ThZeal - The Zeal

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011


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) (Zip Code)

(860) 547-5000
(Registrant’s telephone number, including area code)

Indicate by check mark 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. Yes þ No o

Indicate by check mark 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). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

As of October 27, 2011 there were outstanding 1,000 shares of Common Stock, $5,690 par value per share, of the registrant, all of which were directly owned by Hartford Life and Accident Insurance Company. The Hartford Financial Services Group, Inc. is the ultimate parent of the registrant.

The registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

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 and 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 2010 Form 10-K Annual Report, as well as in Part II, Item 1A, Risk Factors of this Form 10-Q. These important risks and uncertainties include:

•

challenges related to the Company’s current operating environment, including continuing uncertainty about strength and speed of the recovery in the United States and other key economies and the impact of governmental stimulus, and austerity initiatives, sovereign credit concerns, including the potential consequences associated with downgrades to the credit ratings of debt issued by the United States government, and other developments on financial, commodity and credit markets and consumer spending and investment;

•

the success of our initiatives relating to the realignment of our business in 2010 and plans to improve the profitability and long-term growth prospects of our key divisions, including through opportunistic acquisitions or divestitures, and the impact of regulatory or other constraints on our ability to complete these initiatives and deploy capital among our businesses as and when planned;

•

market risks associated with our business, including changes in interest rates, credit spreads, equity prices, foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in key sectors such as the global real estate market;

•

volatility in our earnings resulting from our adjustment of our risk management program to emphasize protection of statutory surplus and cash flows;

•

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;

•

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;

•

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, earthquake or other natural or man-made disaster that may adversely affect our businesses and cost and availability of reinsurance;

•

weather and other natural physical events, including the severity and frequency of storms, hail, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns;

•

the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;

•

actions by our competitors, many of which are larger or have greater financial resources than we do;

•

the restrictions, oversight, costs and other consequences of our parent, The Hartford Financial Services Group, Inc. (“The Hartford”), being a savings and loan holding company, including from the supervision, regulation and examination by The Federal Reserve as The Hartford’s regulator and the Office of the Controller of the Currency as regulator of Federal Trust Bank;

•

the cost and other effects of increased regulation as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), which, among other effects, vests a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, requires central clearing of, and/or imposes new margin and capital requirements on, derivatives transactions;

•

the potential effect of other domestic and foreign regulatory developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels, including changes to statutory reserves and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products or changes in U.S. federal or other tax laws that affect the relative attractiveness of our investment products;

•

the Company’s ability to distribute its products through distribution channels, both current and future;

•

regulatory limitations on the ability of the Company’s subsidiaries to declare and pay dividends to the Company;

•

the risk that our framework for managing business risks may not be effective in mitigating material risk and loss;

•

the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster or other unanticipated events;

•

the potential for difficulties arising from outsourcing relationships;

•

the impact of potential changes in federal or state tax laws, including changes affecting the availability of the separate account dividend received deduction;

•

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;

•

unfavorable judicial or legislative developments; 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.

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 September 30, 2011, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2011 and 2010 and statements of changes in stockholder’s equity, and cash flows for the nine-month periods ended September 30, 2011 and 2010. 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, 2010, and the related consolidated statements of operations, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2011, (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for variable interest entities and embedded credit derivatives as required by accounting guidance adopted in 2010, for other-than-temporary impairments as required by accounting guidance adopted in 2009, and for the fair value measurement of financial instruments as required by accounting guidance adopted in 2008), 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, 2010 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
November 2, 2011

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
*Revenues*
Fee income and other	$	945		$	923		$	2,899		$	2,825
Earned premiums		60			74			180			191
Net investment income (loss):
Securities available-for-sale and other		652			649			1,977			1,976
Equity securities, trading		(147	)		146			(103	)		159

Total net investment income		505			795			1,874			2,135

Net realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(51	)		(94	)		(158	)		(657	)
OTTI losses recognized in other comprehensive income		9			21			66			358

Net OTTI losses recognized in earnings		(42	)		(73	)		(92	)		(299	)
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings		1,069			(490	)		629			(173	)

Total net realized capital gains (losses)		1,027			(563	)		537			(472	)

Total revenues		2,537			1,229			5,490			4,679

*Benefits, losses and expenses*
Benefits, loss and loss adjustment expenses		938			697			2,414			2,275
Benefits, loss and loss adjustment expenses — returns credited on international unit-linked bonds and pension products		(146	)		146			(103	)		159
Amortization of deferred policy acquisition costs and present value of future profits		280			(81	)		542			114
Insurance operating costs and other expenses		2,308			(75	)		2,904			1,762
Dividends to policyholders		5			3			10			10

Total benefits, losses and expenses		3,385			690			5,767			4,320
Income (loss) from continuing operations before income taxes		(848	)		539			(277	)		359
Income tax expense (benefit)		(323	)		160			(315	)		71

Income (loss) from continuing operations, net of tax		(525	)		379			38			288
Loss from discontinued operations, net of tax		—			(3	)		—			(5	)

Net income (loss)		(525	)		376			38			283
Net income attributable to noncontrolling interest		(4	)		2			(2	)		7

Net income (loss) attributable to Hartford Life Insurance Company	$	(521	)	$	374		$	40		$	276

See Notes to Condensed Consolidated Financial Statements

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	September 30,		December 31,
(In millions, except for share data)	2011		2010
	(Unaudited)
*Assets*
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $44,730 and $45,323) (includes variable interest entity assets, at fair value, of $154 and $406)	$	46,103	$	44,834
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets, at fair value, of $338 and $323)		1,314		639
Equity securities, trading, at fair value (cost of $1,923 and $2,061)		1,953		2,279
Equity securities, available-for-sale, at fair value (cost of $454 and $320)		416		340
Mortgage loans (net of allowance for loan losses of $24 and $62)		3,983		3,244
Policy loans, at outstanding balance		2,125		2,128
Limited partnerships, and other alternative investments (includes variable entity assets of $7 and $14)		1,340		838
Other investments		2,584		1,461
Short-term investments		4,949		3,489

Total investments		64,767		59,252
Cash		1,057		531
Premiums receivable and agents’ balances		63		67
Reinsurance recoverables		5,024		3,924
Deferred policy acquisition costs and present value of future profits		4,482		4,949
Deferred income taxes, net		1,716		2,138
Goodwill		470		470
Other assets		247		692
Separate account assets		143,913		159,729

Total assets	$	221,739	$	231,752


*Liabilities*
Reserve for future policy benefits and unpaid losses and loss adjustment expenses	$	11,868	$	11,385
Other policyholder funds and benefits payable		44,920		43,395
Other policyholder funds and benefits payable — international unit-linked bonds and pension products		1,917		2,252
Consumer notes		349		382
Other liabilities (including variable interest entity liabilities of $469 and $422)		9,407		6,398
Separate account liabilities		143,913		159,729

