STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT INSURANCE DEPARTMENT ORDER ADOPTING REPORT OF EXAMINATION I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of Connecticut, having fully considered and reviewed the Examination Report (the "Report") of the Hartford Life and Annuity Insurance Company (the "Company") as of December 31, 2012, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions, TO WIT: 1. I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes ("CGS"). 2. The Company is a domestic insurer authorized to transact the business of insurance in the State of Connecticut. 3. On March 3, 2014, the verified Report of the Company was filed with the Connecticut Insurance Department (the "Department"). 4. In accordance with CGS 38a-14(e) (3), the Company was afforded a period of thirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report. 5. On March , the Company notified the Department of certain responses and comments relating to matters contained in the Report. 6. Following a review of the Report, it was deemed necessary and appropriate to modify the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A. P.O. Box 816 Hartford, CT An Equal Opportunity Employer

2 NOW, THEREFORE, it is ordered as follows: 1. That the Report of the Company hereby IS adopted as filed with the Department. 2. That the Company shall comply with all of the recommendations set forth in the Report, and that the failure of the Company to so comply shall result in sanctions or administrative action as provided by Title 38a of the CGS. Dated at Hartford, Connecticut this 7th day of April, 2014

3 Exhibit A EXAMINATION REPORT OF THE HARTFORD LIFE AND ANNUITY INSURANCE COMPANY AS OF DECEMBER 31, 2012 BY THE CONNECTICUT INSURANCE DEPARTMENT

4 Table of Contents Salutation Scope ofexamination History Organizational Chart Management and Control Related Party Agreements Insurance Coverage Territory and Plan of Operation Reinsurance Information Technology Controls Accounts and Records Financial Statements Assets Liabilities, Surplus and Other Funds Summary ofoperations Capital and Surplus Account Investments Aggregate Reserve for Life Contracts Aggregate Reserve for Accident and Health Contracts Liability for Deposit-Type Contracts Contract Claims: Life and Accident and Health Common Capital Stock Gross Paid In and Contributed Surplus Unassigned Funds (Surplus) Separate Accounts Page

5 Recommendation 18 Current and Subsequent Events 19 Conclusion 20 Signature 21

6 January 17,2014 The Honorable Thomas B. Leonardi Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6th Floor Hartford, Connecticut Dear Commissioner: In compliance with your instructions and pursuant to the requirements of Section 38a-14 of the Connecticut General Statutes (CGS), the undersigned conducted a Financial Examination of the condition and affairs of the: HARTFORD LIFE AND ANNUITY INSURANCE COMPANY (hereinafter referred to as the Company or HLAI), a capital stock corporation incorporated under the laws of the State ofconnecticut and having its home office located at 200 Hopmeadow Street, Simsbury, Connecticut. The report of such examination is submitted herewith. SCOPE OF EXAMINATION The previous financial condition examination of the Company was conducted as of December 31, The current examination, which covers the subsequent five-year period, was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the NAIC Examiners Handbook (Handbook). Concurrent examinations were also conducted on the following Connecticut domiciled insurance companies, which are members ofthe Hartford Financial Services Group, Inc. (the Group or HFSG): Hartford Life Insurance Company (HLIC) Hartford Life and Accident Insurance Company (HLAC) Hartford International Life Reassurance Corporation (HILRe) American Maturity Life Insurance Company (AMLIC) The Department also performed an examination of the Connecticut domestic property/casualty affiliates.

7 As a part of the examination planning procedures, the Department reviewed the following documentation submitted by the Company for the period under examination: Board of Director (Board) minutes through the latest 2013 meeting; Statutory Audit reports completed by the Company's independent certified public accountants, Deloitte & Touche, LLP (D&T); Management Discussion and Analysis; Form lo-k reports filed with the Securities and Exchange Commission; Statements of Actuarial Opinion; Documentation supporting Section 404 of the Sarbanes-Oxley Act of2002; Annual Statements filed with the Department; and Reports of the Company's Internal Audit Department. A comprehensive review was made of the financial analysis files and documents submitted to the Financial Analysis Unit of the Department, reports from the National Association of Insurance Commissioners (NAIC) database, as well as the independent audit reports which indicated no material concerns with respect to financial condition or regulatory compliance issues. Workpapers prepared by D&T in connection with its annual statutory audit were reviewed and relied upon to the extent deemed appropriate. Jennan Enterprises, LLC (Jennan) was engaged by the Department to conduct an evaluation of the Information Technology (IT) controls. Invotex Group (Invotex) was engaged by the Department to conduct an evaluation of the Company's investment holdings and provided staff accounting services. Oliver Wyman Actuarial Consulting, Inc. (Oliver Wyman) was engaged by the Department to conduct an evaluation ofthe Company's reserving and underwriting processes. Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature. Failure of items in this report to add to totals or for totals to agree with captioned amounts is due to rounding. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the NAIC Financial Condition Examiners Handbook (the Handbook). The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company, including corporate governance, identifying inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with the NAIC Accounting Practices & Procedures Manual (Manual) and the NAIC Life Annual Statement Instructions. 2

