HARTFORD LIFE, LTD CONTENTS. Page: Independent Auditors' Report 1-2

Transcription

1 HARTFORD LIFE, LTD. CONDENSED GENERAL PURPOSE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2017 AND 2016 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANT

2 HARTFORD LIFE, LTD CONTENTS Page: Independent Auditors' Report 1-2 Financial Statements - Statutory-Basis: Condensed Balance Sheets 3-5 Condensed Statements of Income 6-7 Condensed Statements of Capital and Surplus 8 Notes to Condensed Financial Statements 9-12

3 Deloitte & Touche LLP 185 Asylum Street Hartford, CT USA Tel: Fax: Independent Auditors Report To the Board of Directors of Hartford Life, Ltd. We have audited the accompanying condensed general purpose financial statements of Hartford Life, Ltd., which comprise the condensed balance sheets as of December 31, 2017 and 2016, and the related condensed statements of income and condensed statements of capital and surplus for the years then ended, and the related notes to the condensed general purpose financial statements. Management s Responsibility for the Condensed General Purpose Financial Statements Management is responsible for the preparation and fair presentation of these condensed general purpose financial statements in accordance with the financial reporting provisions of The Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the Legislation ). Management is also responsible for the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these condensed general purpose financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the condensed general purpose financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the condensed general purpose financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the condensed general purpose financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the condensed general purpose financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the condensed general purpose financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America As described in Note 3 to the condensed general purpose financial statements, the condensed general purpose financial statements are prepared by the Company on the basis of the financial reporting provisions of the Legislation, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the condensed general purpose financial statements of the variances between the basis of accounting described in Note 3 to the condensed general purpose financial statements and accounting principles generally accepted in the United States of America are discussed at Schedule X Part I, Note 17.

4 Adverse Opinion on Accounting Principles Generally Accepted in the United States of America In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America paragraph, the condensed general purpose financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2017 and 2016, or the results of its operations for the years then ended. Opinion on Condensed General Purpose Financial Statements In our opinion, the condensed general purpose financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations for the years then ended, in accordance with the financial reporting provisions of the Legislation described in Note 3 to the condensed general purpose financial statements. April 18, 2018

5 CONDENSED BALANCE SHEETS Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No CASH AND CASH EQUIVALENTS 2. QUOTED INVESTMENTS: (a) Bonds and Debentures i. Held to maturity ii. Other 31,683 30,917 (b) Total Bonds and Debentures 31,683 30,917 (c) Equities i. Common stocks ii. Preferred stocks iii. Mutual funds (d) Total equities - - (e) Other quoted investments (f) Total quoted investments 31,683 30, UNQUOTED INVESTMENTS: (a) Bonds and Debentures i. Held to maturity ii. Other (b) Total Bonds and Debentures - - (c) Equities i. Common stocks ii. Preferred stocks iii. Mutual funds (d) Total equities - - (e) Other unquoted investments (f) Total unquoted investments INVESTMENTS IN AND ADVANCES TO AFFILIATES (a) Unregulated entities that conduct ancillary services (b) Unregulated non-financial operating entities (c) Unregulated financial operating entities (d) Regulated non-insurance financial operating entities (e) Regulated insurance financial operating entities (f) Total investments in affiliates - - (g) Advances to affiliates (h) Total investments in and advances to affiliates INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE: (a) First liens (b) Other than first liens (c) Total investments in mortgage loans on real estate POLICY LOANS 7. REAL ESTATE: (a) Occupied by the company (less encumbrances) (b) Other properties (less encumbrances) (c) Total real estate COLLATERAL LOANS 9. INVESTMENT INCOME DUE AND ACCRUED 10. ACCOUNTS AND PREMIUMS RECEIVABLE: (a) In course of collection (b) Deferred - not yet due (c) Receivables from retrocessional contracts (d) Total accounts and premiums receivable REINSURANCE BALANCES RECEIVABLE: (a) Foreign affiliates (b) Domestic affiliates (c) Pools & associations (d) All other insurers (e) Total reinsurance balance receivable FUNDS HELD BY CEDING REINSURERS 3