Total liabilities		212,374		223,541
Commitments and Contingencies (Note 8)
*Stockholder’s Equity*
Common stock — 1,000 shares authorized, issued and outstanding, par value $5,690		6		6
Additional paid-in capital		8,268		8,265
Accumulated other comprehensive income (loss), net of tax		739		(372	)
Retained earnings		352		312

Total stockholder’s equity		9,365		8,211

Total liabilities and stockholder’s equity	$	221,739	$	231,752

See Notes to Condensed Consolidated Financial Statements

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholder’s Equity


					Accumulated Other Comprehensive Income
					(Loss)
					Net
					Unrealized			Net Gain On
					Capital			Cash Flow		Foreign
			Additional		Losses On			Hedging		Currency			Retained			Non-			Total
	Common		Paid-In		Securities,			Instruments,		Translation			Earnings			Controlling			Stockholder’s
(In millions)	Stock		Capital		Net of Tax			Net of Tax		Adjustments			(Deficit)			Interest			Equity
	(Unaudited)

*Nine months ended September 30, 2011*

Balance, December 31, 2010	$	6	$	8,265	$	(569	)	$	265	$	(68	)	$	312		$	—		$	8,211
Capital contributions from parent		—		3		—			—		—			—			—			3
Dividends declared		—		—		—			—		—			—			—			—
Change in noncontrolling interest ownership		—		—		—			—		—			—			2			2
Comprehensive income
Net income		—		—		—			—		—			40			(2	)		38
Other comprehensive income (loss), net of tax
Net change in unrealized capital losses on securities		—		—		991			—		—			—			—			991
Net losses on cash flow hedging instruments		—		—		—			120		—			—			—			120
Cumulative translation adjustments		—		—		—			—		—			—			—			—

Total other comprehensive income (loss)		—		—		991			120		—			—			—			1,111

Total comprehensive income (loss)		—		—		991			120		—			40			(2	)		1,149

Balance September 30, 2011	$	6	$	8,268	$	422		$	385	$	(68	)	$	352		$	—		$	9,365


*Nine months ended September 30, 2010*

Balance, December 31, 2009	$	6	$	8,457	$	(2,039	)	$	148	$	(50	)	$	(287	)	$	61		$	6,296
Cumulative effect of accounting changes, net of DAC and tax		—		—		172			—		—			(146	)		—			26

Balance, January 1, 2010		6		8,457		(1,867	)		148		(50	)		(433	)		61			6,322
Capital contributions from parent		—		3		—			—		—			—			—			3
Change in noncontrolling interest ownership		—		—		—			—		—			—			(68	)		(68	)
Comprehensive income
Net income (loss)		—		—		—			—		—			276			7			283
Other comprehensive income, net of tax
Net change in unrealized capital losses on securities		—		—		1,514			—		—			—			—			1,514
Net gains on cash flow hedging instruments		—		—		—			251		—			—			—			251
Cumulative translation adjustments		—		—		—			—		(20	)		—			—			(20	)

Total other comprehensive income (loss)		—		—		1,514			251		(20	)		—			—			1,745

Total comprehensive income (loss)		—		—		1,514			251		(20	)		276			7			2,028

Balance, September 30, 2010	$	6	$	8,460	$	(353	)	$	399	$	(70	)	$	(157	)	$	—		$	8,285

See Notes to Condensed Consolidated Financial Statements

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows


	Nine Months Ended
	September 30,
(In millions)	2011			2010
	(Unaudited)
*Operating Activities*
Net income (loss)	$	38		$	283
*Adjustments to reconcile net income (loss) to net cash provided by operating activities*
Amortization of deferred policy acquisition costs and present value of future profits		542			128
Additions to deferred policy acquisition costs and present value of future profits		(385	)		(383	)
Change in:
Reserve for future policy benefits and unpaid losses and loss adjustment expenses		273			156
Reinsurance recoverables		(25	)		(24	)
Receivables and other assets		(150	)		(106	)
Payables and accruals		2,235			983
Accrued and deferred income taxes		(207	)		(37	)
Net realized capital (gains) losses		(537	)		471
Net disbursements from investment contracts related to policyholder funds — international unit-linked bonds and pension products		(335	)		(157	)
Net decrease in equity securities, trading		326			157
Depreciation and amortization		147			163
Other, net		(90	)		(28	)

Net cash provided by operating activities		1,832			1,606
*Investing Activities*
Proceeds from the sale/maturity/prepayment of:
Fixed maturities and short-term investments, available-for-sale		12,939			21,324
Fixed maturities, fair value option		40			—
Equity securities, available-for-sale		91			119
Mortgage loans		308			1,115
Partnerships		73			123
Payments for the purchase of:
Fixed maturities and short-term investments, available-for-sale		(13,789	)		(22,763	)
Fixed maturities, fair value option		(661	)		—
Equity securities, available-for-sale		(177	)		(108	)
Mortgage loans		(1,026	)		(172	)
Partnerships		(491	)		(114	)
Proceeds from business sold		—			130
Derivatives, net		1,674			347
Change in policy loans, net		3			(7	)
Change in payables for collateral under securities lending, net		—			(46	)
Change in all other, net		4			1

Net cash used for investing activities		(1,012	)		(51	)
*Financing Activities*
Deposits and other additions to investment and universal life-type contracts		8,736			12,178
Withdrawals and other deductions from investment and universal life-type contracts		(17,144	)		(19,182	)
Net transfers from (to) separate accounts related to investment and universal life-type contracts		8,148			5,850
Net repayments at maturity or settlement of consumer notes		(33	)		(752	)

Net cash used for financing activities		(293	)		(1,906	)
Foreign exchange rate effect on cash		(1	)		(9	)
Net increase (decrease) in cash		526			(360	)
Cash — beginning of period		531			793

Cash — end of period	$	1,057		$	433


*Supplemental Disclosure of Cash Flow Information:*
Net cash received during the period for income taxes	$	(73	)	$	(101	)
Noncash capital contributions received		3			3

See Notes to Condensed Consolidated Financial Statements

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 Accounting Policies

Basis of Presentation

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 and Accident Insurance Company (“HLA”). The Hartford Financial Services Group, Inc. (“The Hartford”) is the ultimate parent of the Company.

The Condensed Consolidated Financial Statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

The accompanying Condensed Consolidated Financial Statements and Notes as of September 30, 2011, and for the three and nine months ended September 30, 2011 and 2010 are unaudited. These financial statements reflect all adjustments (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. 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 2010 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

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 information on VIEs, see Note 4 of the Notes to Condensed Consolidated Financial Statements. Material intercompany transactions and balances between HLIC and its subsidiaries have been eliminated.

Discontinued Operations

The Company is presenting the operations of certain businesses that meet the criteria for reporting as discontinued operations. Amounts for prior periods have been retrospectively reclassified. See Note 11 of the Notes to Condensed Consolidated Financial Statements for information on the specific subsidiaries and related impacts.