8 HISTORY In 1956, the Company was incorporated in the State of Wisconsin as National Insurance Corporation. Since its initial incorporation the Company's name was changed several times until the adoption of its present name effective January 1, Effective May 1, 1996, the Company, pursuant to Section 38a-58a of the CGS, re-domesticated to Connecticut. In June 1995, ownership of Lyndon Insurance Company (Lyndon) and ITT Lyndon International (Lyndon International) were transferred from lit Corporation to lit Hartford Group, Inc. through a capital contribution. Lyndon was subsequently merged into the Company, the surviving company. The Company indirectly owns the stock of the Bermuda domiciled insurance company, Hartford Life, LTD. (HLI), formerly Lyndon International. On August 30, 2002, HFSG restructured the life insurance organization by forming Hartford Holdings Inc. (Hartford Holdings), a Delaware insurance holding company. As a result ofthe reorganization, the Company is wholly owned by HLIC, which is wholly owned by HLAC. HLAC is wholly owned by HLI, which in tum, is wholly owned by Hartford Holdings. The ultimate parent is HFSG. On May 21,2009, the Company formed White River Life Reinsurance Company (WRR), a Vermont domiciled entity. On October 30, 2009, 100% of the issued and outstanding shares of WRR were distributed up through its parent companies ultimately becoming a subsidiary of HFSG. See the Current and Subsequent Events section (page 19) for details regarding HFSG's decision to focus on its property/casualty, group benefits, and mutual fund businesses. 3

9 ORGANIZATIONAL CHART The following is a partial organizational chart as of December 31,2012: The Hartford Financial Services Group, Inc. (Delaware) Hartford Holdings, Inc. (Delaware) Hartford Life, Inc. (Delaware) Hartford Life and Accident Insurance Company (Connecticut) American Maturity Life Insurance Company (Connecticut) Hartford Life Insurance Company (Connecticut) Hartford International Life Reassurance Corporation (Connecticut) MANAGEMENT AND CONTROL The bylaws ofthe Company require the annual meeting ofthe stockholders to be held at the principal office ofthe Company unless the Board shall otherwise provide and direct. Special meetings of the stockholders for any purpose may be called by the Board, the executive committee, the chairman ofthe Board (Chairman) or vice chairman of the Board, the president or any vice president. A majority of the total number of shares entitled to vote, represented in person or by proxy, constitutes a quorum. The bylaws provide that the property, business and affairs of the Company be managed by its Board, but not less than three nor more than twenty directors, who shall be chosen 4

10 at each annual meeting. Each director may hold office until the next annual meeting of stockholders and until his successor is chosen and qualified. A majority of the number of existing directorships, but not less than two directors, shall constitute a quorum. Directors serving the Company at December 31, 2012, were as follows: Name Beth A. Bombara Mark J. Niland Robert W. Paiano Title and Principal Business Affiliation President, Talcott Resolution The Hartford Financial Services Group, Inc. Head ofportfolio Management The Hartford Financial Services Group, Inc. Senior Vice President and Treasurer Hartford Fire Insurance Company Audit Committee Beth Bombara, Chairman Mark J. Niland Robert W. Paiano Finance Committee Mark J. Niland, Chairman Beth A. Bombara Robert W. Paiano Officers Officers serving the Company at December 31, 2012, were as follows: Name Beth A. Bombara Peter F. Scannizzaro Robert W. Paiano Michael R. Hazel Craig D. Morrow Terence D. Shields Title Chief Executive Officer, Chairman of the Board and President Senior Vice President, Chief Financial Officer and Chief Accounting Officer Senior Vice President and Treasurer Vice President and Controller Vice President and Appointed Actuary Assistant Vice President and Corporate Secretary 5