6 CONDENSED BALANCE SHEETS Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No SUNDRY ASSETS: (a) Derivative instruments Segregated accounts companies - long-term business - variable (b) annuities (c) Segregated accounts companies - long-term business - other (d) Segregated accounts companies - general business (e) Deposit assets (f) Deferred acquisition costs (g) Net receivables for investments sold (h) Tax receivable (i) Other Sundry Assets (Specify) (j) Other Sundry Assets (Specify) (k) Total sundry assets LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS (a) Letters of credit (b) Guarantees (c) Other instruments (e) Total letters of credit, guarantees and other instruments TOTAL 32,483 31,155 TOTAL INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY CAPITAL AND SURPLUS 16. UNEARNED PREMIUM RESERVE (a) Gross unearned premium reserves (b) Less: Ceded unearned premium reserve i. Foreign affiliates ii. Domestic affiliates iii. Pools & associations iv. All other insurers (c) Total ceded unearned premium reserve - - (d) Net unearned premium reserve LOSS AND LOSS EXPENSE PROVISIONS: (a) Gross loss and loss expense provisions (b) Less : Reinsurance recoverable balance i. Foreign affiliates ii. Domestic affiliates iii. Pools & associations iv. All other reinsurers (c) Total reinsurance recoverable balance - - (d) Net loss and loss expense provisions OTHER GENERAL BUSINESS INSURANCE RESERVES 19. TOTAL GENERAL BUSINESS INSURANCE RESERVES - - LONG-TERM BUSINESS INSURANCE RESERVES 20. RESERVE FOR REPORTED CLAIMS 21. RESERVE FOR UNREPORTED CLAIMS 22. POLICY RESERVES - LIFE 23. POLICY RESERVES - ACCIDENT AND HEALTH 24. POLICYHOLDERS' FUNDS ON DEPOSIT 25. LIABILITY FOR FUTURE POLICYHOLDERS' DIVIDENDS 26. OTHER LONG-TERM BUSINESS INSURANCE RESERVES 27. TOTAL LONG-TERM BUSINESS INSURANCE RESERVES (a) Total Gross Long-Term Business Insurance Reserves - - (b) Less: Reinsurance recoverable balance on long-term business (i) Foreign Affiliates (ii) Domestic Affiliaties (iii) Pools and Associations (iv) All Other Insurers (c) Total Reinsurance Recoverable Balance - - (d) Total Net Long-Term Business Insurance Reserves - - 4

7 CONDENSED BALANCE SHEETS Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No OTHER LIABILITIES 28. INSURANCE AND REINSURANCE BALANCES PAYABLE 29. COMMISSIONS, EXPENSES, FEES AND TAXES PAYABLE 30. LOANS AND NOTES PAYABLE 31. (a) INCOME TAXES PAYABLE (b) DEFERRED INCOME TAXES 32. AMOUNTS DUE TO AFFILIATES 33. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 34. FUNDS HELD UNDER REINSURANCE CONTRACTS: 35. DIVIDENDS PAYABLE 36. SUNDRY LIABILITIES: (a) Derivative instruments (b) Segregated accounts companies (c) Deposit liabilities (d) Net payable for investments purchased (e) Other sundry liabilities (specify) (f) Other sundry liabilities (specify) (g) Other sundry liabilities (specify) (h) Total sundry liabilities LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS: (a) Letters of credit (b) Guarantees (c) Other instruments (d) Total letters of credit, guarantees and other instruments TOTAL OTHER LIABILITIES TOTAL INSURANCE RESERVES AND OTHER LIABILITIES - - CAPITAL AND SURPLUS 40. TOTAL CAPITAL AND SURPLUS 32,483 31, TOTAL 32,483 31,155 5