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; goodwill impairment; 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.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in HLIC’s 2010 Form 10-K Annual Report, which should be read in conjunction with these accompanying Condensed Consolidated Financial Statements.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Basis of Presentation and Accounting Policies (continued)

Future Adoption of New Accounting Standards

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued guidance clarifying the definition of acquisition costs that are eligible for deferral. Acquisition costs are to include only those costs that are directly related to the successful acquisition or renewal of insurance contracts; incremental direct costs of contract acquisition that are incurred in transactions with either independent third parties or employees; and advertising costs meeting the capitalization criteria for direct-response advertising.

This guidance will be effective for fiscal years beginning after December 15, 2011, and interim periods within those years. This guidance may be applied prospectively upon the date of adoption, with retrospective application permitted, but not required. Early adoption as of the beginning of a fiscal year is permitted.

The Company intends to adopt this guidance retrospectively on January 1, 2012, resulting in a write down of the Company’s deferred acquisition costs relating to those costs which no longer meet the revised guidance as summarized above. The Company estimates the cumulative effect of the retrospective adoption of this guidance will reduce stockholders’ equity as of December 31, 2010 between $750 and $850 after-tax. The actual impact may be different.

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						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Tax expense (benefit) at the U.S. federal statutory rate	$	(297	)	$	188		$	(97	)	$	124
Dividends-received deduction		(40	)		(30	)		(165	)		(108	)
Foreign related investments		9			3			—			—
Valuation allowance		6			—			(54	)		56
Other		(1	)		(1	)		1			(1	)

Income tax expense (benefit)	$	(323	)	$	160		$	(315	)	$	71

The separate account dividends-received deduction (“DRD”) is estimated for the current year using information from the prior year-end, 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 by 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’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). Audits have been concluded for all years through 2006. The audit of the years 2007 - 2009 commenced during 2010 and is expected to conclude by the end of 2012. In addition, in the second quarter of 2011 the Company recorded a tax benefit of $52 as a result of a resolution of a tax matter with the IRS for the computation of DRD for years 1998, 2000 and 2001.

The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. The deferred tax asset valuation allowance was $85, relating mostly to foreign net operating losses, as of September 30, 2011 and was $139 as of December 31, 2010. In assessing the need for a valuation allowance, management considered future taxable temporary differences 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, selling appreciated securities to offset capital losses, business considerations such as asset-liability matching, and sales of certain corporate assets. Management views such tax planning strategies as prudent and feasible, and would implement them, if necessary, to realize the deferred tax asset. Based on the availability of additional tax planning strategies identified in the second quarter of 2011, the Company released $56, or 100% of the valuation allowance associated with investment realized capital losses. 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.

Included in the Company’s September 30, 2011 $1.7 billion net deferred tax asset is $1.7 billion relating to items treated as ordinary for federal income tax purposes, and a $41 net deferred tax liability for items classified as capital in nature. The $41 of capital items are comprised of $382 of gross deferred tax assets related to realized capital losses and $423 of gross deferred tax liabilities related to net unrealized capital gains.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Segment Information

The Company is organized into four reporting segments: Global Annuity, Life Insurance, Retirement Plans, and Mutual Funds. In addition, the Company includes in an Other category corporate items not directly allocated to any of its reporting segments, intersegment eliminations, direct and assumed guaranteed minimum income benefit (“GMIB”), guaranteed minimum death benefit (“GMDB”), guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”) reserves which are subsequently ceded to an affiliated captive reinsurer, and certain group benefit products, including group life and group disability insurance that is directly written by the Company and for which nearly half is ceded to its parent, Hartford Life and Accident Insurance Company (“HLA”).

Global Annuity

Global Annuity offers variable, fixed market value adjusted (“MVA”) annuities, structured settlements, single premium immediate annuities, longevity assurance to individuals as well as customized investment, insurance, and income solutions to select markets of institutional investors. Products offered to institutional investors (“IIP”) include mutual funds, stable value contracts, institutional annuities (primarily terminal funding cases) and mutual funds owned by institutional investors.

Life Insurance

Life Insurance sells a variety of life insurance products, including variable universal life, universal life, interest sensitive whole life, term life, and private placement life insurance (“PPLI”) owned by corporations and high net worth individuals.

Retirement Plans

Retirement Plans provides products and services to corporations pursuant to Section 401(k) and products and services to municipalities and not-for-profit organizations under Section 457 and 403(b) of the IRS Code of 1986 as amended (“the Code”).

Mutual Funds

Mutual Funds offers retail mutual funds, investment-only mutual funds and college savings plans under Section 529 of the Code (collectively referred to as non-proprietary) and proprietary mutual fund supporting the insurance products issued by The Hartford.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies in Note 1 of the Notes to Condensed Consolidated Financial Statements. The Company evaluates performance of its segments based on revenues, net income and the segment’s return on allocated capital. Each operating segment is allocated corporate surplus as needed to support its business.

The Company charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Inter-segment revenues primarily occur between the Company’s Other category and the reporting segments. These amounts primarily include interest income on allocated surplus and interest charges on excess separate account surplus. Consolidated net investment income is unaffected by such transactions.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Segment Information (continued)

The following table presents summarized financial information concerning the Company’s reporting segments.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Revenues by Product Line	2011			2010			2011			2010
Earned premiums, fees, and other considerations
Global Annuity
Individual variable annuity	$	395		$	444		$	1,278		$	1,301
Fixed / MVA and other annuity		20			7			33			14
IIP		(3	)		4			(7	)		24

Total Global Annuity		412			455			1,304			1,339
Life Insurance
Variable life		122			113			304			315
Universal life		104			66			305			264
Term life		9			9			26			27
PPLI		41			46			131			128

Total Life Insurance		276			234			766			734
Retirement Plans
401(k)		82			77			254			233
Government plans		11			12			37			32

Total Retirement Plans		93			89			291			265
Mutual Funds
Non-proprietary		119			122			401			384
Proprietary		15			15			45			46

Total Mutual Funds		134			137			446			430
Other		90			82			272			248

Total earned premiums, fees, and other considerations		1,005			997			3,079			3,016
Net investment income		505			795			1,874			2,135
Net realized capital gains (losses)		1,027			(563	)		537			(472	)

Total revenues	$	2,537		$	1,229		$	5,490		$	4,679


Net income (loss) attributable to Hartford Life Insurance Company
Global Annuity	$	(442	)	$	194		$	(88	)	$	(28	)
Life Insurance		(20	)		87			72			197
Retirement Plans		(32	)		30			13			38
Mutual Funds		23			17			77			64
Other		(50	)		46			(34	)		5

Total net income (loss) attributable to Hartford Life Insurance Company	$	(521	)	$	374		$	40		$	276

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements

The following financial instruments are carried at fair value in the Company’s Condensed Consolidated Financial Statements: fixed maturity and equity securities, available-for-sale (“AFS”), fixed maturities at fair value using fair value option (“FVO”); equity securities, trading; short-term investments; freestanding and embedded derivatives; separate account assets; and certain other liabilities.

