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 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 ofapril, 2014

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

4 Table of Contents Salutation Scope of Examination 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 of Operations Capital and Surplus Account Investments Uncollected Premiums and Agents' Balances in the Course of Collection Aggregate Reserve for Life Contracts Aggregate Reserve for Accident and Health Contracts Aggregate Reserve for Life, Annuity and Accident and Health Contracts Liability for Deposit-Type Contracts Common Capital Stock Gross Paid In and Contributed Surplus Unassigned Funds (Surplus) Page

5 Separate Accounts Recommendations Current and Subsequent Events Conclusion Signature

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 has conducted an examination of the condition and affairs of the: HARTFORD LIFE INSURANCE COMPANY (hereinafter referred to as the Company or HLIC), 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. (Group or HFSG): Hartford Life and Annuity Insurance Company (HLAI) 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 ofthe 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 10-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 ofthe financial analysis files and documents submitted to the Financial Analysis Unit ofthe Department, reports from the National Association ofinsurance 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 On February 16, 1978, The Hartford Life Insurance Company of Connecticut (HLICCT) was incorporated in the State of Connecticut. On December 4, 1978, HLICCT merged with a Massachusetts domestic entity known as HUe. In 1985, all ofthe stock ofhfsg was transferred to ITT Hartford Group, a Delaware corporation, wholly owned by ITT Corporation (ITT). During 1990, HFSG's life companies were realigned under the terms of a reorganization plan approved by the Commissioner ofthe Connecticut Insurance Department (Commissioner). As a result of the reorganization, HLAC wholly owned the Company, which in turn wholly owned ITT Life. The name ITT Life was subsequently changed to HLAI. Hartford Life, Inc. (HLI), a Delaware corporation, was formed on December 13, 1996, and capitalized on December 16, 1996, with the contribution of 100% of the outstanding common stock ofthe Company. 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 HLAC which is wholly owned by HLI. HU is wholly-owned by Hartford Holdings. The ultimate parent is HFSG. On September 5, 2006, Champlain Life Reinsurance Company (Champlain) was incorporated with the Vermont Secretary of the State. It was a wholly owned subsidiary ofhlai. On November 27, 2007, 100% of the issued and outstanding shares of Champlain were distributed up through its parent companies ultimately becoming a subsidiary of HFSG. See the Current and Subsequent Events section (page 21) 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 ofdecember 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 International Life Reassurance Corporation (Connecticut) Hartford Life and Annuity Insurance Company (Connecticut) 4

10 MANAGEMENT AND CONTROL The Company's bylaws require all meetings of the stockholders to be held at the principal office of the Company unless the directors shall otherwise provide and direct. The annual meeting of the stockholders shall be held on a date and hour specified by the Board. Special meetings of the stockholders for any purpose may be called by the Board, the executive committee, the chairman ofthe Board (Chairman), the president or any vice president. At each annual meeting the stockholders shall choose directors. Holders of one-half of the whole amount ofthe stock issued and outstanding shall constitute a quorum. The bylaws provide that the property, business and affairs ofthe Company to be managed by its Board. The number ofdirectors shall not be less than three nor more than twenty. Meetings ofthe Board may be called by the direction of the Chairman, the president or any three directors. One third 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 of Portfolio 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 5

11 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 ofthe 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 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 ofthe Agreement, HIMCO provides a broad spectrum ofinvestment services, including but not limited to the development ofinvestment 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 6

12 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 computers; miscellaneous accounts payable including rent, travel and entertainment, insurance, advertising, taxes, licenses and fees, etc.; and costs related to corporate services. The Hartford Fire Insurance Company is incurring and paying certain expenses on behalf of other 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 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. 7