8 CONDENSED STATEMENTS OF INCOME Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No GENERAL BUSINESS UNDERWRITING INCOME 1. GROSS PREMIUMS WRITTEN (a) Direct gross premiums written (b) Assumed gross premiums written (c) Total gross premiums written REINSURANCE PREMIUMS CEDED 3. NET PREMIUMS WRITTEN INCREASE (DECREASE) IN UNEARNED PREMIUMS 5. NET PREMIUMS EARNED OTHER INSURANCE INCOME 7. TOTAL GENERAL BUSINESS UNDERWRITING INCOME - - GENERAL BUSINESS UNDERWRITING EXPENSES 8. NET LOSSES INCURRED AND NET LOSS EXPENSES INCURRED 9. COMMISSIONS AND BROKERAGE 10. TOTAL GENERAL BUSINESS UNDERWRITING EXPENSES NET UNDERWRITING PROFIT (LOSS) - GENERAL BUSINESS - - LONG-TERM BUSINESS INCOME 12. GROSS PREMIUMS AND OTHER CONSIDERATIONS: (a) Direct gross premiums and other considerations (b) Assumed gross premiums and other considerations 351, ,800 (c) Total gross premiums and other considerations 351, , PREMIUMS CEDED 14. NET PREMIUMS AND OTHER CONSIDERATIONS: (a) Life 351, ,800 (b) Annuities (c) Accident and health (d) Total net premiums and other considerations 351, , OTHER INSURANCE INCOME 16. TOTAL LONG-TERM BUSINESS INCOME 351, ,800 LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES 17. CLAIMS - LIFE 350, , POLICYHOLDERS' DIVIDENDS 19. SURRENDERS 20. MATURITIES 21. ANNUITIES 22. ACCIDENT AND HEALTH BENEFITS 23. COMMISSIONS 24. OTHER 25. TOTAL LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES 350, , INCREASE (DECREASE) IN POLICY RESERVES (ACTUARIAL LIABILITIES): (a) Life (b) Annuities (c) Accident and health (d) Total increase (decrease) in policy reserves TOTAL LONG-TERM BUSINESS EXPENSES 350, , NET UNDERWRITING PROFIT (LOSS) - LONG-TERM BUSINESS COMBINED NET UNDERWRITING RESULTS BEFORE THE UNDERNOTED ITEMS

9 CONDENSED STATEMENTS OF INCOME Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No UNDERNOTED ITEMS 30. COMBINED OPERATING EXPENSE (a) General and administration (b) Personnel cost (c) Other (d) Total combined operating expenses COMBINED INVESTMENT INCOME - NET COMBINED OTHER INCOME (DEDUCTIONS) 33. COMBINED INCOME BEFORE TAXES 1,394 1, COMBINED INCOME TAXES (IF APPLICABLE): (a) Current (b) Deferred (c) Total COMBINED INCOME BEFORE REALIZED GAINS (LOSSES) COMBINED REALIZED GAINS (LOSSES) 37. COMBINED INTEREST CHARGES 38. NET INCOME

10 CONDENSED STATEMENTs OF CAPITAL AND SURPLUS Hartford Life, Ltd. As at December 31, 2017 expressed in ['000s] United States Dollars LINE No CAPITAL: (a) Capital Stock (i) Common Shares authorized 370,000 shares of par value $ each issued and fully paid 370,000 shares (ii) (A) Preferred shares: authorized value fully paid aggregate liquidation value for shares of par each issued and shares (B) Preferred shares issued by a subsidiary: authorized shares of par value each issued and fully paid shares aggregate liquidation value for (iii) Treasury Shares repurchased value shares of par each issued (b) Contributed surplus 17,980 17,980 (c) Any other fixed capital (i) Hybrid capital instruments (ii) Guarantees and others (iii) Total any other fixed capital - - (d) Total Capital 18,350 18, SURPLUS: (a) Surplus - Beginning of Year 12,805 12,037 (b) Add: Income for the year (c) (d) Less: Dividends paid and payable Add (Deduct) change in unrealized appreciation (depreciation) of investments (e) Add (Deduct) change in any other surplus (f) Surplus - End of Year 14,133 12, MINORITY INTEREST 4. TOTAL CAPITAL AND SURPLUS 32,483 31,155 8

