10-Q 1 hlic10q06302014document.htm 10-Q HLIC 10Q 06.30.2014 Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-32293
 
 
 
HARTFORD LIFE INSURANCE COMPANY
 
(Exact name of registrant as specified in its charter)
 
Connecticut
 
06-0974148
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
200 Hopmeadow Street, Simsbury, Connecticut 06089
(Address of principal executive offices)
(860) 547-5000
(Registrant’s telephone number, including area code)
 ¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Indicate by check mark:
 
Yes
 
No
•       whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
x
 
 
¨
 
 
 
 
 
 
 
 
•       whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
x
 
 
¨
 
 
•       whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o 
Non Accelerated filer x 
Smaller reporting company o 
 
•       whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
¨
  
x
As of July 31, 2014, there were outstanding 1,000 shares of Common Stock, $5,690 par value per share, of the registrant.
The registrant meets the conditions set forth in General Instruction (H) (1) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

1

HARTFORD LIFE INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
TABLE OF CONTENTS
 
Item
Description
Page
 
 
 
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
2.
3.
4.
 
 
 
 
 
 
 
 
1.
1A.
6.
 
 

2


Forward-Looking Statements
Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.
Forward-looking statements are based on our current expectations and assumptions regarding economic, competitive, legislative and other developments. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon Hartford Life Insurance Company and its subsidiaries (collectively, the “Company”). Future developments may not be in line with management’s expectations or may have unanticipated effects. Actual results could differ materially from expectations, depending on the evolution of various factors, including those set forth in Part I, Item 1A, Risk Factors in the Company’s 2013 Form 10-K Annual Report and Part II, Item 1A, Risk Factors in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. These important risks and uncertainties include:
•
challenges related to the Company's current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns or other potentially adverse macroeconomic developments on the attractiveness of our products, the returns in our investment portfolios and the hedging costs associated with the our variable annuities business;
•
the risks, challenges and uncertainties associated with the strategic realignment of The Hartford Financial Services Group, Inc. ("The Hartford") to focus on its property and casualty, group benefits and mutual fund businesses;
•
the risks, challenges and uncertainties associated with The Hartford's capital management plan, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;
•
execution risk related to the continued reinvestment of our investment portfolios and refinement of our hedge program for our run-off annuity block;
•
market risks associated with our business, including changes in interest rates, credit spreads, equity prices, market volatility and foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in key sectors such as the global real estate market;
•
the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;
•
volatility in our statutory and U.S. GAAP earnings and potential material changes to our results resulting from our adjustment of our risk management program to emphasize protection of economic value;
•
the impact on our statutory capital of various factors, including many that are outside the Company’s control, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;
•
risk associated with the use of analytical models in making decisions in key areas such as underwriting, capital, hedging, and reserving;
•
risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company's financial strength and credit ratings or negative rating actions or downgrades relating to our investments;
•
the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations;
•
the subjective determinations that underlie the Company’s evaluation of other-than-temporary impairments on available-for-sale securities;
•
losses due to nonperformance or defaults by others including reinsurers, sourcing partners, derivative counterparties and other third parties;
•
the potential for further acceleration of deferred policy acquisition cost amortization;
•
the potential for further impairments of our goodwill or the potential for changes in valuation allowances against deferred tax assets;
•
the possible occurrence of terrorist attacks and the Company’s ability to contain its exposure, including the effect of the absence or insufficiency of applicable terrorism legislation on coverage;
•
the possibility of a pandemic, or other natural or man-made disaster that may adversely affect our businesses;
•
the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;

3


•
the cost and other effects of increased regulation as a result of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the potential effect of other domestic and foreign regulatory developments, including those that could adversely impact the Company’s operating costs and required capital levels;
•
unfavorable judicial or legislative developments;
•
the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;
•
the risk that our framework for managing operational risks may not be effective in mitigating material risk and loss to the Company;
•
the potential for difficulties arising from outsourcing and similar third-party relationships;
•
the impact of changes in federal or state tax laws;
•
the impact of potential changes in accounting principles and related financial reporting requirements;
•
the Company’s ability to protect its intellectual property and defend against claims of infringement; and
•
other factors described in such forward-looking statements.
Any forward-looking statement made by the Company in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

4


Part I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Hartford Life Insurance Company
Hartford, Connecticut

We have reviewed the accompanying condensed consolidated balance sheet of Hartford Life Insurance Company and subsidiaries (the "Company") as of June 30, 2014, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2014 and 2013, and changes in stockholder’s equity, and cash flows for the six-month periods ended June 30, 2014 and 2013. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2014 (except for Note 20, as to which the date is June 23, 2014), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.






DELOITTE & TOUCHE LLP
Hartford, Connecticut
July 31, 2014


5
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(In millions)
2014
2013
 
2014
2013
 
(Unaudited)
Revenues
 
 
 
 
 
Fee income and other
$
314

$
357

 
$
631

$
710

Earned premiums
52

41

 
(71
)
80

Net investment income
380

436

 
787

868

Net realized capital gains (losses):
 
 
 
 
 
Total other-than-temporary impairment (“OTTI”) losses
(3
)
(7
)
 
(11
)
(24
)
OTTI losses recognized in other comprehensive income
—

4

 
1

8

Net OTTI losses recognized in earnings
(3
)
(3
)
 
(10
)
(16
)
Net realized capital gains on business dispositions
—

1

 
—

1,561

Other net realized capital gains (losses)
653

(603
)
 
554

(707
)
Total net realized capital gains (losses)
650

(605
)
 
544

838

Total revenues
1,396

229

 
1,891

2,496

Benefits, losses and expenses
 
 
 
 
 
Benefits, loss and loss adjustment expenses
415

413

 
669

869

Amortization of deferred policy acquisition costs and present value of future profits
22

27

 
54

71

Insurance operating costs and other expenses
386

(171
)
 
552

(414
)
Reinsurance loss on dispositions, including reduction in goodwill of $250 for the six months ended June 30, 2013
—

(1
)
 
—

1,491

Dividends to policyholders
3

3

 
2

8

Total benefits, losses and expenses
826

271

 
1,277

2,025

Income (loss) from continuing operations before income taxes
570

(42
)
 
614

471

Income tax expense (benefit)
171

(53
)
 
158

93

Income from continuing operations, net of tax
399

11

 
456

378

Loss from discontinued operations, net of tax
—

(46
)
 
—

(27
)
Net income (loss)
399

(35
)
 
456

351

Net income (loss) attributable to noncontrolling interest
(1
)
—

 
—

6

Net income (loss) attributable to Hartford Life Insurance Company
$
400

$
(35
)
 
$
456

$
345


See Notes to Condensed Consolidated Financial Statements

6
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(In millions)
2014
2013
 
2014
2013
 
(Unaudited)
Comprehensive Income
 
 
 
 
 
Net income
$
399

$
(35
)
 
$
456

$
351

Other comprehensive income (loss):
 
 
 
 
 
Change in net unrealized gain/loss on securities
256

(497
)
 
571

(1,289
)
Change in net gain/loss on cash-flow hedging instruments
3

(61
)
 
1

(137
)
Change in foreign currency translation adjustments
1

—

 
—

(41
)
Total other comprehensive income/(loss)
260

(558
)
 
572

(1,467
)
Total comprehensive income/(loss)
659

(593
)
 
1,028

(1,116
)
Less: comprehensive income attributable to noncontrolling interest
$
(1
)
—

 
—

6

Total comprehensive income/(loss) attributable to Hartford Life Insurance Company
$
660

(593
)
 
$
1,028

$
(1,122
)
See Notes to Condensed Consolidated Financial Statements

7
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

 
(In millions, except for share data)
June 30,
2014
December 31, 2013
 
(Unaudited)
Assets
 
 
Investments:
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $24,597 and $27,188) (includes variable interest entity assets, at fair value, of $0 and $12)
$
26,720

$
28,163

Fixed maturities, at fair value using the fair value option (includes variable interest entity assets, at fair value, of $123 and $131)
319

791

Equity securities, trading, at fair value (cost of $11 and $10)
12

12

Equity securities, available-for-sale, at fair value (cost of $336 and $362)
340

372

Mortgage loans (net of allowance for loan losses of $16 and $12)
3,226

3,470

Policy loans, at outstanding balance
1,418

1,416

Limited partnerships, and other alternative investments (includes variable interest entity assets of $3 and $4)
1,349

1,329

Other investments
190

270

Short-term investments (includes variable interest entity assets, of $17 as of June 30, 2014)
2,080

1,952

Total investments
35,654

37,775

Cash (includes variable interest entity assets, at fair value, of $6 and $0)
300

446

Premiums receivable and agents’ balances
34

33

Reinsurance recoverables
19,980

19,794

Deferred policy acquisition costs and present value of future profits
596

689

Deferred income taxes, net
1,583

2,110

Other Assets
1,192

994

Separate account assets
141,510

140,874

Total assets
$
200,849

$
202,715

Liabilities
 
 
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
$
13,519

$
12,874

Other policyholder funds and benefits payable
32,920

36,856

Other liabilities (including variable interest entity liabilities of $27 and $35)
3,408

3,872

Separate account liabilities
141,510

140,874

Total liabilities
191,357

194,476

Commitments and Contingencies (Note 9)




Stockholder’s Equity
 
 
Common stock—1,000 shares authorized, issued and outstanding, par value $5,690
6

6

Additional paid-in capital
7,184

6,959

Accumulated other comprehensive income, net of tax
1,146

574

Retained earnings
1,156

700

Total stockholder’s equity
9,492

8,239

Total liabilities and stockholder’s equity
$
200,849

$
202,715

See Notes to Condensed Consolidated Financial Statements

8
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholder’s Equity

 
(In millions)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained Earnings
Non-
Controlling
Interest
Total
Stockholder’s
Equity
 
(Unaudited)
Six Months Ended June 30, 2014
 
 
 
 
 
 
Balance, beginning of period
$
6

$
6,959

$
574

$
700

$
—

$
8,239

Capital contributions from parent

225

—





225

Net income






456

—

456

Total other comprehensive income




572





572

Balance, end of period
$
6

$
7,184

$
1,146

$
1,156

$
—

$
9,492

 
 
 
 
 
 
 
Six Months Ended June 30, 2013
 
 
 
 
 
 
Balance, beginning of period
$
6

$
8,155

$
1,987

$
235

$
—

$
10,383

Capital contributions to parent


(1,196
)






(1,196
)
Net income






345

6

351

Change in non-controlling interest ownership








(6
)
(6
)
Total other comprehensive loss




(1,467
)




(1,467
)
Balance, end of period
$
6

$
6,959

$
520

$
580

$
—

$
8,065


See Notes to Condensed Consolidated Financial Statements

9
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows

 
Six Months Ended June 30,
(In millions)
2014
2013
 
(Unaudited)
Operating Activities
 
 
Net income
$
456

$
351

Adjustments to reconcile net income to net cash provided by operating activities
 
 
Amortization of deferred policy acquisition costs and present value of future profits
54

71

Additions to deferred policy acquisition costs and present value of future profits
(9
)
(5
)
Change in:
 
 
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
422

10

Reinsurance recoverables
147

(214
)
Receivables and other assets
(30
)
(375
)
Payables and accruals
(224
)
(517
)
Accrued and deferred income taxes
20

396

Net realized capital (gains) losses
(544
)
(838
)
Net disbursements from investment contracts related to policyholder funds — international unit-linked bonds and pension products
—

(172
)
Net decrease in equity securities, trading
—

171

Reinsurance loss on dispositions
—

1,491

Depreciation and amortization
(6
)
33

Other, net
(72
)
(9
)
Net cash provided by operating activities
214

393

Investing Activities
 
 
Proceeds from the sale/maturity/prepayment of:
 
 
Fixed maturities, available-for-sale
5,585

7,405

Fixed maturities, fair value option
279

49

Equity securities, available-for-sale
51

55

Mortgage loans
148

185

Partnerships
53

69

Payments for the purchase of:
 
 
Fixed maturities, available-for-sale
(3,877
)
(5,455
)
Fixed maturities, fair value option
(190
)
(95
)
Equity securities, available-for-sale
(42
)
(57
)
Mortgage loans
(34
)
(145
)
Partnerships
(38
)
(43
)
Proceeds from business sold
—

460

Change in derivatives, net
(137
)
(1,132
)
Change in policy loans, net
3

(2
)
Change in short-term investments, net
(486
)
636

Change in all other, net
35

(36
)
Net cash provided by investing activities
1,350

1,894

Financing Activities
 
 
Deposits and other additions to investment and universal life-type contracts
2,803

4,203

Withdrawals and other deductions from investment and universal life-type contracts
(11,014
)
(12,940
)
Net transfers from separate accounts related to investment and universal life-type contracts
6,233

8,065

Net (decrease) increase in securities loaned or sold under agreements to repurchase
42

(609
)
Capital contributions
225

(1,200
)
Fee to recapture affiliate reinsurance
—

(347
)
Net repayments at maturity or settlement of consumer notes
(6
)
(51
)
Net cash used for financing activities
(1,717
)
(2,879
)
Transfer of cash to held for sale
—

(103
)
Foreign exchange rate effect on cash
7

(2
)
Net increase (decrease) in cash
(146
)
(697
)
Cash — beginning of period
446

1,342

Cash — end of period
$
300

$
645

Supplemental Disclosure of Cash Flow Information:
 
 
Net cash received during the period for income taxes
(52
)
$
(119
)
Noncash capital contributions received
—

4


See Notes to Condensed Consolidated Financial Statements

10
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, unless otherwise stated)
(Unaudited)


1. Basis of Presentation and Significant Accounting Policies
Hartford Life Insurance Company (together with its subsidiaries, “HLIC”, “Company”, “we” or “our”) is a provider of insurance and investment products in the United States (“U.S.”) and is a wholly-owned subsidiary of Hartford Life, Inc., a Delaware corporation ("HLI"). The Hartford Financial Services Group, Inc. (“The Hartford”) is the ultimate parent of the Company.
On June 30, 2014, HLI completed the sale of all of the issued and outstanding equity of Hartford Life Insurance KK, a Japanese company ("HLIKK") to ORIX Life Insurance Corporation ("Buyer"), a subsidiary of ORIX Corporation, a Japanese company. Upon closing HLIKK recaptured certain risks reinsured to the Company and Hartford Life and Annuity Insurance Company ("HLAI"), a wholly owned subsidiary of the Company, by terminating intercompany agreements. The Buyer is responsible for all liabilities related to the recaptured business. However, HLAI will continue to provide reinsurance for approximately $1.1 billion of fixed payout annuities related to the Japan 3Win product formerly written by HLIKK. For further discussion of this transaction, see Note 5 - Reinsurance and Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
Effective April 1, 2014, The Company terminated its modco and coinsurance with funds withheld reinsurance agreement with White River Life Reinsurance ("WRR"), following receipt of approval from the State of Connecticut Insurance Department ("CTDOI") and Vermont Department of Financial Regulation. On April 30, 2014 The Hartford dissolved WRR. For further discussion of this transaction, see Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
Effective March 3, 2014, The Hartford made Hartford Life and Accident Insurance Company ("HLA") the single nationwide underwriting company for its Group Benefits business by capitalizing HLA to support the Group Benefits business and separating it from the legal entities that support The Hartford's Talcott Resolution operating segment. On January 30, 2014, The Hartford received approval from the CTDOI for HLAI and the Company to dividend approximately $800 of cash and invested assets to HLA and this dividend was paid on February 27, 2014.  All of the issued and outstanding equity of the Company was then distributed from HLA to Hartford Life, Inc.
On January 1, 2013, HLI completed the sale of its Retirement Plans business to Massachusetts Mutual Life Insurance Company ("MassMutual") and on January 2, 2013 HLI completed the sale of its Individual Life insurance business to The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. ("Prudential"). On December 12, 2013, the Company completed the sale of the U.K variable annuity business of Hartford Life International Limited ("HLIL"), an indirect wholly-owned subsidiary. For further discussion of these transactions, see Note 2 - Business Dispositions of Notes to Condensed Consolidated Financial Statements.
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2013 Form 10-K Annual Report. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. The accompanying Condensed Consolidated Financial Statements and Notes as of June 30, 2014, and for the three and six months ended June 30, 2014 and 2013 are unaudited. These financial statements reflect all adjustments (generally consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. The Company's significant accounting policies are summarized in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2013 Form 10-K Annual Report.
Consolidation
The Condensed Consolidated Financial Statements include the accounts of HLIC, companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities (“VIEs”) in which the Company is required to consolidate. Entities in which HLIC has significant influence over the operating and financing decisions but are not required to consolidate are reported using the equity method. For further discussions on VIEs, see Note 4 - Investments and Derivative Instruments of Notes to Condensed Consolidated Financial Statements. All intercompany transactions and balances between HLIC and its subsidiaries have been eliminated.

11
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Significant Accounting Policies (continued)

Discontinued Operations
The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale are reported in discontinued operations if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. The Company presents the operations of businesses that meet these criteria as discontinued operations in the Condensed Consolidated Financial Statements. Accordingly, operating results for prior periods are retrospectively reclassified. For information on the specific businesses and related impacts, see Note 13 - Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
Use of Estimates
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; valuation of investments and derivative instruments; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to prior period financial information to conform to the current year presentation.
Future Adoption of New Accounting Standard
Revenue Recognition
In May 2014, the FASB issued updated guidance for recognizing revenue. The guidance excludes insurance contracts and financial instruments. Revenue is to be recognized when, or as, goods or services are transferred to customers in an amount that reflects the consideration that an entity is expected to be entitled in exchange for those goods or services, and this accounting guidance is similar to current accounting for many transactions. This guidance is effective retrospectively for years beginning after December 15, 2016, with a choice of restating prior periods or recognizing a cumulative effect for contracts in place as of the adoption. Early adoption is not permitted. The Company has not yet determined its method for adoption or estimated the effect of the adoption on the Company’s Consolidated Financial Statements.
Reporting Discontinued Operations
In April 2014, the FASB issued updated guidance on reporting discontinued operations. Under this updated guidance, a discontinued operation will include a disposal of a major part of an entity’s operations and financial results such as a separate major line of business or a separate major geographical area of operations. The guidance raises the threshold to be a major operation but no longer precludes discontinued operations presentation where there is significant continuing involvement or cash flows with a disposed component of an entity. The guidance expands disclosures to include cash flows where there is significant continuing involvement with a discontinued operation and the pre-tax profit or loss of disposal transactions not reported as discontinued operations. The updated guidance is effective prospectively for years beginning on or after December 15, 2014, with early application permitted. The Company will apply the guidance to new disposals and operations newly classified as held for sale beginning first quarter of 2015, with no effect on existing reported discontinued operations. The effect on the Company’s future results of operations or financial condition will depend on the nature of future disposal transactions.

12
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Significant Accounting Policies (continued)

Income Taxes
A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
2013
 
2014
2013
Tax expense at the U.S. federal statutory rate
$
200

$
(15
)
 
$
215

$
165

Dividends received deduction
(26
)
(31
)
 
(52
)
(63
)
Foreign related investments
—

—

 
—

(5
)
Other
(3
)
(7
)
 
(5
)
(4
)
Income tax expense (benefit)
$
171

$
(53
)
 
$
158

$
93

The separate account dividends-received deduction (“DRD”) is estimated for the current year using information from the most recent return, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments and level of policy owner equity account balances. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received in the mutual funds, amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. The Company evaluates its DRD computations on a quarterly basis.
The Company or one or more of subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years prior to 2007. The 2007-2009 audit, which commenced during 2010, and the 2010-2011 audit, which commenced in the fourth quarter of 2012, are both expected to conclude by the end of 2015. Management believes that adequate provision has been made in the financial statements for any potential assessments that may result from tax examinations and other tax-related matters for all open tax years. The Company records a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will be more likely than not realized. There was no deferred tax asset valuation allowance as of June 30, 2014 and December 31, 2013. In assessing the need for a valuation allowance, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in open carry back years, as well as other tax planning strategies. These tax planning strategies include holding a portion of debt securities with market value losses until recovery, altering the level of tax exempt securities, selling appreciated securities to offset capital losses, business considerations such as asset-liability matching, and the sales of certain corporate assets. Management views such tax planning strategies as prudent and feasible, and will implement them, if necessary, to realize the deferred tax asset. Future economic conditions and debt market volatility, including increases in interest rates, can adversely impact the Company's tax planning strategies and in particular the Company's ability to utilize tax benefits on previously recognized realized capital losses.
On July 18, 2014, the Internal Revenue Service issued Internal Revenue Code Section 446 Directive (“the Directive”) for the tax treatment of hedging gains and losses related to the hedging of variable annuity guaranteed minimum benefits such as contracts with guaranteed minimum death benefit ("GMDB") and guaranteed minimum withdrawal benefit ("GMWB") riders issued by HLIC and HLAI.  This directive will accelerate the tax deduction related to previously deferred investment hedging losses.  While the acceleration will not have a material effect on the overall consolidated deferred tax asset, it will result in a re-characterization of deferred tax assets due to a decrease in temporary differences for investment-related items and an increase in net operating loss carryovers.  In addition, a portion of deferred tax benefits will become a current tax receivable which will increase statutory surplus, primarily of HLAI.



13
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Business Dispositions

Sale of Hartford Life International Limited ("HLIL")
On December 12, 2013, the Company completed the sale of HLIL, an indirect wholly-owned subsidiary of the Company, in a cash transaction to Columbia Insurance Company, a Berkshire Hathaway company, for approximately $285. At closing, HLIL’s sole asset was its subsidiary, Hartford Life Limited ("HLL"), a Dublin-based company that sold variable annuities in the U.K. from 2005 to 2009. The sale transaction resulted in an after-tax loss of $51 upon disposition for the three and six months ended June 30, 2013. The operations of the Company's U.K. variable annuity business meet the criteria for reporting as discontinued operations. For further information regarding discontinued operations, see Note 13 - Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
Sale of Retirement Plans
On January 1, 2013, HLI completed the sale of its Retirement Plans business to MassMutual for a ceding commission of $355. The business sold included products and services to corporations pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), and products and services to municipalities and not-for-profit organizations under Sections 457 and 403(b) of the Code, collectively referred to as government plans. The sale was structured as a reinsurance transaction and resulted in an after-tax gain of $45 for the six months ended June 30, 2013. The Company recognized $565 in reinsurance loss on disposition including a reduction in goodwill of $87, offset by $634 in realized capital gains for a $69 impact to income, pre-tax.
Upon closing, the Company reinsured $9.2 billion of policyholder liabilities and $26.3 billion of separate account liabilities under an indemnity reinsurance arrangement with MassMutual. The reinsurance transaction does not extinguish the Company's primary liability on the insurance policies issued under the Retirement Plans business. The company continued to sell retirement plans during the transition period which ended on June 30, 2014. MassMutual has assumed all expenses and risks for these sales through the reinsurance agreement.
Sale of Individual Life
On January 2, 2013 HLI completed the sale of its Individual Life insurance business to Prudential for consideration of $615, consisting primarily of a ceding commission, of which $590 is attributable to the Company. The business sold included variable universal life, universal life, and term life insurance. The sale was structured as a reinsurance transaction and resulted in a loss on business disposition consisting of a reinsurance loss partially offset by realized capital gains. The Company recognized a reinsurance loss on business disposition of $61, pre-tax, in 2012.
Upon closing the Company recognized an additional reinsurance loss on disposition of $927, including a reduction in goodwill of $163 offset by realized capital gains of $927 for a $0 impact on income, pretax, for the six months ended June 30, 2013. In addition, the Company reinsured $8.3 billion of policyholder liabilities and $5.3 billion of separate account liabilities under indemnity reinsurance arrangements. The reinsurance transaction does not extinguish the Company's primary liability under the Individual Life business. The Company continued to sell life insurance products and riders during the transition period which ended on June 30, 2014. Prudential has assumed all expenses and risk for these sales through the reinsurance agreement.

