    
    
    $
    1,300
 F-41




---



##### 



Shelf Registrations On May 15, 2001, Hartford Life filed with the Securities and Exchange Commission (SEC) a shelf
registration statement for the potential offering and sale of up to $1.0 billion in debt and
preferred securities. The registration statement was declared effective on May 29, 2001. As of
December 31, 2004, the Company had $1.0 billion remaining on its shelf. Short-Term Debt Effective December 31, 2002, Hartford Life, in conjunction with its parent The Hartford, signed a
$490 three year revolving credit facility with a group of participating banks. Hartford Life has
access to up to $250 of this credit facility. This facility, which expires in 2005, is available
for general corporate purposes and to provide additional support for the Companys commercial paper
program. In addition, the Companys Japanese operation has a $30 line of credit with a Japanese
bank. As of December 31, 2004 the Company had no outstanding borrowings under these facilities. Hartford Life has a commercial paper program, which allows it to borrow up to a maximum amount of
$250 in short-term commercial paper notes. As of December 31, 2004, the Company had no outstanding
borrowings under the program. Long-Term Debt Hartford Lifes long-term debt securities are unsecured obligations of Hartford Life and rank on a
parity with all other unsecured and unsubordinated indebtedness. Effective June 15, 2004, Hartford
Life received a capital contribution in the form of cash of $100 from its parent The Hartford which
was then used in conjunction with available cash to fund the payment and settlement of the $200 of
6.9% long-term debt which matured on June 15, 2004. On March 15, 2004, all outstanding 7.20% Trust Preferred Securities, Series A Common Securities of
Hartford Life Capital I, were called for redemption. Hartford Life received a capital contribution
in the form of cash of $200 from its parent The Hartford which was then used in conjunction with
available cash to fund this redemption. The redemption price was $25 per share, plus accumulated
and unpaid distributions thereon to March 15, 2004, in the amount of $0.30 per share. The
redemption was paid on March 15, 2004 in a manner provided in the Amended and Restated Declaration
of Trust for Trust Preferred Securities. Hartford Life recorded a $7, before-tax, expense for the
unamortized costs associated with these preferred securities in the first quarter of 2004. The financial structure of Hartford Life Capital II and I, as of December 31, 2004 and 2003, were
as follows: ($ in millions except for per security data)
    
    Hartford Life Capital II
    
    Hartford Life Capital I [2]Junior Subordinated Debentures [1] [2]Principal amount owed
    
    $200
    
    $250Balance December 31, 2004
    
    $200
    
    Balance December 31, 2003
    
    $200
    
    $250Coupon rate
    
    7.625%
    
    7.20%Interest payable
    
    Quarterly
    
    QuarterlyMaturity date
    
    Feb. 15, 2050
    
    June 30, 2038Redeemable by issuer on or after
    
    Mar. 6, 2006
    
    June 30, 2003Trust Preferred SecuritiesIssuance date
    
    Mar. 6, 2001
    
    June 29, 1998Securities issued
    
    8,000,000
    
    10,000,000Liquidation preference per security (in dollars)
    
    $25
    
    $25Liquidation value
    
    $200
    
    $250Coupon rate
    
    7.625%
    
    7.20%Distribution payable
    
    Quarterly
    
    QuarterlyDistribution guaranteed by
    
    HLI
    
    HLI
   [1]
    
    For each of the respective debentures, The Hartford or HLI, has the right at any time, and
from time to time, to defer payments of interest on the Junior Subordinated Debentures for a
period not exceeding 20 consecutive quarters up to the debentures maturity date. During any
such period, interest will continue to accrue and The Hartford or HLI may not declare or pay
any cash dividends or distributions on, or purchase, The Hartfords or HLIs capital stock nor
make any principal, interest or premium payments on or repurchase any debt securities that
rank equally with or junior to the Junior Subordinated Debentures. The Hartford or HLI will
have the right at any time to dissolve the Trust and cause the Junior Subordinated Debentures
to be distributed to the holders of the Preferred Securities.[2]
    
    The securities for Hartford Life Capital I were redeemed on March 15, 2004. F-42




---



##### 



Related Party Debt Effective January 30, 2004, Hartford Life received a capital contribution in the form of cash of
$305 from its parent The Hartford which was then used to fund the payment and settlement of the
above related party note agreements totaling $305 with its parent The Hartford. Interest Expense The following table presents interest expense incurred for 2004, 2003 and 2002, respectively. For the years ended December 31,2004
    
    
    2003
    
    
    2002Short and Long-term debt
    
    $
    70
    
    
    $
    77
    
    
    $
    78Series A Preferred Securities and Series B Preferred Securities
    
    
    26
    
    
    
    34
    
    
    