11 HARTFORD LIFE, LTD. NOTES TO CONDENSED GENERAL PURPOSE FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of United States Dollars except for per share data) SCHEDULE X PART I General Notes to the Condensed General Purpose Financial Statements 1. Hartford Life, Ltd. ( HLL or the Company ) was incorporated in Bermuda on August 25, 1982 and is a wholly-owned direct subsidiary of Hartford Group Benefits Holding Company ( HGBHC ), and an indirect subsidiary of Hartford Life and Accident Insurance Company ( HLA or the Parent ), a United States corporation, which is an indirect subsidiary of Hartford Life, Inc. Hartford Life, Inc. is indirectly owned by The Hartford Financial Services Group, Inc. ( The Hartford ), a United States corporation incorporated in the State of Delaware. HLL does not directly or indirectly own any affiliates. On December 3, 2017, Hartford Holdings, Inc., an indirect parent company of the Company and a direct wholly owned subsidiary of The Hartford, entered into a definitive agreement to sell all of the issued and outstanding equity of Hartford Life, Inc. ( HLI ), HLL s indirect parent, to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group, Pine Brook and J. Safra Group. Under the terms of the purchase and sale agreement, the investor group will form a limited partnership that will acquire HLI and its life and annuity insurance operating subsidiaries. The ownership of HLA will be transferred to a new parent company prior to the closing of the sale. This transaction will not have a material impact to the Company s surplus; however, HLA will have a new direct parent company and the Company will have a new indirect parent company. The transaction is subject to the satisfaction or waiver of customary closing conditions, including regulatory approvals, and certain other conditions. On March 29, 2016, The Hartford received permission from the Connecticut Department of Insurance to change the ownership structure of certain of its affiliates. Effective April 1, 2016, HLA formed a new holding company which purchased the Bermuda-based reinsurer, HLL, from Hartford Life International Holding Company. This change did not result in a material impact to HLL s surplus or its results of operations. 2. Effective December 1, 2008, the Company entered into a reinsurance treaty with its affiliate HLA whereby HLA reinsures 18% of its retained life insurance in force to the Company. Effective July 1, 2010, the Company accepted the transfer and assignment of a reinsurance treaty between Fencourt Reinsurance Company ( Fencourt ), an affiliate, and HLA, whereby HLA reinsures an additional 21% of its retained life insurance in force to the Company. The Company holds no reserves, and premiums are paid quarterly and settled net of the reinsurers share of paid claims. Profits on the activity, net of expense and risk charges, are refunded to HLA through an experience refund. For the years ended December 31, 2017 and 2016 the Company assumed premiums from HLA net of experience refund and expense and risk charges of $351,308 and $344,800 and paid claims of $350,318 and $343,871, respectively. 3. Accounting Standards These statutory financial statements have been prepared in accordance with accounting practices prescribed or permitted in Bermuda by the Insurance Act 1978 and Related Regulations and the Insurance Account Rules Significant Accounting Policies (a) Quoted Investments 9