11 RELATED PARTY AGREEMENTS Investment Management and Administration Agreement The Company is party to an Investment Management and Administration Agreement (Agreement) with Hartford Investment Management Company (HIMCO). Pursuant to the terms of the Agreement, HIMCO provides a broad spectrum of investment services, including but not limited to the development of investment strategies and objectives, the development of investment policies and guidelines, the investment and management of assets, the measurement and evaluation of investment performance, investment accounting, cash management, the management ofbanking relationships, the management of a custodial relationship, and administrative support. Investment Pooling Agreement The Company participates in a Second Amended and Restated Investment Pooling Agreement between Hartford Investment Services, Inc. (Hartford Investment) and HIMCO. HIMCO acts as the investment manager to invest certain cash balances available to the participants in the investment pool known as "Hartford Short-Term Investment Pool". HIMCO is compensated at least quarterly for all incurred direct and indirect costs related to the services provided to the Company. Tax Allocation Agreement (TAA) The Company is party to a TAA with HFSG and its subsidiaries. The TAA governs the tax return filing, payment and allocation offederal, state and local income tax liability between HFSG and its subsidiaries. Each member calculates its separate return regular tax liability, and the consolidated federal regular income tax liability will be apportioned among the members in accordance with the ratio which is consistent with the taxable income. Payment to the parent of the Group will be made by the due date of the payment to the Internal Revenue Services. Cost Allocation Agreements The Company is party to a number of service and cost sharing agreements with several of its affiliates including HFSG. Such services include, but shall not be limited to, employee costs such as salaries, benefit and taxes, fixed assets including furniture and personal computer, miscellaneous accounts payable including rent, travel and entertainment, insurance, advertising, taxes, licenses and fees, etc. and cost related to the corporate services. The Hartford Fire Insurance Company is incurring and paying certain expenses on behalf ofother legal entities and acting as the banker for these entities without a signed written agreement. Statements of Statutory Accounting Principles (SSAP) No. 25 states in part that "transactions between related parties must be in the form of a written agreement". It is recommended that the Company prepare a cost allocation agreement to comply with 6

12 SSAP No. 25 and submit it to the Department for approval. On November 25, 2013, the Company filed a new services and cost allocation agreement with the Department. Intercompany Liquidity Agreement (Liquidity Agreement) Effective December 31,2010, HFSG entered into a Liquidity Agreement with its insurance company subsidiaries that are domiciled in the State of Connecticut. The agreement allows for short-term advances of funds between Hartford affiliates. As of December 31,2012, the Company had neither requested an advance of funds nor advanced funds to an affiliate under the terms of the Liquidity Agreement. INSURANCE COVERAGE The Company is insured under a fidelity policy issued by five insurers (St. Paul Fire and Marine Insurance Company, Federal Insurance Company, Fidelity and Deposit Company of Maryland, Ace American Insurance Company, and Continental Casualty Insurance Company). HFSG and its affiliates are listed as named insureds. Coverages include, but are not limited to business automobile liability, directors and officers liability, errors and omissions liability, employment practices liability, computer crime, fiduciary, general liability, commercial property, and workers' compensation. The coverages also include an aggregate liability of $200 million, a single loss limit of liability of $100 million and a single loss deductible of $10 million. These limits exceed the suggested minimum as outlined in the Handbook. TERRITORY AND PLAN OF OPERATION The Company is authorized to write life, variable life, variable annuities, and accident and health (A&H) policies in all states except for New York, and in the District of Columbia, Puerto Rico, and the US Virgin Islands. The Company offers a complete line of fixed and variable annuities, universal, variable, and traditional individual life insurance and benefit products such as disability insurance. REINSURANCE Reinsurance Assumed The Company's participation in assumed reinsurance primarily consists of the variable annuity business assumed on a coinsurance basis from a Japanese affiliate, Hartford Life Insurance K.K. (HLIKK) and the life and annuity business assumed on a coinsurance basis from Time Insurance Company, John Alden Life Insurance Company, and Union Security Insurance Company. In the second quarter of 2009, HLIKK ceased issuing new business in Japan. Reinsurance Ceded The Company's participation in ceded reinsurance primarily consists of the variable annuity business ceded on a coinsurance basis to the WRR captive affiliate and life 7