    34Related Party debt
    
    
    1
    
    
    
    6
    
    
    
    Total interest expense
    
    $
    97
    
    
    $
    117
    
    
    $
    112
 Note 15. Stockholders Equity Statutory Results For the years ended December 31,2004
    
    
    2003
    
    
    2002Statutory net income (loss)
    
    $
    1,048
    
    
    $
    1,026
    
    
    $
    (137
    )Statutory surplus
    
    $
    5,119
    
    
    $
    4,470
    
    
    $
    3,019
 A significant percentage of the consolidated statutory surplus is permanently reinvested or is
subject to various state regulatory restrictions which limit the payment of dividends without prior
approval. The payment of dividends by Connecticut-domiciled insurers is limited under the
insurance holding company laws of Connecticut. Under these laws, the insurance subsidiaries may
only make their dividend payments out of unassigned surplus. These laws require notice to and
approval by the state insurance commissioner for the declaration or payment of any dividend, which,
together with other dividends or distributions made within the preceding twelve months, exceeds the
greater of (i) 10% of the insurers policyholder surplus as of December 31 of the preceding year or
(ii) net income (or net gain from operations, if such company is a life insurance company) for the
twelve-month period ending on the thirty-first day of December last preceding, in each case
determined under statutory insurance accounting policies. In addition, if any dividend of a
Connecticut-domiciled insurer exceeds the insurers earned surplus, it requires the prior approval
of the Connecticut Insurance Commissioner. The insurance holding company laws of the other
jurisdictions in which The Hartfords insurance subsidiaries are incorporated (or deemed
commercially domiciled) generally contain similar (although in certain instances somewhat more
restrictive) limitations on the payment of dividends. As of December 31, 2004, the maximum amount
of statutory dividends which may be paid to Hartford Life from its insurance subsidiaries in 2005,
without prior approval, is $766. The domestic insurance subsidiaries of Hartford Life prepare their statutory financial statements
in accordance with accounting practices prescribed by the applicable insurance department.
Prescribed statutory accounting practices include publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative
rules. Note 16. Pension Plans, Postretirement, Health Care and Life Insurance Benefit and Savings
Plans Pension Plans Hartford Lifes employees are included in The Hartfords non-contributory defined benefit pension
and postretirement health care and life insurance benefit plans. Defined benefit pension expense,
postretirement health care and life insurance benefits expense allocated by The Hartford, was $44,
$34, and $18 for the years ended December 31, 2004, 2003 and 2002, respectively. , Investment and Savings Plan Substantially all U.S. employees are eligible to participate in The Hartfords Investment and
Savings Plan under which designated contributions may be invested in common stock of The Hartford
or certain other investments. These contributions are matched, up to 3% of compensation, by the
Company. In addition, the Company allocates 0.5% of base salary to the plan for each eligible
employee. In 2004, the Company allocates 1.5% of base salary to plan for eligible employees who
have salaries of less than $90,000 per year. The cost to Hartford Life for this plan was
approximately $15, $10, and $9 for the years ended December 31, 2004, 2003 and 2002, respectively. F-43