14
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements

The following section applies the fair value hierarchy and disclosure requirements for the Company’s financial instruments that are carried at fair value. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).
Level 1
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity securities, open-ended mutual funds reported in separate account assets and exchange-traded derivative instruments.
Level 2
Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most fixed maturities and preferred stocks, including those reported in separate account assets, are model priced by vendors using observable inputs and are classified within Level 2. Also included are limited partnerships and other alternative assets measured at fair value where an investment can be redeemed, or substantially redeemed, at the NAV at the measurement date or in the near-term, not to exceed 90 days.
Level 3
Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities, guaranteed product embedded and reinsurance derivatives and other complex derivative instruments, as well as limited partnerships and other alternative investments carried at fair value that cannot be redeemed in the near-term at the NAV. Because Level 3 fair values, by their nature, contain one or more significant unobservable inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.
In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. Transfers of securities among the levels occur at the beginning of the reporting period. The amount of transfers from Level 1 to Level 2 was $77 and $1.2 billion, respectively, for the three and six months ended June 30, 2014, and $76 and $154 for the three and six months ended June 30, 2013, which represented previously on-the-run U.S. Treasury securities that are now off-the-run, and there were no transfers from Level 2 to Level 1. In most cases, both observable (e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such because these securities are primarily priced by independent brokers and/or within illiquid markets.
The following tables present assets and (liabilities) carried at fair value by hierarchy level. These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements.

15
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


 
June 30, 2014
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
 
 
 
 
Fixed maturities, AFS
 
 
 
 
ABS
$
1,091

$
—

$
1,040

$
51

CDOs
1,231

—

846

385

CMBS
2,125

—

1,879

246

Corporate
16,695

—

15,962

733

Foreign government/government agencies
648

—

619

29

Municipal
981

—

929

52

RMBS
2,317

—

1,542

775

U.S. Treasuries
1,632

107

1,525

—

Total fixed maturities
26,720

107

24,342

2,271

Fixed maturities, FVO
319

—

181

138

Equity securities, trading
12

12

—

—

Equity securities, AFS
340

200

88

52

Derivative assets
 
 
 
 
Credit derivatives
24

—

24

—

Foreign exchange derivatives
(62
)
—

(62
)
—

Interest rate derivatives
34

—

34

—

GMWB hedging instruments
93

—

7

86

Macro hedge program
38

—

—

38

Derivative instruments formerly associated with Japan
56

—

56

—

Total derivative assets [1]
183

—

59

124

Short-term investments
2,080

506

1,574

—

Limited partnerships and other alternatives [2]
389

—

353

36

Reinsurance recoverable for GMWB
31

—

—

31

Modified coinsurance reinsurance contracts
32

—

32

—

Separate account assets [3]
138,683

98,556

39,314

813

Total assets accounted for at fair value on a recurring basis
$
168,789

$
99,381

$
65,943

$
3,465

Liabilities accounted for at fair value on a recurring basis
 
 
 
 
Other policyholder funds and benefits payable
 
 
 
 
Guaranteed living benefits
$
2

$
—

$
—

$
2

Equity linked notes
(22
)
—

—

(22
)
Total other policyholder funds and benefits payable
(20
)
—

—

(20
)
Derivative liabilities
 
 
 
 
Credit derivatives
(17
)
—

(17
)
—

Equity derivatives
22

—

20

2

Foreign exchange derivatives
(279
)
—

(279
)
—

Interest rate derivatives
(345
)
—

(345
)
—

GMWB hedging instruments
(20
)
—

(31
)
11

Macro hedge program
82

—

—

82

Derivative instruments formerly associated with Japan
(2
)
—

(2
)
—

Total derivative liabilities [4]
(559
)
—

(654
)
95

Consumer notes [5]
(2
)
—

—

(2
)
Total liabilities accounted for at fair value on a recurring basis
$
(581
)
$
—

$
(654
)
$
73


16
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


 
December 31, 2013
 
Total
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
 
 
 
 
Fixed maturities, AFS
 
 
 
 
ABS
$
1,129

$
—

$
1,021

$
108

CDOs
1,448

—

1,020

428

CMBS
2,347

—

1,987

360

Corporate
16,917

—

16,127

790

Foreign government/government agencies
1,177

—

1,139

38

Municipal
965

—

916

49

RMBS
2,431

—

1,633

798

U.S. Treasuries
1,749

1,077

672

—

Total fixed maturities
28,163

1,077

24,515

2,571

Fixed maturities, FVO
791

—

613

178

Equity securities, trading
12

12

—

—

Equity securities, AFS
372

207

114

51

Derivative assets
 
 
 
 
Credit derivatives
9

—

11

(2
)
Foreign exchange derivatives
14

—

14

—

Interest rate derivatives
(57
)
—

(57
)
—

GMWB hedging instruments
26

—

(42
)
68

Macro hedge program
109

—

—

109

International program hedging instruments
171

—

173

(2
)
Total derivative assets [1]
272

—

99

173

Short-term investments
1,952

228

1,724

—

Limited partnerships and other alternative investments [2]
468

—

414

54

Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB
(465
)
—

—

(465
)
Modified coinsurance reinsurance contracts
67

—

67

—

Separate account assets [3]
138,482

99,917

37,828

737

Total assets accounted for at fair value on a recurring basis
$
170,114

$
101,441

$
65,374

$
3,299

Liabilities accounted for at fair value on a recurring basis
 
 
 
 
Other policyholder funds and benefits payable
 
 
 
 
Guaranteed living benefits
$
(576
)
$
—

$
—

$
(576
)
Equity linked notes
(18
)
—

—

(18
)
Total other policyholder funds and benefits payable
(594
)
—

—

(594
)
Derivative liabilities
 
 
 
 
Credit derivatives
11

—

7

4

Equity derivatives
18

—

16

2

Foreign exchange derivatives
(382
)
—

(382
)
—

Interest rate derivatives
(319
)
—

(295
)
(24
)
GMWB hedging instruments
15

—

(63
)
78

Macro hedge program
30

—

—

30

International program hedging instruments
(198
)
—

(139
)
(59
)
Total derivative liabilities [4]
(825
)
—

(856
)
31

Consumer notes [5]
(2
)
—

—

(2
)
Total liabilities accounted for at fair value on a recurring basis
$
(1,421
)
$
—

$
(856
)
$
(565
)
[1]
Includes over-the-counter("OTC") and OTC-cleared derivative instruments in a net asset value position after consideration of the impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law. As of June 30, 2014 and December 31, 2013, $203 and $120, respectively, of cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 4 below for derivative liabilities.
[2]
Represents hedge funds where investment company accounting has been applied to a wholly-owned fund of funds measured at fair value.
[3]
As of June 30, 2014 and December 31, 2013, excludes approximately $2.8 billion and $2.4 billion, respectively, of investment sales receivable that are not subject to fair value accounting.
[4]
Includes OTC and OTC-cleared derivative instruments in a net negative market value position (derivative liability) after consideration of the impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law. In the Level 3 roll forward table included below in this Note 3, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[5]
Represents embedded derivatives associated with non-funding agreement-backed consumer equity-linked notes.

17
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Determination of Fair Values
The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion, reflect market-participant objectives and are based on the application of the fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices where available and where prices represent a reasonable estimate of fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s default spreads, liquidity and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above tables.
The fair value process is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company that meets at least quarterly. The Valuation Committee is co-chaired by the Heads of Investment Operations and Accounting, and has representation from various investment sector professionals, accounting, operations, legal, compliance and risk management. The purpose of the committee is to oversee the pricing policy and procedures by ensuring objective and reliable valuation practices and pricing of financial instruments, as well as addressing fair valuation issues and approving changes to valuation methodologies and pricing sources. There are also two working groups under the valuation committee, a Securities Fair Value Working Group (“Securities Working Group”) and a Derivatives Fair Value Working Group ("Derivatives Working Group"), which include the Heads of Investment Operations and Accounting, as well as other investment, operations, accounting and risk management professionals that meet monthly to review market data trends, pricing and trading statistics and results, and any proposed pricing methodology changes described in more detail in the following paragraphs.
The Company also has an enterprise-wide Operational Risk Management function, led by the Chief Operational Risk Officer, which is responsible for establishing, maintaining and communicating the framework, principles and guidelines of the Company's operational risk management program. This includes model risk management which provides an independent review of the suitability, characteristics and reliability of model inputs; as well as, an analysis of significant changes to current models.
AFS Securities, Fixed Maturities, FVO, Equity Securities, Trading, and Short-term Investments
The fair value of AFS securities, fixed maturities, FVO, equity securities, trading, and short-term investments in an active and orderly market (e.g. not distressed or forced liquidation) are determined by management after considering one of three primary sources of information: third-party pricing services, independent broker quotations or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third-party pricing services, the remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flows, prepayment speeds and default rates. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services will normally derive the security prices from recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the third-party pricing services and independent brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of ABS and RMBS are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. Actual prepayment experience may vary from these estimates.
Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding.
A pricing matrix is used to price private placement securities for which the Company is unable to obtain a price from a third-party pricing service by discounting the expected future cash flows from the security by a developed market discount rate utilizing current credit spreads. Credit spreads are developed each month using market based data for public securities adjusted for credit spread differentials between public and private securities which are obtained from a survey of multiple private placement brokers. The appropriate credit spreads determined through this survey approach are based upon the issuer’s financial strength and term to maturity, utilizing an independent public security index and trade information and adjusting for the non-public nature of the securities.


18
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


The Securities Working Group performs an ongoing analysis of the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. As a part of this analysis, the Company considers trading volume, new issuance activity and other factors to determine whether the market activity is significantly different than normal activity in an active market, and if so, whether transactions may not be orderly considering the weight of available evidence. If the available evidence indicates that pricing is based upon transactions that are stale or not orderly, the Company places little, if any, weight on the transaction price and will estimate fair value utilizing an internal pricing model. In addition, the Company ensures that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly and approved by the Valuation Committee. The Company’s internal pricing model utilizes the Company’s best estimate of expected future cash flows discounted at a rate of return that a market participant would require. The significant inputs to the model include, but are not limited to, current market inputs, such as credit loss assumptions, estimated prepayment speeds and market risk premiums.
The Company conducts other specific monitoring controls around pricing. Daily analyses identify price changes over 3-5%, sale trade prices that differ over 3% from the prior day’s price and purchase trade prices that differ more than 3% from the current day’s price. Weekly analyses identify prices that differ more than 5% from published bond prices of a corporate bond index. Monthly analyses identify price changes over 3%, prices that haven’t changed, and missing prices. Also on a monthly basis, a second source validation is performed on most sectors. Analyses are conducted by a dedicated pricing unit that follows up with trading and investment sector professionals and challenges prices with vendors when the estimated assumptions used differ from what the Company feels a market participant would use. Any changes from the identified pricing source are verified by further confirmation of assumptions used. Examples of other procedures performed include, but are not limited to, initial and on-going review of third-party pricing services’ methodologies, review of pricing statistics and trends and back testing recent trades.
The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided by third-party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated with observable market data.
Derivative Instruments, including embedded derivatives within investments
Derivative instruments are fair valued using pricing valuation models for OTC derivatives that utilize independent market data inputs, quoted market prices for exchange-traded and OTC-cleared derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of June 30, 2014 and December 31, 2013, 97% and 97%, respectively, of derivatives, based upon notional values, were priced by valuation models or quoted market prices. The remaining derivatives were priced by broker quotations.
The Derivatives Working Group performs ongoing analysis of the valuations, assumptions and methodologies used to ensure that the prices represent a reasonable estimate of the fair value. The Company performs various controls on derivative valuations which include both quantitative and qualitative analysis. Analyses are conducted by a dedicated derivative pricing team that works directly with investment sector professionals to analyze impacts of changes in the market environment and investigate variances. There is a monthly analysis to identify market value changes greater than pre-defined thresholds, stale prices, missing prices and zero prices. Also on a monthly basis, a second source validation, typically to broker quotations, is performed for certain of the more complex derivatives as well as for any existing deals with a market value greater than $10 and all new deals during the month. In addition, on a daily basis, market valuations are compared to counterparty valuations for OTC derivatives. A model validation review is performed on any new models, which typically includes detailed documentation and validation to a second source. The model validation documentation and results of validation are presented to the Valuation Committee for approval. There is a monthly control to review changes in pricing sources to ensure that new models are not moved to production until formally approved.
The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated assets and liabilities. Therefore the realized and unrealized gains and losses on derivatives reported in Level 3 may not reflect the offsetting impact of the realized and unrealized gains and losses of the associated assets and liabilities.

19
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Limited partnerships and other alternative investments
Limited partnerships and other alternative investments include hedge funds where investment company accounting has been applied to a wholly-owned fund of funds measured at fair value. These funds are fair valued using the net asset value per share or equivalent (“NAV”), as a practical expedient, calculated on a monthly basis and is the amount at which a unit or shareholder may redeem their investment, if redemption is allowed. Certain impediments to redemption include, but are not limited to the following: 1) redemption notice periods vary and may be as long as 90 days, 2) redemption may be restricted (e.g. only be allowed on a quarter-end), 3) a holding period referred to as a lock-up may be imposed whereby an investor must hold their investment for a specified period of time before they can make a notice for redemption, 4) gating provisions may limit all redemptions in a given period to a percentage of the entities' equity interests, or may only allow an investor to redeem a portion of their investment at one time and 5) early redemption penalties may be imposed that are expressed as a percentage of the amount redeemed. The Company will assess impediments to redemption and current market conditions that will restrict the redemption at the end of the notice period. Any funds that are subject to significant liquidity restrictions are reported in Level 3; all others are classified as Level 2.
Valuation Techniques and Inputs for Investments
Generally, the Company determines the estimated fair value of its AFS securities, fixed maturities, FVO, equity securities, trading, and short-term investments using the market approach. The income approach is used for securities priced using a pricing matrix, as well as for derivative instruments. Certain limited partnerships and other alternative investments are measured at fair value using a NAV as a practical expedient. For Level 1 investments, which are comprised of on-the-run U.S. Treasuries, exchange-traded equity securities, short-term investments, and exchange traded futures and option contracts, valuations are based on observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.
For most of the Company’s debt securities, the following inputs are typically used in the Company’s pricing methods: reported trades, benchmark yields, bids and/or estimated cash flows. For securities except U.S. Treasuries, inputs also include issuer spreads, which may consider credit default swaps. Derivative instruments are valued using mid-market inputs that are predominantly observable in the market.
A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:
Level 2
The fair values of most of the Company’s Level 2 investments are determined by management after considering prices received from third party pricing services. These investments include most fixed maturities and preferred stocks, including those reported in separate account assets, as well as certain limited partnerships and other alternative investments and derivative instruments.
•
ABS, CDOs, CMBS and RMBS – Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, credit default swap indices and, for ABS and RMBS, estimated prepayment rates.
•
Corporates, including investment grade private placements – Primary inputs also include observations of credit default swap curves related to the issuer.
•
Foreign government/government agencies—Primary inputs also include observations of credit default swap curves related to the issuer and political events in emerging market economies.
•
Municipals – Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event notices, and issuer financial statements.
•
Short-term investments – Primary inputs also include material event notices and new issue money market rates.
•
Equity securities, trading – Consist of investments in mutual funds. Primary inputs include net asset values obtained from third party pricing services.
•
Credit derivatives – Primary inputs include the swap yield curve and credit default swap curves.
•
Foreign exchange derivatives – Primary inputs include the swap yield curve, currency spot and forward rates, and cross currency basis curves.
•
Interest rate derivatives – Primary input is the swap yield curve.
•
Limited partnerships and other alternative investments — Primary inputs include a NAV for investment companies with no redemption restrictions as reported on their U.S. GAAP financial statements.

20
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Level 3
Most of the Company’s securities classified as Level 3 include less liquid securities such as lower quality ABS, CMBS, commercial real estate (“CRE”) CDOs and RMBS primarily backed by sub-prime loans. Securities included in level 3 are primarily valued based on broker prices or broker spreads, without adjustments. Primary inputs for non-broker priced investments, including structured securities, are consistent with the typical inputs used in Level 2 measurements noted above, but are Level 3 due to their less liquid markets. Additionally, certain long-dated securities are priced based on third party pricing services, including municipal securities, foreign government/government agencies, bank loans and below investment grade private placement securities. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Level 3 investments also include certain limited partnerships and other alternative investments measured at fair value where the Company does not have the ability to redeem the investment in the near-term at the NAV. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above; but also include equity and interest rate volatility and swap yield curves beyond observable limits.
Significant Unobservable Inputs for Level 3 Assets Measured at Fair Values
The following tables present information about significant unobservable inputs used in Level 3 assets measured at fair value.
 
As of June 30, 2014
Securities
 
 
 
Unobservable Inputs
 
Assets accounted for at fair value on a recurring basis
Fair
Value
Predominant
Valuation
Method
Significant Unobservable  Input
Minimum
Maximum
Weighted Average [1]
Impact of
Increase in Input
on Fair Value [2]
CMBS
$
246

Discounted cash flows
Spread (encompasses
prepayment, default risk and loss severity)
74bps
2,418bps
300bps
Decrease
Corporate [3]
389

Discounted cash flows
Spread
108bps
703bps
234bps
Decrease
Municipal [3]
31

Discounted cash flows
Spread
181bps
181bps
181bps
Decrease
RMBS
775

Discounted cash flows
Spread
49bps
1,633bps
183bps
Decrease
 
 
 
Constant prepayment rate
—%
10%
3%
Decrease [4]
 
 
 
Constant default rate
1%
22%
7%
Decrease
 
 
 
Loss severity
—%
100%
78%
Decrease
 
As of December 31, 2013
CMBS
$
360

Discounted cash flows
Spread (encompasses
prepayment, default risk and loss severity)
99bps
2,511bps
446bps
Decrease
Corporate [3]
398

Discounted cash flows
Spread
119bps
5,594bps
332bps
Decrease
Municipal [3]
29

Discounted cash flows
Spread
184bps
184bps
184bps
Decrease
RMBS
798

Discounted cash flows
Spread
62bps
1,748bps
245bps
Decrease
 
 
 
Constant prepayment rate
—%
10%
3%
Decrease [4]
 
 
 
Constant default rate
1%
22%
8%
Decrease
 
 
 
Loss severity
—%
100%
80%
Decrease
[1]
The weighted average is determined based on the fair value of the securities.
[2]
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table above.
[3]
Level 3 corporate and municipal securities excludes those for which the Company bases fair value on broker quotations as discussed below.
[4]
Decrease for above market rate coupons and increase for below market rate coupons.

21
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Significant Unobservable Inputs for Level 3 Assets Measured at Fair Values (continued)
 
As of June 30, 2014
Freestanding Derivatives
 
 
 
Unobservable Inputs
 
  
Fair
Value
Predominant Valuation
Method
Significant
Unobservable Input
Minimum
Maximum
Impact of
Increase in Input
on Fair Value [1]
GMWB hedging instruments
 
 
 
 
 
 
Equity options
33

Option model
Equity volatility
19%
32%
Increase
Customized swaps
64

Discounted  cash flows
Equity volatility
10%
50%
Increase
Macro hedge program
 
 
 
 
 
 
Equity options
120

Option model
Equity volatility
23%
35%
Increase
 
As of December 31, 2013
Interest rate derivative
 
 
 
 
 
 
Interest rate swaps
(24
)
Discounted  cash flows
Swap curve 
beyond 30 years
4%
4%
Increase
GMWB hedging instruments
 
 
 
 
 
 
Equity options
72

Option model
Equity volatility
21%
29%
Increase
Customized swaps
74

Discounted  cash flows
Equity volatility
10%
50%
Increase
Macro hedge program
 
 
 
 
 
 
Equity options
139

Option model
Equity volatility
24%
31%
Increase
International hedging program [2]
 
 
 
 
 
 
Equity options
(66
)
Option model
Equity volatility
29%
37%
Increase
Short interest rate swaptions
(12
)
Option model
Interest rate volatility
—%
1%
Decrease
Long interest rate swaptions
48

Option model
Interest rate volatility
1%
1%
Increase
[1]
 Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions.
[2]
Level 3 international program hedging instruments excludes those for which the Company based fair value on broker quotations.
Securities and derivatives for which the Company bases fair value on broker quotations predominately include ABS, CDOs, corporate, fixed maturities, FVO. Due to the lack of transparency in the process brokers use to develop prices for these investments, the Company does not have access to the significant unobservable inputs brokers use to price these securities and derivatives. The Company believes however, the types of inputs brokers may use would likely be similar to those used to price securities and derivatives for which inputs are available to the Company, and therefore may include, but not be limited to, loss severity rates, constant prepayment rates, constant default rates and counterparty credit spreads. Therefore, similar to non broker priced securities and derivatives, generally, increases in these inputs would cause fair values to decrease. For the three months ended, June 30, 2014, no significant adjustments were made by the Company to broker prices received.
As of June 30, 2014 and December 31, 2013, excluded from the tables above are limited partnerships and other alternative investments which total $36 and $54, respectively, of level 3 assets measured at fair value. The predominant valuation method uses a NAV calculated on a monthly basis and represents funds where the Company does not have the ability to redeem the investment in the near-term at that NAV, including an assessment of the investee's liquidity.
Product Derivatives
The Company formerly offered and subsequently reinsured certain variable annuity products with U.S. GMWB riders. The Company had also formerly assumed, through reinsurance from HLIKK, GMWB, GMIB and GMAB riders.  Concurrent with the sale of HLIKK, HLIKK recaptured certain risks that had been reinsured to the Company and HLAI by terminating or modifying intercompany agreements. Upon closing, HLIKK is responsible for all liabilities of the recaptured business. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.

22
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


If the policyholder’s account value is reduced a specified level through a combination of market declines and withdrawals but the GRB still has value, the Company is obligated to continue to make annuity payments to the policyholder until the GRB is exhausted. Certain contract provisions can increase the GRB at contract holder election or after the passage of time. The GMWB represents an embedded derivative in the variable annuity contract. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the Consolidated Balance Sheets, is carried at fair value with changes in fair value reported in net realized capital gains and losses. The Company’s GMWB liability is carried at fair value and reported in other policyholder funds. The notional value of the embedded derivative is the GRB.
In valuing the embedded derivative, the Company attributes to the derivative a portion of the fees collected from the contract holder equal to the present value of future GMWB claims (the “Attributed Fees”). All changes in the fair value of the embedded derivative are recorded in net realized capital gains and losses. The excess of fees collected from the contract holder over the Attributed Fees are associated with the host variable annuity contract reported in fee income.
Effective April 1, 2014, HLAI, terminated its reinsurance agreement with an affiliated captive reinsurer and recaptured all reinsurance risks. For further information regarding this reinsurance agreement, see Note 11 -Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements .
Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)
Living benefits required to be fair valued include guaranteed withdrawal benefits contracts. Fair values for GMWB contracts are calculated using the income approach based upon internally developed models because active, observable markets do not exist for those items. The fair value of the Company’s guaranteed benefit liabilities, classified as embedded derivatives, and the related reinsurance and customized freestanding derivatives are calculated as an aggregation of the following components: Best Estimate Claims Costs calculated based on actuarial and capital market assumptions related to projected cash flows over the lives of the contracts; Credit Standing Adjustment; and Margins representing an amount that market participants would require for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer or receive, for an asset, to or from market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. The fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. In the absence of any transfer of the guaranteed benefit liability to a third party, the release of risk margins is likely to be reflected as realized gains in future periods’ net income. Each component described below is unobservable in the marketplace and requires subjectivity by the Company in determining their value.
Oversight of the Company’s valuation policies and processes for product and GMWB reinsurance derivatives is performed by a multidisciplinary group comprised of finance, actuarial and risk management professionals. This multidisciplinary group reviews and approves changes and enhancements to the Company’s valuation model as well as associated controls.