13 HARTFORD LIFE AND ANNlJITY INSURANCE COMPANY insurance business ceded to the Champlain Life Reinsurance Company (Champlain) captive affiliate. The Company has a significant automatic excess reinsurance ceded treaty with the Connecticut General Life Insurance Company covering variable annuity guaranteed death benefits. In addition, the Company has significant coinsurance and quota share treaties on life business ceded to the Security Life ofdenver Insurance Company, Swiss Re Life & Health America, Inc., and the Transamerica Life Insurance Company. INFORMATION TECHNOLOGY CONTROLS Jennan performed a risk-focused assessment and review ofthe Company's IT general controls in accordance with NAIC requirements as outlined in the Handbook. The guidance and direction used to perform the review ofthe Company's IT general controls was derived from Exhibit C Part 1 - Information Technology Planning Questionnaire (ITPQ) and Exhibit C Part 2 - Information Technology Work Program. The Company's responses to the ITPQ were evaluated and certain controls within the IT control environment were tested to assess whether the selected controls were designed effectively and were functioning properly. Jerman's objectives were to determine that Information Systems (IS) resources align with the Company's objectives and ensuring that significant risks (strategic, operational, reporting and compliance) arising out ofits IT environment were appropriately mitigated by strategies and controls as outlined in the Handbook's Exhibit C Part 2 - Evaluation of Controls in Information Technology Work Program. The objectives above were achieved through a combination of reviewing the Company's policies and procedures, testing in key areas related to the Exhibit C, interviewing the Company's IT senior management, reviewing IT risk assessment processes and leveraging the risk assessment procedures performed by Company's internal and external auditors. As a result of this review, findings were noted in controls over operations, logical security, physical security, application changes, and corporate governance. These findings were presented to the Company along with recommendations that the Company establish and implement appropriate control policies and procedures to strengthen its IT controls. The Company's remediation is well underway, with efforts expected to be complete by year end It is recommended that the Company continue these remediation efforts. In 2014, the Department will conduct a limited IT review to assess the Company's remediation policies and procedures. ACCOlWTSANDRECORDS The Company reports all financial accounting transactions in Horizon, a PeopleSoft, Inc. system. Horizon is the official book of record for all the Company's financial accounting operations. 8

14 The majority of accounting transactions within Horizon originate from monthly feeds that flow through a process called the interface manager. The interface manager is responsible for summarizing, converting and extracting the financial data from each feeding system in order to populate the Horizon database. These feeds represent the detail monthly activity of the various administrative systems such as premiums, losses, expenses, investments and cashbook. Horizon also receives direct journal entries and spreadsheet uploads for other miscellaneous information such as tax settlements and foreign financial statements. The Booke Seminars' software package, "The Complete Package for Windows" (TCP) is used to create the annual statement. TCP is updated manually using data from Horizon for creation of the balance sheet and income statement. The year-end trial balance for 2012 was reconciled to the annual statement. FINANCIAL STATEMENTS The following statements, as filed by the Company and as determined by the examination, reflect the assets, liabilities, surplus and other funds and summary of operations of the Company as of December 31, 2012: 9

15 Bonds Preferred stocks Common stocks Mortgage loans on real estate: First liens Real estate occupied by the company Cash, cash equivalents and short-term investments Contract loans Derivatives Other invested assets Receivables for securities ASSETS Assets $13,760,107,102 8,266, ,525,609 Nonadmitted Assets Net Admitted Assets $13,760,107,102 8,266, ,525, ,375,838 24,674,594 2,012,782, ,218, ,239, ,059, ,295, ,375,838 24,674,594 2,012,782, ,218, ,239, ,059, ,295,866 Subtotals, cash and invested assets 18,866,546,073 18,866,546,073 Investment income due and accrued Premium and considerations: Uncollected premiums and agent's balances in the 200,098, ,098,931 course ofcollection 13,136,535 13,136,535 Deferred premiums, agents' balances and installments booked but deferred and not yet due 4,650,474 4,650,474 Reinsurance: Amounts recoverable from reinsurers 23,783,887 23,783,887 Other amounts receivable under reinsurance contracts 203,094, ,094,528 Net deferred tax asset 1,541,887,960 1,147,164, ,723,616 Guaranty funds receivable or on deposit 3,635,667 3,635,667 Receivable from parent, subsidiaries and affiliates 13,512,043 13,512,043 Health Care and other amounts receivable 7,713,276 7,713,276 Aggregate write-ins for other than invested assets 148,959,488 13,330, ,629,116 Total assets excluding Separate Accounts 21,027,018,862 1,168,207,992 19,858,810,870 From Separate Accounts 45,851,885,131 45,851,885,131 Totals $66,878,903,993 $1, 168,207,99~ $65,710,696,001 10