---



##### 



Note 17. Stock Compensation Plans Hartford Lifes employees are included in The Hartford 2000 Incentive Stock Plan (the 2000
Plan) and The Hartford Employee Stock Purchase Plan. Under the 2000 Plan, awards may be granted in the form of non-qualified or incentive stock options
qualifying under Section 422A of the Internal Revenue Code, performance shares or restricted stock,
or any combination of the foregoing. In addition, stock appreciation rights may be granted in
connection with all or part of any stock options granted under the 2000 Plan. In December 2004,
the 2000 Plan was amended to allow for grants of restricted stock units effective as of January 1,
2005. The aggregate number of shares of stock, which may be awarded, is subject to a maximum limit
of 17,211,837 shares applicable to all awards for the ten-year duration of the 2000 Plan. All options granted have an exercise price equal to the market price of the Companys common stock
on the date of grant, and an options maximum term is ten years and two days. Certain options
become exercisable over a three year period commencing one year from the date of grant, while
certain other options become exercisable upon the attainment of specified market price appreciation
of the Companys common shares. For any year, no individual employee may receive an award of
options for more than 1,000,000 shares. As of December 31, 2004, The Hartford had not issued any
incentive stock options under the 2000 Plan. Performance awards of common stock granted under the 2000 Plan become payable upon the attainment
of specific performance goals achieved over a period of not less than one nor more than five years,
and the restricted stock granted is subject to a restriction period. On a cumulative basis, no
more than 20% of the aggregate number of shares which may be awarded under the 2000 Plan are
available for performance shares and restricted stock awards. Also, the maximum award of
performance shares for any individual employee in any year is 200,000 shares. In 2004, 2003 and
2002, the Company granted shares of common stock of 315,452, 333,712 and 40,852 with weighted
average prices of $64.93, $38.13 and $62.28, respectively, related to performance share and
restricted stock awards. In 1996, The Hartford established The Hartford Employee Stock Purchase Plan (ESPP). Under this
plan, eligible employees of The Hartford may purchase common stock of the Company at a 15% discount
from the lower of the closing market price at the beginning or end of the quarterly offering
period. The Company may sell up to 5,400,000 shares of stock to eligible employees under the ESPP.
In 2004, 2003 and 2002, 345,262, 443,467 and 408,304 shares were sold, respectively. The per
share weighted average fair value of the discount under the ESPP was $9.31, $11.96, and $11.70 in
2004, 2003 and 2002, respectively. Additionally, during 1997, The Hartford established employee
stock purchase plans for certain employees of the Companys international subsidiaries. Under
these plans, participants may purchase common stock of The Hartford at a fixed price at the end of
a three-year period. The activity under these programs is not material. Note 18. Transactions with Affiliates Transactions of the Company with Hartford Fire, Hartford Holdings and its affiliates relate
principally to tax settlements, reinsurance, insurance coverage, rental and service fees, payment
of dividends and capital contributions. In addition, certain affiliated insurance companies
purchased group annuity contracts from the Company to fund pension costs and claim annuities to
settle casualty claims. Substantially all general insurance expenses related to the Company,
including rent and employee benefit plan expenses, are initially paid by The Hartford. Direct
expenses are allocated to the Company using specific identification, and indirect expenses are
allocated using other applicable methods. Indirect expenses include those for corporate areas
which, depending on type, are allocated based on either a percentage of direct expenses or on
utilization. Indirect expenses allocated to the Company by The Hartford were $132, $109, and $80
for the years ended December 31, 2004, 2003 and 2002, respectively. Included in other liabilities
are $25 and $24 due to The Hartford as of December 31, 2004 and 2003, respectively. In connection with a comprehensive evaluation of various capital maintenance and allocation
strategies by The Hartford, an intercompany asset sale transaction was completed in April 2003.
The transaction resulted in certain of The Hartfords Property & Casualty subsidiaries selling
ownership interests in certain high quality fixed maturity securities to Hartford Life for cash
equal to the fair value of the securities as of the effective date of the sale. For the Property
and Casualty subsidiaries, the transaction monetized the embedded gain in certain securities on a
tax deferred basis to The Hartford because no capital gains tax will be paid until the securities
are sold to unaffiliated third parties. The transfer re-deployed to Hartford Life desirable
investments without incurring substantial transaction costs that would have been payable in a
comparable open market transaction. The fair value of securities transferred was $1.8 billion. During the second quarter of 2003, the Company sold certain of its furniture and equipment with an
estimated book value of $8 to Hartford Fire Insurance Company. The furniture and equipment was
sold at fair value and resulted in a gain of $4 before tax, which was recorded in other revenue. HLIC has issued a guarantee to retirees and vested terminated employees (Retirees) of The Hartford
Retirement Plan for U.S. Employees (the Plan) who retired or terminated prior to January 1, 2004.
The Plan is sponsored by The Hartford. The guarantee is an irrevocable F-44




---



##### 



commitment to pay all accrued benefits which the Retiree or the Retirees designated beneficiary is
entitled to receive under the Plan in the event the Plan assets are insufficient to fund those
benefits and The Hartford is unable to provide sufficient assets to fund those benefits. The
Company believes that the likelihood that payments will be required under this guarantee is remote. Note 19. Acquisitions During the second quarter of 2004, the Company finalized its December 31, 2003, acquisition of
CNA Financial Corporations group life and accident, and short-term and long-term businesses. The
acquisition was consummated to increase the scale of the Companys group life and disability
operations and to expand and enhance the distribution and delivery of those products and related
services. The final purchase price was $543. Through the acquisition, assets, comprised primarily
of fixed maturities and short-term investments, increased $2.6 billion and liabilities, comprised
primarily of future policy benefits and unpaid claims and claim adjustments expense increased by
$2.0 billion. The Company did not record any goodwill or other intangibles, including present
value of future profits as a result of the acquisition. As the acquisition was completed on
December 31, 2003, the results of operations of the acquired business are included in the Companys
statement of operation for the year ended December 31, 2004. Note 20. Quarterly Results for 2004 and 2003 (unaudited) Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues
    
    $
    3,058
    
    
    $
    1,786
    
    
    $
    2,644
    
    
    $
    1,962
    
    
    $
    2,502
    
    
    $
    2,248
    
    
    $
    3,156
    
    
    $
    2,062Benefits, claims and expenses
    
    
    2,672
    
    
    
