[2] For the year ended December 31, 2001, includes $130 tax benefit primarily related to separate account investment activity and $20 of after-tax losses related to the September 11 terrorist attack. For the year ended December 31, 2000, includes $32 tax benefit related to favorable tax items.
2000 Compared to 1999 - Revenues increased $183, or 9%, driven primarily by growth in fully insured premiums, excluding buyouts, which increased $182, or 10%, principally due to favorable persistency of the in force block of business, as well as new sales. Also contributing to the revenue growth was an increase in net investment income of $31, or 16%.
During 2001, fixed maturity investments increased by $5.1 billion as a result of the Fortis acquisition, increased cash flow and an increase in fair value due to a lower interest rate environment. The securities acquired as part of the Fortis transaction were principally corporate and asset backed securities.
The table below summarizes Hartford Life’s investment results for the years ended 2001 and 2000.
2000 Compared to 1999 - Net investment income, excluding policy loan income, increased $113, or 10%. The increase was primarily due to higher yields earned on the investment cash flow from operations and reinvestment of proceeds from sales and maturities of fixed maturity securities in a higher interest rate environment. Policy loan income decreased $83, or 21%, due to the decrease in leveraged COLI business.
Hartford Life is exposed to two primary sources of investment risk and asset/liability management risk: credit risk, relating to the uncertainty associated with an obligor’s continued ability to make timely payment of principal and/or interest, and market risk, relating to the market price and/or cash flow variability associated with changes in interest rates, security prices, market indices, yield curves or currency exchange rates. The Company does not hold any financial instruments purchased for trading purposes. The following discussion identifies the Company’s policies and procedures for managing these risks and monitoring the results of the Company’s risk management activities.
Derivatives play an important role in facilitating the management of interest rate risk, creating opportunities to efficiently fund obligations, hedge against risks that affect the value of certain liabilities and adjust broad investment risk characteristics as a result of any significant changes in market risks. As an end-user of derivatives, Hartford Life uses a variety of derivatives, including swaps, caps, floors, forwards and exchange-traded financial futures and options, in order to hedge exposure primarily to interest rate risk on anticipated investment purchases or existing assets and liabilities. At December 31, 2001, notional amounts pertaining to derivatives totaled $9.9 billion ($8.2 billion related to insurance investments and $1.7 billion related to life insurance liabilities). Notional amounts pertaining to derivatives totaled $8.5 billion at December 31, 2000 ($6.5 billion related to insurance investments and $2.0 billion related to life insurance liabilities).
Asset Hedging -To meet the various policyholder obligations and to provide cost-effective prudent investment risk diversification, the Company may combine two or more financial instruments to achieve the investment characteristics of a fixed maturity security or that match an associated liability. The use of derivative instruments in this regard effectively transfers unwanted investment risks or attributes to others. The selection of the appropriate derivative instruments depends on the investment risk, the liquidity and efficiency of the market, and the asset and liability characteristics. The notional amounts of asset hedges as of December 31, 2001 and 2000, were $6.8 billion and $5.4 billion, respectively.