13 TERRITORY AND PLAN OF OPERATION The Company is authorized to write life, variable annuities, and accident health insurance policies in all states, and the District of Columbia. Canadian licenses were amended to authorize runoff business only in the provinces and not permit the writing of new business or acceptance of new premiums. The Company offers individual fixed and variable annuities and retirement plan services, individual life insurance, group benefit products and private placement insurance. REINSURANCE Reinsurance Assumed The Company's participation in assumed reinsurance primarily consists of the fixed annuity business assumed on a coinsurance basis from a Japanese affiliate, Hartford Life Insurance K.K. (HLIKK). In the second quarter of2009, HLIKK ceased issuing new business in Japan. Reinsurance Ceded The Company's participation in ceded reinsurance primarily consists of the private placement life insurance business (PPLI) ceded to HILRe through a variety of reinsurance agreements. In addition, the Company has significant coinsurance treaties with HLAC covering group life and accident and health (A&H) business. There are various other reinsurance arrangements with affiliates and non-affiliates. INFORMATION TECHNOLOGY CONTROLS Jennan performed a risk-focused assessment and review of the Company's IT general controls in accordance with NAIC requirements as outlined in the Handbook. The guidance and direction used to perform the review of the 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 ofreviewing the Company's policies and procedures, testing in key areas related to the Exhibit C, interviewing the 8

14 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. ACCOUNTS AND RECORDS The Company reports all financial accounting transactions in Horizon, a PeopleSoft, Inc. system. Horizon is the official book of record for the Company's financial accounting operations. 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 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 ofthe Company as ofdecember 31, 2012: 9

15 Bonds Preferred stocks Common stocks Mortgage loans on real estate: First liens Other than first liens Real Estate: Properties occupied by the company Cash, cash equivalents and short-term investments Contract loans Derivatives Other invested assets Receivable for securities ASSETS Assets $23,051,631,608 49,898,899 3,245,443,952 2,464,883,909 68,997,735 89,656, ,085, ,920, ,973,758 1,360,981,274 62,525,061 Nonadmitted Assets $7,592,211 Net Admitted Assets $23,051,631,608 49,898,899 3,245,443,952 2,464,883,909 68,997,735 89,656, ,085, ,920, ,973,758 1,353,389,063 62,525,061 Subtotals, cash and invested assets 32,418,998,444 7,592,211 32,411,406,232 Investment income due and accrued Premium and considerations: Uncollected premiums and agents' balances in 276,359, ,359,810 course of collection 6,252,002 6,252,002 Deferred premiums, agents' balances and installments booked but deferred and not yet due 1,325,323 1,325,323 Reinsurance: Amounts recoverable from reinsurers 19,820,462 19,820,462 Other amounts receivable under reinsurance contracts 150,708, ,708,798 Current federal and foreign income tax recoverable 164,018, ,018,398 Net deferred tax asset 1,364,939, ,742, ,196,631 Guaranty funds receivable or on deposit 23,283,406 23,283,406 Furniture and equipment 1,736,598 1,736,598 Receivables from parent, subsidiaries and affiliates 36,965,527 36,965,527 Health care and other amounts receivable 16,832,212 16,832,212 Aggregate write-ins for other than invested assets 117,954,384 40,030,664 77,923,721 Total assets excluding Separate Accounts 34,599,194, ,934,444 33,822,260,311 From Separate Accounts 106,680,896,786 1,772, ,679,124,466 Totals $ , $778,706,764 $ ,777 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 due and unpaid Dividends apportioned for payment 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 Unearned investment income Amounts withheld or retained by company as agent or trustee Amounts held for agents' account Remittances and items not allocated Borrowed money and interest thereon Asset valuation reserve Reinsurance in unauthorized companies Payable to parent, subsidiaries and affiliates Drafts outstanding Funds held under coinsurance Derivatives Payable for securities Aggregate write-ins for liabilities $18,565,742, ,208,242 8,468,390,466 96,244,245 8,589, , , ,087,013 16,619, ,612,525 33,909, ,388,172 (1,185,777,254) 40,291,118 3,515, ,956,549 11,441, ,774, ,946, ,332,502 1,034,000 28,207, ,364, ,990, ,897, ,300, ,376,425 Total liabilities excluding Separate Accounts business 28,804,980,489 From Separate Accounts Statement 106,680,896,786 Total liabilities 135,485,877,275 Common capital stock 5,690,000 Aggregate write-ins for other than special surplus funds 4,285,895 Gross paid in and contributed surplus 6,243,635,789 Unassigned funds (surplus) (1,238,104,181) Surplus 5,009,817,502 Total capital and surplus 5,015,507,502 Total liabilities and surplus $140, ,777 11