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 and 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 and derivative securities.

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 are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are exchange traded equity securities, investment grade private placement securities and derivative instruments that are priced using models with observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs.

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 such as lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below-prime loans and below investment grade private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivatives securities, including customized GMWB hedging derivatives, equity derivatives, longer dated derivatives, swaps with optionality, and certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain 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. Transfers between Level 1 and Level 2 were not material for the three and nine months ended September 30, 2011 and 2010. 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 as they are primarily priced by independent brokers and/or within illiquid markets.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)


	September 30, 2011
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,368		$	—	$	1,968		$	400
CDOs		1,783			—		—			1,783
CMBS		4,300			—		3,858			442
Corporate		29,432			—		27,913			1,519
Foreign government/government agencies		1,108			—		1,046			62
States, municipalities and political subdivisions (“Municipal”)		1,465			—		1,097			368
RMBS		3,533			—		2,565			968
U.S. Treasuries		2,114			215		1,899			—

Total fixed maturities, AFS		46,103			215		40,346			5,542
Fixed maturities, FVO		1,314			—		832			482
Equity securities, trading		1,953			1,953		—			—
Equity securities, AFS		416			226		126			64
Derivative assets
Credit derivatives		(33	)		—		(24	)		(9	)
Equity derivatives		35			—		—			35
Foreign exchange derivatives		710			—		710			—
Interest rate derivatives		156			—		124			32
Variable annuity hedging derivatives and macro hedge program		1,714			—		379			1,335

Total derivative assets [1]		2,582			—		1,189			1,393
Short-term investments		4,949			237		4,712			—
Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB		2,996			—		—			2,996
Separate account assets [2]		136,103			97,712		37,207			1,184

Total assets accounted for at fair value on a recurring basis	$	196,416		$	100,343	$	84,412		$	11,661

Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Guaranteed living benefits	$	(5,866	)	$	—	$	—		$	(5,866	)
Equity linked notes		(6	)		—		—			(6	)

Total other policyholder funds and benefits payable		(5,872	)		—		—			(5,872	)
Derivative liabilities
Credit derivatives		(471	)		—		(3	)		(468	)
Equity derivatives		1			—		—			1
Foreign exchange derivatives		(8	)		—		(8	)		—
Interest rate derivatives		(103	)		—		(26	)		(77	)
Variable annuity hedging derivatives and macro hedge program		356			—		208			148

Total derivative liabilities [3]		(225	)		—		171			(396	)
Other liabilities		(13	)		—		—			(13	)
Consumer notes [4]		(4	)		—		—			(4	)

Total liabilities accounted for at fair value on a recurring basis	$	(6,114	)	$	—	$	171		$	(6,285	)


[1]		Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. At September 30, 2011, $2.0 billion was the amount of cash collateral liability that was netted against the derivative asset value on the Condensed Consolidated Balance Sheet, and is excluded from the table above. For further information on derivative liabilities, see below in this Note 3.

[2]		As of September 30, 2011, excludes approximately $8 billion of investment sales receivable that are not subject to fair value accounting.

[3]		Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). 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.

[4]		Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)


	December 31, 2010
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,068		$	—		$	1,660		$	408
CDOs		1,899			—			30			1,869
CMBS		5,028			—			4,536			492
Corporate		26,915			—			25,429			1,486
Foreign government/government agencies		1,002			—			962			40
Municipal		1,032			—			774			258
RMBS		4,118			—			3,013			1,105
U.S. Treasuries		2,772			248			2,524			—

Total fixed maturities, AFS		44,834			248			38,928			5,658
Fixed maturities, FVO		639			—			128			511
Equity securities, trading		2,279			2,279			—			—
Equity securities, AFS		340			174			119			47
Derivative assets
Credit derivatives		(11	)		—			(19	)		8
Equity derivatives		2			—			—			2
Foreign exchange derivatives		857			—			857			—
Interest rate derivatives		(99	)		—			(63	)		(36	)
Variable annuity hedging derivatives and macro hedge program		704			2			33			669

Total derivative assets [1]		1,453			2			808			643
Short-term investments		3,489			204			3,285			—
Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB		2,002			—			—			2,002
Separate account assets [2]		153,713			116,703			35,763			1,247

Total assets accounted for at fair value on a recurring basis	$	208,749		$	119,610		$	79,031		$	10,108

Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Guaranteed living benefits	$	(4,258	)	$	—		$	—		$	(4,258	)
Equity linked notes		(9	)		—			—			(9	)

Total other policyholder funds and benefits payable		(4,267	)		—			—			(4,267	)
Derivative liabilities
Credit derivatives		(401	)		—			(49	)		(352	)
Equity derivatives		2			—			—			2
Foreign exchange derivatives		(25	)		—			(25	)		—
Interest rate derivatives		(59	)		—			(42	)		(17	)
Variable annuity hedging derivatives and macro hedge program		126			(2	)		(11	)		139

Total derivative liabilities [3]		(357	)		(2	)		(127	)		(228	)
Other liabilities		(37	)		—			—			(37	)
Consumer notes [4]		(5	)		—			—			(5	)

Total liabilities accounted for at fair value on a recurring basis	$	(4,666	)	$	(2	)	$	(127	)	$	(4,537	)


[1]		Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. At December 31, 2010 $962 was the amount of cash collateral liability that was netted against the derivative asset value on the Condensed Consolidated Balance Sheet, and is excluded from the table above. For further information on derivative liabilities, see below in this Note 3.

[2]		As of December 31, 2010, excludes approximately $6 billion of investment sales receivable that are not subject to fair value accounting.

[3]		Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll forward table included below in this Note, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.

[4]		Represents embedded derivatives associated with non-funding agreement-backed consumer equity-linked notes.

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.

Available-for-Sale 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) is 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. 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 either 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.

The Company performs a monthly analysis of the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. As a part of this analysis, the Company considers trading volume and other factors to determine whether the decline in market activity is significant when compared to 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. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of 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, back testing recent trades, and monitoring of trading volumes, new issuance activity and other market activities. 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. 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 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.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are fair valued using pricing valuation models; that utilize independent market data inputs, quoted market prices for exchange-traded derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of September 30, 2011 and December 31, 2010, 99% 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 Company performs a monthly analysis on derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include, but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in the market environment, and review of changes in market value for each derivative including those derivatives priced by brokers.

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.

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. 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.

•

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 — 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 markets.

•

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.

•

Credit derivatives — Significant inputs primarily include the swap yield curve and credit curves.

	•		Foreign exchange derivatives — Significant inputs primarily include the swap yield curve, currency spot and forward rates, and cross currency basis curves.

