2000 COMPARED TO 1999 -- Revenues increased $339, or 17%, primarily due to higher fee income in the individual annuity and retail mutual fund operations. Fee income generated by individual annuities increased $227, or 20%, while related average account values grew $8.2 billion, or 10%, to $88.1 billion. The growth in average account values was due, in part, to strong sales of $10.7 billion in 2000, and the significant equity market performance in 1999, partially offset by surrenders. Although average individual annuity account values in 2000 were higher than 1999, account values at December 31, 2000 declined $1.7 billion, or 2%, as compared to December 31, 1999, as strong sales were not sufficient to offset surrenders and the impact of the retreating equity markets. In addition, fee income from other investment products increased $99, or 54%, primarily driven by the Company's retail mutual fund operation, where related assets under management increased $4.0 billion, or 63%. This substantial increase in the retail mutual fund operation was due to sales of $5.2 billion in 2000, which was partially offset by redemptions.
1999 COMPARED TO 1998 -- Revenues increased $215, or 12%, driven by growth in fully insured premiums, excluding buyouts, which increased $172, or 11%. This increase was fundamentally due to group life and group disability, where ongoing premiums increased $49, or 9%, and $63, or 11%, respectively, due to strong persistency of the in force block of business, coupled with an increase in sales to new customers.
The Hartford is a leader in the COLI market, which includes life insurance policies purchased by a company on the lives of its employees, with the company or a trust sponsored by the company named as beneficiary under the policy. Until the Health Insurance Portability and Accountability Act of 1996 ("HIPA Act of 1996"), the Company sold two principal types of COLI business, leveraged and variable products. Leveraged COLI is a fixed premium life insurance policy owned by a company or a trust sponsored by a company. The HIPA Act of 1996 phased out the deductibility of interest on policy loans under leveraged COLI through the end of 1998, virtually eliminating all future sales of this product. Variable COLI continues to be a product used by employers to fund non-qualified benefits or other postemployment benefit liabilities.
Underwriting results decreased by $43, with a corresponding 2.5 point increase in the combined ratio. The decrease in underwriting results and increase in combined ratio resulted primarily from increased claim and claim adjustment expenses. Loss experience in the property line was higher due to increases in both frequency and severity of claims. Claim adjustment expenses increased due to investments in claim initiatives for automobile bodily injury, physical damage and property to reduce loss costs in future periods. Catastrophe losses impacted the combined ratio by 2.9 points in 1999 compared with 3.5 points in 1998.
As of December 31, 2000 and 1999, approximately 22.3% and 21.5%, respectively, of Worldwide Life's fixed maturities were invested in private placement securities (including 13% and 12% of Rule 144A offerings as of December 31, 2000 and December 31, 1999, respectively). Private placement securities are generally less liquid than public securities. However, private placements generally have covenants designed to compensate for liquidity risk. Most of the private placement securities in the operation's portfolio are rated by nationally recognized rating agencies. (For further discussion of the
As of December 31, 2000 and 1999, over 97% of the fixed maturity portfolio was invested in securities rated investment grade.
Worldwide Life uses option contracts to hedge debt instruments that totaled $951 and $254 in notional amounts and $(34) and $(50) in carrying value as of December 31, 2000 and 1999, respectively.
As of December 31, 2000, Worldwide Life had immaterial currency exposures resulting from its international operations.
The following table provides information as of December 31, 2000 on interest rate swaps used to manage interest rate risk on fixed maturities and presents notional amounts with weighted average pay and receive rates by maturity year. Comparative totals are included as of December 31, 1999. The weighted average rates are based on spot rates as of December 31, 2000 and 1999.
On June 27, 2000, The Hartford acquired all of the outstanding shares of HLI that it did not already own. The HLI Repurchase has been recorded as a purchase transaction. Consideration totaled $1.4 billion and resulted in recognition of goodwill (excess of the purchase price over the fair values of the net assets acquired) of $862, which is being amortized on a straight-line basis over a 25 year period.
2000 COMPARED TO 1999 -- The increase in operating cash flow was primarily the result of growth in Worldwide Life business, along with favorable underwriting cash flows in Worldwide Property & Casualty. The decrease in cash used for financing activities was attributable to net financing for The HLI Repurchase as well as a lower level of disbursements for investment type contracts related to the leveraged block of COLI business. The financing activities, along with the increase in cash provided by operating activities, accounted for the change in cash from investing activities.