17 SUMMARY OF OPERATIONS Premiums and annuity considerations Considerations for supplementary contracts with life contingencies Net investment income Amortization ofinterest 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 Charges and fees for deposit-type contracts Aggregate write-ins for miscellaneous income $3,115,800,360 26,577,543 1,343,352,595 30,586,945 35,303,383 (10,916,527) 919,809,277 2,465, ,543,198 Totals 5,675,522,609 Death benefits 402,115,178 Matured endowments 150,019 Annuity benefits 705,516,475 Disability benefits and benefits under accident and health contracts 53,324,138 Surrender benefits and fund withdrawals for life contracts 11,298,588,893 Group conversions (260,563) Interest and adjustments on contract or deposit-type contract funds 367,924,832 Payments on supplementary contracts with life contingencies 22,482,178 Increase in aggregate reserves for life and accident and health contracts (200,946,799) Totals 12,648,894,351 Commissions on premiums, annuity considerations and deposit-type contract funds 236,012,805 Commissions and expense allowances on reinsurance assumed 5,230 General insurance expenses 460,057,931 Insurance taxes, licenses and fees 16,480,174 Increase in loading on deferred and uncollected premiums (26,401) Net transfers to or (from) Separate Accounts (8,130,357,083) Aggregate write-ins for deductions 71,580,137 Totals 5,302,647,143 Net gain from operations before dividends to policyholders and federal income taxes Dividends to policyholders Net gain from operations after dividends to policyholders and before federal income taxes Federal and foreign income taxes incurred Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) Net realized capital gains or (losses) less capital gains tax 372,875,466 6,633, ,242,444 (149,155,016) 515,397,460 (291,052,450) Net income $ ,010 12

18 CAPITAL AND SURPLUS ACCOUNT Capital and surplus, December 31, prior year Net income Change in net unrealized capital gains or (losses) Change in net unrealized foreign exchange capital gain (loss) Change in net deferred income tax Change in non-admittedassets Change in liability for reinsurance in unauthorizedcompanies Change in reserve on account ofchange in valuation basis Change in asset valuation reserve Cumulative effect ofchanges in accountingprinciples Surplus adjustment: Paid in Aggregate write-ins for gains and losses in surplus $5,920,149, ,345,010 (688,072,667) (63,067,204) (52,039,934) 124,590, ,930 (200,000,000) (132,768,234) 54,282,341 (117,180,922) (54,965,981) Net change in capital and surplus for the year (904,642,184) Capital and surplus, December 31, current year $5,015,507,502 INVESTMENTS Invotex was engaged to assist in an evaluation of investment risk management practices and procedures ofhfsg, as of December 31,2012. 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 ofthe 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 ofthe 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. 13

19 The Company maintains a formal and extensive framework of senior management risk 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. UNCOLLECTED PREMIUMS AND AGENTS' BALANCES IN THE COURSE OF COLLECTION $6,252,002 During the review ofthe captioned account for the Groups Benefits, Employer Group Services (EG), it was noted that the Company is aging the policies by expiration of the grace period, rather than the due date. According to SSAP No.6 of the Manual, monthly billed premium on group A&H and health policies are to be aged based on due date. Any uncollected premium balances greater than 90 days past the due date is considered to be non-admitted. It is recommended the Company appropriately age the premium receivables based on due date rather that the expiration ofthe grace period in accordance with the Manual. 14

20 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) LIABILITY FOR DEPOSIT-TYPE CONTRACTS (Separate Accounts) $18,565,742,255 $140,208,242 $84,824,908,331 $8,468,390,466 $14,389,437,442 The captioned accounts were comprised ofthe following: General Account Exhibit 5 - Aggregate Reserves for Life Contracts Line of Business Product Description 12/31/2012 Balance Group Life and Group Life and Group Waiver Disabled $18,322,496 Health Individual Variable Fixed Accounts of Variable Annuities, 2,028,397,247 Annuity Reserves for Variable Annuity Guarantees Group Annuities Structured Settlements, Terminal Funding, 8,423,681,667 Guaranteed Investment Contracts, and Payout Annuities Individual Life Traditional Life, Universal Life (UL), Interest 1,855,449,129 Sensitive Whole Life, Indexed UL, and Variable UL Retirement 401(k) and Government Contracts in 5,332,284,914 Accumulation and Payout phases Corporate Corporate Owned Life Insurance (COLI), 902,418,701 Variable UL VUL Individual Fixed Annuity Deferred Annuity Values 5,188,101 Total $18, General Account Exhibit 6 - Aggregate Reserve for Accident and Health Contracts Line of Business Product Description 12/31/2012 Balance Group Life and Group Disability Income Unearned Premium $140,208,242 Health and Disabled Lives Reserves Total $140,208,242 15