16 LIABILITIES, SURPLUS AND OTHER FUNDS Aggregate reserve for life contracts Aggregate reserve for accident and health policies Liability for deposit-type contracts Contract claims: Life Contract claims: Accident and health Policyholders dividends apportioned for payment Policyholders dividends not yet apportioned Premiums and annuity considerations received in advance Provision for experience rating refunds Other amounts payable on reinsurance Interest Maintenance Reserve Commissions to agents due or accrued General expenses due or accrued Transfers to Separate Accounts due or accrued Taxes, licenses and fees due or accrued Current federal and foreign income taxes Unearned investment income Amounts withheld or retained by company as agent or trustee Amounts held for agents' account Remittances and items not allocated Asset valuation reserve Funds held under reinsurance treaties with unauthorized reinsurers Payable to parent, subsidiaries and affiliates Drafts outstanding Derivatives Aggregate write-ins for liabilities $9,205,098,845 3,645,249 1,543,283,228 74,024,568 87,361 1,119, ,358 3,398, ,948,935 88,321,743 42,277,098 38,903,388 (670,087,726) 9,183, ,402,975 2,781,203 17,284, ,274 79,964, ,571,194 2,981,569,933 35,894, ,357,285 68,249,822 2,097,799,694 Total liabilities excluding Separate Accounts business 16,832,596,481 From Separate Accounts Statement 45,851,885,131 Total liabilities 62,684,481,612 Common capital stock 2,500,000 Aggregate write-ins for other than special funds surplus 169,606,804 Gross paid in and contributed surplus 2,771,903,231 Unassigned funds (surplus) 82,204,354 Surplus 3,023,714,389 Total capital and surplus 3,026,214,389 Total liabilities and surplus $65,710,696,001 11

17 HARTFORD LIFE AND ANNUITY INSlJRANCE COMPANY SUMMARY OF OPERATIONS Premiums and annuity considerations Considerations for supplementary contracts with life contingencies Net investment income Amortization of Interest Maintenance Reserve Commissions and expense allowances on reinsurance ceded Reserve adjustments on reinsurance ceded Miscellaneous Income: Income from fees associated with investment management, administration and contract guarantees from Separate Accounts Aggregate write-ins for miscellaneous income $1,288,798, , ,977,036 17,095,758 49,989,787 (8,032,092,137) 971,069, ,011,010 Totals (4,776,671,556) Death benefits 374,409,282 Matured endowments 207,390 Annuity benefits 385,468,023 Disability benefits and benefits under accident and health contracts 5,081,261 Coupons, guaranteed annual pure endowments and similar benefits 112 Surrender benefits and fund withdrawals for life contracts 305,668,254 Interest and adjustments on contract or deposit-type contract funds (143,414,977) Payments on supplementary contracts with life contingencies 2,872,313 Increase in aggregate reserves for life and accident and health contracts (378,937,282) Totals 551,354,375 Commissions on premiums, annuity considerations and deposit-type contract funds 459,239,571 Commissions and expense allowances on reinsurance assumed 9,056,017 General insurance expenses 354,659,954 Insurance taxes, licenses and fees 37,589,195 Increase in loading on deferred and uncollected premiums (237,221) Net transfers to or (from) Separate Accounts (7,601,449,859) Aggregate write-ins for deductions (61,759,609) Totals (6,251,547,577) Net gain from operations before dividends to policyholders and federal income taxes 1,474,876,022 Dividends to policyholders 1,078,670 Net gain from operations after dividends to policyholders and before federal income taxes 1,473,797,352 Federal and foreign income taxes incurred 323,855,226 Net gain from operations after dividends to policyholders and federal income taxes and before Realized capital gains or losses 1,149,942,126 Net realized capital gains or losses less capital gains tax (438,565,374) Net income $ ,752 12