23
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Best Estimate Claim Payments
The Best Estimate Claim Payments are calculated based on actuarial and capital market assumptions related to projected cash flows, including the present value of benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior such as lapses, fund selection, resets and withdrawal utilization. For the customized derivatives, policyholder behavior is prescribed in the derivative contract. Because of the dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo stochastic process is used in valuation. The Monte Carlo stochastic process involves the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels. Estimating these cash flows involves numerous estimates and subjective judgments regarding a number of variables –including expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and assumptions about policyholder behavior which emerge over time.
At each valuation date, the Company assumes expected returns based on:
•
risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates;
•
market implied volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data;
•
correlations of historical returns across underlying well known market indices based on actual observed returns over the ten years preceding the valuation date; and
•
three years of history for fund indexes compared to separate account fund regression.
On a daily basis, the Company updates capital market assumptions used in the GMWB liability model such as interest rates, equity indices and the blend of implied equity index volatilities. The Company monitors various aspects of policyholder behavior and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if credible emerging data indicates that changes are warranted. The Company continually monitors policyholder behavior assumptions in response to initiatives intended to reduce the size of the variable annuity business. At a minimum, all policyholder behavior assumptions are reviewed and updated, as appropriate, in conjunction with the completion of the Company’s comprehensive study to refine its estimate of future gross profits during the third quarter of each year.
Credit Standing Adjustment
This assumption makes an adjustment that market participants would make, in determining fair value, to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will not be fulfilled as nonperformance risk. The Company incorporates a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. For the three and six months ended June 30, 2014, the credit standing adjustment assumption, net of reinsurance and exclusive of the impact of the credit standing adjustment on other market sensitivities, resulted in pre-tax realized gains of $2 and $39, respectively. For the three and six months ended June 30, 2013, the credit standing adjustment assumption, net of reinsurance and exclusive of the impact of the credit standing adjustment on other market sensitivities, resulted in pre-tax realized gains/(losses) of $(33) and $215, respectively.
Margins
The behavior risk margin adds a margin that market participants would require, in determining fair value, for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions.
There were no policyholder assumption updates for the three and six months ended June 30, 2014 and 2013. As of June 30, 2014 and December 31, 2013 the behavior risk margin was $90 and $32, respectively.
In addition to the non-market-based updates described above, the Company recognized non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in pre-tax realized gains of $7 and $10 for the three and six months ended June 30, 2014, respectively, and $0 and $2 for the three and six months ended June 30, 2013 .

24
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Significant unobservable inputs used in the fair value measurement of living benefits required to be fair valued and the GMWB reinsurance derivative are withdrawal utilization and withdrawal rates, lapse rates, reset elections and equity volatility. The following table provides quantitative information about the significant unobservable inputs and is applicable to all of the Living Benefits Required to be Fair Valued and the reinsurance recoverable for GMWB. Significant increases in any of the significant unobservable inputs, in isolation, will generally have an increase or decrease correlation with the fair value measurement, as shown in the following table.
Significant Unobservable Input
Unobservable Inputs (Minimum)
Unobservable Inputs (Maximum)
Impact of Increase in Input
on Fair Value Measurement [1]
Withdrawal Utilization[2]
20%
100%
Increase
Withdrawal Rates [2]
—%
8%
Increase
Annuitization utilization
—%
100%
Increase
Lapse Rates [3]
—%
75%
Decrease
Reset Elections [4]
20%
75%
Increase
Equity Volatility [5]
10%
50%
Increase
[1]
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
[2]
Ranges represent assumed cumulative percentages of policyholders taking withdrawals and the annual amounts withdrawn.
[3]
Range represents assumed annual percentages of full surrender of the underlying variable annuity contracts across all policy durations for in force business.
[4]
Range represents assumed cumulative percentages of policyholders that would elect to reset their guaranteed benefit base.
[5]
Range represents implied market volatilities for equity indices based on multiple pricing sources.
Generally a change in withdrawal utilization assumptions would be accompanied by a directionally opposite change in lapse rate assumptions, as the behavior of policyholders that utilize GMWB riders is typically different from policyholders that do not utilize these riders.
Separate Account Assets
Separate account assets are primarily invested in mutual funds. Other separate account assets include fixed maturities, limited partnerships, equity securities, short-term investments and derivatives that are valued in the same manner, and using the same pricing sources and inputs, as those investments held by the Company. Separate account assets classified as Level 3 primarily include limited partnerships in which fair value represents the separate account’s share of the fair value of the equity in the investment (“net asset value”) and are classified in level 3 based on the Company’s ability to redeem its investment.
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The tables below provide a fair value roll forward for the three months ended June 30, 2014, for Level 3 financial instruments.
  
Fixed Maturities, AFS
Fixed
Maturities,
FVO
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fair value as of March 31, 2014
$
35

$
449

$
309

$
768

$
30

$
51

$
807

$
2,449

$
190

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
—

—

1

(2
)
—

—

10

9

5

Included in OCI [3]
1

6

1

7

1

2

(8
)
10

—

Purchases
24

—

2

21

1

—

55

103

5

Settlements
(1
)
(16
)
(23
)
(20
)
—

—

(30
)
(90
)
(2
)
Sales
(8
)
—

(1
)
(24
)
(3
)
(1
)
(35
)
(72
)
(60
)
Transfers into Level 3 [4]
—

—

—

77

—

—

—

77

—

Transfers out of Level 3 [4]
—

(54
)
(43
)
(94
)
—

—

(24
)
(215
)
—

Fair value as of June 30, 2014
$
51

$
385

$
246

$
733

$
29

$
52

$
775

$
2,271

$
138

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
—

$
—

$
—

$
(2
)
$
—

$
—

$
(1
)
$
(3
)
$
10


25
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
GMWB
Hedging
Macro
Hedge
Program
Intl.
Program
Hedging
Other Derivative Contracts
Total Free-
Standing
Derivatives
[5]
Fair value as of March 31, 2014
$
52

$
1

$
2

$
—

$
123

$
133

$
(40
)
$
—

$
219

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 

 
Included in net income [1], [2]
—

(1
)
—

—

(26
)
(15
)
12

—

(30
)
Included in OCI [3]
—

—

—

—

—

—

—

—

—

Purchases
—

—

—

—

—

2

—

—

2

Settlements
—

—

—

—

—

—

(5
)
—

(5
)
Sales
—

—

—

—

—

—

—

—

—

Transfers into Level 3 [4]
—

—

—

—

—

—

—

—

—

Transfers out of Level 3 [4]
—

—

—

—

—

—

33

—

33

Fair value as of June 30, 2014
$
52

$
—

$
2

$
—

$
97

$
120

$
—

$
—

$
219

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
—

$
(1
)
$
—

$
—

$
(26
)
$
(15
)
$
—

$
—

$
(42
)
Assets
Limited Partnerships and Other Alternative Investments
Reinsurance Recoverable for GMWB
and Japan
GMWB, GMIB, 
and GMAB
Separate
Accounts
Fair value as of March 31, 2014
$
57

$
(509
)
$
762

Total realized/unrealized gains (losses)
 
 
 
Included in net income [1], [2]
(4
)
533

(1
)
Purchases
—

—

136

Settlements
—

7

(1
)
Sales
—

—

(78
)
Transfers into Level 3 [4]
—

—

3

Transfers out of Level 3 [4]
(17
)
—

(8
)
Fair value as of June 30, 2014
$
36

$
31

$
813

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
(4
)
$
533

$
1

 
Other Policyholder Funds and Benefits Payable
 
Liabilities
Guaranteed
Living
Benefits [7]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Consumer
Notes
Fair value as of March 31, 2014
$
(535
)
$
(19
)
$
(554
)
$
(2
)
Total realized/unrealized gains (losses)
 
 
 
 
Included in net income [1], [2]
596

(3
)
593

—

Settlements
(59
)
—

(59
)
—

Fair value as of June 30, 2014
$
2

$
(22
)
$
(20
)
$
(2
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
596

$
(3
)
$
593

$
—


26
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


The tables below provide a fair value roll forward for the six months ended June 30, 2014, for Level 3 financial instruments.
  
Fixed Maturities, AFS
Fixed
Maturities,
FVO
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fair value as of January 1, 2014
$
108

$
428

$
360

$
790

$
38

$
49

$
798

$
2,571

$
178

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
—

—

9

(6
)
(1
)
—

9

11

14

Included in OCI [3]
3

6

(5
)
25

4

4

1

38

—

Purchases
24

—

3

45

1

—

142

215

10

Settlements
(1
)
(27
)
(48
)
(18
)
(2
)
—

(61
)
(157
)
(3
)
Sales
(11
)
(9
)
(23
)
(58
)
(11
)
(1
)
(82
)
(195
)
(61
)
Transfers into Level 3 [4]
—

48

—

107

—

—

—

155

—

Transfers out of Level 3 [4]
(72
)
(61
)
(50
)
(152
)
—

—

(32
)
(367
)
—

Fair value as of June 30, 2014
$
51

$
385

$
246

$
733

$
29

$
52

$
775

$
2,271

$
138

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
—

$
—

$
—

$
(7
)
$
(2
)
$
—

$
(1
)
$
(10
)
$
18

 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
GMWB
Hedging
Macro
Hedge
Program
Intl.
Program
Hedging
Other Derivative Contracts
Total Free-
Standing
Derivatives
[5]
Fair value as of January 1, 2014
$
51

$
2

$
2

$
(24
)
$
146

$
139

$
(61
)
$
—

$
204

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
(1
)
(2
)
—

—

(60
)
(25
)
24

—

(63
)
Included in OCI [3]
2

—

—

—

—

—

—

—

—

Purchases
—

—

—

—

4

6

9

—

19

Settlements
—

—

—

—

7

—

(5
)
—

2

Sales
—

—

—

—

—

—

—

—

—

Transfers into Level 3 [4]
—

—

—

—

—

—

—

—

—

Transfers out of Level 3 [4]
—

—

—

24

—

—

33

—

57

Fair value as of June 30, 2014
$
52

$
—

$
2

$
—

$
97

$
120

$
—

$
—

$
219

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
(1
)
$
(2
)
$
—

$
(1
)
$
(76
)
$
(25
)
$
17

$
—

$
(87
)

27
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Assets
Limited Partnerships and Other Alternative Investments
Reinsurance Recoverable for GMWB
and Japan
GMWB, GMIB, 
and GMAB
Separate
Accounts
Fair value as of January 1, 2014
$
54

$
(467
)
$
737

Total realized/unrealized gains (losses)
 
 
 
Included in net income [1], [2]
—

426

4

Purchases
16

—

265

Settlements
(12
)
72

(1
)
Sales
—

—

(163
)
Transfers into Level 3 [4]
—

—

4

Transfers out of Level 3 [4]
(22
)
—

(33
)
Fair value as of June 30, 2014
$
36

$
31

$
813

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
—

$
426

$
6

 
Other Policyholder Funds and Benefits Payable
 
Liabilities
Guaranteed
Living
Benefits [7]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Consumer
Notes
Fair value as of January 1, 2014
$
(576
)
$
(18
)
$
(594
)
$
(2
)
Total realized/unrealized gains (losses)
 
 
 
 
Included in net income [1], [2]
670

(4
)
666

—

Settlements
(92
)
—

(92
)
—

Fair value as of June 30, 2014
$
2

$
(22
)
$
(20
)
$
(2
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2014 [2] [7]
$
670

$
(4
)
$
666

$
—


The tables below provide a fair value roll forward for the three months ended June 30, 2013, for Level 3 financial instruments.
 
Fixed Maturities, AFS
 
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fixed
Maturities,
FVO
Fair value as of March 31, 2013
$
225

$
565

$
490

$
1,096

$
35

$
132

$
966

$
3,509

$
201

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
3

—

—

(2
)
—

—

—

1

(5
)
Included in OCI [3]
(7
)
62

20

(15
)
(4
)
(10
)
22

68

—

Purchases
2

25

13

27

14

—

19

100

3

Settlements
(1
)
(14
)
(31
)
(5
)
(1
)
—

(36
)
(88
)
—

Sales
(49
)
(9
)
(9
)
(42
)
—

(13
)
—

(122
)
(3
)
Transfers into Level 3 [4]
—

—

9

3

—

—

—

12

1

Transfers out of Level 3 [4]
(4
)
—

(7
)
(249
)
—

—

—

(260
)
—

Fair value as of June 30, 2013
$
169

$
629

$
485

$
813

$
44

$
109

$
971

$
3,220

$
197

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
—

$
—

$
—

$
(3
)
$
—

$
—

$
—

$
(3
)
$
(6
)

28
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
GMWB
Hedging
Macro
Hedge
Program
Intl.
Program
Hedging
Other Derivative Contracts
Total Free-
Standing
Derivatives [5]
Fair value as of March 31, 2013
$
55

$
6

$
27

$
(53
)
$
329

$
243

$
(145
)
$
—

$
407

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
—

(2
)
(2
)
2

—

(36
)
(40
)
—

(78
)
Included in OCI [3]
—

—

—

—

—

—

—

—

—

Purchases
7

—

—

—

—

2

(5
)
—

(3
)
Settlements
—

(1
)
—

—

—

—

18

—

17

Sales
—

—

—

—

—

—

—

—

—

Transfers into Level 3 [4]
—

—

—

—

—

—

—

(20
)
(20
)
Transfers out of Level 3 [4]
—

—

—

—

—

—

56

—

56

Fair value as of June 30, 2013
$
62

$
3

$
25

$
(51
)
$
329

$
209

$
(116
)
$
(20
)
$
379

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
—

$
(1
)
$
(1
)
$
2

$
—

$
(34
)
$
(45
)
$
—

$
(79
)
Assets
Reinsurance Recoverable for GMWB
and Japan
GMWB, GMIB, 
and GMAB [6][8]
Assets Held for Sale
Separate Accounts
Fair value as of March 31, 2013
$
592

—

$
823

Transfers to assets held for sale
(7
)
7

—

Total realized/unrealized gains (losses)
 
 
 
Included in net income [1], [2]
(437
)
—

1

Purchases
—

—

4

Settlements
77

(2
)
(1
)
Sales
—

—

(5
)
Transfers into Level 3 [4]
—

—

4

Transfers out of Level 3 [4]
—

—

(6
)
Fair value as of June 30, 2013
$
225

$
5

$
820

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
(437
)
$
—

$
4

 
Other Policyholder Funds and Benefits Payable [1]
 
 
Liabilities
Guaranteed
Living
Benefits [7][8]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Liabilities Held for Sale
Consumer
Notes
Fair value as of March 31, 2013
$
(2,204
)
$
(10
)
$
(2,214
)
$
—

$
(2
)
Transfers to liabilities held for sale
32

—

32

(32
)
—

Total realized/unrealized gains (losses)
 
 
 
 
 
Included in net income [1], [2]
540

(2
)
538

5

1

Settlements
(44
)
—

(44
)
(1
)
—

Fair value as of June 30, 2013
$
(1,676
)
$
(12
)
$
(1,688
)
$
(28
)
$
(1
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
540

$
(2
)
$
538

$
5

1


29
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


The tables below provide a fair value roll forward for the six months ended June 30, 2013, for Level 3 financial instruments.
 
Fixed Maturities, AFS
 
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fixed
Maturities,
FVO
Fair value as of January 1, 2013
$
238

$
723

$
532

$
1,340

$
34

$
169

$
1,133

$
4,169

$
199

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
—

(11
)
(2
)
14

1

—

29

31

9

Included in OCI [3]
15

98

33

(23
)
(5
)
(9
)
37

146

—

Purchases
16

26

13

45

24

—

32

156

9

Settlements
(4
)
(35
)
(45
)
(63
)
(2
)
—

(68
)
(217
)
(1
)
Sales
(83
)
(195
)
(69
)
(297
)
(6
)
(51
)
(192
)
(893
)
(21
)
Transfers into Level 3 [4]
—

23

30

59

—

—

—

112

3

Transfers out of Level 3 [4]
(13
)
—

(7
)
(262
)
(2
)
—

—

(284
)
(1
)
Fair value as of June 30, 2013
$
169

$
629

$
485

$
813

$
44

$
109

$
971

$
3,220

$
197

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
(4
)
$
—

$
(1
)
$
(3
)
$
—

$
—

$
—

$
(8
)
$
29

 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
GMWB
Hedging
Macro
Hedge
Program
Intl.
Program
Hedging
Other Derivative Contracts
Total Free-
Standing
Derivatives [5]
Fair value as of January 1, 2013
$
55

$
4

$
45

$
(57
)
$
519

$
286

$
(75
)
$
—

$
722

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
(4
)
—

(18
)
4

(190
)
(100
)
(84
)
—

(388
)
Included in OCI [3]
6

—

—

—

—

—

—

—

—

Purchases
7

—

1

—

—

23

(25
)
—

(1
)
Settlements
—

(1
)
(3
)
—

—

—

12

—

8

Sales
(2
)
—

—

—

—

—

—

—

—

Transfers into Level 3 [4]
—

—

—

—

—

—

—

(20
)
(20
)
Transfers out of Level 3 [4]
—

—

—

2

—

—

56

—

58

Fair value as of June 30, 2013
$
62

$
3

$
25

$
(51
)
$
329

$
209

$
(116
)
$
(20
)
$
379

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
(3
)
$
—

$
(16
)
$
(1
)
$
(185
)
$
(97
)
$
(28
)
$
—

$
(327
)

30
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Assets
Reinsurance Recoverable for GMWB
and Japan
GMWB, GMIB, 
and GMAB [6][8]
Assets Held for Sale
Separate Accounts
Fair value as of January 1, 2013
$
1,081

$
—

$
583

Transfers to assets held for sale
(12
)
12

—

Total realized/unrealized gains (losses)
 
 
 
Included in net income [1], [2]
(1,007
)
(2
)
16

Purchases
—

—

259

Settlements
163

(5
)
(1
)
Sales
—

—

(31
)
Transfers into Level 3 [4]
—

—

4

Transfers out of Level 3 [4]
—

—

(10
)
Fair value as of June 30, 2013
$
225

$
5

$
820

Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
(1,007
)
$
(2
)
$
12

 
Other Policyholder Funds and Benefits Payable [1]
 
 
Liabilities
Guaranteed
Living
Benefits [7][8]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Liabilities Held for Sale
Consumer
Notes
Fair value as of January 1, 2013
$
(3,119
)
$
(8
)
$
(3,127
)
$
—

$
(2
)
Transfers to liabilities held for sale
43

—

—

(43
)
—

Total realized/unrealized gains (losses)
 
 
 
 
 
Included in net income [1], [2]
1,465

(4
)
1,461

17

1

Settlements
(65
)
—

(65
)
(2
)
—

Fair value as of June 30, 2013
$
(1,676
)
$
(12
)
$
(1,688
)
$
(28
)
$
(1
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2013 [2] [7]
$
1,465

$
(4
)
$
1,461

$
17

$
1

[1]
The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]
All amounts in these rows are reported in net realized capital gains (losses). The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. All amounts are before income taxes and amortization of DAC.
[3]
All amounts are before income taxes and amortization of DAC.
[4]
Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
[5]
Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]
Includes fair value of reinsurance recoverables of approximately $107 as of June 30, 2013 related to a transaction entered into with an affiliated captive reinsurer. See Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements for more information.
[7]
Includes both market and non-market impacts in deriving realized and unrealized gains (losses).
[8]
For the three and six months ended June 30, 2013, $(60) and $(170) were inappropriately presented as Included in OCI within the Reinsurance Recoverable for U.S. GMWB and Japan GMWB, GMIB and GMAB and $74 and $206 were inappropriately presented as Included in OCI within Guaranteed Living Benefits. Amounts have been rescheduled to Included in Net Income. This change in presentation of this disclosure had no impact on the Company's net income or OCI.


31
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Fair Value Option
Included are securities that contain an embedded credit derivative with underlying credit risk primarily related to commercial and residential real estate. Income earned from FVO securities is recorded in net investment income and changes in fair value are recorded in net realized capital gains and losses.
The Company previously held fair value option investments in foreign government securities that aligned with the accounting for yen-based fixed annuity liabilities, which are adjusted for changes in foreign-exchange spot rates. These investments were disposed of as a consequence of the recapture of certain liabilities by HLIKK, concurrent with its sale.
The Company also elected the fair value option for certain investments held within consolidated VIE investment funds. The Company elected the fair value option in order to report investments of consolidated investment companies at fair value with changes in the fair value of these securities recognized in net realized capital gains and losses, which is consistent with accounting requirements for investment companies. The investment funds hold fixed income securities and the Company has management and control of the funds as well as a significant ownership interest.
The following table presents the changes in fair value of those assets and liabilities accounted for using the fair value option reported in net realized capital gains and losses in the Company's Condensed Consolidated Statements of Operations.
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2014
2013
2014
2013
Assets
 
 
 
 
Fixed maturities, FVO
 
 
 
 
Corporate
$
2

$
(4
)
$
3

$
(13
)
CRE CDOs
7

(6
)
16

3

Foreign government
7

(37
)
16

(85
)
RMBS
—

—

1

—

Total realized capital gains (losses)
$
16

$
(47
)
$
36

$
(95
)
The following table presents the fair value of assets and liabilities accounted for using the fair value option included in the Company's Condensed Consolidated Balance Sheets.
 
As of
 
June 30, 2014
December 31, 2013
Assets
 
 
Fixed maturities, FVO
 
 
ABS
$
18

$
3

Corporate
83

84

CDO
122

167

CMBS
13

8

Foreign government
3

494

Municipals
3

1

RMBS
77

9

U.S. Government
—

25

Total fixed maturities, FVO
$
319

$
791


32
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Fair Value Measurements (continued)


Financial Instruments Not Carried at Fair Value
The following presents carrying amounts and fair values of the Company's financial instruments not carried at fair value, and not included in the above fair value discussion as of June 30, 2014 and December 31, 2013 were as follows:
 
June 30, 2014
December 31, 2013
 
Fair Value Hierarchy Level
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Assets
 
 
 
 
 
Policy loans
Level 3
1,418

1,418

1,416

1,476

Mortgage loans
Level 3
3,226

3,337

3,470

3,519

Liabilities
 
 
 
 
 
Other policyholder funds and benefits payable [1]
Level 3
7,393

7,608

8,955

9,153

Consumer notes [2]
Level 3
75

75

82

82

[1]
Excludes group accident and health and universal life insurance contracts, including corporate owned life insurance.
[2]
Excludes amounts carried at fair value and included in disclosures above.
•
During the second quarter of 2014, the Company changed the valuation technique used to estimate the fair value of policy loans. The fair value of policy loans were determined using current loan coupon rates which reflect the current rates available under the contracts. As a result, the fair value approximates the carrying value of the policy loans. Prior to the second quarter of 2014, the fair value of policy loans were estimated by utilizing discounted cash flow calculations using U.S. Treasury interest rates based on the loan durations.
•
Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans.
•
Other policyholder funds and benefits payable, not carried at fair value, is determined by estimating future cash flows, discounted at the current market rate.
•
Fair value for consumer notes were estimated using discounted cash flow calculations using current interest rates adjusted for estimated loan durations.