21 Separate Account Exhibit 3 - Aggregate Reserve for Life, Annuity and Accident and Health Contracts Line of Business Product Description 12/31/2012 Balance Individual Variable Variable Accounts of Variable Annuities, $17,575,350,104 Annuity Group Annuities Terminal Funding Reserves and Fee for 5,843,789,025 Service Account Values Individual Life Modified Guaranteed Life Insurance and 1,195,843,860 Variable UL Retirement 401(k) and Government Contracts and 11,668,178,790 Maturity Funds Corporate COLI Direct and Assumed and Variable UL 36,979,004,738 Values Individual Fixed Modified Guaranteed Annuity 11,562,741,815 Annuity Total $84,824,908,331 General Account Exhibit 7 - Deposit Type Contracts Line of Business Product Description 12/31/2012 Balance Individual Variable Safe Haven Accounts $28,758,407 Annuity Group Annuities Structured Settlements, Terminal Funding, 4,569,775,705 Funding Agreements, and Payout Annuities Individual Life Premium Deposit Funds 19,247,171 Retirement 401 (k) and Government Contracts 3,850,494,732 Corporate Supplemental Contingencies 114,450 Total $8,468,390,466 Separate Account Exhibit 4 - Deposit Type Contracts Product Product Description 12/31/2012 Balance Retirement 401 (k) and Government Contracts $14,389,437,442 Total $14,389,437,442 16

22 Oliver Wyman performed a comprehensive actuarial analysis ofreserving, 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 ofdecember 31, 2012, the following items were completed for one or more reserve items: 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 ofthe 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 of reserves calculations; Performed independent estimates of life reserves and ffinr 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. 17

23 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 $5,690,000 As of December 31, 2012, the Company had 1,000 shares of capital stock issued, authorized and outstanding, with a par value of$5,690. All shares are owned by HLAC. GROSS PAID IN AND CONTRffiUTED SURPLUS Gross Paid In and Contributed Surplus as of December 31, 2007 Surplus Adjustment: Paid In Gross Paid In and Contributed Surplus as of December 31, 2012 UNASSIGNED FUNDS (SURPLUS) $6,243,635,789 $2,156,175,894 4,087,459,894 $6,243,635,788 ($1,238,104,181) The following is a reconciliation of unassigned funds (surplus) during the period under examination: Unassigned Funds (Surplus) as ofdecember 31, 2007 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 Nonadmitted Assets Change in Liability for Reinsurance in Unauthorized Companies Change in Reserve on Account of Change in Valuation Basis (Increase) or Decrease Change in Asset Valuation Reserve Surplus Withdrawn from Separate Accounts during period Other Changes in Surplus in Separate Accounts Statement Cumulative Effect of Changes in Accounting Principles Dividends to Stockholders Aggregate Write-ins for Gains and Losses in Surplus Additional Admitted Deferred Tax Asset Change in Aggregate Write-ins for other than Special Surplus Funds Unassigned Funds (Surplus) as of December 31, 2012 $2,286,607,835 (2,541,142,179) (1,093,930,145) 6,747, ,334,803 (377,345,786) 1,435,345 (199,798,075) 110,962,750 (1,760,071) (592,069) 30,980,236 (139,500,000) 24,550,279 (229,434,280) 34,779,273 ($1.238,104,181) 18