    1,630
    
    
    
    2,300
    
    
    
    1,688
    
    
    
    2,106
    
    
    
    2,050
    
    
    
    2,772
    
    
    
    1,741Net income
    
    
    258
    
    
    
    126
    
    
    
    255
    
    
    
    243
    
    
    
    499
    
    
    
    161
    
    
    
    307
    
    
    
    239
   [1]
    
    Included in the quarter ended September 30, 2003 is an after-tax expense of $40
related to the Bancorp litigation dispute.[2]
    
    Included in the quarter ended June 30, 2003 is a $30 tax benefit primarily related
to the favorable treatment of certain tax items arising during the 1996-2000 tax years.[3]
    
    Included in the quarter ended September 30, 2004 is a $190 tax benefit which relates
to agreement with IRS on the resolution of matters pertaining to tax years prior to
2004. Note 21. Subsequent Events Effective 1/14/05, Hartford Life signed a promissory note for $100 with its parent The
Hartford. The principal balance of this note, which carries a three percent annual interest rate,
together with all accrued and unpaid interest, are due and payable in full in one lump sum, balloon
payment on December 31, 2005. Hartford Life intends to repay the note in full along with accrued
interest on March 1, 2005. F-45




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 SCHEDULE I SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN AFFILIATES As of December 31, 2004Amount at whichshown on BalanceType of Investment
    
    Cost
    
    
    Fair Value
    
    
    SheetFixed MaturitiesBonds and NotesU.S. Government and Government agencies and
authorities (guaranteed and sponsored)
    
    $
    884
    
    
    $
    898
    
    
    $
    898U.S. Government and Government agencies and
authorities (guaranteed and sponsored) -
asset-backed
    
    
    2,879
    
    
    
    2,905
    
    
    
    2,905States, municipalities and political subdivisions
    
    
    2,780
    
    
    
    2,995
    
    
    
    2,995International governments
    
    
    723
    
    
    
    788
    
    
    
    788Public utilities
    
    
    2,317
    
    
    
    2,540
    
    
    
    2,540All other corporate including international
    
    
    21,328
    
    
    
    22,992
    
    
    
    22,992All other corporate  asset-backed
    
    
    14,778
    
    
    
    15,139
    
    
    
    15,139Short-term investments
    
    
    2,261
    
    
    
    2,261
    
    
    
    2,261Redeemable preferred stock
    
    
    12
    
    
    
    13
    
    
    
    13Total fixed maturities
    
    
    47,962
    
    
    
    50,531
    
    
    
    50,531Equity SecuritiesCommon stocksBanks, trusts & insurance companies
    
    
    
    
    
    
    1
    
    
    
    1Industrial and miscellaneous
    
    
    11,663
    
    
    
    13,742
    
    
    
    13,742Nonredeemable preferred stocks
    
    
    412
    
    
    
    416
    
    
    
    416Total equity securities
    
    
    12,075
    
    
    
    14,159
    
    
    
    14,159Total fixed maturities and equity securities
    
    
    60,037
    
    
    
    64,690
    
    
    
    64,690Other InvestmentsMortgage loans on real estate
    
    
    923
    
    
    
    N/A
    
    
    
    923Policy loans
    
    
    2,662
    
    
    
    N/A
    
    
    
    2,662Investments in partnerships and trusts
    
    
    299
    
    
    
    256
    
    
    
    256Other invested assets
    
    
    223
    
    
    
    185
    
    
    
    185Total other investments
    
    
    4,107
    
    
    
    441
    
    
    
    4,026Total investments
    
    $
    64,144
    
    
    $
    65,131
    
    
    $
    68,716
 S-1




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 SCHEDULE II CONDENSED FINANCIAL INFORMATION OF HARTFORD LIFE, INC.
(Registrant) As of December 31,Condensed Balance Sheets
    
    2004
    
    
    2003AssetsFixed maturities, available for sale, at fair value
(amortized cost of $20 and $1)
    
    $
    20
    
    
    $
    1Investment in subsidiaries
    
    
    10,310
    
    
    
    8,911Other assets
    
    
    78
    
    
    
    124Total assets
    
    
    10,408
    
    
    
    9,036Liabilities and Stockholders EquityShort-term debt
    
    
    
    
    
    
    505Long-term debt
    
    
    1,050
    
    
    
    1,300Other liabilities
    
    
    186
    
    
    
    172Total liabilities
    
    
    1,236
    
    
    
    1,977Total stockholders equity
    
    
    9,172
    
    
    