18 CAPITAL AND SURPLUS ACCOUNT Capital and surplus, December 31, prior year Net income Change in net unrealized capital gains (losses) Change in net unrealized foreign exchange capital gain(loss) Change in net deferred income tax Change in non-admitted Change in liability for reinsurance in unauthorized companies Change in asset valuation reserve Cumulative effect ofchanges in accountingprinciples Surplus adjustment: Paid in Aggregate write-ins for gains and losses in surplus $3,931,439, ,376,752 (106,980,222) (823,914,427) 72,756,668 (648,630,747) 1,100 16,922, ,605,742 (121,475,261) (181,886,331 ) Net change in capital and surplus for the year (905,224,681) Capital and surplus, December 31, current year $3,026-J~389 INVESTMENTS Invotex was engaged to assist in an evaluation of investment risk management practices and procedures ofhfsg, as ofdecember 31, The scope of Invotex's review included, but was not limited to: An assessment ofthe Company's corporate governance structure, including its enterprise risk management (ERM) related to investment risks; A review and evaluation ofthe Company's general risk management practices and processes related to investment risks, including asset-liability management, credit, market, liquidity, and hedging risks; An assessment of the Company's risk management programs used to identify current and emerging risks with regard to invested assets; A review and evaluation ofthe Company's investment policies and guidelines; and An assessment of the Company's use ofderivatives and its related hedging programs including its determination ofhedge effectiveness. Investments ofhfsg and all its insurance subsidiaries are managed by HIMCO. The largest components ofthe investment portfolio are investment grade corporate bonds and tax exempt municipal bonds. ERM functions such as asset liability management, market risk and credit risk are centralized in a corporate level ERM group. The Board exercises its investment related oversight function through its Finance, Investment and Risk Management Committee. The Company maintains a formal and extensive framework of senior management risk 13

19 committees that manage and oversee the ERM program and various investment related risks such as credit, market, liquidity, and hedging risks. The Company maintains formal and well documented policy documents, including investment strategy policies, asset liability management processes and procedures, various risk management policies, and hedge strategy policies. Compliance with investment guidelines, policies and limits is monitored on a regular basis and formally reported to the appropriate committee. The Company conducts stress testing surrounding market risk sensitivity, interest rate sensitivity, liquidity requirements, and exposure to credit risk. The estimates ofpotential losses that result from such stress testing are compared to established statutory surplus loss limits. The limits appeared reasonable and based on the review ofvarious internal management reports, the Company was generally in compliance with its stress testing limits. Hedging strategies and limits are well documented in formal policy statements. Overall, the Company's investment related risk management practices, including the corporate governance framework, ERM processes, documented policies and risk limits, hedging strategies and compliance monitoring, adequately address investment risks. AGGREGATE RESERVE FOR LIFE CONTRACTS (General Account) AGGREGATE RESERVE FOR ACCIDENT AND HEALTH CONTRACTS (General Account) AGGREGATE RESERVE FOR LIFE, ANNUITY AND ACCIDENT AND HEALTH CONTRACTS (Separate Accounts) LIABILITY FOR DEPOSIT-TYPE CONTRACTS (General Account) $9,205,098,845 $3,645,249 $45,201,230,236 $1,543,283,228 The captioned accounts were comprised ofthe following: General Account Exhibit 5 - Aggregate Reserves for Life Contracts Line of Business Product Description 12/ Balance Individual Annuity Fixed Accounts ofvariable Annuities, $4,793,222,993 Reserves for Variable Annuity Guarantees, Fixed Indexed and Fixed Deferred Annuities, Payout Annuities Individual Life Traditional Life, Universal Life (UL), Interest 4,411,662,577 Sensitive Whole Life, Indexed UL and Variable UL COLI Variable Guarantees 213,274 Total $9,205,098,844 14

20 HARTFORD LIFE AND ANNUITY INSURANCE CaMPANY General Account Exhibit 6 - Aggregate Reserve for Accident and Health Contracts Line of Business Product Description 12/31/2012 Balance Individual Life Disability Income $3,645,249 Total $3,645,249 Separate Account Exhibit 3 - Aggregate Reserve for Life, Annuity and Accident and Health Contracts Line of Business Product Description 12/31/2012 Balance Individual Annuity Variable Account Values ofvariable $41,442,045,419 Annuities Individual Life Variable Account Values ofvariable UL 3,715,264,741 COLI 43,920,076 Total $45,201,230,236 General Account Exhibit 7 - Deposit-Type Contracts Line of Business Product Description 12/31/2012 Balance Individual Annuity Safe Haven funds $25,861,364 Individual Life Dividend Accumulation, Premium Deposit 38,522,385 Funds, Safe Haven funds Japan Fixed Annuity 3-Wins Payout Annuities Assumed from 1,478,899,480 HLIKK Total $1,543,283,228 Oliver Wyman performed a comprehensive actuarial analysis of reserving, pricing, and underwriting risk to ensure that: The assumptions and methodologies used were accurate and appropriate; The life, A&H, deposit-type reserves, and incurred but not reported (ffinr) contract claim liability computations were performed correctly and the selected estimates were reasonable; The computation of reinsurance credits were performed correctly; and Management booked reserves that were materially equal to the actuary's best estimate. In performing the comprehensive actuarial analysis as of December 31, 2012, the following items were completed for one or more reserve items: 15