33
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments

Net Realized Capital Gains (Losses)
 
Three Months Ended June 30,
Six Months Ended June 30,
(Before-tax)
2014
2013
2014
2013
Gross gains on sales [1]
$
54

$
60

$
162

$
1,673

Gross losses on sales
(91
)
(44
)
(195
)
(98
)
Net OTTI losses recognized in earnings
(3
)
(3
)
(10
)
(16
)
Valuation allowances on mortgage loans
(4
)
(1
)
(4
)
—

Japanese fixed annuity contract hedges, net [2]
(5
)
1

(14
)
4

Periodic net coupon settlements on credit derivatives/Japan
4

(2
)
9

(5
)
Results of variable annuity hedge program
 
 
 
 
GMWB derivatives, net
(6
)
(31
)
9

16

Macro hedge program
(15
)
(47
)
(25
)
(132
)
Total U.S. program
(21
)
(78
)
(16
)
(116
)
International Program [3]
(103
)
(516
)
(126
)
(599
)
Total results of variable annuity hedge program
(124
)
(594
)
(142
)
(715
)
GMIB/GMAB/GMWB reinsurance
528

274

579

611

Coinsurance and modified coinsurance reinsurance contracts
524

(302
)
394

(701
)
Other, net [4]
(233
)
6

(235
)
85

Net realized capital gains (losses), before-tax
$
650

$
(605
)
$
544

$
838

[1]
Includes $1.5 billion of gross gains relating to the sales of the Retirement Plans and Individual Life businesses for the six months ended June 30, 2013.
[2]
Includes for the three and six months ended June 30, 2014, $(22) and $(51), respectively, and for the three and six months ended June 30, 2013, $91 and $241, respectively, the transactional foreign currency re-valuation related to the Japan fixed annuity product. Also includes for the three and six months ended June 30, 2014, $17 and $37, respectively, and for the three and six months ended June 30, 2013, $(90) and $(237), respectively, the change in value related to the derivative hedging instruments and the Japan government FVO securities.
[3]
Includes for the three and six months ended June 30, 2014, $(1) and $2, respectively, and for the three and six months ended June 30, 2013, $(17) and $(51), respectively, the transactional foreign currency re-valuation.
[4]
Other, net gains and losses include transactional foreign currency revaluation gains (losses) on the Japan 3Win fixed payout annuity liabilities reinsured from HLIKK and gains (losses) on non-qualifying derivatives used to hedge the foreign currency exposure of the 3Win liabilities. Gains (losses) from transactional foreign currency revaluation of the reinsured 3Win liabilities were $(18) and $(46), respectively, for the three and six months ended June 30, 2014, and $72 and $189, respectively, for the three and six months ended June 30, 2013. Gains (losses) on instruments used to hedge the foreign currency exposure on the reinsured 3Win fixed payout annuities were $13 and $28, respectively, for the three and six months ended June 30, 2014, and $(54) and $(184), respectively, for the three and six months ended June 30, 2013. Includes $71 of gains relating to the sales of the Retirement Plans and Individual Life businesses for the six months ended June 30, 2013. Also includes for the three and six months ended June 30, 2014 a loss of $213 related to the recapture of the GMIB/GMAB/GMWB reinsurance contracts, which is offset by gains on the termination of the embedded derivative reflected in the GMIB/GMAB/GMWB reinsurance line.
Net realized capital gains and losses from investment sales, are reported as a component of revenues and are determined on a specific identification basis. Before tax, net gains and losses on sales and impairments previously reported as unrealized gains in AOCI were $(44) and $(41) for the three and six months ended June 30, 2014 and $13 and $1.6 billion for the three and six months ended June 30, 2013, respectively. Proceeds from sales of AFS securities totaled $2.2 billion and $5.6 billion for the three and six months ended June 30, 2014 and $4.0 billion and $8.8 billion for the three and six months ended June 30, 2013, respectively.

34
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Other-Than-Temporary Impairment Losses
The following table presents a roll-forward of the Company’s cumulative credit impairments on debt securities held.
 
Three Months Ended June 30,
Six Months Ended June 30,
(Before-tax)
2014
2013
2014
2013
Balance, beginning of period
$
(382
)
$
(706
)
$
(410
)
$
(813
)
Additions for credit impairments recognized on [1]:
 
 
 
 
Securities not previously impaired
—

(3
)
(3
)
(8
)
Securities previously impaired
(3
)
—

(6
)
—

Reductions for credit impairments previously recognized on:
 
 
 
 
Securities that matured or were sold during the period
29

7

59

118

Securities due to an increase in expected cash flows
5

3

9

4

Balance, end of period
$
(351
)
$
(699
)
$
(351
)
$
(699
)
[1]
These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.
Available-for-Sale Securities
The following table presents the Company’s AFS securities by type.
 
June 30, 2014
 
December 31, 2013
 
Cost or Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Non-Credit OTTI [1]
 
Cost or Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Non-Credit OTTI [1]
ABS
$
1,105

$
21

$
(35
)
$
1,091

$
(1
)
 
$
1,172

$
13

$
(56
)
$
1,129

$
(2
)
CDOs [2]
1,156

103

(29
)
1,231

—

 
1,392

98

(41
)
1,448

—

CMBS
2,025

113

(13
)
2,125

(2
)
 
2,275

106

(34
)
2,347

(3
)
Corporate
15,026

1,741

(72
)
16,695

(3
)
 
15,913

1,196

(192
)
16,917

(6
)
Foreign govt./govt. agencies
616

39

(7
)
648

—

 
1,267

27

(117
)
1,177

—

Municipal
898

85

(2
)
981

—

 
988

26

(49
)
965

—

RMBS
2,258

79

(20
)
2,317

(1
)
 
2,419

60

(48
)
2,431

(3
)
U.S. Treasuries
1,513

120

(1
)
1,632

—

 
1,762

1

(14
)
1,749

—

Total fixed maturities, AFS
24,597

2,301

(179
)
26,720

(7
)
 
27,188

1,527

(551
)
28,163

(14
)
Equity securities, AFS
336

25

(21
)
340

—

 
362

35

(25
)
372

—

Total AFS securities
$
24,933

$
2,326

$
(200
)
$
27,060

$
(7
)
 
$
27,550

$
1,562

$
(576
)
$
28,535

$
(14
)
[1]
Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of June 30, 2014 and December 31, 2013.
[2]
Gross unrealized gains (losses) exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value will be recorded in net realized capital gains (losses).


35
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

The following table presents the Company’s fixed maturities, AFS, by contractual maturity year.
 
June 30, 2014
December 31, 2013
Contractual Maturity
Amortized Cost
Fair Value
Amortized Cost
Fair Value
One year or less
$
1,325

$
1,345

$
1,615

$
1,639

Over one year through five years
4,940

5,302

5,328

5,535

Over five years through ten years
3,517

3,736

4,319

4,481

Over ten years
8,271

9,573

8,668

9,153

Subtotal
18,053

19,956

19,930

20,808

Mortgage-backed and asset-backed securities
6,544

6,764

7,258

7,355

Total fixed maturities, AFS
$
24,597

$
26,720

$
27,188

$
28,163

Estimated maturities may differ from contractual maturities due to security call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.
Concentration of Credit Risk
The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk.
As of June 30, 2014, the Company did not have any exposure to credit concentration risk of a single issuer equal to or greater than 10% of the Company’s stockholder’s equity, other than U.S. government and certain U.S. government securities. As of December 31, 2013, the Company's only exposure to any concentration of credit risk of a single issuer equal to or greater than 10% of the Company’s stockholder’s equity other than the U.S. government and certain U.S. government agencies, was the Government of Japan,which represented $853, or 10% of stockholders' equity and 2% of total invested assets. For further discussion of concentration of credit risk, see the Concentration of Credit Risk section in Note 4 of Notes to Consolidated Financial Statements in the Company’s 2013 Form 10-K Annual Report.

36
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Securities Unrealized Loss Aging
The following tables present the Company’s unrealized loss aging for AFS securities by type and length of time the security was in a continuous unrealized loss position.
 
June 30, 2014
 
Less Than 12 Months
12 Months or More
Total
 
Amortized Cost
Fair Value
Unrealized Losses
Amortized Cost
Fair Value
Unrealized Losses
Amortized Cost
Fair Value
Unrealized Losses
ABS
$
211

$
210

$
(1
)
$
382

$
348

$
(34
)
$
593

$
558

$
(35
)
CDOs [1]
64

63

(1
)
929

902

(28
)
993

965

(29
)
CMBS
46

45

(1
)
377

365

(12
)
423

410

(13
)
Corporate
368

360

(8
)
914

850

(64
)
1,282

1,210

(72
)
Foreign govt./govt. agencies
50

49

(1
)
105

99

(6
)
155

148

(7
)
Municipal
12

11

(1
)
82

81

(1
)
94

92

(2
)
RMBS
137

136

(1
)
349

330

(19
)
486

466

(20
)
U.S. Treasuries
15

14

(1
)
27

26

(1
)
42

40

(2
)
Total fixed maturities, AFS
903

888

(15
)
3,165

3,001

(165
)
4,068

3,889

(180
)
Equity securities, AFS
11

8

(3
)
135

117

(18
)
146

125

(21
)
Total securities in an unrealized loss position
$
914

$
896

$
(18
)
$
3,300

$
3,118

$
(183
)
$
4,214

$
4,014

$
(201
)
 
 
December 31, 2013
 
Less Than 12 Months
12 Months or More
Total
 
Amortized Cost
Fair Value
Unrealized Losses
Amortized Cost
Fair Value
Unrealized Losses
Amortized Cost
Fair Value
Unrealized Losses
ABS
$
288

$
286

$
(2
)
$
418

$
364

$
(54
)
$
706

$
650

$
(56
)
CDOs [1]
64

63

(1
)
1,185

1,144

(40
)
1,249

1,207

(41
)
CMBS
437

423

(14
)
392

372

(20
)
829

795

(34
)
Corporate
2,449

2,360

(89
)
799

696

(103
)
3,248

3,056

(192
)
Foreign govt./govt. agencies
542

501

(41
)
303

227

(76
)
845

728

(117
)
Municipal
508

475

(33
)
99

83

(16
)
607

558

(49
)
RMBS
922

909

(13
)
475

440

(35
)
1,397

1,349

(48
)
U.S. Treasuries
1,456

1,442

(14
)
—

—

—

1,456

1,442

(14
)
Total fixed maturities, AFS
6,666

6,459

(207
)
3,671

3,326

(344
)
10,337

9,785

(551
)
Equity securities, AFS
77

73

(4
)
135

114

(21
)
212

187

(25
)
Total securities in an unrealized loss position
$
6,743

$
6,532

$
(211
)
$
3,806

$
3,440

$
(365
)
$
10,549

$
9,972

$
(576
)
[1]
Unrealized losses exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses).
As of June 30, 2014, AFS securities in an unrealized loss position, consisted of 1,210 securities, primarily in the corporate sector and securities backed by commercial and residential real estate, which are depressed primarily due to an increase in interest rates and wider credit spreads since the securities were purchased. As of June 30, 2014, 92% of these securities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during 2014 was primarily attributable to a decrease in interest rates and tighter credit spreads.

37
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Most of the securities depressed for twelve months or more relate to certain floating rate corporate securities with greater than 10 years to maturity concentrated in the financial services sector, structured securities with exposure to commercial and residential real estate, and certain investment grade perpetual preferred securities that contain “debt-like” characteristics that are classified as equity securities, AFS. Corporate financial services and perpetual preferred securities are primarily depressed because the securities have floating-rate coupons and have long-dated maturities or are perpetual. Commercial and residential real estate securities’ current market spreads continue to be wider than spreads at the securities' respective purchase dates, even though credit spreads have continued to tighten over the past five years. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above.
Mortgage Loans
 
June 30, 2014
December 31, 2013
 
Amortized Cost [1]
Valuation Allowance
Carrying Value
Amortized Cost [1]
Valuation Allowance
Carrying Value
Total commercial mortgage loans
$
3,242

$
(16
)
$
3,226

$
3,482

$
(12
)
$
3,470

[1]
Amortized cost represents carrying value prior to valuation allowances, if any.

As of June 30, 2014, and December 31, 2013, the carrying value of mortgage loans associated with the valuation allowance was $93 and $86, respectively. Included in the table above are mortgage loans held-for-sale with a carrying value and valuation allowance of $53 and $3, respectively, as of December 31, 2013. The carrying value of these loans is included in mortgage loans in the Company’s Condensed Consolidated Balance Sheets. There were no mortgage loans held-for-sale as of June 30, 2014. As of June 30, 2014, loans within the Company’s mortgage loan portfolio that have had extensions or restructurings other than what is allowable under the original terms of the contract are immaterial.
The following table presents the activity within the Company’s valuation allowance for mortgage loans. These loans have been evaluated both individually and collectively for impairment. Loans evaluated collectively for impairment are immaterial.
 
Six Months Ended June 30,
 
2014
2013
Balance, beginning of period
$
(12
)
$
(14
)
(Additions)/Reversals
(4
)
—

Deductions
—

2

Balance, end of period
$
(16
)
$
(12
)
The weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 58% as of June 30, 2014, while the weighted-average LTV ratio at origination of these loans was 63%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan values are updated no less than annually through property level reviews of the portfolio. Factors considered in the property valuation include, but are not limited to, actual and expected property cash flows, geographic market data and capitalization rates. DSCR compare a property’s net operating income to the borrower’s principal and interest payments. The Company held no delinquent commercial mortgage loans as of June 30, 2014.
The following table presents the carrying value of the Company’s commercial mortgage loans by LTV and DSCR.
Commercial Mortgage Loans Credit Quality
 
June 30, 2014
December 31, 2013
Loan-to-value
Carrying Value
Avg. Debt-Service Coverage Ratio
Carrying Value
Avg. Debt-Service Coverage Ratio
Greater than 80%
$
25

1.19x
$
35

1.15x
65% - 80%
464

1.80x
777

1.94x
Less than 65%
2,737

2.46x
2,658

2.34x
Total commercial mortgage loans
$
3,226

2.35x
$
3,470

2.23x

38
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

The following tables present the carrying value of the Company’s mortgage loans by region and property type.
Mortgage Loans by Region
 
June 30, 2014
December 31, 2013
 
Carrying Value
Percent of Total
Carrying Value
Percent of Total
East North Central
$
73

2.3%
$
79

2.3%
Middle Atlantic
243

7.5%
255

7.3%
Mountain
35

1.1%
40

1.2%
New England
146

4.5%
163

4.7%
Pacific
872

27.0%
1,019

29.4%
South Atlantic
554

17.2%
548

15.8%
West North Central
15

0.5%
17

0.5%
West South Central
124

3.8%
144

4.1%
Other [1]
1,164

36.1%
1,205

34.7%
Total mortgage loans
$
3,226

100.0%
$
3,470

100.0%
[1]
Primarily represents loans collateralized by multiple properties in various regions.
Mortgage Loans by Property Type
 
June 30, 2014
December 31, 2013
 
Carrying Value
Percent of Total
Carrying Value
Percent of Total
Commercial
 
 
 
 
Agricultural
$
36

1.1%
$
93

2.7%
Industrial
1,136

35.2%
1,182

34.1%
Lodging
26

0.8%
27

0.8%
Multifamily
533

16.5%
576

16.6%
Office
662

20.5%
723

20.8%
Retail
718

22.3%
745

21.5%
Other
115

3.6%
124

3.5%
Total mortgage loans
$
3,226

100.0%
$
3,470

100.0%
Variable Interest Entities
The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral or investment manager and as an investor through normal investment activities.
A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.
The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.

39
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Consolidated VIEs
The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its collateral or investment management services and original investment.
 
June 30, 2014
December 31, 2013
 
Total Assets
Total Liabilities  [1]
Maximum Exposure to Loss [2]
Total Assets
Total Liabilities  [1]
Maximum Exposure to Loss [2]
CDOs [3]
$
6

$
6

$
—

$
12

$
13

$
—

Investment funds [4]
140

20

125

134

20

119

Limited partnerships and other alternative investments
3

1

2

4

2

2

Total
$
149

$
27

$
127

$
150

$
35

$
121

[1]
Included in other liabilities in the Company’s Condensed Consolidated Balance Sheets.
[2]
The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.
[3]
Total assets included in fixed maturities, AFS in the Company’s Condensed Consolidated Balance Sheets.
[4]
Total assets included in fixed maturities, FVO, short-term investments, and equity, AFS in the Company’s Condensed Consolidated Balance Sheets.
CDOs represent structured investment vehicles for which the Company has a controlling financial interest as it provides collateral management services, earns a fee for those services and also holds investments in the securities issued by these vehicles. Investment funds represents wholly-owned fixed income funds for which the Company has exclusive management and control including management of investment securities which is the activity that most significantly impacts its economic performance. Limited partnerships represent one hedge fund of funds for which the Company holds a majority interest in the fund as an investment.
Non-Consolidated VIEs
The Company, through normal investment activities, makes passive investments in structured securities issued by VIEs for which the Company is not the manager which are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
Repurchase and Dollar Roll Agreements and Other Collateral Transactions
The Company enters into repurchase agreements and dollar roll transactions to manage liquidity or to earn incremental spread income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. A dollar roll is a type of repurchase agreement where a mortgage backed security is sold with an agreement to repurchase substantially the same security at a specified time in the future. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.
As part of repurchase agreements and dollar roll transactions, the Company transfers collateral of U.S. government and government agency securities and receives cash. For the repurchase agreements, the Company obtains cash in an amount equal to at least 95% of the fair value of the securities transferred. The agreements contain contractual provisions that require additional collateral to be transferred when necessary and provide the counterparty the right to sell or re-pledge the securities transferred. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities. Repurchase agreements include master netting provisions that provide the counterparties the right to offset claims and apply securities held by them with respect to their obligations in the event of a default. Although the Company has the contractual right to offset claims, fixed maturities do not meet the specific conditions for net presentation under U.S. GAAP. The Company accounts for the repurchase agreements and dollar roll transactions as collateralized borrowings. The securities transferred under repurchase agreements and dollar roll transactions are included in fixed maturities, AFS with the obligation to repurchase those securities recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets.

40
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

As of June 30, 2014, the Company reported financial collateral pledged, related to dollar roll transactions, with a fair value of $43 in fixed maturities, AFS with a corresponding obligation to repurchase $43 reported in other liabilities. The Company had no outstanding dollar roll transactions as of December 31, 2013. The Company had no outstanding repurchase agreements as of June 30, 2014 and December 31, 2013.
The Company is required by law to deposit securities with government agencies in states where it conducts business. As of June 30, 2014 and December 31, 2013 the fair value of securities on deposit was approximately $14 and $13, respectively.
Refer to Derivative Collateral Arrangements section of this note for disclosure of collateral in support of derivative transactions.
Derivative Instruments
The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would be permissible investments under the Company’s investment policies. The Company also may enter into and has previously issued financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or may contain features that are deemed to be embedded derivative instruments, such as the GMWB benefit included with certain variable annuity products.
Strategies that qualify for hedge accounting
Certain derivatives that the Company enters into satisfy the hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements, included in the Company’s 2013 Form 10-K Annual Report. Typically, these hedge relationships include interest rate and foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The swaps are typically used to manage interest rate duration of certain fixed maturity securities or liability contracts. The hedge strategies by hedge accounting designation include:
Cash flow hedges
Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on floating-rate fixed maturity securities to fixed rates. Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.
Fair value hedges
Interest rate swaps are used to hedge the changes in fair value of fixed maturity securities due to fluctuations in interest rates. Foreign currency swaps are used to hedge the changes in fair value of certain foreign currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping the fixed foreign payments to floating rate U.S. dollar denominated payments.
Non-qualifying strategies
Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's U.S. variable annuity products as well as the hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate and foreign currency risk of certain fixed maturities and liabilities do not qualify for hedge accounting. The Company also had non-qualifying hedge programs related to the variable annuity and fixed annuity products sold in Japan that were terminated due to the recapture of reinsurance agreements with HLIKK, a former Japanese affiliate, on June 30, 2014.
The non-qualifying strategies include:
Interest rate swaps, swaptions and futures
The Company uses interest rate swaps, swaptions and futures to manage duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of June 30, 2014 and December 31, 2013 the notional amount of interest rate swaps in offsetting relationships was $4.7 billion and $4.5 billion, respectively.
Foreign currency swaps and forwards
The Company enters into foreign currency swaps and forwards to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.

41
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Japan 3Win fixed payout annuity hedge
The Company formerly reinsured certain variable annuity products with a GMIB through HLIKK, a former Japanese affiliate that was sold on June 30, 2014. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements. The Company will continue to reinsure fixed payout annuities related to the GMIB formerly written by HLIKK. The Company invests in U.S. dollar denominated assets to support the reinsurance liability. The Company entered into pay U.S. dollar, receive yen swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.
Credit contracts
Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in value on fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk related to credit derivatives embedded within certain fixed maturity securities which are comprised of structured securities that contain credit derivatives that reference a standard index of corporate securities. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.
Equity index swaps and options
The Company enters into equity index options and futures with the purpose of hedging the impact of an adverse equity market environment on the investment portfolio. In addition, the Company formerly offered certain equity indexed products, a portion of which contain embedded derivatives that require bifurcation. The Company uses equity index swaps and options to economically hedge the equity volatility risk associated with the equity indexed products.
GMWB derivatives, net
The Company formerly offered certain variable annuity products with GMWB riders. The GMWB product is a bifurcated embedded derivative (“GMWB product derivatives”) that has a notional value equal to the guaranteed remaining balance ("GRB"). The Company uses reinsurance contracts to transfer a portion of its risk of loss due to GMWB. The reinsurance contracts covering GMWB (“GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB amount.
The Company utilizes derivatives (“GMWB hedging instruments”) as part of an actively managed program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB riders due to changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options and futures, on certain indices including the S&P 500 index, EAFE index and NASDAQ index. The following table presents notional and fair value for GMWB hedging instruments.
 
Notional Amount
Fair Value
 
June 30, 2014
December 31, 2013
June 30, 2014
December 31, 2013
Customized swaps
$
7,514

$
7,839

$
64

$
74

Equity swaps, options, and futures
4,104

4,237

16

44

Interest rate swaps and futures
3,925

6,615

(7
)
(77
)
Total
$
15,543

$
18,691

$
73

$
41

Macro hedge program
The Company utilizes equity options, swaps and foreign currency options to partially hedge against a decline in the equity markets and the resulting statutory surplus and capital impact primarily arising from the GMDB and GMWB obligations. The following table represents notional and fair value for the macro hedge program.
 
Notional Amount
Fair Value
 
June 30, 2014
December 31, 2013
June 30, 2014
December 31, 2013
Equity options and swaps
4,374

9,934

120

139

Foreign currency options
874

—

—

—

Total
$
5,248

$
9,934

$
120

$
139


42
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Hedge programs formerly associated with Japan
The Company formerly reinsured certain fixed annuity contracts and variable annuity products with a GMWB or a GMAB through reinsurance agreements with HLIKK, a former Japanese affiliate. HLIKK was sold by HLI on June 30, 2014, and concurrent with the sale, HLIKK recaptured certain risks reinsured to the Company, including risks associated with GMIB, GMAB and GMWB contracts, which had been accounted for as derivatives ("GMIB, GMAB, and GMWB reinsurance contracts"). For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements. For further information on the GMIB, GMAB, and GMWB reinsurance contracts, see Note 5 - Investments and Derivative Instruments of Notes to Consolidated Financial Statements included in the Company's 2013 Form 10-K Annual Report.
As of June 30, 2014, by either terminating or offsetting open derivative positions, the Company effectively terminated the hedge program associated with the currency and interest rate risk related to the reinsured Japan fixed annuity product ("Japan fixed annuity hedging instruments") and the hedge program associated with the capital market impacts related to the reinsured guaranteed benefits within the Japan variable annuity contracts ("International program hedging instruments"). For further information on the former Japan fixed annuity hedging instruments and hedge program associated with the Japan variable annuity product, see Note 5 - Investments and Derivative Instruments of Notes to Consolidated Financial Statements included in the Company's 2013 Form 10-K Annual Report. Although the hedge programs have been effectively terminated as of June 30, 2014, derivative positions relating to foreign currency forwards and equity index swaps remain. For the positions that remain, the Company has executed offsetting positions to neutralize exposure (“Derivative instruments formerly associated with Japan"), the majority of which will expire by year-end. The total notional amount of these positions as of June 30, 2014 is $18.0 billion and consists of $8.9 billion related to long positions and $9.1 billion related to short positions.
The following table represents notional and fair value amounts that were associated with the international program hedging instruments as of December 31, 2013
 
December 31, 2013
 
Notional Amount
Fair Value
Credit derivatives
$
350

$
5

Currency forwards [1]
8,778

24

Currency options
8,408

(58
)
Equity futures
999

—

Equity options
1,022

(63
)
Equity swaps
3,830

(95
)
Customized swaps
—

—

Interest rate futures
566

—

Interest rate swaps and swaptions
33,072

160

Total
$
57,025

$
(27
)
[1]
 As of December 31, 2013 net notional amounts were $(1.6) billion which included $3.6 billion related to long positions and $5.2 billion related to short positions.
Coinsurance and modified coinsurance reinsurance contracts
During 2010, a subsidiary entered into a coinsurance with funds withheld and modified coinsurance reinsurance agreement with an affiliated captive reinsurer, which creates an embedded derivative. In addition, provisions of this agreement include reinsurance to cede a portion of direct written U.S. GMWB riders, which is accounted for as an embedded derivative. Additional provisions of this agreement cede variable annuity GMIB, GMAB and GMWB contracts reinsured by the Company that had been assumed from HLIKK and were accounted for as a free-standing derivative. Effective April 1, 2014, this agreement was terminated. For further information on this transaction, refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
As of June 30, 2014 and December 31, 2013 the Company had approximately $1.3 billion of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business structured as a reinsurance transaction. The assets are primarily held in a trust established by the Company. The Company pays or receives cash quarterly to settle the results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value due to interest rate and credit risks of these assets. The notional amounts of the reinsurance contracts are the invested assets that are carried at fair value supporting the reinsured reserves.