	•		Interest rate derivatives — Significant input is primarily the swap yield curve.


Level 3		Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as 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. 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 may include the following:

•

Credit derivatives — Significant unobservable inputs may include credit correlation and swap yield curve and credit curve extrapolation beyond observable limits.

•

Equity derivatives — Significant unobservable inputs may include equity volatility.

•

Interest rate contracts — Significant unobservable inputs may include swap yield curve extrapolation beyond observable limits and interest rate volatility.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

Product Derivatives

The Company currently offers certain variable annuity products with a guaranteed minimum withdrawal benefit (“GMWB”) rider in the U.S., and formerly offered GMWBs in the U.K. The Company has also assumed, through reinsurance from HLIKK GMIB, GMWB and GMAB. The Company has subsequently ceded certain GMWB rider liabilities and the assumed reinsurance from HLIKK to an affiliated captive reinsurer. 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 Condensed 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.

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.

The reinsurance assumed on the HLIKK GMIB, GMWB, and GMAB and ceded to an affiliated captive reinsurer meets the characteristics of a free-standing derivative instrument. As a result, the derivative asset or liability is recorded at fair value with changes in the fair value reported in net realized capital gains and losses.

U.S. GMWB Ceded Reinsurance Derivative

The fair value of the U.S. GMWB reinsurance derivative is calculated as an aggregation of the components described in the Living Benefits Required to be Fair Valued discussion below and is modeled using significant unobservable policyholder behavior inputs, identical to those used in calculating the underlying liability, such as lapses, fund selection, resets and withdrawal utilization and risk margins.

During 2009, the Company entered into a reinsurance arrangement with an affiliated captive reinsurer to transfer a portion of its risk of loss associated with direct US GMWB and assumed HLIKK GMIB, GMWB, and GMAB. In addition, in 2010 the Company entered into reinsurance arrangements with the affiliated captive reinsurer to transfer its risk of loss associated with direct UK GMWB. These arrangements are recognized as a derivative and carried at fair value in reinsurance recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses. See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information on these transactions.

Separate Account Assets

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company.

Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)

Fair values for GMWB and guaranteed minimum accumulation benefit (“GMAB”) 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 is 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.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

Best Estimate Claims Costs

The Best Estimate Claims Costs is 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 involving the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels were used. Estimating these cash flows involves numerous estimates and subjective judgments including those regarding expected markets rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and various actuarial assumptions for 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 regression.

As many guaranteed benefit obligations are relatively new in the marketplace, actual policyholder behavior experience is limited. As a result, estimates of future policyholder behavior are subjective and based on analogous internal and external data. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model.

On a daily basis, the Company updates capital market assumptions used in the GMWB liability model such as interest rates and equity indices. On a weekly basis, the blend of implied equity index volatilities are updated. The Company continually 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. 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 (“nonperformance risk”). The Company’s estimate of the Credit Standing Adjustment incorporates a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. For the three and nine months ended September 30, 2011, 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 $(399) and $(279), respectively. For the three and nine months ended September 30, 2010, the pre-tax gains (losses) for the credit standing adjustment assumption were $(148) and $203 respectively.

Margins

The behavior risk margin adds a margin that market participants would require 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.

Assumption updates, including policyholder behavior assumptions, affected best estimates and margins for total pre-tax realized gains (losses) of approximately of $13 and $49 for the three months ended September 30, 2011 and 2010, respectively, and $13 and $49 for the nine months ended September, 30, 2011 and 2010, respectively. Assumption updates for the three months ended September 30, 2011 are primarily related to future policyholder behavior expectations.

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 before-tax realized gains/(losses) of approximately $(34) and $(1) for the three months ended September 30, 2011 and 2010, respectively, and $(26) and $12 for the nine months ended September 30, 2011 and 2010, respectively.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

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 and nine months ending September 30, 2011 and 2010, for the financial instruments classified as Level 3.

For the three months ended September 30, 2011


	Fixed Maturities, AFS
													Foreign								Total Fixed
													govt./govt.								Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal		RMBS			AFS
Fair value as of June 30, 2011	$	404		$	1,877		$	434		$	1,457		$	39		$	266	$	973		$	5,450
Total realized/unrealized gains (losses)
Included in net income [2]		(13	)		(20	)		1			(3	)		—			—		—			(35	)
Included in OCI [3]		(3	)		(27	)		(19	)		(39	)		(1	)		45		(37	)		(81	)
Purchases		35			—			18			32			—			57		—			142
Settlements		(13	)		(47	)		(11	)		(37	)		(1	)		—		(29	)		(138	)
Sales		(7	)		—			(1	)		(3	)		—			—		—			(11	)
Transfers into Level 3 [4]		10			—			20			180			25			—		62			297
Transfers out of Level 3 [4]		(13	)		—			—			(68	)		—			—		(1	)		(82	)

Fair Value as of September 30, 2011	$	400		$	1,783		$	442		$	1,519		$	62		$	368	$	968		$	5,542

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	(13	)	$	(20	)	$	1		$	(3	)	$	—		$	—	$	—		$	(35	)


							Derivatives
															Variable Annuity
	Fixed			Equity								Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity		Rate			and Macro Hedge			Total
Assets	FVO			AFS			Derivatives			Derivatives		Derivatives			Program			Derivatives [5]
Fair value as of June 30, 2011	$	542		$	68		$	(356	)	$	6	$	(55	)	$	805		$	400
Total realized/unrealized gains (losses)
Included in net income [2]		(20	)		—			(122	)		5		10			681			574
Included in OCI [3]		—			(4	)		—			—		—			—
Purchases		—			—			—			25		—			—			25
Settlements		—			—			1			—		—			(3	)		(2	)
Sales		(40	)		—			—			—		—			—			—
Transfers out of Level 3 [4]		—			—			—			—		—			—			—

Fair value as of September 30, 2011	$	482		$	64		$	(477	)	$	36	$	(45	)	$	1,483		$	997

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	(20	)	$	—		$	(120	)	$	5	$	10		$	675		$	570


	Reinsurance Recoverable for
	U.S. GMWB and Japan			Separate
Assets	GMWB, GMIB, and GMAB [6]		Accounts
Fair value as of June 30, 2011	$	1,668		$	1,068
Total realized/unrealized gains (losses)
Included in net income [1], [2]		1,107			11
Included in OCI [3]		105			—
Purchases		—			131
Settlements		116			—
Sales		—			(11	)
Transfers into Level 3 [4]		—			1
Transfers out of Level 3 [4]		—			(16	)

