Net investment income and interest credited in Other increased for the year ended December 31, 2005 due to a $3,847 increase in the mark-to-market effects of trading account securities supporting the Japanese variable annuity business.
Individual annuity’s ROA increased for the year ended December 31, 2005, compared to the prior year. In particular, variable annuity fees and fixed annuity general account spreads each increased for the year ended December 31, 2005 compared to the prior year. The increase in the ROA can be attributed to the increase in account values and resulting
2005 Compared to 2004 - Net income in Retail increased for the year ended December 31, 2005 primarily due to improved fee income driven by higher assets under management. Assets under management increased primarily as a result of market growth. A more expanded discussion of earnings growth can be found below.
Mutual fund fee income increased for the year ended December 31, 2005 due to increased assets under management driven by market appreciation of $2.6 billion and net sales of $1.3 billion. Despite the increase in assets under management, the amount of net sales has declined for the year ended December 31, 2005 compared to the prior year. This decrease is attributed to market competition and higher redemption amounts due to a higher lapse rate.
401(k) fee income increased 57% or $28 for year ended December 31, 2004 compared to the prior year. This increase is a result of positive net flows from the 401(k) business of $1.4 billion over the past four quarters driven by strong sales contributing to the increase in 401(k) assets under management of 42% to $6.5 billion. Total deposits and net flows increased substantially by 45% and 42%, respectively, over the prior year primarily due to the expansion of wholesaling capabilities and new product offerings.
As of September 30, 2005, the Japan variable annuity industry assets surpassed $71 billion since its inception in 1999. As of September 2005, International, with $21.9 billion in assets, had a 31% market share of the industry’s assets compared to $11.1 billion, a 29% market share as of September 30, 2004. As of December 31, 2005, International had $24.6 billion in variable annuity assets. Total annuity sales were $11.9 billion in 2005, a 53% increase over the previous year. Sales included $1.2 billion in fixed annuity sales. Hartford Japan now has over 360,000 customers.
Net realized capital gains increased for the year ended December 31, 2004 due to net gains on bond sales and lower impairments.
The decrease in other-than-temporary impairments during 2004 and 2005 in comparison to 2003 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.
Foreign 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 investment in foreign operations, primarily Japan, and the yen based individual fixed annuity product and its GMDB and GMIB benefits associated with its Japanese variable annuities.
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, 2005, Hartford Life had more than sufficient capital to meet the NAIC’s minimum RBC requirements.