    7,059Total liabilities and stockholders equity
    
    $
    10,408
    
    
    $
    9,036
 For the years ended December 31,Condensed Statements of Income
    
    2004
    
    
    2003
    
    
    2002Earnings of subsidiaries
    
    $
    1,607
    
    
    $
    1,066
    
    
    $
    679Interest expense
    
    
    97
    
    
    
    117
    
    
    
    112Income before income tax expense and cumulative
effect of accounting change
    
    
    1,510
    
    
    
    949
    
    
    
    567Income tax expense
    
    
    168
    
    
    
    180
    
    
    
    10Income before cumulative effect of accounting change
    
    
    1,342
    
    
    
    769
    
    
    
    557Cumulative effect of accounting change
    
    
    (23
    )
    
    
    
    
    
    
    Net income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557
 The financial information of Hartford Life, Inc. (parent company of Hartford Life) should be
read in conjunction with the Consolidated Financial Statements and Notes to Consolidated
Financial Statements. S-2




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF HARTFORD LIFE, INC. (continued)
(Registrant) For the years ended December 31,Condensed Statements of Cash Flows
    
    2004
    
    
    2003
    
    
    2002Operating ActivitiesNet income
    
    $
    1,319
    
    
    $
    769
    
    
    $
    557Undistributed earnings of subsidiaries
    
    
    (1,064
    )
    
    
    (699
    )
    
    
    (483
    )Change in other assets and liabilities
    
    
    53
    
    
    
    (1
    )
    
    
    52Cash provided by operating activities
    
    
    308
    
    
    
    69
    
    
    
    126Investing ActivitiesSales (purchases) of investments
    
    
    (19
    )
    
    
    
    
    
    
    15Capital contribution to subsidiary
    
    
    
    
    
    
    (749
    )
    
    
    (225
    )Cash used for investing activities
    
    
    (19
    )
    
    
    (749
    )
    
    
    (210
    )Financing Activities(Repayment
of) proceeds from short-term debt
    
    
    (505
    )
    
    
    230
    
    
    
    75Repayment of company obligated mandatorily
Redeemable preferred securities of subsidiary trust holding
solely parent junior subordinated debentures
    
    
    (250
    )
    
    
    
    
    
    
    Capital contribution from parent
    
    
    605
    
    
    
    519
    
    
    
    75Dividends paid
    
    
    (139
    )
    
    
    (69
    )
    
    
    (66
    )Cash (used for) provided by financing activities
    
    
    (289
    )
    
    
    680
    
    
    
    84Net change in cash
    
    
    
    
    
    
    
    
    
    
    Cash   beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash   end of year
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental Disclosure of Cash Flow InformationNet Cash Activity During the Year For:Interest expense paid
    
    $
    94
    
    
    $
    115
    
    
    $
    110Income taxes paid (received)
    
    $
    (54
    )
    
    $
    50
    
    
    $
    48
 S-3




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 SCHEDULE III
 SUPPLEMENTARY INSURANCE INFORMATION
For the years ended December 31, 2004, 2003 and 2002
 Net
    
    
    Benefits,
    
    
    
    
    
    
    AmortizationRealized
    
    
    Claims and
    
    
    
    
    
    
    of DeferredPolicy
    
    
    
    
    
    
    Net
    
    
    Capital
    
    
    Claim
    
    
    Insurance
    
    
    Policy
    
    
    DividendsFees and
    
    
    Earned
    
    
    Investment
    
    
    Gains/
    
    
    Adjustment
    
    
    Expenses
    
    
    Acquisition
    
    
    to Policy-
    
    
    InterestSegment
    
    Other
    
    
    Premiums
    
    
    Income
    
    
    (Losses)
    
    
    Expenses
    
    
    and other
    
    
    Costs
    
    
    holders
    
    
    Expense2004Retail Products Group
    
    $
    2,098
    
    
    $
    7
    
    
    $
    1,077
    
    
    $
    
    
    
    $
    1,120
    
    
    $
    742
    
    
    $
    661
    
    
    $
    
    
    
    $
    Institutional
Solutions Group
    
    
    307
    
    
    
    471
    
    
    
    1,061
    
    
    
    7
    
    
    
    1,513
    
    
    
    100
    
    
    
    37
    
    
    
    27
    
    
    
    Individual Life
    
    
    767
    
    
    
    (21
    )
    
    
    302
    
    
    
    
    
    
    
    480
    
    
    
    162
    
    
    
    180
    
    
    
    2
    
    
    
    Group Benefits
    
    
    37
    
    
    
    3,615
    
    
    
    375
    
    
    
    1
    
    
    
    2,703
    
    
    
    989
    
    
    
    23
    
    
    
    
    
    
    
    Other
    
    
    36
    
    
    
    
    
    
    