Fair value as of September 30, 2011	$	2,996		$	1,184

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	1,107		$	8

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

For the three months ended September 30, 2011


	Other Policyholder Funds and Benefits Payable
							Total Other
	Guaranteed						Policyholder Funds
	Living			Equity Linked			and Benefits			Other			Consumer
Liabilities	Benefits [7]			Notes			Payable			Liabilities			Notes
Fair value as of June 30, 2011	$	(3,783	)	$	(10	)	$	(3,793	)	$	(44	)	$	(4	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(1,895	)		4			(1,891	)		31			—
Included in OCI [3]		(118	)		—			(118	)		—			—
Settlements		(70	)		—			(70	)		—			—

Fair value as of September 30, 2011	$	(5,866	)	$	(6	)	$	(5,872	)	$	(13	)	$	(4	)

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	(1,895	)	$	4		$	(1,891	)	$	31		$	—

For the nine months ended September 30, 2011


	Fixed Maturities, AFS
													Foreign								Total Fixed
													govt./govt.								Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal		RMBS			AFS
Fair value as of January 1, 2011	$	408		$	1,869		$	492		$	1,486		$	40		$	258	$	1,105		$	5,658
Total realized/unrealized gains (losses)
Included in net income [2]		(19	)		(30	)		13			(24	)		—			—		(9	)		(69	)
Included in OCI [3]		32			78			74			(24	)		(1	)		53		(19	)		193
Purchases		35			—			18			74			—			57		25			209
Settlements		(28	)		(110	)		(35	)		(86	)		(2	)		—		(84	)		(345	)
Sales		(9	)		(54	)		(225	)		(109	)		—			—		(16	)		(413	)
Transfers into Level 3 [4]		79			30			105			396			29			—		69			708
Transfers out of Level 3 [4]		(98	)		—			—			(194	)		(4	)		—		(103	)		(399	)

Fair Value as of September 30, 2011	$	400		$	1,783		$	442		$	1,519		$	62		$	368	$	968		$	5,542

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	(19	)	$	(29	)	$	12		$	(23	)	$	—		$	—	$	(9	)	$	(68	)


							Derivatives
															Variable Annuity
	Fixed			Equity								Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity		Rate			and Macro Hedge			Total
Assets	FVO			AFS			Derivatives			Derivatives		Derivatives			Program			Derivatives [5]

Fair value as of January 1, 2011	$	511		$	47		$	(344	)	$	4	$	(53	)	$	808		$	415
Total realized/unrealized gains (losses)
Included in net income [2]		13			(7	)		(129	)		7		7			521			406
Included in OCI [3]		—			(2	)		—			—		—			—			—
Purchases		—			30			—			25		—			208			233
Settlements		(2	)		—			(4	)		—		1			(54	)		(57	)
Sales		(40	)		—			—			—		—			—			—
Transfers out of Level 3 [4]		—			(4	)		—			—		—			—			—

Fair value as of September 30, 2011	$	482		$	64		$	(477	)	$	36	$	(45	)	$	1,483		$	997

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	13		$	(7	)	$	(128	)	$	7	$	9		$	529		$	417

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

For the nine months ended September 30, 2011


	Reinsurance Recoverable for
	U.S. GMWB and Japan		Separate
Assets	GMWB, GMIB, and GMAB [6]		Accounts
Fair value as of January 1, 2011	$	2,002	$	1,247
Total realized/unrealized gains (losses)
Included in net income [1], [2]		550		35
Included in OCI [3]		105		—
Purchases		—		165
Settlements		339		—
Sales		—		(180	)
Transfers into Level 3 [4]		—		13
Transfers out of Level 3 [4]		—		(96	)

Fair value as of September 30, 2011	$	2,996	$	1,184

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	550	$	9


	Other Policyholder Funds and Benefits Payable
							Total Other
	Guaranteed						Policyholder Funds
	Living			Equity Linked			and Benefits			Other			Consumer
Liabilities	Benefits [7]			Notes			Payable			Liabilities			Notes
Fair value as of January 1, 2011	$	(4,258	)	$	(9	)	$	(4,267	)	$	(37	)	$	(5	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(1,286	)		3			(1,283	)		24			1
Included in OCI [3]		(120	)		—			(120	)		—			—
Settlements		(202	)		—			(202	)		—			—

Fair value as of September 30, 2011	$	(5,866	)	$	(6	)	$	(5,872	)	$	(13	)	$	(4	)

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2011 [2]	$	(1,286	)	$	3		$	(1,283	)	$	24		$	1

For the three months ended September 30, 2010


	Fixed Maturities, AFS
													Foreign									Total Fixed
													govt./govt.									Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal			RMBS			AFS
Fair value as of June 30, 2010	$	470		$	2,032		$	500		$	5,765		$	41		$	272		$	1,219		$	10,299
Total realized/unrealized gains (losses)
Included in net income [2]		(7	)		(30	)		(10	)		(10	)		—			1			(3	)		(59	)
Included in OCI [3]		23			96			42			51			—			11			51			274
Purchases, issuances, and settlements		(25	)		(80	)		(25	)		(101	)		(1	)		(23	)		(137	)		(392	)
Transfers into Level 3 [4]		—			15			30			3			—			—			—			48
Transfers out of Level 3 [4]		(35	)		(186	)		(60	)		(4,292	)		—			—			(3	)		(4,576	)

Fair Value as of September 30, 2010	$	426		$	1,847		$	477		$	1,416		$	40		$	261		$	1,127		$	5,594

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	—		$	(31	)	$	(18	)	$	(12	)	$	—		$	—		$	(3	)	$	(64	)

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

For the three months ended September 30, 2010


							Derivatives
															Variable Annuity
	Fixed			Equity								Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity		Rate			and Macro Hedge			Total
Assets	FVO			AFS			Derivatives			Derivatives		Derivatives			Program			Derivatives [5]
Fair value as of June 30, 2010	$	—		$	43		$	(469	)	$	—	$	(49	)	$	1,591		$	1,073
Total realized/unrealized gains (losses)
Included in net income [2]		44			—			70			4		—			(573	)		(499	)
Included in OCI [3]		—			(1	)		—			—		—			—			—
Purchases, issuances, and settlements		(1	)		5			(1	)		—		—			(46	)		(47	)
Transfers into Level 3 [4]		447			—			—			—		—			—			—
Transfers out of Level 3 [4]		—			—			—			—		—			—			—

Fair value as of September 30, 2010	$	490		$	47		$	(400	)	$	4	$	(49	)	$	972		$	527

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	44		$	—		$	70		$	4	$	1		$	(519	)	$	(444	)


	Reinsurance
	Recoverable for U.S.			Separate
Assets	GMWB [6]			Accounts
Fair value as of June 30, 2010	$	2,446		$	937
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(275	)		13
Included in OCI [3]		115			—
Purchases, issuances, and settlements		115			72
Transfers into Level 3 [4]		—			61
Transfers out of Level 3 [4]		—			(6	)