43
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Derivative Balance Sheet Classification
The following table summarizes the balance sheet classification of the Company’s derivative related fair value amounts as well as the gross asset and liability fair value amounts. For reporting purposes, the Company has elected to offset the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The Company has also elected to offset the fair value amounts, income accruals and related cash collateral receivables and payables of OTC-cleared derivative instruments based on clearing house agreements. The fair value amounts presented below do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts, where the associated gains and losses accrue directly to policyholders, are not included. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. The tables below exclude investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 3 - Fair Value Measurements.

44
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

 
Net Derivatives
Asset Derivatives
Liability Derivatives
 
Notional Amount
Fair Value
Fair Value
Fair Value
Hedge Designation/ Derivative Type
Jun 30, 2014
Dec 31, 2013
Jun 30, 2014
Dec 31, 2013
Jun 30, 2014
Dec 31, 2013
Jun 30, 2014
Dec 31, 2013
Cash flow hedges
 
 
 
 
 
 
 
 
Interest rate swaps
$
2,792

$
3,215

$
33

$
16

$
37

$
49

$
(4
)
$
(33
)
Foreign currency swaps
143

143

(9
)
(5
)
2

2

(11
)
(7
)
Total cash flow hedges
2,935

3,358

24

11

39

51

(15
)
(40
)
Fair value hedges
 
 
 
 
 
 
 
 
Interest rate swaps
27

1,261

—

(24
)
—

2

—

(26
)
Total fair value hedges
27

1,261

—

(24
)
—

2

—

(26
)
Non-qualifying strategies
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
Interest rate swaps, swaptions, caps, floors, and futures
4,843

4,633

(344
)
(368
)
231

123

(575
)
(491
)
Foreign exchange contracts
 
 
 
 
 
 
 
 
Foreign currency swaps and forwards
104

118

(6
)
(4
)
6

6

(12
)
(10
)
Japan 3Win fixed payout annuity hedge
1,571

1,571

(326
)
(354
)
—

—

(326
)
(354
)
Japanese fixed annuity hedging instruments
—

1,436

—

(6
)
—

88

—

(94
)
Credit contracts
 
 
 
 
 
 
 
 
Credit derivatives that purchase credit protection
249

243

(10
)
(4
)
—

—

(10
)
(4
)
Credit derivatives that assume credit risk [1]
1,090

1,507

19

27

20

28

(1
)
(1
)
Credit derivatives in offsetting positions
2,278

3,501

(1
)
(3
)
24

35

(25
)
(38
)
Equity contracts
 
 
 
 
 
 
 
 
Equity index swaps and options
150

131

(2
)
(2
)
22

18

(24
)
(20
)
Variable annuity hedge program
 
 
 
 
 
 
 
 
GMWB product derivatives [2]
19,596

21,512

2

(36
)
15

—

(13
)
(36
)
GMWB reinsurance contracts
4,042

4,508

31

29

31

29

—

—

GMWB hedging instruments
15,543

18,691

73

41

227

333

(154
)
(292
)
Macro hedge program
5,248

9,934

120

139

149

178

(29
)
(39
)
International program hedging instruments
—

57,025

—

(27
)
—

649

—

(676
)
Other
 
 
 
 
 
 
 
 
GMIB, GMAB, and GMWB reinsurance contracts
—

11,999

—

(540
)
—

—

—

(540
)
Coinsurance and modified coinsurance reinsurance contracts
1,280

29,423

32

(427
)
32

383

—

(810
)
Derivative instruments formerly associated with Japan [3]
18,026

—

54

—

151

—

(97
)
—

Total non-qualifying strategies
74,020

166,232

(358
)
(1,535
)
908

1,870

(1,266
)
(3,405
)
Total cash flow hedges, fair value hedges, and non-qualifying strategies
$
76,982

$
170,851

$
(334
)
$
(1,548
)
$
947

$
1,923

$
(1,281
)
$
(3,471
)
Balance Sheet Location
 
 
 
 
 
 
 
 
Fixed maturities, available-for-sale
$
199

$
196

$
1

$
(1
)
$
1

$
—

$
—

$
(1
)
Other investments
24,988

40,564

183

272

399

721

(216
)
(449
)
Other liabilities
26,820

62,590

(559
)
(825
)
469

789

(1,028
)
(1,614
)
Consumer notes
8

9

(2
)
(2
)
—

—

(2
)
(2
)
Reinsurance recoverable
5,322

33,931

63

(398
)
63

413

—

(811
)
Other policyholder funds and benefits payable
19,645

33,561

(20
)
(594
)
15

—

(35
)
(594
)
Total derivatives
$
76,982

$
170,851

$
(334
)
$
(1,548
)
$
947

$
1,923

$
(1,281
)
$
(3,471
)
[1]
 The derivative instruments related to this strategy are held for other investment purposes.
[2]
These derivatives are embedded within liabilities and are not held for risk management purposes.
[3]
The notional amount consists of $8.9 billion related to long positions and $9.1 billion related to short positions.

45
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Change in Notional Amount
The net decrease in notional amount of derivatives since December 31, 2013 was primarily due to the following:
•
The decrease in notional amount related to the international program hedging instruments resulted from the termination of the hedging program associated with the Japan variable annuity product due to the sale of HLIKK. However, as discussed above, a portion of the derivatives associated with the Japan business remain open as of June 30, 2014. In addition, the GMIB, GMAB, and GMWB reinsurance contracts were terminated as a result of the recapture of the related risks by HLIKK, which was concurrent with the sale. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
•
The decrease in notional amount related to coinsurance and modified coinsurance reinsurance contracts was due to the termination of certain contracts, which were with an affiliated captive reinsurer and were accounted for as an embedded derivative. For further discussion on this transaction, see Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
•
The decrease in notional amount related to the GMWB hedging instruments primarily resulted from portfolio re-balancing.
•
The decrease in notional amount associated with the macro hedge program was primarily driven by the expiration of certain out-of-the-money options.
Change in Fair Value
The net increase in the total fair value of derivative instruments since December 31, 2013 was primarily related to the following:
•
The change in fair value related to the coinsurance and modified coinsurance reinsurance contracts was due to the termination of certain contracts, which were with an affiliated captive reinsurer and were accounted for as an embedded derivative.  For discussion on this transaction, see Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
•
The change in fair value associated with the GMIB, GMAB, and GMWB reinsurance contracts and the international program hedging instruments resulted from the sale of HLIKK and concurrent recapture of the associated risks by HLIKK. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
•
The change in fair value related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by improving equity markets for the GMWB product and declining interest rates for the hedging derivatives.
Offsetting of Derivative Assets/Liabilities
The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described above. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.

46
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

As of June 30, 2014
 
(i)
 
(ii)
 
(iii) = (i) - (ii)
(iv)
 
(v) = (iii) - (iv)
 
 
 
 
 
Net Amounts Presented in the Statement of Financial Position
 
Collateral Disallowed for Offset in the Statement of Financial Position
 
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Derivative Assets [1]
 
Accrued Interest and Cash Collateral Received [2]
 
Financial Collateral Received [4]
 
Net Amount
Description
 
 
 
 
 
 
 
 
 
 
 
Other investments
$
868

 
$
731

 
$
183

 
$
(46
)
 
$
43

 
$
94

 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Derivative Liabilities [3]
 
Accrued Interest and Cash Collateral Pledged [3]
 
Financial Collateral Pledged [4]
 
Net Amount
Description
 
 
 
 
 
 
 
 
 
 
 
Other liabilities
$
(1,244
)
 
$
(696
)
 
$
(559
)
 
$
11

 
$
(769
)
 
$
221



As of December 31, 2013
 
(i)
 
(ii)
 
(iii) = (i) - (ii)
(iv)
 
(v) = (iii) - (iv)
 
 
 
 
 
Net Amounts Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Derivative Assets [1]
 
Accrued Interest and Cash Collateral Received [2]
 
Financial Collateral Received [4]
 
Net Amount
Description
 
 
 
 
 
 
 
 
 
 
 
Other investments
$
1,510

 
$
1,290

 
$
272

 
$
(52
)
 
$
121

 
$
99

 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Derivative Liabilities [3]
 
Accrued Interest and Cash Collateral Pledged [3]
 
Financial Collateral Pledged [4]
 
Net Amount
Description
 
 
 
 
 
 
 
 
 
 
 
Other liabilities
$
(2,063
)
 
$
(1,308
)
 
$
(825
)
 
$
70

 
$
(826
)
 
$
71

[1]
Included in other invested assets in the Company's Condensed Consolidated Balance Sheets.
[2]
Included in other assets in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.
[3]
Included in other liabilities in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.
[4]
Excludes collateral associated with exchange-traded derivative instruments.


47
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:
Derivatives in Cash Flow Hedging Relationships
 
Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Net Realized Capital Gains(Losses) Recognized in Income on Derivative (Ineffective Portion)
 
Three months ended June 30,
 
Six months ended June 30,
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
2013
 
2014
2013
 
2014
2013
 
2014
2013
Interest rate swaps
$
20

$
(84
)
 
$
30

$
(126
)
 
$
—

$
(2
)
 
$
(1
)
$
(2
)
Foreign currency swaps
(2
)
5

 
(3
)
6

 
—

—

 
—

—

Total
$
18

$
(79
)
 
$
27

$
(120
)
 
$
—

$
(2
)
 
$
(1
)
$
(2
)
 
 
Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
Location
2014
2013
 
2014
2013
Interest rate swaps
Net realized capital gain/(loss)
$
—

$
2

 
$
1

$
66

Interest rate swaps
Net investment income
3

15

 
26

29

Foreign currency swaps
Net realized capital gain/(loss)
—

1

 
—

(2
)
Total
 
$
3

$
18

 
$
27

$
93

As of June 30, 2014 the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $41. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows.
During the three and six months ended June 30, 2014 and June 30, 2013 the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

48
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
The Company recognized in income gains (losses) representing the ineffective portion of fair value hedges as follows:
Derivatives in Fair-Value Hedging Relationships
 
Gain or (Loss) Recognized in Income [1]
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
 
Derivative
Hedge Item
 
Derivative
Hedge Item
 
Derivative
Hedge Item
 
Derivative
Hedge Item
Interest rate swaps
 
 
 
 
 
 
 
 
 
 
 
Net realized capital gain/(loss)
$
(1
)
$
1

 
$
16

$
(22
)
 
$
(2
)
$
2

 
$
22

$
(30
)
Foreign currency swaps
 
 
 
 
 
 
 
 
 
 
 
Net realized capital gain/(loss)
—

—

 
—

—

 
—

—

 
(2
)
2

Benefits, losses and loss adjustment expenses
—

—

 
—

—

 
—

—

 
(1
)
1

Total
$
(1
)
$
1

 
$
16

$
(22
)
 
$
(2
)
$
2

 
$
19

$
(27
)
[1]
 The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item. The net of the amounts presented represents the ineffective portion of the hedge.

49
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Non-qualifying Strategies
For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). The following table presents the gain or loss recognized in income on non-qualifying strategies:
Derivatives Used in Non-Qualifying Strategies
Gain or (Loss) Recognized within Net Realized Capital Gains and Losses
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
2013
 
2014
2013
Interest rate contracts
 
 
 
 
 
Interest rate swaps, caps, floors, and forwards
$
(2
)
$
(18
)
 
$
(1
)
$
(8
)
Foreign exchange contracts
 
 
 
 
 
Foreign currency swaps and forwards
1

5

 
2

5

Japan 3Win fixed payout annuity hedge [1]
13

(54
)
 
28

(184
)
Japanese fixed annuity hedging instruments [2]
10

(55
)
 
22

(156
)
Credit contracts
 
 
 
 
 
Credit derivatives that purchase credit protection
(3
)
(4
)
 
(6
)
(9
)
Credit derivatives that assume credit risk
11

11

 
11

20

Equity contracts
 
 
 
 
 
Equity index swaps and options
1

(2
)
 
1

(16
)
Variable annuity hedge program
 
 
 
 
 
GMWB product derivatives
55

192

 
91

648

GMWB reinsurance contracts
(7
)
(32
)
 
(11
)
(92
)
GMWB hedging instruments
(54
)
(191
)
 
(71
)
(540
)
Macro hedge program
(15
)
(47
)
 
(25
)
(132
)
International program hedging instruments
(103
)
(516
)
 
(126
)
(599
)
Other
 
 
 
 
 
GMIB, GMAB, and GMWB reinsurance contracts
528

274

 
579

611

Coinsurance and modified coinsurance reinsurance contracts
524

(302
)
 
394

(701
)
Total [3]
$
959

$
(739
)
 
$
888

$
(1,153
)
[1]
The associated liability is adjusted for changes in spot rates through realized capital gains and was $(18) and $72 for the three months ended June 30, 2014 and 2013, respectively and $(46) and $189, for the six months ended June 30, 2014 and 2013, respectively.
[2]
 The associated liability is adjusted for changes in spot rates through realized capital gains and was $(22) and $91 for the three months ended June 30, 2014 and 2013, respectively, and $(51) and $241, for the six months ended June 30, 2014 and 2013, respectively.
[3]
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 3 - Fair Value Measurements.
For the three months and six months ended June 30, 2014 the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:
•
The net gain on the coinsurance and modified coinsurance reinsurance contracts is primarily due to the termination of certain contracts, which were with an affiliated captive reinsurer and were accounted for as an embedded derivative. For a discussion related to the reinsurance agreement and the termination, refer to Note 5 - Reinsurance, and Note 11 - Transactions with Affiliates of the Notes to the Condensed Consolidated Financial Statements.
•
The net gain on the GMIB, GMAB, and GMWB reinsurance contracts was driven by the sale of HLIKK and concurrent recapture of the associated risks by HLIKK. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
•
The net gain related to the Japan 3Win fixed payout annuity hedge was driven by an appreciation of the Japanese yen in relation to the U.S. dollar.

50
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

•
The net loss associated with the international program hedging instruments was primarily driven by an improvement in global equity markets and declines in volatility levels and interest rates.
•
The net loss on the macro hedge program was primarily due to an improvement in domestic equity markets and lower equity volatility.
In addition, for the three and six months ended June 30, 2014, the Company received gains of $4 and $11, respectively, due to cash recovered on derivative receivables that were previously written-off related to the bankruptcy of Lehman Brothers Inc. The derivatives receivables were the result of the contractual collateral threshold amounts and open collateral calls prior to the bankruptcy filing as well as interest rate and credit spread movements from the date of the last collateral call to the date of the bankruptcy filing.
For the three months and six months ended June 30, 2013 the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:
•
The net losses associated with the international program hedging instruments were primarily driven by an improvement in global equity markets, depreciation of the Japanese yen in relation to the euro and the U.S. dollar, and an increase in Japanese interest rates.
•
The net gains on derivatives associated with GMAB, GMWB, and GMIB reinsurance contracts, which were reinsured to an affiliated captive reinsurer, were primarily due to an improvement in global and domestic equity markets and a depreciation of the Japanese yen.
•
The net losses on the coinsurance and modified coinsurance reinsurance agreement, which is accounted for as a derivative instrument, primarily offset the net gains on GMAB, GMWB, and GMIB reinsurance contracts. For a discussion related to the reinsurance agreement refer to Note 11 - Transactions with Affiliates for more information on this transaction.
•
The net losses related to the Japanese fixed annuity hedging instruments and the Japan 3Win fixed payout annuity hedges were primarily due to depreciation of the Japanese yen in relation to the U.S. dollar.
•
For the three months ended June 30, 2013 the net loss related to the combined U.S. GMWB hedging program, which includes the U.S. GMWB product, reinsurance, and hedging derivatives, was primarily a result of an increase in interest rates, and an increase in fees for selected GMWB riders, partially offset by gains driven by favorable policyholder behavior. For the six months ended June 30, 2013 the net gain related to the combined U.S. GMWB hedging program, which includes the U.S. GMWB product, reinsurance, and hedging derivatives, was primarily driven by favorable policyholder behavior, partially offset by an increase in interest rates, and an increase fees for selected GMWB riders.
For additional disclosures regarding contingent credit related features in derivative agreements, see Note 9 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.
Credit Risk Assumed through Credit Derivatives
The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard and customized diversified portfolios of corporate issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.
The following tables present the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type and average credit ratings, and offsetting notional amounts and fair value for credit derivatives in which the Company is assuming credit risk as of June 30, 2014 and December 31, 2013.

51
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

 As of June 30, 2014
 
 
 
 
Underlying Referenced
Credit Obligation(s) [1]
 
 
Credit Derivative type by derivative
risk exposure
Notional
Amount [2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair Value [3]
Single name credit default swaps
 
 
 
 
 
 
 
Investment grade risk exposure
$
173

$
3

3 years
Corporate Credit/ Foreign Gov.
BBB+
$
162

$
(3
)
Below investment grade risk exposure
4

—

1 year
Corporate Credit
CCC
4

—

Basket credit default swaps [4]
 
 
 
 
 
 
 
Investment grade risk exposure
1,498

24

4 years
Corporate Credit
BBB+
716

(9
)
Below investment grade risk exposure
33

3

5 years
Corporate Credit
B
—

—

Investment grade risk exposure
296

(3
)
5 years
CMBS Credit
AA
182

2

Below investment grade risk exposure
75

(10
)
3 years
CMBS Credit
CCC+
75

10

Embedded credit derivatives
 
 
 
 
 
 
 
Investment grade risk exposure
150

146

3 years
Corporate Credit
A-
—

—

Total [5]
$
2,229

$
163

 
 
 
$
1,139

$
—

 As of December 31, 2013
 
 
 
 
Underlying Referenced
Credit Obligation(s) [1]
 
 
Credit Derivative type by derivative
risk exposure
Notional
Amount [2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair Value [3]
Single name credit default swaps
 
 
 
 
 
 
 
Investment grade risk exposure
$
735

$
6

2 years
Corporate Credit/ Foreign Gov.
A
$
592

$
(4
)
Below investment grade risk exposure
24

—

1 year
Corporate Credit
CCC
25

—

Basket credit default swaps [4]
 
 
 
 
 
 
 
Investment grade risk exposure
1,912

25

3 years
Corporate Credit
BBB+
784

(10
)
Below investment grade risk exposure
87

8

5 years
Corporate Credit
BB-
—

—

Investment grade risk exposure
235

(5
)
3 years
CMBS Credit
A
235

5

Below investment grade risk exposure
115

(18
)
3 years
CMBS Credit
B-
115

18

Embedded credit derivatives
 
 
 
 
 
 
 
Investment grade risk exposure
150

145

3 years
Corporate Credit
BBB+
—

—

Total [5]
$
3,258

$
161

 
 
 
$
1,751

$
9

[1]
 The average credit ratings are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, Fitch, and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.
[2]
Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements and clearing house rules and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses going forward.
[3]
The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.
[4]
Includes $1.9 billion and $2.3 billion as of June 30, 2014 and December 31, 2013, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.
[5]
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 3 - Fair Value Measurements.

52
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments and Derivative Instruments (continued)

Derivative Collateral Arrangements
The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of June 30, 2014 and December 31, 2013 the Company pledged securities collateral associated with derivative instruments with a fair value of $781 and $865, respectively, which have been included in fixed maturities on the Condensed Consolidated Balance Sheets. The counterparties have the right to sell or re-pledge these securities. The Company also pledged cash collateral associated with derivative instruments with a fair value of $80 and $290, respectively, as of June 30, 2014 and December 31, 2013 which have been primarily included within other assets on the Company's Condensed Consolidated Balance Sheets.
As of June 30, 2014 and December 31, 2013 the Company accepted cash collateral associated with derivative instruments with a fair value of $5 and $171, respectively, which was invested and recorded in the Company's Condensed Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other liabilities. The Company also accepted securities collateral as of June 30, 2014 and December 31, 2013 of $43 and $121, respectively, of which the Company has the ability to sell or repledge $43 and $117, respectively. As of June 30, 2014 and December 31, 2013 the fair value of repledged securities totaled $0 and $39, respectively, and the Company did not sell any securities. In addition, as of June 30, 2014 and December 31, 2013 non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.

53
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Reinsurance

The Company cedes insurance to affiliated and unaffiliated insurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include careful initial selection of its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.
Concurrent with the sale of HLIKK, HLIKK recaptured certain risks that had been reinsured to the Company and HLAI by terminating or modifying intercompany agreements. Upon closing, HLIKK is responsible for all liabilities of the recaptured business. HLAI will continue to provide reinsurance for approximately $1.1 billion of fixed payout annuities related to the 3Win product formerly written by HLIKK. For further discussion of this transaction, see Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
The Company entered into two reinsurance transactions in connection with the sales of its Retirement Plans and Individual Life businesses in January 2013. For further discussion of these transactions, see Note 2 - Business Dispositions of Notes to Condensed Consolidated Financial Statements.
The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Insurance recoveries on ceded reinsurance agreements, which reduce death and other benefits, were $209 and $416 for three and six months ended June 30, 2014, respectively, and $238 and $469 for the three and six months ended June 30, 2013, respectively. In addition, the Company has reinsured a portion of the risk associated with U.S. variable annuities and the associated GMDB and GMWB riders.
The Company maintains a reinsurance agreement with HLA, whereby the Company cedes group life, accident and health risks. Under the treaty, the Company ceded group life premium of $20 and $42 for the three and six months ended June 30, 2014, respectively, and $17 and $24 for the three and six months ended June 30, 2013, respectively. The Company ceded accident and health premiums to HLA of $60 and $279, respectively, and $41 and $83 for three and six months ended June 30, 2013, respectively.
Until April 1, 2014, HLAI had a modified coinsurance ("modco") and coinsurance with funds withheld reinsurance agreement with an affiliated captive reinsurer. Under this agreement, the Company ceded $5 for the six months ended June 30, 2014, and $8 and $18 for the three and six months ended June 30, 2013, respectively. For further information regarding the WRR reinsurance agreement, see Note 11 -Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
Reinsurance Recoverables
The Company's reinsurance recoverables are summarized as follows:
 
As of June 30,
As of December 31,
 
2014
2013
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable
 
 
Sold businesses (MassMutual and Prudential)
$
18,485

$
18,969

Other reinsurers
1,495

825

        Gross reinsurance recoverables
$
19,980

$
19,794

As of June 30, 2014, the Company has reinsurance recoverables from MassMutual and Prudential of $8.8 billion and $9.7 billion, respectively. These reinsurance recoverables are secured by invested assets held in trust for the benefit of the Company in the event of a default by the reinsurers. As of June 30, 2014, the fair value of assets held in trust securing the reinsurance recoverables from MassMutual and Prudential were $9.8 billion and $8.2 billion, respectively. As of June 30, 2014, the net reinsurance recoverables from Prudential represents approximately 16% of the Company's consolidated stockholders' equity. As of June 30, 2014, the Company has no other reinsurance-related concentrations of credit risk greater than 10% of the Company’s consolidated stockholder's equity.
Insurance revenues
Net income, earned premiums and other were comprised of the following:  
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2014
2013
2014
2013
Gross fee income, earned premiums and other
$
819

$
830

$
1,641

$
1,667

Reinsurance assumed
19

32

37

35

Reinsurance ceded
(472
)
(464
)
(1,118
)
(912
)
Fee income, earned premiums and other
$
366

$
398

$
560

$
790



54
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Deferred Policy Acquisition Costs and Present Value of Future Profits

Changes in the Deferred Policy Acquisition Costs ('DAC") and present value of future profits balances are as follows:
 
Six Months Ended June 30,
 
2014
2013
Balance, beginning of period
$
689

$
3,072

Deferred costs
9

5

Amortization — DAC
(55
)
(68
)
Amortization — Unlock benefit (charge), pre-tax
1

(3
)
Amortization — DAC related to business dispositions [1] [2]
—

(2,229
)
Adjustments to unrealized gains and losses on securities available-for-sale and other
(48
)
53

Balance, end of period
$
596

$
830

[1]
Includes accelerated amortization of $352 and $2,374 recognized upon the sale of the Retirement Plans and Individual Life businesses, respectively, in the six months ended June 30, 2013. For further information, see Note 2 - Business Dispositions of Notes to Consolidated Financial Statements.
[2]
Includes previously unrealized gains on securities AFS of $148 and $349 recognized upon the sale of the Retirement Plans and Individual Life businesses, respectively, in the six months ended June 30, 2013.