12 HARTFORD LIFE, LTD. NOTES TO CONDENSED GENERAL PURPOSE FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of United States Dollars except for per share data) The Company s investments consist of fixed income securities and are carried at fair value. Investment transactions are recorded on a trade date basis. Realized gains or losses on sale of investments are determined using the first in first out method. Unrealized gains or losses on quoted investments are included as a component of Statutory Surplus. (b) Insurance Premiums and Related Expenses Group life premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Expenses incurred in connection with acquiring new insurance business, including acquisition costs such as sales commissions, are charged to operations as incurred. Expenses incurred are reduced for ceding allowances received or receivable. (c) Commissions and brokerage Underwriting commissions vary with the business written and the income or expense is recognized as earned or incurred. (d) Loss and Loss Expenses Provisions The liability for outstanding losses and loss expenses is based upon reports received from other insurers. These estimates are determined using case-basis evaluation and statistical analyses and represent actuarial estimates of the ultimate net cost of unpaid claims. These estimates are continually reviewed and any adjustments are reflected in current operations, as necessary. Since these reserves are based on estimates, the ultimate settlement of losses and loss expenses may vary from the amounts included in the accompanying statutory financial statements. Although it is not possible to measure the variability inherent in such estimates, management believes loss and loss expenses provisions are reasonable. (e) Investment Income Investment income is earned on the accrual basis. (f) Foreign Currency Transactions denominated in currencies other than the functional currency of United States dollars are recorded based on exchange rates at the time such transactions arise. Any assets or liabilities are remeasured into United States dollars using the exchange rate in effect at the reporting date and any change in the remeasurement is reported as a component of statutory surplus Not Applicable 13. Fair value is determined based on the "exit price" notion which is defined as the price that would be received to sell an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants. The Company s fixed income investments are all held at fair value as level 2 investments. The following section applies the fair value hierarchy and disclosure requirements for the Company s assets, and categorizes the inputs in the valuation techniques used to measure fair value into three broad levels (Level 1, 2 or 3): Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities that the reporting entity can access at the measurement date. 10

13 HARTFORD LIFE, LTD. NOTES TO CONDENSED GENERAL PURPOSE FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of United States Dollars except for per share data) Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly. Level 3: Unobservable inputs. 14. The Company's investments are calculated distributable shares of a short-term investment pool that primarily holds highly rated liquid securities. The Company s investments are considered due within one year and are reported on line 2(a) ii. "Quoted Investments: Bonds and Debentures Other." The amortized cost of short-term investments approximates fair value. 15. See Note 2 for related party transactions. 16. Subsequent events: The Company has evaluated events subsequent to December 31, 2017 through April 18, 2018, the date the financial statements were available to be issued. The Company has not evaluated subsequent events after that date for presentation in these financial statements. 17. As of December 31, 2017 there are no reconciling items between the statutory balance sheet and the U.S. GAAP balance sheet, including equity. PART II - Statutory Statement of Capital & Surplus 1. (a) Capital stock is comprised of 370,000 authorized common shares at a par value of $1 each, all of which have been issued and fully paid. 1. (b) For the years ended December 31, 2017 and 2016, no contributions were made by the Parent to the Company. 2. (c) There were no dividends paid during 2017 or PART III Balance Sheet 1. Not applicable. 2. Quoted investments see Part I Note Not applicable. 9. Investment income due and accrued see Part I Note Accounts and premiums receivable see Part I Note Reinsurance balances receivable see Part I Note 4. 11

14 Not applicable. 31. Income taxes. Bermuda Tax HARTFORD LIFE, LTD. NOTES TO CONDENSED GENERAL PURPOSE FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of United States Dollars except for per share data) At the present time, no income, profit or capital gain taxes are levied in Bermuda and accordingly, no provision for such tax has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking by the Bermuda government exempting it from all such taxes until March 31, U.S. Income Tax The Company has filed with the United States Internal Revenue Service an election pursuant to Section 953 (d) to be taxed as a domestic corporation for purposes of the United States Internal Revenue Code. The election is effective for the year ended December 31, 1997 and all subsequent years and may not be revoked without the consent of the Secretary of the Treasury. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ( Tax Reform ). Tax Reform establishes new tax laws that will affect 2018, including, but not limited to, (1) reduction of the U.S. federal corporate income tax rate from 35% to 21%, (2) elimination of the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (3) limitations on the deductibility of certain executive compensation, (4) changes to the discounting of statutory reserves for tax purposes, and (5) limitations on net operating losses (NOLs) generated after December 31, An electing corporation, as a domestic corporation for United States tax purposes, is not subject to the provisions of Subpart F of the Internal Revenue Code. In addition, premiums paid to or assumed by the Company will not be subject to the United States excise tax. The Company has elected to be included in The Hartford s consolidated United States federal income tax return. As of December 31, 2017, the income tax receivable balance was $548 and as of December 31, 2016, the income tax receivable balance was $ Not applicable. PART IV Statutory Statement of Income Not applicable. 12