Fair value as of September 30, 2010	$	2,401		$	1,077

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	(275	)	$	9


	Other Policyholder Funds and Benefits Payable [1]
									Total Other
	Guaranteed					Equity			Policyholder Funds
	Living Benefits			Institutional		Linked			and			Other			Consumer
Liabilities	[7]			Notes		Notes			Benefits Payable			Liabilities			Notes
Fair value as of June 30, 2010	$	(5,345	)	$	2	$	(7	)	$	(5,350	)	$	(16	)	$	(4	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		428			1		(1	)		428			(14	)		—
Included in OCI [3]		(133	)		—		—			(133	)		—			—
Purchases, issuances and settlements		(64	)		—		—			(64	)		—			—
Fair value as of September 30, 2010	$	(5,114	)	$	3	$	(8	)	$	(5,119	)	$	(30	)	$	(4	)

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	428		$	1	$	(1	)	$	428		$	—		$	—

For the nine months ended September 30, 2010


	Fixed Maturities, AFS
													Foreign									Total Fixed
													govt./govt.									Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal			RMBS			AFS
Fair value as of January 1, 2010	$	497		$	2,109		$	269		$	5,239		$	80		$	218		$	995		$	9,407
Total realized/unrealized gains (losses)
Included in net income [2]		(10	)		(113	)		(103	)		(2	)		—			1			(32	)		(259	)
Included in OCI [3]		55			382			269			199			—			46			197			1,148
Purchases, issuances, and settlements		(36	)		(135	)		(44	)		(12	)		(7	)		—			(18	)		(252	)
Transfers into Level 3 [4]		28			42			196			443			—			—			—			709
Transfers out of Level 3 [4]		(108	)		(438	)		(110	)		(4,451	)		(33	)		(4	)		(15	)		(5,159	)

Fair Value as of September 30, 2010	$	426		$	1,847		$	477		$	1,416		$	40		$	261		$	1,127		$	5,594

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	(2	)	$	(119	)	$	(80	)	$	(7	)	$	—		$	—		$	(30	)	$	(238	)

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

For the nine months ended September 30, 2010


							Derivatives
																Variable Annuity
	Fixed			Equity									Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity			Rate			and Macro Hedge		Total
Assets	FVO			AFS			Derivatives			Derivatives			Derivatives			Program		Derivatives [5]
Fair value as of January 1, 2010	$	—		$	32		$	(161	)	$	(2	)	$	5		$	526	$	368
Total realized/unrealized gains (losses)
Included in net income [2]		44			(2	)		49			6			1			107		163
Included in OCI [3]		—			7			—			—			—			—		—
Purchases, issuances, and settlements		(1	)		10			2			—			(44	)		339		297
Transfers into Level 3 [4]		447			—			(290	)		—			—			—		(290	)
Transfers out of Level 3 [4]		—			—			—			—			(11	)		—		(11	)

Fair value as of September 30, 2010	$	490		$	47		$	(400	)	$	4		$	(49	)	$	972	$	527

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	44		$	(5	)	$	50		$	6		$	(19	)	$	144	$	181


	Reinsurance
	Recoverable for U.S.			Separate
Assets	GMWB [6]		Accounts
Fair value as of January 1, 2010	$	1,108		$	962
Total realized/unrealized gains (losses)
Included in net income [1], [2]		753			29
Included in OCI [3]		202			—
Purchases, issuances, and settlements		338			154
Transfers into Level 3 [4]		—			65
Transfers out of Level 3 [4]		—			(133	)

Fair value as of September 30, 2010	$	2,401		$	1,077

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	753		$	21


	Other Policyholder Funds and Benefits Payable [1]
										Total Other
	Guaranteed						Equity			Policyholder Funds
	Living Benefits			Institutional			Linked			and			Other			Consumer
Liabilities	[7]			Notes			Notes			Benefits Payable			Liabilities			Notes
Fair value as of January 1, 2010	$	(3,439	)	$	(2	)	$	(10	)	$	(3,451	)	$	—		$	(5	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(1,258	)		5			2			(1,251	)		(19	)		1
Included in OCI [3]		(231	)		—			—			(231	)		—			—
Purchases, issuances and settlements		(186	)		—			—			(186	)		—			—
Transfers into Level 3 [4]		—			—			—			—			(11	)		—

Fair value as of September 30, 2010	$	(5,114	)	$	3		$	(8	)	$	(5,119	)	$	(30	)	$	(4	)

Changes in unrealized gains (losses) included in net income related to financial instruments still held at September 30, 2010 [2]	$	(1,258	)	$	5		$	2		$	(1,251	)	$	—		$	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 $2.5 billion and $1.9 billion as of September 30, 2011 and September 30, 2010, respectively, related to a transaction entered into with an affiliated captive reinsurer. See Note 10 of the Notes to Condensed Consolidated Financial Statements.

[7]		Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Fair Value Measurements (continued)

Fair Value Option

The Company elected the fair value option for its investments containing an embedded credit derivative which were not bifurcated as a result of adoption of new accounting guidance effective July 1, 2010. The underlying credit risk of these securities is primarily corporate bonds and commercial real estate. The Company elected the fair value option given the complexity of bifurcating the economic components associated with the embedded credit derivative. Additionally, the Company elected the fair value option for purchases of foreign government securities to align with the accounting for yen-based fixed annuity liabilities, which are adjusted for changes in spot rates through realized gains and losses. Similar to other fixed maturities, income earned from these securities is recorded in net investment income. Changes in the fair value of these securities are recorded in net realized capital gains and losses.

The Company previously elected the fair value option for one of its consolidated VIEs in order to apply a consistent accounting model for the VIE’s assets and liabilities. The VIE is an investment vehicle that holds high quality investments, derivative instruments that references third-party corporate credit and issues notes to investors that reflect the credit characteristics of the high quality investments and derivative instruments. The risks and rewards associated with the assets of the VIE inure to the investors. The investors have no recourse against the Company. As a result, there has been no adjustment to the market value of the notes for the Company’s own credit risk.

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						Nine Months Ended
	September 30,						September 30,
*(Before-tax)*	2011			2010			2011			2010
Assets
Fixed maturities, FVO
ABS	$	—		$	1		$	—		$	3
CRE CDOs		(60	)		41			(41	)		41
Corporate		(3	)		5			11			1
Foreign government		33			—			44			—
Other liabilities
Credit-linked notes		31			(14	)		24			(19	)

Total realized capital gains (losses)	$	1		$	33		$	38		$	26

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.


	September 30, 2011		December 31, 2010
Assets
Fixed maturities, FVO
ABS	$	65	$	64
CRE CDOs		216		260
Corporate		268		251
Foreign government		765		64

Total fixed maturities, FVO	$	1,314	$	639

Other liabilities
Credit-linked notes [1]	$	13	$	37


[1]		As of September 30, 2011 and December 31, 2010, the outstanding principal balance of the notes was $243.

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 table 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 September 30, 2011 and December 31, 2010.