55
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Separate Accounts, Death Benefits and Other Insurance Benefit Features

Changes in the gross GMDB and UL secondary guarantee benefits are as follows:
 
GMDB
UL Secondary
Guarantees
Liability balance as of January 1, 2014
$
849

$
1,802

Incurred
89

115

Paid
(57
)
—

Unlock
(24
)
—

Liability balance as of June 30, 2014
$
857

$
1,917

Reinsurance recoverable asset, as of January 1, 2014
$
533

$
1,802

Incurred
52

115

Paid
(44
)
—

Unlock
(14
)
—

Reinsurance recoverable asset, as of June 30, 2014
$
527

$
1,917

 
GMDB
UL Secondary
Guarantees
Liability balance as of January 1, 2013
$
944

$
363

Incurred
98

185

Paid
(92
)
—

Unlock
(76
)
—

Impact of reinsurance transactions (MassMutual and Prudential)
—

1,143

Currency translation adjustment
(2
)
—

Liability balance as of June 30, 2013
$
872

$
1,691

Reinsurance recoverable asset, as of January 1, 2013
$
608

$
21

Incurred
54

185

Paid
(54
)
—

Unlock
(39
)
—

Impact of reinsurance transactions (MassMutual and Prudential)
—

1,485

Reinsurance recoverable asset, as of June 30, 2013
$
569

$
1,691

 













56
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

The following table presents details concerning GMDB exposure as of June 30, 2014:
Individual Variable Annuity Account Value by GMDB Type
Maximum anniversary value (“MAV”) [1]
Account
Value
(“AV”) [8]
Net Amount
at Risk
(“NAR”) [9]
Retained Net
Amount
at Risk
(“RNAR”) [9]
Weighted Average
Attained Age of
Annuitant
MAV only
$
18,744

$
2,728

$
463

70
With 5% rollup [2]
1,553

211

59

70
With Earnings Protection Benefit Rider (“EPB”) [3]
4,698

634

87

68
With 5% rollup & EPB
573

118

26

71
Total MAV
25,568

3,691

635

 
Asset Protection Benefit (APB) [4]
17,205

215

147

68
Lifetime Income Benefit (LIB) – Death Benefit [5]
704

7

7

67
Reset [6] (5-7 years)
3,194

53

52

69
Return of Premium [7] /Other
11,679

58

50

68
Subtotal U.S. GMDB
58,350

4,024

891

68
Less: General Account Value with U.S. GMDB
4,159

 
 
 
Subtotal Separate Account Liabilities with GMDB
54,191

 
 
 
Separate Account Liabilities without U.S. GMDB
87,319

 
 
 
Total Separate Account Liabilities
$
141,510

 
 
 
[1]
MAV: the GMDB is the greatest of current AV, net premiums paid and the highest AV on any anniversary before age 80 (adjusted for withdrawals).
[2]
 Rollup: the GMDB is the greatest of the MAV, current AV, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums.
[3]
EPB GMDB is the greatest of the MAV, current AV, or contract value plus a percentage of a contract’s growth. A contract’s growth is AV less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals.
[4]
APB GMDB is the greater of current AV or MAV, not to exceed current AV plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months).
[5]
LIB GMDB is the greatest of current AV, net premiums paid, or for certain contracts a benefit amount that ratchets over time, generally based on market performance.
[6]
Reset GMDB is the greatest of current AV, net premiums paid and the most recent five to seven year anniversary AV before age 80 (adjusted for withdrawals).
[7]
ROP: the GMDB is the greater of current AV and net premiums paid.
[8]
AV includes the contract holder’s investment in the separate account and the general account.
[9]
NAR is defined as the guaranteed benefit in excess of the current AV. RNAR is NAR reduced for reinsurances. NAR and RNAR are highly sensitive to equity market movements and increase when equity markets decline.
For a description of the Company’s guaranteed living benefits that are accounted for at fair value, see Note 3 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.
Account balances of contracts with death benefit guarantees were invested in variable separate accounts as follows:
Asset type
June 30, 2014
December 31, 2013
Equity securities (including mutual funds)
$
49,929

$
52,858

Cash and cash equivalents
4,262

4,605

Total
$
54,191

$
57,463

As of June 30, 2014 and December 31, 2013, approximately 17% of the equity securities above were invested in fixed income securities through these mutual funds and approximately 83% were invested in equity securities through these funds.

57
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Sales Inducements

Changes in sales inducement activity are as follows:
 
Six Months Ended June 30,
 
2014
2013
Balance, beginning of period
$
36

$
118

Amortization — Unlock
2

(1
)
Amortization charged to income
(4
)
(3
)
Amortization related to business dispositions [1]
—

(71
)
Balance, end of period
$
34

$
43

[1]
Includes $22 and $49, related to sale of the Company's Retirement Plans and Individual Life businesses, respectively, in the first quarter of 2013. For further information, see Note 2 -Business Dispositions of Notes to Condensed Consolidated Financial Statements.
9. Commitments and Contingencies
Litigation
The Company is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Company accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of the Company.
The Company is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of the Company. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows in particular quarterly or annual periods.
Derivative Commitments
Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of June 30, 2014, is $687. Of this $687 the legal entities have posted collateral of $835 in the normal course of business. In addition, the Company has posted collateral of $44 associated with a customized GMWB derivative. Based on derivative market values as of June 30, 2014, a downgrade of one or two levels below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.
On March 6, 2014, Moody’s lowered its counterparty credit and insurer financial strength ratings on Hartford Life Insurance Company to Baa2. Given this downgrade action, termination rating triggers of four derivative counterparty relationships were impacted. The counterparties have the right to terminate the relationships and would have to settle the outstanding derivatives as a result of exercising the termination right. The Company has re-negotiated the rating triggers with one counterparty, and is in the process of re-negotiating the rating triggers with the remaining three counterparties which it expects to successfully complete. Accordingly, the Company's hedging programs have not been adversely impacted by the announcement of the downgrade of Hartford Life Insurance Company. As of June 30, 2014, the notional amount and fair value related to this counterparty is $2.6 billion and $(47), respectively.

58
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stock Compensation Plans

The Hartford has three primary stock-based compensation plans. The Company is included in these plans and has been allocated compensation expense, after tax of $5 and $2 for the three months ended June 30, 2014 and 2013. The Company did not capitalize the cost of stock-based compensation.

11. Transactions with Affiliates
Parent Company Transactions
Transactions of the Company with Hartford Fire Insurance Company, Hartford Holdings and its affiliates relate principally to tax settlements, reinsurance, insurance coverage, rental and service fees, payment of dividends and capital contributions. In addition, an affiliated entity purchased group annuity contracts from the Company to fund structured settlement periodic payment obligations assumed by the affiliated entity as part of claims settlements with property casualty insurance companies and self-insured entities. As of June 30, 2014 and December 31, 2013, the Company had $54 of reserves for claim annuities purchased by affiliated entities. For the six months ended June 30, 2014 and 2013 the Company recorded earned premiums of $2 and $5, respectively, for these intercompany claim annuities. Substantially all general insurance expenses related to the Company, including rent and employee benefit plan expenses are initially paid by The Hartford. Direct expenses are allocated to the Company using specific identification, and indirect expenses are allocated using other applicable methods. Indirect expenses include those for corporate areas which, depending on type, are allocated based on either a percentage of direct expenses or on utilization.
The Company has issued a guarantee to retirees and vested terminated employees (“Retirees”) of The Hartford Retirement Plan for U.S. Employees (“the Plan”) who retired or terminated prior to January 1, 2004. The Plan is sponsored by The Hartford. The guarantee is an irrevocable commitment to pay all accrued benefits which the Retiree or the Retiree’s designated beneficiary is entitled to receive under the Plan in the event the Plan assets are insufficient to fund those benefits and The Hartford is unable to provide sufficient assets to fund those benefits. The Company believes that the likelihood that payments will be required under this guarantee is remote.
In 1990, Hartford Fire guaranteed the obligations of the Company with respect to life, accident and health insurance and annuity contracts issued after January 1, 1990. The guarantee was issued to provide an increased level of security to potential purchasers of the Company’s products. Although the guarantee was terminated in 1997, it still covers policies that were issued from 1990 to 1997. As of June 30, 2014 and June 30, 2013, no recoverables have been recorded for this guarantee, as the Company was able to meet these policyholder obligations.
Reinsurance Assumed from Affiliates
The Company and HLAI formerly reinsured certain fixed annuity products and variable annuity product GMDB, GMIB, GMWB and GMAB riders from HLIKK, a former Japanese affiliate that was sold on June 30, 2014 to ORIX Life Insurance Corporation (for further information, see Note 1 - Basis of Presentation and Significant Accounting Policies). As of December 31, 2013, $2.6 billion, of fixed annuity account value had been assumed by the Company and HLAI. At December 31, 2013, the carrying value of the GMIB liability and the GMAB/GMWB liability was $500 and $4 respectively. There was no liability for the assumed GMDB reinsurance and the net amount at risk for the assumed GMDB reinsurance was $200 at December 31, 2013.
Concurrent with the sale of HLIKK, HLIKK recaptured certain risks that had been reinsured to the Company and HLAI by terminating or modifying intercompany agreements. This recapture resulted in the Company and HLAI transferring approximately $1.6 billion of assets supporting the recaptured reserves. The Company recognized a loss on this recapture of $213. Upon closing, HLIKK is responsible for all liabilities of the recaptured business. HLAI will continue to provide reinsurance for approximately $1.1 billion of fixed payout annuities related to the 3Win product formerly written by HLIKK.
While the form of the agreement between HLAI and HLIKK for the GMWB, GMAB and GMIB riders was reinsurance, in substance and for accounting purposes the agreement was a free standing derivative. As such, the reinsurance agreement for these riders was recorded at fair value on the Company’s balance sheet, with prospective changes in fair value recorded in net realized capital gains (losses) in net income (loss). The GMDB reinsurance was accounted for as a Death Benefit and Other Insurance Benefit Reserve which was not reported at fair value.
Reinsurance Ceded to Affiliates
Until April 1, 2014, HLAI had a modified coinsurance (“modco”) and coinsurance with funds withheld reinsurance agreements with WRR. HLAI ceded to WRR variable annuity contracts, associated riders, and payout annuities written by HLAI; annuity contracts and associated riders assumed by HLAI under unaffiliated reinsurance agreements; GMAB, GMIB riders and GMDB risks assumed by HLAI from HLIKK; and, up until the sale of HLL on December 12, 2013, GMDB and GMWB riders assumed by HLAI from HLL.

59
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Transactions with Affiliates (continued)

Under modco, the assets and the liabilities, and under coinsurance with funds withheld, the assets, associated with the reinsured business remained on the consolidated balance sheet of HLIC in segregated portfolios, and WRR received the economic risks and rewards related to the reinsured business through modco and funds withheld adjustments. These adjustments were recorded as an adjustment to operating expenses.
Effective April 1, 2014, HLAI, terminated its modco and coinsurance with funds withheld reinsurance agreement with WRR, following receipt of approval from the State of Connecticut Insurance Department ("CTDOI") and Vermont Department of Financial Regulation. As a result, the Company reclassified $310 in aggregate reserves for annuity contracts from funds withheld within Other liabilities to Other policyholder funds and benefits payable. The Company recognized a gain of $213 in the three months ended June 30, 2014 resulting from the termination of derivatives associated with the reinsurance transaction. On April 30, 2014 The Hartford dissolved WRR which resulted in WRR paying off a $655 surplus note and returning $345 in capital to The Hartford, all of which was contributed as capital to HLAI to support the recaptured risks.
The impact of the modco and coinsurance with funds withheld reinsurance agreement with WRR on the Company’s Condensed Consolidated Statements of Operations prior to termination was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2014
 
2013
Earned premiums
$
(8
)
 
$
(5
)
 
$
(18
)
Net realized gains (losses) [1]
(410
)
 
(103
)
 
(927
)
Total revenues
(418
)
 
(108
)
 
(945
)
Benefits, losses and loss adjustment expenses
3

 
(1
)
 
(5
)
Insurance operating costs and other expenses
(400
)
 
(4
)
 
(822
)
Total expenses
(397
)
 
(5
)
 
(827
)
Income (loss) before income taxes
(21
)
 
(103
)
 
(118
)
Income tax expense (benefit)
(7
)
 
(36
)
 
(41
)
Income from continuing operations, net of tax
$
(14
)
 
$
(67
)
 
$
(77
)
Income from discontinued operations, net of tax
(1
)
 
—

 
(2
)
Net income (loss)
$
(15
)
 
$
(67
)
 
$
(79
)
[1] Amounts represent the change in valuation of the derivative associated with this transaction.
The Company's Condensed Consolidated Balance Sheets include a modco reinsurance recoverable and a deposit liability, as well as a net reinsurance recoverable that is comprised of an embedded derivative. As of December 31, 2013, the balance of the modco reinsurance recoverable, deposit liability and net reinsurance recoverable were $129, $638 and $495, respectively.
Champlain Life Reinsurance Company
Effective November 1, 2007, HLAI entered into a modco and coinsurance with funds withheld agreement with Champlain Life Reinsurance Company ("Champlain Life"), an affiliate captive insurance company, to provide statutory surplus relief for certain life insurance policies. The agreement was accounted for as a financing transaction in accordance with U.S. GAAP. Simultaneous with the sale of the Individual Life business to Prudential, HLAI recaptured the business assumed by Champlain Life. As a result, on January 2, 2013, HLAI was relieved of its funds withheld obligation to Champlain Life of $691; HLAI paid a recapture fee of $347 to Champlain Life; and, HLAI recognized a pre-tax gain of $344 ($224 after-tax). HLAI simultaneously ceded the recaptured reserves to Prudential and recognized the gain on recapture as part of the reinsurance loss on disposition.

60
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Restructuring and Other Costs

As a result of a strategic business realignment announced in 2012, The Hartford is currently focusing on its Property & Casualty, Group Benefits and Mutual Funds businesses. In addition, the Company implemented restructuring activities in 2011 across several areas aimed at reducing overall expense levels. The Company intends to substantially complete the related restructuring activities over the next 12 months. For further discussion of the Company's strategic business realignment and related business disposition transactions, see Note 2 - Business Dispositions of Notes to Condensed Consolidated Financial Statements.
Termination benefits related to workforce reductions and lease and other contract terminations have been accrued through June 30, 2014. Additional costs, mainly severance benefits and other related costs and professional fees, expected to be incurred subsequent to June 30, 2014, and asset impairment and related charges, will be expensed as appropriate.
As of June 30, 2014, estimated restructuring and other costs, including costs incurred to date, are expected to approximate $147, pre-tax. As the Company executes on its operational and strategic initiatives, the Company's estimate of and actual costs incurred for restructuring activities may differ from these estimates.
Restructuring and other costs, pre-tax incurred in connection with these activities are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
2013
 
2014
2013
Severance benefits and related costs
$
1

$
1

 
$
2

$
7

Professional fees
—

4

 
—

8

Asset impairment charges
—

5

 
—

5

Total restructuring and other costs
$
1

$
10

 
$
2

$
20

Changes in the accrued restructuring liability balance included in other liabilities in the Company's Consolidated Balance Sheets
are as follows:
 
Six Months Ended June 30, 2014
 
Severance Benefits and Related Costs
Professional Fees
Asset Impairment Charges
Other Contract Termination Charges
Total Restructuring and Other Costs
Balance, beginning of period
$
1

$
—

$
—

$
—

$
1

Accruals/provisions
2

—

—

—

2

Payments/write-offs
(3
)
—

—

—

(3
)
Balance, end of period
$
—

$
—

$
—

$
—

$
—

 
Six Months Ended June 30, 2013
 
Severance Benefits and Related Costs
Professional Fees
Asset Impairment Charges
Other Contract Termination Charges
Total Restructuring and Other Costs
Balance, beginning of period
$
31

$
—

$
—

$
—

$
31

Accruals/provisions
7

8

5

—

20

Payments/write-offs
(17
)
(6
)
—

—

(23
)
Balance, end of period
$
21

$
2

$
5

$
—

$
28


61
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Discontinued Operations

On December 12, 2013, the Company completed the sale of HLIL, an indirect wholly-owned subsidiary of the Company. For further
information regarding the sale of HLIL, see Note 2 -Business Dispositions of Notes to Condensed Consolidated Financial Statements.
The results of operations reflected as discontinued operations in the Condensed Consolidated Statements of Operations, consisting of amounts related to HLIL are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2013
Revenues
 
 
 
Earned premiums
$
—

 
$
(2
)
Fee income
—

 
8

Net investment income
 
 
 
  Securities available-for-sale and other
(2
)
 
(2
)
  Equity securities, trading
—

 
138

Total net investment income
(2
)
 
136

Net realized capital losses
(1
)
 
(10
)
Total revenues
(3
)
 
132

Benefits, losses and expenses
 
 
 
Benefits, losses and loss adjustment expenses
—

 
1

Benefits, losses and loss adjustment expenses - returns credited on international variable annuity
—

 
138

Insurance operating costs and other expenses
(11
)
 
(33
)
Total benefits, losses and expenses
(11
)
 
106

Income before income taxes
8

 
26

Income tax expense
3

 
2

Income from operations of discontinued operations, net of tax
5

 
24

Net realized capital loss on disposal, net of tax
(51
)
 
(51
)
Loss from discontinued operations, net of tax
$
(46
)
 
$
(27
)




62
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Changes in and Reclassifications From Accumulated Other Comprehensive Income


Changes in AOCI, net of tax and DAC, by component consist of the following:
Three months ended June 30, 2014
 
Net Unrealized Gain on Securities
Net Gain (Loss) on Cash-Flow Hedging Instruments
Foreign Currency Translation Adjustments
Total AOCI
Beginning balance
$
810

$
77

$
(1
)
$
886

OCI before reclassifications
227

5

1

233

Amounts reclassified from AOCI
29

(2
)
—

27

Net OCI
256

3

1

260

Ending balance
$
1,066

$
80

$
—

$
1,146

Six months ended June 30, 2014
 
Net Unrealized Gain on Securities [1]
Net Gain (Loss) on Cash-Flow Hedging Instruments [1]
Foreign Currency Translation Adjustments [1]
Total AOCI [1]
Beginning balance
$
495

$
79

$
—

574

OCI before reclassifications
544

19

—

563

Amounts reclassified from AOCI
27

(18
)
—

9

Net OCI
571

1

—

572

Ending balance
$
1,066

$
80

$
—

$
1,146

Reclassifications from AOCI consist of the following for the six months ended June 30, 2014:

Amount Reclassified from AOCI
 
AOCI
Three months ended June 30, 2014
Six months ended June 30, 2014
Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities
 
 
 
Available-for-sale securities
$
(44
)
$
(41
)
Net realized capital gains (losses)
 
(44
)
(41
)
Total before tax
 
(15
)
(14
)
Income tax expense
 
$
(29
)
$
(27
)
Net income
Net Gains on Cash-Flow Hedging Instruments
 
 
 
Interest rate swaps
$
—

$
1

Net realized capital gains (losses)
Interest rate swaps
3

26

Net investment income
Foreign currency swaps
—

—

Net realized capital gains (losses)
 
3

27

Total before tax
 
1

9

Income tax expense
 
$
2

$
18

Net income
Total amounts reclassified from AOCI
$
(27
)
$
(9
)
Net income

63
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Changes in and Reclassifications From Accumulated Other Comprehensive Income (continued)

Three Months Ended June 30, 2013
 
Net Unrealized Gain on Securities [1]
Net Gain (Loss) on Cash-Flow Hedging Instruments
Foreign Currency Translation Adjustments
Total AOCI [1]
Beginning balance
$
960

$
182

$
(64
)
$
1,078

OCI before reclassifications
(489
)
(49
)
—

(538
)
Amounts reclassified from AOCI
(8
)
(12
)
—

(20
)
Net OCI
(497
)
(61
)
—

(558
)
Ending balance
$
463

$
121

$
(64
)
$
520

Six Months Ended June 30, 2013
 
Net Unrealized Gain on Securities [1]
Net Gain (Loss) on Cash-Flow Hedging Instruments
Foreign Currency Translation Adjustments
Total AOCI [1]
Beginning balance
$
1,752

$
258

$
(23
)
$
1,987

OCI before reclassifications
(276
)
(77
)
(41
)
(394
)
Amounts reclassified from AOCI
(1,013
)
(60
)
—

(1,073
)
Net OCI
(1,289
)
(137
)
(41
)
(1,467
)
Ending balance
$
463

$
121

$
(64
)
$
520


Reclassifications from AOCI consist of the following for the three months ended March 31, 2013:
 
Amount Reclassified from AOCI
 
AOCI
Three months ended June 30, 2013
Six months ended June 30, 2013
Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities
 
 
 
Available-for-sale securities [1]
$
13

$
1,559

Net realized capital gains (losses)
 
13

1,559

Total before tax
 
5

546

Income tax expense
 
$
8

$
1,013

Net income
Net Gains on Cash-Flow Hedging Instruments
 
 
 
Interest rate swaps [2]
$
2

$
66

Net realized capital gains (losses)
Interest rate swaps
15

29

Net investment income
Foreign currency swaps
1

(2
)
Net realized capital gains (losses)
 
18

93

Total before tax
 
6

33

Income tax expense
 
$
12

$
60

Net income
Total amounts reclassified from AOCI
$
20

$
1,073

Net income
[1]    Includes $1.5 billion of net unrealized gains on securities relating to the sales of the Retirement Plans and Individual Life businesses.
[2]    Includes $71 of net gains on cash flow hedging instruments relating to the sales of the Retirement Plans and Individual Life businesses.