    1,079
    
    
    
    141
    
    
    
    814
    
    
    
    123
    
    
    
    77
    
    
    
    
    
    
    
    97Consolidated
    
    $
    3,245
    
    
    $
    4,072
    
    
    $
    3,894
    
    
    $
    149
    
    
    $
    6,630
    
    
    $
    2,116
    
    
    $
    978
    
    
    $
    29
    
    
    $
    972003Retail Products Group
    
    $
    1,703
    
    
    $
    (31
    )
    
    $
    494
    
    
    $
    21
    
    
    $
    568
    
    
    $
    602
    
    
    $
    509
    
    
    $
    
    
    
    $
    Institutional
Solutions Group
    
    
    308
    
    
    
    795
    
    
    
    995
    
    
    
    12
    
    
    
    1,749
    
    
    
    152
    
    
    
    34
    
    
    
    60
    
    
    
    Individual Life
    
    
    747
    
    
    
    (20
    )
    
    
    256
    
    
    
    (1
    )
    
    
    436
    
    
    
    158
    
    
    
    176
    
    
    
    3
    
    
    
    Group Benefits
    
    
    20
    
    
    
    2,342
    
    
    
    264
    
    
    
    (2
    )
    
    
    1,862
    
    
    
    553
    
    
    
    18
    
    
    
    
    
    
    
    Other
    
    
    113
    
    
    
    
    
    
    
    32
    
    
    
    10
    
    
    
    1
    
    
    
    79
    
    
    
    32
    
    
    
    
    
    
    
    117Consolidated
    
    $
    2,891
    
    
    $
    3,086
    
    
    $
    2,041
    
    
    $
    40
    
    
    $
    4,616
    
    
    $
    1,544
    
    
    $
    769
    
    
    $
    63
    
    
    $
    1172002Retail Products Group
    
    $
    1,591
    
    
    $
    (24
    )
    
    $
    368
    
    
    $
    7
    
    
    $
    486
    
    
    $
    568
    
    
    $
    436
    
    
    $
    
    
    
    $
    Institutional
Solutions Group
    
    
    356
    
    
    
    421
    
    
    
    977
    
    
    
    3
    
    
    
    1,369
    
    
    
    162
    
    
    
    8
    
    
    
    62
    
    
    
    Individual Life
    
    
    705
    
    
    
    (8
    )
    
    
    262
    
    
    
    (1
    )
    
    
    443
    
    
    
    156
    
    
    
    160
    
    
    
    3
    
    
    
    Group Benefits
    
    
    19
    
    
    
    2,308
    
    
    
    258
    
    
    
    (3
    )
    
    
    1,878
    
    
    
    524
    
    
    
    17
    
    
    
    
    
    
    
    Other
    
    
    26
    
    
    
    
    
    
    
    (16
    )
    
    
    (314
    )
    
    
    (18
    )
    
    
    (5
    )
    
    
    7
    
    
    
    
    
    
    
    112Consolidated
    
    $
    2,697
    
    
    $
    2,697
    
    
    $
    1,849
    
    
    $
    (308
    )
    
    $
    4,158
    
    
    $
    1,405
    
    
    $
    628
    
    
    $
    65
    
    
    $
    112
 S-4




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 SCHEDULE IV REINSURANCE AssumedCeded to
    
    
    From
    
    
    
    
    
    
    Percentage ofGross
    
    
    Other
    
    
    Other
    
    
    Net
    
    
    Amount Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Amount
    
    
    NetFor the year ended December 31, 2004Life insurance inforce
    
    $
    778,134
    
    
    $
    300,627
    
    
    $
    75,050
    
    
    $
    552,557
    
    
    
    13.6
    %Fee income, earned premiums and otherLife insurance and annuities
    
    $
    5,173
    
    
    $
    415
    
    
    $
    542
    
    
    $
    5,300
    
    
    
    10.2
    %Accident and health insurance
    
    
    1,831
    
    
    
    83
    
    
    
    269
    
    
    
    2,017
    
    
    
    13.3
    %Total fee income, earned
premiums and other
    
    $
    7,004
    
    
    $
    498
    
    
    $
    811
    
    
    $
    7,317
    
    
    
    11.1
    %For the year ended December 31, 2003Life insurance in force
    
    $
    737,837
    
    
    $
    288,758
    
    
    $
    28,800
    
    
    $
    477,879
    
    
    
    6.0
    %Fee income, earned premiums and otherLife insurance and annuities
    
    $
    4,762
    
    
    $
    364
    
    
    $
    122
    
    
    $
    4,520
    
    
    
    2.7
    %Accident and health insurance
    
    
    1,485
    
    
    
    101
    
    
    
    73
    
    
    