21 Participated in interviews with Company officers responsible for operations, financial reporting, investments, and asset liability matching; Held meetings and telephone conferences with the Appointed Actuary and actuaries responsible for reserves and modeling in major lines ofbusiness; Reviewed and analyzed the 2012 Statement ofactuarial Opinion and supporting actuarial memoranda prepared for or by the Appointed Actuary; Reviewed assumptions and methodologies used in formula reserve calculations for reasonableness, appropriateness, accuracy, and compliance with Appendices A and C of the Manual; With the Department examiners, verified integrity of in force data on which the valuations are based; Reviewed reserve methods and assumptions for compliance with applicable State of Connecticut statutory requirements; Reviewed experience studies and consistency of actual investment, mortality, morbidity, lapse, interest crediting strategy, and expense experience to assumptions used in cash flow testing and VACARVM (AG43) analysis; Compared actuarial reports and reserves to prior periods and performed other analytical procedures to review the reasonableness ofreserves calculations; Performed independent estimates of life reserves and IBNR claims liabilities; Reviewed results of asset adequacy analysis I cash flow testing and verified consistency with the Appointed Actuary's opinion; Reviewed the AG43 actuarial memorandum and VACARVM analysis for consistency with prior year's analysis, statutory requirements, policy provisions, and Company policies; Considered the reasonableness ofreinsurance credits taken; and Reviewed valuation summaries and details and confirmed that all reserves were properly reflected in the general ledger and Annual Statement exhibits. Conclusion Based upon the risk-based assessment and review, no material findings were noted which affect the Company's ability to manage its reserving, pricing and underwriting, or liquidity risks. COMMON CAPITAL STOCK $2,500,000 As ofdecember 31, 2012, the Company had 3,000 authorized shares of capital stock with 2,000 shares issued and outstanding, with a par value of$1,250. All shares are owned by HLIC. GROSS PAID IN AND CONTRIBUTED SURPLUS $2,771,903,231 Gross Paid In and Contributed Surplus as ofdecember 31,2007 $1,483,869,203 Surplus adjustment: Paid in 1,288,034,028 Gross Paid In and Contributed Surplus as ofdecember 31, 2012 $2,771,903,231 16

22 HARTFORD LIFE AND ANNUITY INSURANCE CaMPANY UNASSIGNED FUNDS (SURPLUS) $82,204,354 The following is a reconciliation of unassigned funds (surplus) during the period under examination: Unassigned Funds (Surplus) as of December 31,2007 $875,788,392 Net Income 358,970,890 Change in Net Unrealized Capital Gains (Losses) (491,823,565) Change in Net Unrealized Foreign Exchange Capital Gain (Loss) (409,985,575) Change in Net Deferred Income Tax 864,197,976 Change in Nonadmitted Assets (977,794,617) Change in Liability for Reinsurance in Unauthorized Companies 569,090 Change in Reserve on Account of Change in Valuation Basis (Increase) or Decrease 23,935,154 Change in Asset Valuation Reserve (115,716,654) Cumulative Effect of Changes in Accounting Principles 170,961,530 Dividends to Stockholders (228,000,000) Aggregate Write-ins for Gains and Losses in Surplus (122,675,686) Additional Admitted Deferred Tax Asset (181,471,058) Change in Aggregate Write-ins for Other Than Special Surplus Funds 315,248,478 Unassigned Funds (Surplus) as of December 31,2012 $82, The fluctuation in unassigned surplus during the examination period was attributed to increases to the nonadmitted assets, and decreases to the net deferred income taxes. SEPARATE ACCOUNTS Under the authority granted by Section 38a-459 ofthe CGS, the Company has established separate accounts to which it allocates certain amounts received under variable and fixed pension, retirement and profit-sharing plans and certain forms of life insurance business. The allocation is in accordance with the provisions of Section 38a-433 of the CGS. The Company, through its general and separate accounts, offers deferred compensation and investment services to individuals and employer sponsored defined benefit and defined contribution pension and retirement plans. Compensation is earned in the form of investment management fees, investment margin and asset value expense charges. 17