64


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in millions, unless otherwise stated)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Hartford Life Insurance Company and its subsidiaries (“Hartford Life Insurance Company” or the “Company”) as of June 30, 2014, and its results of operations for the three months ended June 30, 2014 compared to the equivalent 2013 period. This discussion should be read in conjunction with MD&A in Hartford Life Insurance Company’s 2013 Form 10-K Annual Report. Certain reclassifications have been made to prior period financial information to conform to the current period classifications.
The Company meets the conditions specified in General Instruction H(1) of Form 10-Q and is filing this Form with the reduced disclosure format permitted for wholly-owned subsidiaries of reporting entities. The Company has omitted, from this Form 10-Q, certain information in Part I Item 2 Management Discussion and Analysis of Financial Condition and Results of Operations. The Company has included, under Item 2, Consolidated Results of Operations to explain any material changes in revenue and expense items for the periods presented.
INDEX
 

65


CONSOLIDATED RESULTS OF OPERATIONS 
Operating Summary
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
2013
Change
 
2014
2013
Change
Fee income and other
$
314

$
357

(12
%)
 
$
631

$
710

(11
%)
Earned premiums
52

41

27
%
 
(71
)
80

(189
%)
Net investment income
380

436

(13
%)
 
787

868

(9
%)
Net realized capital gains (losses) [1]
650

(605
)
NM

 
544

838

(35
%)
Total revenues
1,396

229

NM

 
1,891

2,496

(24
%)
Benefits, losses and loss adjustment expenses
415

413

—
%
 
669

869

(23
%)
Amortization of deferred policy acquisition costs and present value of future profits
22

27

(19
%)
 
54

71

(24
%)
Insurance operating costs and other expenses
386

(171
)
NM

 
552

(414
)
NM

Reinsurance loss on dispositions, including reduction in goodwill of $250 in 2013
—

(1
)
(100
%)
 
—

1,491

(100
%)
Dividends to policyholders
3

3

—
%
 
2

8

(75
%)
Total benefits, losses and expenses
826

271

NM

 
1,277

2,025

(37
%)
Income (loss) from continuing operations before income taxes
570

(42
)
NM

 
614

471

30
%
Income tax expense (benefit)
171

(53
)
NM

 
158

93

70
%
Income from continuing operations, net of tax
399

11

NM

 
456

378

21
%
Loss from discontinued operations, net of tax
—

(46
)
(100
%)
 
—

(27
)
(100
%)
Net income (loss)
399

(35
)
NM

 
456

351

30
%
Net income (loss) attributable to noncontrolling interest
(1
)
—

NM

 
—

6

(100
%)
Net income (loss) attributable to Hartford Life Insurance Company
$
400

$
(35
)
NM

 
$
456

$
345

32
%
[1]
Includes net realized capital gains (losses) on business dispositions of $1,561 for the six months ended June 30, 2013.
Three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013
Net income increased for the three and six months ended June 30, 2014 as compared to the prior year periods. The increase in net income was primarily driven by net capital gains, excluding the impacts of the affiliate modco reinsurance agreement and gains on business dispositions partially offset by increased insurance operating costs and other expenses.
Net realized capital gains (losses), excluding the impacts of the affiliate modco reinsurance agreement and the net realized gains on business disposition, increased by $846 and $443 for the three and six months ended June 30, 2014, as compared to the prior year periods, resulting in net realized capital gains of $650 and $647, respectively. For further discussion of the results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).
Fee income and other for the three and six months ended June 30, 2014, decreased as compared to the prior year periods. The decrease is primarily driven by the decline the account values as a result of surrenders offset by market value appreciation.
Net investment income decreased for the three and six months ended June 30, 2014 as compared to the prior year periods due to lower income from fixed maturities and limited partnerships and other alternative investments. For further discussion, see MD&A - Investments Results, Net Investment Income (Loss).
Until April 1, 2014, HLAI had a modified coinsurance ("modco") and coinsurance with funds withheld reinsurance agreement with an affiliated captive reinsurer. A decrease in the loss on the affiliate modco reinsurance agreement increased earnings by $15 and $12 for the three and six months ended June 30, 2014, respectively, as compared to the prior year period. For further discussion on the affiliate modco reinsurance agreement see Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.
The effective tax rates in 2014 and 2013 differ from the U.S. Federal statutory rate of 35% primarily due to permanent differences related to the separate account dividends received deduction (“DRD”). For further discussion of income taxes, see the Income Taxes section within Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.

66


Investment Results
Net Investment Income (Loss)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
2013
 
2014
2013
(Before-tax)
Amount
Yield [1]
Amount
Yield [1]
 
Amount
Yield [1]
Amount
Yield [1]
Fixed maturities [2]
$
279

4.3
%
$
318

4.4
%
 
$
571

4.3
%
$
639

4.4
%
Equity securities, AFS
3

2.9
%
3

4.2
%
 
5

2.7
%
4

2.6
%
Mortgage loans
39

4.7
%
42

4.7
%
 
79

4.7
%
87

4.9
%
Policy loans
19

5.3
%
22

6.2
%
 
39

5.5
%
41

5.6
%
Limited partnerships and other alternative investments
29

8.7
%
41

12.4
%
 
71

10.9
%
67

10.1
%
Other [3]
28

 
27

 
 
55

 
64

 
Investment expense
(17
)
 
(17
)
 
 
(33
)
 
(34
)
 
Total net investment income (loss)
380

4.4
%
436

4.6
%
 
787

4.5
%
868

4.5
%
Total securities, AFS and other excluding limited partnerships and other alternative investments
$
351

4.2
%
$
395

4.3
%
 
$
716

4.2
%
$
801

4.3
%
[1]
Yields calculated using annualized net investment income divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding repurchase agreement and dollar roll collateral and derivatives book value.
[2]
Includes net investment income on short-term investments.
[3]
Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.
Three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013
Total net investment income decreased primarily due to lower income from fixed maturities and limited partnerships and other alternative investments. The decrease in income related to fixed maturities is a result of a decline in assets levels and lower income from repurchase agreements. The decline in partnership income is primarily related hedge fund investments, which were impacted by lower equity market returns within certain sectors of the overall equity market. Net investment income is expected to decline in future periods as a result of a decline in assets related to the recaptured reinsurance of HLIKK as well as the continued runoff of the Company's businesses.
The annualized net investment income yield, excluding limited partnerships and other alternative investments, has declined to 4.2% for the six months ended June 30, 2014 versus 4.3% in the comparable period in 2013. The decline was primarily attributable to lower income from repurchase agreements. Refer to Note 4 - Investments and Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further discussion of repurchase agreements. The average reinvestment rate, excluding certain treasury securities, for the six months ended June 30, 2014, was approximately 3.7% which was slightly lower than the average yield of sales and maturities of 3.8% for the same period. Based upon current reinvestment rates, we expect the annualized net investment income yield, excluding limited partnerships and other alternative investments, for 2014, to remain relatively consistent with the current net investment income yield. The estimated impact on net investment income is subject to change as the composition of the portfolio changes through normal portfolio management and trading activities and changes in market conditions.





67


Net Realized Capital Gains (Losses)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Before-tax)
2014
2013
 
2014
2013
Gross gains on sales
$
54

$
60

 
$
162

$
1,673

Gross losses on sales
(91
)
(44
)
 
(195
)
(98
)
Net OTTI losses recognized in earnings
(3
)
(3
)
 
(10
)
(16
)
Valuation allowances on mortgage loans
(4
)
(1
)
 
(4
)
—

Japanese fixed annuity contract hedges, net [1]
(5
)
1

 
(14
)
4

Periodic net coupon settlements on credit derivatives/Japan
4

(2
)
 
9

(5
)
Results of variable annuity hedge program




 
 
 
GMWB derivatives, net
(6
)
(31
)
 
9

16

Macro hedge program
(15
)
(47
)
 
(25
)
(132
)
Total U.S. program
(21
)
(78
)
 
(16
)
(116
)
International Program
(103
)
(516
)
 
(126
)
(599
)
Total results of variable annuity hedge program
(124
)
(594
)
 
(142
)
(715
)
GMIB/GMAB/GMWB reinsurance
528

274

 
579

611

Coinsurance and modified coinsurance reinsurance contracts
524

(302
)
 
394

(701
)
Other, net [2]
(233
)
6

 
(235
)
85

Net realized capital gains (losses), before-tax
$
650

$
(605
)
 
$
544

$
838

[1]
Relates to the Japanese fixed annuity product (adjustment of product liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding net periodic coupon settlements, and Japan FVO securities).
[2]
Primarily consists of changes in value of non-qualifying derivatives and the Japan 3Win fixed payout annuity hedge. Also includes for the three and six months ended June 30, 2014 a loss related to the recapture of the GMIB/GMAB/GMWB reinsurance contracts, which is offset by gains on the termination of the reinsurance derivative reflected in the GMIB/GMAB/GMWB reinsurance line.
Details on the Company's net realized capital gains and losses are as follows:
Gross gains and losses on sales
•
Gross gains on sales for the three and six months ended June 30, 2014 were primarily due to gains on the sale of corporate securities, CMBS, and RMBS. Gross losses on the sales three and six months ended June 30, 2014 were the result of losses on sales of emerging market securities, primarily within the foreign government and corporate sectors. The sales were primarily a result of duration and liquidity management, as well as tactical changes to the portfolio as a result of changing market conditions.
•
Gross gains on sales for the three months ended June 30, 2013 were primarily due to gains on the sale of industrial corporate and ABS securities. Gross losses on the sales for the three months ended June 30, 2013 were the result of losses on sales on financial securities. The sales were primarily as a result of normal portfolio and duration management. Gross gains and losses on sales for the three and six months ended June 30, 2013 were predominately from the sales of the Retirement Plans and Individual Life businesses resulting in a gain of $1.5 billion.
Variable annuity hedge program
•
For the three and six months ended June 30, 2014 the net loss on the international program hedging instruments was primarily due to losses of $67 and $55, respectively, driven by an improvement in global equity markets and losses of $28 and $44, respectively, driven by declines in volatility levels and interest rates.
•
For the three and six months ended June 30, 2014 the loss on the macro hedge program was primarily due to losses of $10 and $15, respectively, driven by an improvement in domestic equity markets, and losses of $7 and $16, respectively, driven by decreased equity volatility.
• For the three months ended June 30, 2013, the net loss related to the combined GMWB derivatives, net, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by losses of $39 resulting from an increase in interest rates, and losses of $38 resulting from an increase in fees for selected GMWB riders, partially offset by gains of $57 driven by favorable policyholder behavior. For the six months ended June 30, 2013, the net gain related to the combined GMWB derivatives, net, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by gains of $103 resulting form favorable policyholder behavior, partially offset by losses of $42 from an increase in interest rates, and losses of $39 resulting from an increase in fees for selected GMWB riders.
•
For the three and six months ended June 30, 2013, the loss on the macro hedge program was primarily due to losses of $23 and $78, respectively, related to an improvement in domestic equity markets, and losses of $33 and $42, respectively, due to an increase in interest rates.



68



GMIB/GMAB/GMWB reinsurance
•
The net gain for the three and six months ended June 30, 2014 was driven by the sale of HLIKK and concurrent recapture of the reinsurance contracts. For further discussion on the sale, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
Coinsurance and modified coinsurance reinsurance
•
The net gain for the three and six months ended June 30, 2014 was primarily due to the termination of certain contracts, which were with an affiliated captive reinsurer and were accounted for as an embedded derivative. For a discussion related to the reinsurance agreement and the termination, refer to Note 5 - Reinsurance, and Note 11 - Transactions with Affiliates of the Notes to the Condensed Consolidated Financial Statements.
Other, net
•
Other, net loss for the three and six months ended June 30, 2014 was primarily due to losses of $213 related to the recapture of the GMIB/GMAB/GMWB reinsurance contracts, which is offset by gains of $410 on the termination of the reinsurance derivative reflected in the GMIB/GMAB/GMWB reinsurance line.
•
Other, net gain for the six months ended June 30, 2013 was primarily due to gains of $71 on interest derivatives largely associated with fixed rate bonds sold as part of the Individual Life and Retirement Plans business dispositions. For further information on the business dispositions, see Note 2 of Notes to Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past have differed, from those estimates. The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2013 Form 10-K Annual Report. The following discussion updates certain of the Company’s critical accounting estimates for June 30, 2014 results.
Estimated Gross Profits Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity and Other Universal Life-Type Contracts
Estimated gross profits ("EGPs") are used in the amortization of the DAC asset, which includes the present value of future profits, sales inducement assets (“SIA”); and unearned revenue reserves (“URR”). Portions of EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and other universal life type contracts. URR associated with the Individual Life business is no longer included in EGP based balances due to the sale of this business in 2013.
For additional information regarding business dispositions, see Note 2 - Business Dispositions and Note 5 - Reinsurance of Notes to Condensed Consolidated Financial Statements. For additional information on DAC, see Note 6 - Deferred Policy Acquisition Costs and Present Value of Future Profits of Notes to Condensed Consolidated Financial Statements. For additional information on SIA, see Note 8 - Sales Inducements of Notes to Condensed Consolidated Financial Statements. For additional information on death and other insurance benefit reserves, see Note 7 - Separate Accounts, Death Benefits and Other Insurance Benefit Features of Notes to Condensed Consolidated Financial Statements.
Unlocks
The benefit (charge) to net income (loss) by asset and liability as a result of the Unlock is as follows:
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2014
2013
2014
2013
DAC
$
(6
)
$
(2
)
$
1

$
(3
)
SIA
1

—

2

(1
)
Death and Other Insurance Benefit Reserves
4

5

10

23

Total (pre-tax)
(1
)
3

13

19

Income tax effect
—

1

5

7

Total (after-tax)
$
(1
)
$
2

$
8

$
12


69


The Unlock charge, after-tax, for the three months ended June 30, 2014, was primarily due to DAC write-offs associated with surrenders from the U.S. Annuity Enhanced Surrender Value program, offset partially by actual separate account returns being above our aggregated estimated returns during the period. The Unlock benefit, after-tax, for the six months ended June 30, 2014, was primarily due to actual separate account returns being above our aggregated estimated returns during the period, offset partially by DAC write-offs associated with surrenders from the U.S. Annuity Enhanced Surrender Value program. The Unlock benefit, after tax, for the three and six months ended June 30, 2013, was primarily due to actual separate account returns being above our aggregated estimated returns.
An Unlock revises EGPs, on a quarterly basis, to reflect the Company's current best estimate assumptions and market updates of policyholder account value. Modifications to the Company’s hedging programs may impact EGPs, and correspondingly impact DAC recoverability. After each quarterly Unlock, the Company also tests the aggregate recoverability of DAC by comparing the DAC balance to the present value of future EGPs. As of June 30, 2014, the margin between the DAC balance and the present value of future EGPs for U.S. individual variable annuities was 25%. If the margin between the DAC asset and the present value of future EGPs is exhausted, then further reductions in EGPs would cause portions of DAC to be unrecoverable and the DAC asset would be written down to equal future EGPs.
CAPITAL RESOURCES AND LIQUIDITY
Capital resources and liquidity represent the overall strength of Hartford Life Insurance Company and its ability to generate strong cash flows from each of the business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months.
Liquidity Requirements and Sources of Capital
The Hartford has an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. The Connecticut Insurance Department granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including the HFSG Holding Company, as admitted assets for statutory accounting purposes. On April 29, 2013 HLIC issued a Revolving Note (the "Note") in the principal amount of $100 to Hartford Life and Accident Insurance Company, under the intercompany liquidity agreement. The Note bore interest at 0.92% and matures on April 29, 2014. On May 29, 2013 Hartford Life and Annuity Insurance Company, issued a Note in the principal amount of $225 to Hartford Life and Accident Insurance Company, under the intercompany liquidity agreement. The Note bore interest at 1.00% and matures on May 29, 2014. On February 28, 2014, the total outstanding balances on these notes were repaid in full.
Until April 1, 2014, Hartford Life and Annuity Insurance Company ("HLAI"), a wholly-owned subsidiary of the Company, ceded certain variable annuity contracts and their associated riders as well as certain payout annuities issued by HLAI or assumed by it to White River Life Reinsurance Company ("WRR"), an affiliate captive reinsurer. The economic purpose of the WRR arrangement was to provide the Company and its subsidiaries with a more efficient vehicle to manage risks in connection with these products. The reinsurance transaction between HLAI and WRR was mainly structured as modco. Accordingly, the assets and reinsured reserves remained on the books of HLAI and all insurance and investment experience was passed to WRR through modco adjustments. The reinsurance arrangement between HLAI and WRR did not impact the Company's reserving methodology or the amount of required regulatory capital associated with the reinsured business. Under this agreement, the Company ceded $5 for the six months ended June 30, 2014, and $8 and $18 for the three and six months ended June 30, 2013, respectively.
Pursuant to an intercompany note agreement between WRR and the Company's ultimate parent, The Hartford Financial Services Group, Inc. ("HFSG"), WRR was able to borrow up to $1 billion from HFSG in order to maintain certain statutory capital levels required by its plan of operations and which could have been used by WRR to settle outstanding payables with HLAI. As of December 31, 2013, WRR has borrowed $655 under the intercompany note agreement.
Effective April 1, 2014, the Company recaptured all reinsured risks from WRR to HLAI. On April 30, 2014, the Hartford dissolved WRR which resulted in WRR paying off the $655 note and returning $345 in capital to The Hartford, all of which was contributed as capital to HLAI to support the recaptured risks. This transaction received required regulatory approvals. For further information regarding the WRR reinsurance agreement, see Note 11 -Transactions with Affiliates and Note 15 - Subsequent Events of Notes to Condensed Consolidated Financial Statements .

70


Derivative Commitments
Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of June 30, 2014, is $687. Of this $687 the legal entities have posted collateral of $835 in the normal course of business. In addition, the Company has posted collateral of $44 associated with a customized GMWB derivative. Based on derivative market values as of June 30, 2014, a downgrade of one or two levels below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.
On March 6, 2014, Moody’s lowered its counterparty credit and insurer financial strength ratings on Hartford Life Insurance Company to Baa2. Given this downgrade action, termination rating triggers of four derivative counterparty relationships were impacted. The counterparties have the right to terminate the relationships and would have to settle the outstanding derivatives as a result of exercising the termination right. The Company has re-negotiated the rating triggers with one counterparty, and is in the process of re-negotiating the rating triggers with the remaining three counterparties which it expects to successfully complete. Accordingly, the Company's hedging programs have not been adversely impacted by the announcement of the downgrade of Hartford Life Insurance Company. As of June 30, 2014, the notional amount and fair value related to this counterparty is $2.6 billion and $(47), respectively.

Insurance Operations
In the event customers elect to surrender separate account assets, the Company will use the proceeds from the sale of the assets to fund the surrender and the Company’s liquidity position will not be impacted. In many instances the Company will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing the Company’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets will decrease the Company’s obligation for payments on guaranteed living and death benefits.
The Company may from time to time retire or repurchase its funding agreement backed notes through cash repurchases, in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In the second quarter of 2014, the Company did not repurchase any funding agreements. The amounts of any future repurchases may be material.
As of June 30, 2014, the Company’s cash and short-term investments of $2.4 billion, included $5 of collateral received from, and held on behalf of, derivative counterparties and $12 of collateral pledged to derivative counterparties. The Company also held $1.6 billion of treasury securities, of which $659 had been pledged to derivative counterparties and $1.8 billion of government agency securities of which $109 had been pledged to derivative counterparties.
Total general account contractholder obligations are supported by $36 billion of cash and total general account invested assets, excluding equity securities, trading, which includes a significant short-term investment position, as depicted below, to meet liquidity needs.
The following table summarizes the Company’s fixed maturities, short-term investments, and cash, as of June 30, 2014:
 
Fixed maturities
$
27,039

Short-term investments
2,080

Cash
300

Less: Derivative collateral
785

Total
$
28,634

Capital resources available to fund liquidity, upon contract holder surrender, are a function of the legal entity in which the liquidity requirement resides. Obligations related to life insurance products will be generally funded by both Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company; obligations related to retirement and institutional investment products will be generally funded by Hartford Life Insurance Company; and obligations of the Company’s international annuity subsidiary and affiliate will be generally funded by the legal entity in the country in which the obligation was generated.

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The Company is a member of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows the Company access to collateralized advances, which may be used to support various spread-based business and enhance liquidity management. The Connecticut Department of Insurance (“CTDOI”) will permit the Company to pledge up to $1.25 billion in qualifying assets to secure FHLBB advances for 2014.The amount of advances that can be taken are dependent on the asset types pledged to secure the advances. The pledge limit is recalculated annually based on statutory admitted assets and capital and surplus. The Company would need to seek the prior approval of the CTDOI if there were a desire to exceed these limits. As of June 30, 2014, the Company had no advances outstanding under the FHLBB facility.
Contractholder Obligations
As of June 30, 2014
Total Contractholder obligations
$
188,026

Less: Separate account assets [1]
141,510

General account contractholder obligations
$
46,516

Composition of General Account Contractholder Obligations
 
Contracts without a surrender provision and/or fixed payout dates [2]
$
16,049

Fixed MVA annuities [3]
7,051

Guaranteed investment contracts (“GIC”) [4]
30

Other [5]
23,386

General account contractholder obligations
$
46,516

[1]
In the event customers elect to surrender separate account assets or international statutory separate accounts, the Company will use the proceeds from the sale of the assets to fund the surrender, and the Company’s liquidity position will not be impacted. In many instances the Company will receive a percentage of the surrender charge, increasing the Company’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets will decrease the Company’s obligation for payments on guaranteed living and death benefits.
[2]
Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed below) or surrenders of term life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on the Company’s liquidity requirements.
[3]
Relates to annuities that are recorded in the general account (under U.S. GAAP), although these annuities are held in a statutory separate account, as the contractholders are subject to the Company's credit risk. In the statutory separate account, the Company is required to maintain invested assets with a fair value greater than or equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, the Company is required to contribute additional capital to the statutory separate account. The Company will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are generally equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of the Company.
[4]
GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser of the book value or market value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the market value adjustment feature in the GIC serves to protect the Company from interest rate risks and limit the Company’s liquidity requirements in the event of a surrender.
[5]
Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Individual Annuity individual variable annuities and the variable life contracts of the former Individual Life business, the general account option for annuities of the former Retirement Plans business and universal life contracts sold by the former Individual Life business may be funded through operating cash flows of the Company, available short-term investments, or the Company may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of significant realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, the Company may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. See Note 2 - Business Dispositions of Notes to the Condensed Consolidated Financial Statements as to the sale of the Retirement Plans and Individual Life businesses and related transfer of invested assets in January 2013.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
There have been no material changes to the Company’s off-balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s 2013 Form 10-K Annual Report.
Dividends
Dividends to the Company from its insurance subsidiaries are restricted, as is the ability of the Company to pay dividends to its parent company. Future dividend decisions will be based on, and affected by, a number of factors, including the operating results and financial requirements of the Company on a stand-alone basis and the impact of regulatory restrictions.