    1,457
    
    
    
    4.8
    %Total fee income, earned
premiums and other
    
    $
    6,247
    
    
    $
    465
    
    
    $
    195
    
    
    $
    5,977
    
    
    
    3.3
    %For the year ended December 31, 2002Life insurance in force
    
    $
    664,368
    
    
    $
    210,446
    
    
    $
    30,502
    
    
    $
    484,424
    
    
    
    6.3
    %Fee income, earned premiums and otherLife insurance and annuities
    
    $
    4,067
    
    
    $
    279
    
    
    $
    84
    
    
    $
    3,872
    
    
    
    2.2
    %Accident and health insurance
    
    
    1,567
    
    
    
    141
    
    
    
    96
    
    
    
    1,522
    
    
    
    6.3
    %Total fee income, earned
premiums and other
    
    $
    5,634
    
    
    $
    420
    
    
    $
    180
    
    
    $
    5,394
    
    
    
    3.3
    %
 S-5




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES 
 SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS Additions
    
    
    DeductionsCharged toCosts and
    
    
    Translation
    
    
    Write-offs/
    
    
    BalanceBalance January 1,
    
    
    Expenses
    
    
    Adjustment
    
    
    Payments/Other
    
    
    December 31,2004Accumulated
depreciation of
plant, property and
equipment
    
    $
    256
    
    
    $
    64
    
    
    $
    
    
    
    $
    (61
    )
    
    $
    2592003Accumulated
depreciation of
plant, property and
equipment
    
    $
    249
    
    
    $
    52
    
    
    $
    
    
    
    $
    (45
    )
    
    $
    2562002Accumulated
depreciation of
plant, property and
equipment
    
    $
    203
    
    
    $
    49
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    249
 S-6




---



##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. HARTFORD LIFE, INC.By:/s/ Ernest M. McNeill Jr.Ernest M. McNeill Jr.
Vice President and Chief Accounting
Officer
 Date: February 28, 2005 Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed
below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Ramani Ayer

Ramani Ayer
    
    Chairman and Director
    
    February 28, 2005/s/ Thomas M. Marra

Thomas M. Marra
    
    President, Chief Operating Officer
and Director
    
    February 28, 2005/s/ Lizabeth H. Zlatkus

Lizabeth H. Zlatkus
    
    Executive Vice President
and Chief Financial Officer
    
    February 28, 2005/s/ Ernest M. McNeill Jr.

Ernest M. McNeill Jr.
    
    Vice President
and Chief Accounting Officer
    
    February 28, 2005/s/ David K. Zwiener

David K. Zwiener
    
    Director
    
    February 28, 2005
 II-1




---



##### 



HARTFORD LIFE, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 
 EXHIBITS INDEX
 Exhibit #3.01
    
Restated Certificate of Incorporation of Hartford Life, Inc.
(Hartford Life or the Company), was filed as Exhibit
3.01 to the Companys Form 10-Q filed for the second quarter
ended June 30, 2000 and is incorporated herein by reference.3.02
    
Amended and Restated By-Laws of the Company, effective June
27, 2000 were filed as Exhibit 3.02 to the Companys Form
10-Q filed for the second quarter ended June 30, 2000 and is
incorporated herein by reference.4.01
    
Amended and Restated Certificate of Incorporation and
By-Laws of the Company (included as Exhibits 3.01 and 3.02,
respectively).4.02
    
Indenture, dated as of May 19, 1997, between the Company and
Citibank, N.A., as Trustee, with respect to the Companys
7.10% Notes due June 15, 2007, and 7.65% Debentures due June
15, 2027, was filed as Exhibit 4.3 to the Companys
Registration Statement on Form S-3 (Amendment No. 2) dated
May 23, 1997, and is incorporated herein by reference.4.03
    
Subordinated Indenture between Hartford Life and Wilmington
Trust Company, as Trustee, dated as of June 1, 1998, was
filed as Exhibit 4.03 to the Companys Form 10-K for the
fiscal year ended December 31, 1998 and is incorporated
herein by reference.4.04
    
Second Supplemental Indenture between Hartford Life and Wilmington
Trust Company, as Trustee, dated as of March 6, 2001, with respect
to 7.625% Junior Subordinated Deferred Interest Debentures, due
February 15, 2050, was filed as Exhibit 4.02 to the Companys Form
8-A dated March 13, 2001, and is incorporated herein by reference.4.05
    
Form of 7.625% Junior Subordinated Deferrable Interest Debenture,
Series A, due February 15, 2050, was filed as Exhibit A to Exhibit
4.02 of the Companys Form 8-A dated March 13, 2001, and is
incorporated herein by reference.4.06
    