24 SEPARATE ACCOUNTS Under the authority granted by Section 38a-459 ofthe COS, 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 COS. 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. 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 Bonds Preferred stocks Common stocks Contract loans Cash and cash equivalents Short-term investments Derivatives Other invested assets Investment income due and accrued Receivables for securities Aggregate write-ins for other than invested assets $32,847,232, ,999 54,147,887,537 16,636,049 1,074,578,655 1,603,476,016 (169,574) 1,511,532, ,601,724 2,904,343,850 60,208,409 $32,847,232, ,999 54,147,887,537 16,636,049 1,074,578,655 1,603,476,016 (169,574) 1,511,532, ,601,724 2,904,343,850 60,208,409 Totals $ ,776 $94,300,915,776 LIABILITIES AND SURPLUS Aggregate reserve for life, annuity and accident and health contracts Liability for deposit-type contracts Other transfers to general account due or accrued Remittances and items not allocated Payable for securities General Account Basis Fair Value Basis Total $72,900,528,394 14,389,437, ,498, ,079 6,155,283,096 $72,900,528,394 14,389,437, ,498, ,079 6,155,283,096 Total liabilities 94,300,915,776 94,300,915,776 Totals $94,300,915,776 $94,300,915,776 19

25 The following exhibit summarizes the balance sheet of the non-insulated separate accounts as ofdecember 31,2012: ASSETS General Account Basis Fair Value Basis Total Bonds Preferred stocks Common stocks Mortgage loans on real estate Cash and cash equivalents Short-term investments Derivatives Other invested assets Investment income due and accrued Receivables for securities Aggregate write-ins for other than invested assets $10,042,484,358 12,615,498 2,650,998 1,479,483,588 10,488, ,207, ,088, ,944, ,393,259 7,103,776 (17,479,641) $10,042,484,358 12,615,498 2,650,998 1,479,483,588 10,488, ,207, ,088, ,944, ,393,259 7,103,776 (17,479,641) Totals $12.379,981,007 $12,379, LIABILITIES AND SURPLUS Aggregate reserve for life, annuity and accident and health contracts Other transfers to general account due or accrued Remittances and items not allocated Derivatives Payable for securities General Account Basis Fair Value Basis Total $11,924,379, ,248,062 39,639,744 22,483,607 62,229,657 $11,924,379, ,248,062 39,639,744 22,483,607 62,229,657 Total liabilities 12,379,981,007 12,379,981,007 Totals $12,379, $12,379,

26 RECOMMENDATIONS 8 INFORMATION TECHNOLOGY CONTROLS It is recommended that the Company continue these remediation efforts. 14 UNCOLLECTED PREMIUMS AND AGENTS' BALANCES IN COURSE OF COLLECTION It is recommended the Company appropriately age the premium receivables based on due date rather that the expiration of the grace period in accordance with the Manual. CURRENTANDSUBSEQLffiNTEVENTS 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 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,

27 As a result ofthe sale to Prudential, HFSG simultaneously recaptured the individual life insurance assumed by an affiliate, Champlain. Champlain was dissolved on February 22,2013. 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 to pay an extraordinary dividend of $1.2 billion to its parent, HLAC. The Company paid this return of capital on February 22,2013. The Company received a return of capital of $1.05 billion from its subsidiary HLAI on February 22, The Company's bylaws were amended and restated as of March 15,2013. CONCLUSION The results ofthis examination disclosed that, as ofdecember 31, 2012, the Company had admitted assets of$140,501,384,777, liabilities of$135,485,877,275, and surplus of $5,015,507,502. During the period under examination, admitted assets decreased $25,496,497,346, liabilities decreased $26,063,531,119, and surplus as regards policyholders increased $567,033,773. It was determined that the Company's assets were fairly stated in accordance with guidance outlined in the Manual. Assets were acceptable under Section 38a-l02 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders. 22

28 SIGNATURES 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; Michael Daniels, CFE, CPA; James Jakielo, FSA, MAAA; Grace Jiang, CFE; Chiffon King, APE; Daniel Levine, APE, CPA; Ken Roulier, APE, 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, g-w~ Kevin Beaudoin, CFE Examiner-In-Charge State of Connecticut Insurance Department State of Connecticut ss. Hartford County of Hartford Subscribed and sworn Notary Public on this to before me, :>G-~ PCG±.c ~ day of Pe c: '- (> b Cl)O A L A ~ 6\..,c+ (e,.,2014. Notary Public My Commission Expires See +-e ",,-.6-LA '3 d 23