72


The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of the other jurisdictions in which the Company’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment of dividends.
The Company’s subsidiaries are permitted to pay up to a maximum of approximately $1 billion in dividends in 2014 without prior approval from the applicable insurance commissioner. With respect to dividends to its parent, the Company’s dividend limitation under the holding company laws of Connecticut is $919 in 2014. However, because the Company’s earned statutory surplus was negative as of December 31, 2013, the Company is not permitted to pay any dividends to its parent in 2014 without prior approval from the Connecticut Insurance Commissioner.
Effective March 3, 2014, The Hartford made HLA the single nationwide underwriting company for its Group Benefits business by capitalizing HLA to support the Group Benefits business and separating it from the legal entities that support the Talcott Resolution operating segment. On January 30, 2014, The Hartford received approval from the State of Connecticut Insurance Department ("CTDOI") for HLAI and HLIC to dividend approximately $800 of cash and invested assets to HLA and this dividend was paid on February 27, 2014.   All of the issued and outstanding equity of the Company was then distributed from HLA to Hartford Life, Inc. As a result, HLIC has no remaining ordinary dividend capacity for the twelve months following this transaction. Any additional dividends from HLIC in 2014 would be extraordinary in nature and require prior approval from the CTDOI.
On July 8, 2014, The Hartford received approval from the CTDOI for HLAI to dividend approximately $500 to HLIC. This dividend was paid on July 15, 2014 and then distributed to HLI.
Cash Flows
 
Six Months Ended June 30,
 
2014
2013
Net cash provided by operating activities
$
214

$
393

Net cash provided by investing activities
$
1,350

$
1,894

Net cash used for financing activities
$
(1,717
)
$
(2,879
)
Cash – end of period
$
300

$
645

Net cash provided by operating activities decreased in 2014 mainly due to an decrease in changes in payables, accruals and other activity.
Net cash provided by investing activities in 2014 primarily relates to net proceeds of available-for-sale securities of $1.7 billion, partially offset by change in short-term investments of $486. Net cash provided by investing activities in 2013 primarily relates to net proceeds of available -for-sale securities of $2.7 billion, net proceeds from businesses sold of $460, partially offset by net payments on derivatives of $1.1 billion.
Net cash used for financing activities in 2014 relates to a net outflows on investment and universal life-type contracts of $1.9 billion offset by a net capital contribution to parent of $225. Net cash used for financing activities in 2013 relates to a net capital contributions of $1.2 billion, fee repayment to recapture affiliate reinsurance of $347, decrease in securities loaned or sold of $609, and net outflows on investment and universal life-type contracts of $672.
Operating cash flows in both periods have been adequate to meet liquidity requirements.

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Ratings
Ratings impact the Company’s cost of borrowing and its ability to access financing and are an important factor in establishing the competitive position in the insurance and financial services marketplace. There can be no assurance that the Company’s ratings will continue for any given period of time or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s cost of borrowing and the ability to access financing as well as its level of revenues, or the persistency of its business may be adversely impacted.
On March 6, 2014, Moody’s Investors Service (“Moody’s) affirmed the debt ratings of The Hartford Financial Services Group, Inc. and the insurance financial strength ratings of its property and casualty subsidiaries and Hartford Life and Accident Insurance Company. The outlook on these entities was changed to positive from stable. Moody’s downgraded the insurance financial strength rating of Hartford Life Insurance Company to Baa2 from A3. Moody’s affirmed the insurance financial strength rating of Hartford Life and Annuity Insurance Company. The outlook for Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company is stable.
On April 22, 2014, Fitch downgraded the insurer financial strength rating of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company to BBB+ from A- with a stable outlook.
On July 28, 2014 Fitch Ratings announced it plans to withdraw the ratings on Hartford Financial Services Group, Inc. and its subsidiaries on or about August 28, 2014, for commercial reasons.
The following table summarizes Hartford Life Insurance Company’s significant member companies’ financial ratings from the major independent rating organizations as of July 23, 2014:
Insurance Financial Strength Ratings:
A.M. Best
Fitch
Standard  &
Poor’s
Moody’s
Hartford Life Insurance Company
A-
BBB+
BBB+
Baa2
Hartford Life and Annuity Insurance Company
A-
BBB+
BBB+
Baa2
These ratings are not a recommendation to buy or hold any of the Company’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.
The agencies consider many factors in determining the final rating of an insurance company. One consideration is the relative level of statutory surplus necessary to support the business written. Statutory surplus represents the capital of the insurance company reported in accordance with accounting practices prescribed by the applicable state insurance department.
Statutory Surplus
The Company’s aggregate statutory capital and surplus, as prepared in accordance with the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual (“US STAT”), was $5.5 billion as of June 30, 2014 and $5 billion as of December 31, 2013, respectively. The statutory surplus amount as of December 31, 2013 is based on actual statutory filings with the applicable regulatory authorities. The statutory surplus amount as of June 30, 2014, is an estimate, as the second quarter 2014 statutory filings have not yet been made.
IMPACT OF NEW ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company’s 2013 Form 10-K Annual Report and Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the Financial Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's of the Company’s 2013 Form 10-K Annual Report is incorporated herein by reference.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company’s disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of June 30, 2014.
Changes in internal control over financial reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s current fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


74


Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Company accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of the Company.
The Company is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of the Company. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows in particular quarterly or annual periods.
Item 1A. RISK FACTORS
Investing in the Company involves risk. In deciding whether to invest in the securities of the Company, you should carefully consider the risk factors disclosed in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, any of which could have a significant or material adverse effect on the business, financial condition, operating results or liquidity of the Company. This information should be considered carefully together with the other information contained in this report and the other reports and materials filed by the Company with the SEC.
The changes to the risk factors noted below are principally due to The Hartford Financial Services Group, Inc.’s (“The Hartford”) sale of all of the issued and outstanding equity of Hartford Life Insurance KK on June 30, 2014 and updates to The Hartford’s capital management plan.

Risks Relating to Economic, Market and Political Conditions
Unfavorable conditions in our operating environment, including general economic and global capital market conditions, and financial and capital markets risks, including changes in interest rates, credit spreads, equity prices, market volatility, foreign exchange rates and real estate market deterioration, may have a material adverse effect on our business, financial condition, results of operations, and liquidity.
Despite the rise in U.S. equity markets in 2013 and 2014, there continues to be uncertainty regarding the timing and strength of an economic recovery, which may adversely affect our business, financial condition, results of operations and liquidity. Weak economic conditions, such as continued high unemployment, low labor force participation, lower family income, higher tax rates, including on small business owners, lower business investment and lower consumer spending have adversely affected or may in the future adversely affect the demand for financial and insurance products, as well as their profitability in some cases. These weak economic conditions are also likely to result in the persistence of a sustained low interest rate environment as well as volatility in other capital market conditions, which will continue to pressure our investment results.
One important exposure to equity risk relates to the potential for lower earnings associated with our operations in Talcott Resolution, The Hartford’s runoff business consisting of its U.S. annuity and institutional and private-placement life insurance business. Fee income on products such as U.S. variable annuities, is earned based upon the fair value of the assets under management. Should equity markets decline from current levels, assets under management and related fee income will be reduced. Certain of our products have guaranteed benefits that increase our potential obligation and statutory capital exposure should equity markets decline. Sustained declines in equity markets may result in the need to utilize significant additional capital to support these products and adversely affect our ability to support our other businesses.

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While interest rates in recent periods continue to be near historically low levels, recent increases in market rates have marginally reduced our reinvestment risk. However, further reductions in market rates or a sustained low interest rate environment would pressure our net investment income and could result in lower margins and lower estimated gross profits on certain products. In addition, due to the long-term nature of the liabilities within our Talcott Resolution operations, such as structured settlements and guaranteed benefits on variable annuities, sustained declines in long-term interest rates subjects us to reinvestment risks, increased hedging costs, spread compression and capital volatility. A rise in interest rates, in the absence of other countervailing changes, will reduce the market value of our investment portfolio and, if long-term interest rates were to rise dramatically within a six-to-twelve month time period, certain products within our Talcott Resolution division might be exposed to disintermediation risk. Disintermediation risk refers to the risk that our policyholders may surrender their contracts in a rising interest rate environment, requiring us to liquidate in an unrealized loss position. An increase in interest rates can also impact our tax planning strategies and in particular our ability to utilize tax benefits to offset certain previously recognized realized capital losses. Assets supporting the liabilities within our property & casualty and group benefits businesses are largely invested in fixed income securities. Changes in interest rates will affect the value of these assets and expose the company to reinvestment risk and disintermediation risk if cash flows differ materially from our projections. Additionally, new and renewal business for these products is priced based on prevailing interest rates. As interest rates decline, pricing targets will increase to offset the lower anticipated investment income earned on invested premiums. Conversely, as interest rates rise, pricing targets will decrease to reflect higher anticipated investment income. Such changes in pricing may affect our competitiveness in the marketplace, and in turn, written premium and earnings margin achieved.
Our exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. If issuer credit spreads widen significantly and retain historically wide levels over an extended period of time, other-than-temporary impairments and decreases in the market value of our investment portfolio will likely result. In addition, losses may also occur due to the volatility in credit spreads. When credit spreads widen, we incur losses associated with the credit derivatives where the Company assumes exposure. When credit spreads tighten, we incur losses associated with derivatives where the Company has purchased credit protection. If credit spreads tighten significantly, the Company's net investment income associated with new purchases of fixed maturities may be reduced. In addition, a reduction in market liquidity can make it difficult to value certain of our securities when trading becomes less frequent. As such, valuations may include assumptions or estimates that may be more susceptible to significant period-to-period changes, which could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Our statutory surplus is also affected by widening credit spreads as a result of the accounting for the assets and liabilities on our fixed market value adjusted (“MVA”) annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities we are required to use current crediting rates in the U.S. In many capital market scenarios, current crediting rates in the U.S. are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value losses. As actual credit spreads are not fully reflected in current crediting rates in the U.S., the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in reductions in statutory surplus. This has resulted in the past and may result in the future in the need to devote significant additional capital to support the fixed MVA product.
Our real estate market exposure includes investments in commercial mortgage-backed securities, residential mortgage-backed securities, commercial real estate collateralized debt obligations, mortgage and real estate partnerships, and mortgage loans. Deterioration in the real estate market has adversely affected our business, financial condition, results of operations and liquidity in the past. While the real estate market has shown signs of improvement, deteriorating fundamentals (including increases in property vacancy rates, delinquencies and foreclosures) could cause a decline in market values, which would have a negative impact on sources of refinancing, resulting in reduced market liquidity and higher risk premiums. This could result in reductions in market value and impairments of real estate backed securities, a reduction in net investment income associated with real estate partnerships, and increases in our valuation allowance for mortgage loans.
Significant declines in equity prices, changes in U.S. interest rates, changes in credit spreads, inflation, the strengthening or weakening of foreign currencies against the U.S. dollar or real estate market deterioration, individually or in combination, could have a material adverse effect on our business, financial condition, results of operations or liquidity. Our hedging assets seek to reduce the net economic sensitivity of our potential obligations from guaranteed benefits to equity market, and interest rate fluctuations. Because of the accounting asymmetries between our economic targets and statutory and GAAP accounting, rising equity markets, or rising interest rates may result in statutory or GAAP losses.

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Risks Relating to Estimates, Assumptions and Valuations
If assumptions used in estimating future gross profits differ from actual experience, we may be required to accelerate the amortization of DAC and increase reserves for guaranteed minimum death and income benefits, which could have a material adverse effect on our results of operations and financial condition.
The Company deferred acquisition costs associated with the prior sales of its variable annuity products. Deferred acquisition costs for the U.S. block are amortized over the expected life of the contracts. The remaining deferred but not yet amortized cost is referred to as the Deferred Acquisition Cost (“DAC”) asset. We amortize these costs in proportion to the present value of estimated gross profits (“EGPs”). The Company evaluates the EGPs compared to the DAC asset to determine if an impairment exists. The Company also establishes reserves for GMDB using components of EGPs. The projection of EGPs, or components of EGPs, requires the use of certain assumptions, principally related to separate account fund returns, surrender and lapse rates, interest margin (including impairments), mortality, benefit utilization, annuitization and hedging costs. Of these factors, we anticipate that changes in investment returns are most likely to impact the rate of amortization of such costs. However, other factors such as those the Company might employ to reduce risk, such as the cost of hedging or other risk mitigating techniques, as well as the effect of increased surrenders, could also significantly reduce estimates of future gross profits. Estimating future gross profits is a complex process requiring considerable judgment and the forecasting of events well into the future. If our assumptions regarding policyholder behavior, including lapse rates, benefit utilization, surrenders, and annuitization, hedging costs or costs to employ other risk mitigating techniques prove to be inaccurate or if significant or sustained equity market declines occur, we could be required to accelerate the amortization of DAC related to variable annuity contracts, and increase reserves for GMDB, which would result in a charge to net income. Such adjustments could have a material adverse effect on our results of operations and financial condition.
Financial Strength, Credit and Counterparty Risks
The amount of statutory capital that we have, and the amount of statutory capital that we must hold to maintain our financial strength and credit ratings and meet other requirements, can vary significantly from time to time and is sensitive to a number of factors outside of our control, including equity market, credit market, and interest rate conditions, changes in policyholder behavior, changes in rating agency models, and changes in regulations.
We conduct the vast majority of our business as a licensed insurance company and through our licensed insurance company subsidiaries. Accounting standards and statutory capital and reserve requirements for licensed insurance companies are prescribed by the applicable insurance regulators and the National Association of Insurance Commissioners (“NAIC”). Insurance regulators have established regulations that provide minimum capitalization requirements based on risk-based capital (“RBC”) formulas for life companies. The RBC formula for life companies establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities and group annuities that contain death benefits or certain living benefits.
In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including the amount of statutory income or losses generated by us and our insurance subsidiaries (which itself is sensitive to equity market and credit market conditions), the amount of additional capital we and our insurance subsidiaries must hold to support business growth, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio, the value of certain derivative instruments, changes in interest rates, the impact of internal reinsurance arrangements, and changes to the NAIC RBC formulas. Most of these factors are outside of the Company's control. The Company's financial strength and credit ratings are significantly influenced by our statutory surplus amounts and RBC ratios of our insurance company subsidiaries. In addition, rating agencies may implement changes to their internal models that have the effect of increasing the amount of statutory capital we must hold in order to maintain our current ratings. Also, in extreme scenarios of equity market declines and other capital market volatility, the amount of additional statutory reserves that we are required to hold for our variable annuity guarantees increases at a greater than linear rate. This reduces the statutory surplus used in calculating our RBC ratios. When equity markets increase, surplus levels and RBC ratios would generally be expected to increase. However, as a result of a number of factors and market conditions, including the level of hedging costs and other risk transfer activities, reserve requirements for death and living benefit guarantees and increases in RBC requirements, surplus and RBC ratios may not increase when equity markets increase. Due to these factors, projecting statutory capital and the related RBC ratios is complex. If our statutory capital resources are insufficient to maintain a particular rating by one or more rating agencies, we may seek to raise capital through public or private equity or debt financing. If The Hartford were not to raise additional capital, either at its discretion or because it was unable to do so, our financial strength and credit ratings might be downgraded by one or more rating agencies.

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Losses due to nonperformance or defaults by others, including issuers of investment securities mortgage loans or reinsurance and derivative instrument counterparties, could have a material adverse effect on the value of our investments, business, financial condition, results of operations and liquidity.
Issuers or borrowers whose securities or loans we hold, customers, trading counterparties, counterparties under swaps and other derivative contracts, reinsurers, clearing agents, exchanges, clearing houses and other financial intermediaries and guarantors may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention or other reasons. Such defaults could have a material adverse effect on the value of our investments, business, financial condition, results of operations and liquidity. Additionally, the underlying assets supporting our structured securities or loans may deteriorate causing these securities or loans to incur losses.
Our investment portfolio includes securities backed by real estate assets, the value of which may be adversely impacted if conditions in the real estate market significantly deteriorate, including declines in property values and increases in vacancy rates, delinquencies and foreclosures, ultimately resulting in a reduction in expected future cash flows for certain securities.
The Company also has exposure to foreign-based issuers of securities and providers of reinsurance. These foreign issuers include European issuers as well as certain emerging market issuers. Despite the recent stabilization in the European market, there are still fundamental structural issues that remain and may result in the re-emergence of fiscal and economic issues. In addition, there has been recent volatility within certain emerging market countries spurred by concerns over the U.S. Federal Reserve tapering its monetary stimulus, an economic slowdown in China, and the devaluation of certain currencies. Further details of the European and certain emerging market private and sovereign issuers held within the investment portfolio can be found in Part II, Item 7, MD&A - Enterprise Risk Management - Investment Portfolio Risks and Risk Management in the Company’s 2013 Annual Report on Form 10-K. The Company's European based reinsurance arrangements are further described in Part II, Item 7, MD&A - Enterprise Risk Management - Investment Portfolio Risks and Risk Management in the Company’s 2013 Annual Report on Form 10-K.
Property value declines and loss rates that exceed our current estimates, as outlined in Part II, Item 7, MD&A - Enterprise Risk Management - Other-Than-Temporary Impairments, or a worsening of global economic conditions could have a material adverse effect on our business, financial condition, results of operations and liquidity.
To the extent the investment portfolio is not adequately diversified, concentrations of credit risk may exist which could negatively impact the Company if significant adverse events or developments occur in any particular industry, group of related industries or geographic regions. The Company’s investment portfolio is not exposed to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity other than U.S. government and U.S. government agencies backed by the full faith and credit of the U.S. government. However, if issuers of securities or loans we hold are acquired, merge or otherwise consolidate with other issuers of securities or loans held by the Company, our investment portfolio’s credit concentration risk to issuers could increase above the 10% threshold, for a period of time, until the Company is able to sell securities to get back in compliance with the established investment credit policies. For discussion of the Company’s exposure to credit concentration risk of reinsurers, see the risk factor, “We may incur losses due to our reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance may not be sufficient to protect us against losses.”

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Insurance and Product-Related Risks
Our adjustment of our risk management program relating to products we offered with guaranteed benefits to emphasize protection of economic value will likely result in greater statutory and U.S. GAAP volatility in our earnings and potentially material charges to net income (loss).
Some of the in-force business within our Talcott Resolution operations, especially variable annuities, offer guaranteed benefits which, in the event of a decline in equity markets, would not only result in lower earnings, but will also increase our exposure to liability for benefit claims. We are also subject to equity market volatility related to these benefits, including the GMWB and GMDB associated with in-force variable annuities. We use reinsurance structures and have modified benefit features to mitigate the exposure associated with GMDB. We also use reinsurance in combination with a modification of benefit features and derivative instruments to attempt to minimize the claim exposure and to reduce the volatility of net income associated with the GMWB liability. However, due to the severe economic conditions experienced in recent years, we adjusted our risk management program to place greater relative emphasis on the protection of economic value. This shift in relative emphasis has resulted in greater statutory and U.S. GAAP earnings volatility and, based upon the types of hedging instruments used, can result in potentially material charges to net income (loss) in periods of rising equity market pricing levels, higher interest rates, and declines in volatility. While we believe that these actions have improved the efficiency of our risk management related to these benefits, we remain liable for the guaranteed benefits in the event that reinsurers or derivative counterparties are unable or unwilling to pay and, in turn, may need additional capital to support in-force business. We are also subject to the risk that these management procedures prove ineffective or that unanticipated policyholder behavior, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed, which individually or collectively may have a material adverse effect on our business, financial condition, results of operations and liquidity.
Regulatory and Legal Risks
Potential changes in regulation may increase our business costs and required capital levels, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We are subject to extensive laws and regulations that are complex, subject to change and often conflicting in their approach or intended outcomes. Compliance with these laws and regulations is costly and can affect our strategy, as well as the demand for and profitability of the products we offer.
State insurance laws regulate most aspects of our insurance businesses, and our insurance subsidiaries are regulated by the insurance departments of the states in which they are domiciled, licensed or authorized to conduct business. These regulatory regimes are generally designed to protect the interests of policyholders rather than insurers, their shareholders and other investors. U.S. state laws grant insurance regulatory authorities broad administrative powers with respect to, among other things, licensing and authorization for lines of business, statutory capital and reserve requirements, limitations on the types and amounts of certain investments, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and non-financial components of an insurer's business.
In addition, future regulatory initiatives could be adopted at the federal or state level that could impact the profitability of our businesses. For example, the NAIC and state insurance regulators are continually reexamining existing laws and regulations, specifically focusing on modifications to statutory accounting principles, interpretations of existing laws and the development of new laws and regulations. The NAIC has undertaken a Solvency Modernization Initiative focused on updating the U.S. insurance solvency regulation framework, including capital requirements, governance and risk management, group supervision, accounting and financial reporting and reinsurance. Any proposed or future legislation or NAIC initiatives, if adopted, may be more restrictive on our ability to conduct business than current regulatory requirements or may result in higher costs or increased statutory capital and reserve requirements.
Further, because these laws and regulations are complex and sometimes inexact, there is also a risk that our business may not fully comply with a particular regulator's or enforcement authority's interpretation of a legal, accounting, or reserving issue or that such regulator’s or enforcement authority’s interpretation may change over time to our detriment, or expose us to different or additional regulatory risks. The application of these regulations and guidelines by insurers involves interpretations and judgments that may not be consistent with the opinion of state insurance departments. We cannot provide assurance that such differences of opinion will not result in regulatory, tax or other challenges to the actions we have taken to date. The result of those potential challenges could require us to increase levels of statutory capital and reserves or incur higher operating and/or tax costs.

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In addition, our international operations are subject to regulation in the relevant jurisdictions in which they operate which in many ways is similar to the state regulation outlined above, with similar related restrictions and obligations. Our asset management businesses are also subject to extensive regulation in the various jurisdictions where they operate. These laws and regulations are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad administrative powers. Compliance with these laws and regulations is costly, time consuming and personnel intensive, and may have an adverse effect on our business, financial condition, results of operations and liquidity. See the risk factor, “The impact of regulatory initiatives, including the enactment of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, could have a material adverse impact on our business, financial condition, results of operations and liquidity.”
Other Operational Risks
The success of the realignment of The Hartford's businesses, its capital management plan, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings, are subject to material challenges, uncertainties and risks which could adversely affect our business, financial condition, results of operations and liquidity.
The success of The Hartford's realignment of its businesses and its capital management plan remain subject to material challenges, uncertainties and risks. The Hartford may not achieve all of the benefits it expects to derive from its plan to repurchase its equity and reduce its debt over the course of 2014 and 2015 and its decision to focus on its Property and Casualty, Group Benefits and Mutual Fund businesses, place its Individual Annuity business into runoff and sell the Individual Life, Retirement Plans, and Japan annuity businesses. The Hartford’s capital management plan is subject to execution risks, including, among others, risks related to market fluctuations and investor interest and potential legal constraints that could delay execution at an otherwise optimal time. There can be no assurance that it will in fact complete its capital management plan over the planned time frame or at all. Further, while the Company continues to actively consider alternatives for reducing the size and risk of the U.S. variable annuity book, opportunities to do so may be limited and any initiatives pursued, which may include divestitures, may not achieve the anticipated benefits and may negatively impact our statutory capital, net income, core earnings or shareholders’ equity. Initiatives to reduce expenses so that our ongoing businesses remain or become cost efficient may not be successful and The Hartford may not be able to reduce Corporate and shared services expenses in the manner and on the schedule it currently anticipates. The Hartford may take further actions beyond the capital management plan and business realignment, which may include acquisitions, divestitures or restructurings that may involve additional uncertainties and risks that negatively impact our business, financial condition, results of operations and liquidity.
Item 6. EXHIBITS
See Exhibits Index on page

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HARTFORD LIFE INSURANCE COMPANY
 
/s/ Peter F. Sannizzaro
Peter F. Sannizzaro
Senior Vice President and Principal Accounting Officer (Principal Financial Officer and duly authorized signatory)
July 31, 2014

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HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2014
EXHIBITS INDEX
 
Exhibit No.
  
 
 
 
 
12.01
  
Computation of Ratio of Earnings to Fixed Charges **
 
 
 
15.01
  
Deloitte & Touche LLP Letter of Awareness **
 
 
 
31.01
  
Certification of Beth A. Bombara pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
 
 
 
31.02
  
Certification of Peter F. Sannizzaro pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
 
 
 
32.01
  
Certification of Beth A. Bombara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
 
 
 
32.02
  
Certification of Peter F. Sannizzaro pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
 
 
 
101.INS
  
XBRL Instance Document **
 
 
 
101.SCH
  
XBRL Taxonomy Extension Schema **
 
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase **
 
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase **
 
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase **
 
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase **

**Filed with the Securities and Exchange Commission as an Exhibit to this report.

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