23 The following exhibit summarizes the balance sheet of the insulated separate accounts as of December 31, 2012: ASSETS General Account Basis Fair Value Basis Total Common stocks Receivables for securities Aggregate write-ins for other than invested assets $45,821,181,018 30,699,989 4,123 $45,821,181,018 30,699,989 4,123 Totals $45,851,885,130 $45,851,885,130 LIABILITIES AND SURPLUS Aggregate reserve for life, annuity and accident and health contracts Other transfers to general account due or accrued Payable for securities General Account Basis Fair Value Basis $45,201,230, ,650,609 4,285 Total $45,201,230, ,650,609 4,285 Total liabilities 45,851,885,130 45,851,885,130 Totals $45,851,885,130 $45, ,130 RECOMMENDATION 8 INFORMATION TECHNOLOGY CONTROLS It is recommended that the Company continue these remediation efforts, 18

24 CURRENT AND SUBSEQUENT EVENTS In March of2012, HFSG announced that it will focus on its property/casualty, group benefits, and mutual fund businesses. HFSG placed its existing individual annuity business into runoff and pursued the sale of its individual life and retirement businesses and Woodbury Financial Services, a broker-dealer. Talcott Resolution was formed to oversee the life runoff segment to manage risk, maximize capital efficiency and optimize profitability. Since this announcement the following has occurred: On April 26, 2012, HFSG announced that it had entered into an agreement to sell its U.S. individual annuity new business capabilities to Forethought Financial Group. The sale was completed on December 31, On July 13, 2012, HFSG closed a sale transaction with Philadelphia Financial Group, Inc. (PFG) whereby PFG acquired certain assets used to administer HLIC's private placement life insurance (PPLI) businesses and will service the PPLI businesses. On July 31,2012, HFSG entered into a definitive agreement to sell Woodbury Financial Services to AIG Advisor Group, Inc., a subsidiary of AIG. The sale was completed on November 30, On September 4,2012, HFSG announced that it had entered into an agreement to sell its retirement plan business to Massachusetts Mutual Life Insurance Company. The sale is structured as a reinsurance transaction. The sale was completed on January 1, On September 27,2012, HFSG announced that it had entered into a definitive agreement to sell its individual life insurance business to the Prudential Insurance Company of America (Prudential), a subsidiary of Prudential Financial, Inc. The sale was structured as a reinsurance transaction and was completed on January 2, As a result of the sale to Prudential, HFSG simultaneously recaptured the individual life insurance assumed by an affiliate, Champlain. Champlain was dissolved on February 22, On June 27,2013, HFSG announced it had signed a definitive agreement to sell its United Kingdom variable annuity business and subsidiary Hartford Life International Ltd. to Columbia Insurance Company, a Berkshire Hathaway company. The sale was completed on December 12,2013. On February 5,2013, the Company received permission from the Commissioner of the Connecticut Insurance Department to pay an extraordinary dividend of $1.05 billion to its parent, HLIC. The Company paid this return of capital on February 22,2013. The Company's bylaws were amended and restated as of March 15,

25 CONCLUSION The results of this examination disclosed that, as ofdecember 31,2012, the Company had admitted assets of$65,710,696,001, liabilities of$62,684,48l,612, and surplus of $3,026,214,389. During the period under examination, admitted assets decreased $23,637,080,521, liabilities decreased $24,106,707,103, and surplus as regards policyholders increased $469,626,582. It was determined that the Company's assets were fairly stated in accordance with guidance outlined in the. Assets were acceptable under Section 38a-l02 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders. 20

26 In addition to the undersigned, the following members of the State of Connecticut Insurance Department participated in the examination: William Arfanis, CFE; Cecilia Arnold, CFE; CFE; Michael Daniels, CFE, CPA; James Jakielo, FSA, MAAA; Grace Jiang, CFE; Chiffon King, AFE; Daniel Levine, AFE, CPA; Ken Roulier, AFE, AES, CISA; William Tacy, CFE, CIA, CISA, FLMI; and the professional services firms of Invotex, Jennan, Oliver Wyman, INS, and Noble. I, Kevin Beaudoin, CFE, solemnly swear that the foregoing report on examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2012, to the best of my information, knowledge and belief. Respectfully submitted, ~~\,~ Kevin Beaudoin, CFE Examiner-In-Charge State of Connecticut Insurance Department State of Connecticut ss. Hartford County of Hartford Subscribed and sworn to before me, p a 1-'r l C\. ~ ~C\...-i-lc- v Notary Public on this du,-"-l, day of ~ h ~l J c,- '-<-I, Pa';;LLlt_C: c... Notary Public C p-cl:ll'--",-, My Commission Expires S-e p-ti rv-,1s+l: '1?:LJ '_ do, if 21