Declaration of Trust of Hartford Life Capital II, dated as of June
3, 1998, between Hartford Life, as Sponsor, and Wilmington Trust
Company, as Trustee, was filed as Exhibit 4.13 to the Companys
Registration Statement on Form S-3 (Registration No. 333-56283)
filed with the Securities and Exchange Commission on June 18, 1998
by Hartford Life, Inc., Hartford Life Capital I, Hartford Life
Capital II and Hartford Life Capital III, as amended, and is
incorporated herein by reference.4.07
    
Form of Amended and Restated Declaration of Trust of Hartford Life
Capital II between Hartford Life, as Sponsor, and Wilmington Trust
Company, as Indenture Trustee and Delaware Trustee, was filed as
Exhibit 4.19 to the Companys Registration Statement on Form S-3
(Registration No. 333-56283) filed with the Securities and Exchange
Commission on June 18, 1998 by Hartford Life, Hartford Life Capital
I, Hartford Life Capital II and Hartford Life Capital III, as
amended, and is incorporated herein by reference.4.08
    
Form of Guarantee Agreement between Hartford Life, as Guarantor,
and Wilmington Trust Company, as Guarantee Trustee, was filed as
Exhibit 4.21 to the Companys Registration Statement on Form S-3
(Registration No. 333-56283) filed with the Securities and Exchange
Commission on June 18, 1998 by Hartford Life, Hartford Capital I,
Hartford Capital II and Hartford Capital III, as amended, and is
incorporated herein by reference.
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Exhibit #4.09
    
    Form of Preferred Security Certificate for Hartford Life Capital II
was filed as Exhibit 4.20 to the Companys Registration Statement
on Form S-3 (Registration No. 333-56283) filed with the Securities
and Exchange Commission on June 18, 1998 by Hartford Life, Hartford
Life Capital I, Hartford Life Capital II and Hartford Life Capital
III, as amended, and is incorporated herein by reference.4.10
    
    Form of 7.375% Senior Notes due March 1, 2031 was filed as Exhibit
3 to the Companys Form 8-A dated February 28, 2001, and is
incorporated herein by reference.10.01
    
    Master Intercompany Agreement, dated May 19, 1997, among the
Company, The Hartford Financial Services Group, Inc. (formerly
known as ITT Hartford Group, Inc.) (The Hartford) and with
respect to Articles VI and XII, Hartford Fire Insurance Company,
was filed as Exhibit 10.1 to the Companys Form 10-Q filed for the
quarterly period ended June 30, 1997 and is incorporated herein by
reference.10.02
    
    Management Agreement, dated March 31, 1997, among Hartford Life
Insurance Company and Hartford Investment Management Company, was
filed as Exhibit 10.3 to the Companys Form 10-Q filed for the
quarterly period ended June 30, 1997 and is incorporated herein by
reference.10.03
    
    Management Agreement, dated March 31, 1997, among certain
subsidiaries of the Company and Hartford Investment Services, Inc.,
was filed as Exhibit 10.4 to the Companys Form 10-Q filed for the
quarterly period ended June 30, 1997 and is incorporated herein by
reference.10.04
    
    Sublease Agreement , dated May 19, 1997, between Hartford Fire
Insurance Company and the Company, was filed as Exhibit 10.5 to the
Companys Form 10-Q filed for the quarterly period ended June 30,
1997 and is incorporated herein by reference.10.05
    
    Three Year Competitive Advance and Revolving Credit Facility
Agreement (the Three Year Credit Facility) dated as of December
31, 2002 among The Hartford, Hartford Life, and the Lenders named
therein and JPMorgan Chase Bank and Citibank, N.A. as
Co-Administrative Agents, was filed as Exhibit 10.28 to The
Hartford Form 10-K for the fiscal year ended December 31, 2002 and
is incorporated herein by reference.10.06
    
    First Amendment, dated as of June 30, 2003, to the Three Year
Credit Facility among The Hartford, Hartford Life, the Lenders
party thereto and JPMorgan Chase Bank and Citibank, N.A., as
Co-Administrative Agents, was filed as Exhibit 10.07 to Hartford
Lifes Form 10-K for the fiscal year ended December 31, 2003 and is
incorporated herein by reference.12.01
    
    Computation of Ratio of Earnings to Fixed Charges is filed herewith.23.01
    
    Consent of Deloitte & Touche
LLP is filed herewith.31.01
    
    Section 302 Certification of
Thomas M. Marra is filed herewith.31.02
    
    Section 302 Certification of
Lizabeth H. Zlatkus is filed herewith.32.01
    
    Section 906 Certification of
Thomas M. Marra is filed herewith.32.02
    
    Section 906 Certification of Lizabeth H. Zlatkus is filed herewith.
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