	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets
Mortgage loans	$	3,983	$	4,201	$	3,244	$	3,272
Policy loans		2,125		2,275		2,128		2,164

Liabilities
Other policyholder funds and benefits payable [1]	$	10,713	$	11,006	$	10,824	$	11,050
Consumer notes [2]		345		359		377		392


[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.

The Company has not made any changes in its valuation methodologies for the following assets and liabilities since December 31, 2010.

•

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.

•

Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates.

•

Other policyholder funds and benefits payable, not carried at fair value, is determined by estimating future cash flows, discounted at the current market rate.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments

Significant Investment Accounting Policies

Recognition and Presentation of Other-Than-Temporary Impairments

The Company deems debt securities and certain equity securities with debt-like characteristics (collectively “debt securities”) to be other-than-temporarily impaired (“impaired”) if a security meets the following conditions: a) the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, or b) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, a charge is recorded in net realized capital losses equal to the difference between the fair value and amortized cost basis of the security. For those impaired debt securities which do not meet the first condition and for which the Company does not expect to recover the entire amortized cost basis, the difference between the security’s amortized cost basis and the fair value is separated into the portion representing a credit other-than-temporary impairment (“impairment”), which is recorded in net realized capital losses, and the remaining impairment, which is recorded in OCI. Generally, the Company determines a security’s credit impairment as the difference between its amortized cost basis and its best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment. The remaining non-credit impairment, which is recorded in OCI, is the difference between the security’s fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to the impairment, which typically represents current market liquidity and risk premiums. The previous amortized cost basis less the impairment recognized in net realized capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to the estimated future cash flows over the expected remaining life of the security by prospectively adjusting the security’s yield, if necessary.

The Company’s evaluation of whether a credit impairment exists for debt securities includes but is not limited to, the following factors: (a) changes in the financial condition of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the security and (e) the payment structure of the security. The Company’s best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the security. The Company’s best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, and loan-to-value (“LTV”) ratios. In addition, for structured securities, the Company considers factors including, but not limited to, average cumulative collateral loss rates that vary by vintage year, commercial and residential property value declines that vary by property type and location and commercial real estate delinquency levels. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral such as changes in the projections of the underlying property value estimates.

For equity securities where the decline in the fair value is deemed to be other-than-temporary, a charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The previous cost basis less the impairment becomes the security’s new cost basis. The Company asserts its intent and ability to retain those equity securities deemed to be temporarily impaired until the price recovers. Once identified, these securities are systematically restricted from trading unless approved by a committee of investment and accounting professionals (“Committee”). The Committee will only authorize the sale of these securities based on predefined criteria that relate to events that could not have been reasonably foreseen. Examples of the criteria include, but are not limited to, the deterioration in the issuer’s financial condition, security price declines, a change in regulatory requirements or a major business combination or major disposition.

The primary factors considered in evaluating whether an impairment exists for an equity security include, but are not limited to: (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated payments and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Mortgage Loan Valuation Allowances

The Company’s security monitoring process reviews mortgage loans on a quarterly basis to identify potential credit losses. Commercial mortgage loans are considered to be impaired when management estimates that, based upon current information and events, it is probable that the Company will be unable to collect amounts due according to the contractual terms of the loan agreement. Criteria used to determine if an impairment exists include, but are not limited to: current and projected macroeconomic factors, such as unemployment rates, and property-specific factors such as rental rates, occupancy levels, LTV ratios and debt service coverage ratios (“DSCR”). In addition, the Company considers historic, current and projected delinquency rates and property values. These assumptions require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the borrower and/or underlying collateral such as changes in the projections of the underlying property value estimates.

For mortgage loans that are deemed impaired, a valuation allowance is established for the difference between the carrying amount and the Company’s share of either (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate, (b) the loan’s observable market price or, most frequently, (c) the fair value of the collateral. A valuation allowance has been established for either individual loans or as a projected loss contingency for loans with an LTV ratio of 90% or greater and consideration of other credit quality factors, including DSCR. Changes in valuation allowances are recorded in net realized capital gains and losses. Interest income on impaired loans is accrued to the extent it is deemed collectible and the loans continue to perform under the original or restructured terms. Interest income ceases to accrue for loans when it is probable that the Company will not receive interest and principal payments according to the contractual terms of the loan agreement, or if a loan is more than 60 days past due. Loans may resume accrual status when it is determined that sufficient collateral exists to satisfy the full amount of the loan and interest payments, as well as when it is probable cash will be received in the foreseeable future. Interest income on defaulted loans is recognized when received.

Net Realized Capital Gains (Losses)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Before-tax)*	2011			2010			2011			2010
Gross gains on sales	$	116		$	99		$	317		$	404
Gross losses on sales		(26	)		(40	)		(159	)		(155	)
Net OTTI losses recognized in earnings		(42	)		(73	)		(92	)		(299	)
Valuation allowance on mortgage loans		—			—			25			(111	)
Japanese fixed annuity contract hedges, net [1]		9			11			(2	)		22
Periodic net coupon settlements on credit derivatives/Japan		4			—			—			(4	)
Results of variable annuity hedge program
GMWB derivatives, net		(355	)		167			(327	)		(116	)
Macro hedge program		1,193			(443	)		863			(210	)

Total results of variable annuity hedge program		838			(276	)		536			(326	)
GMIB/GMAB/GMWB reinsurance		(548	)		(224	)		(212	)		(780	)
Coinsurance and modified coinsurance reinsurance contracts		866			(174	)		370			669
Other, net [2]		(190	)		114			(246	)		108

Net realized capital gains (losses)	$	1,027		$	(563	)	$	537		$	(472	)


[1]		Relates to the Japanese fixed annuity product (adjustment of product liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding periodic net coupon settlements, and Japan fair value option securities).

[2]		Primarily consists of gains and losses on non-qualifying derivatives and fixed maturities, FVO, Japan 3Win related foreign currency swaps, and other investment gains and losses.

Net realized capital gains and losses from investment sales, after deducting the life and pension policyholders’ share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Gross gains on sales, gross losses on sales and impairments previously reported as unrealized losses in AOCI were $48 and $66, respectively, for the three and nine months ended September 30, 2011 and ($14) and ($50) for the three and nine months ended September 30, 2010, respectively. Proceeds from sales of AFS securities totaled $4.4 billion and $14.4 billion, respectively, for the three and nine months ended September 30, 2011 and $8.7 billion and $21.3 billion, respectively, for the three and nine months ended September 30, 2010.

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						Nine Months Ended
	September 30,						September 30,
*(Before-tax)*	2011			2010			2011			2010
Balance as of beginning of period	$	(1,510	)	$	(1,725	)	$	(1,598	)	$	(1,632	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired		(3	)		(17	)		(26	)		(159	)
Securities previously impaired		(26	)		(35	)		(42	)		(114	)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period		121			138			243			251
Securities due to an increase in expected cash flows		1			7			6			22

Balance as of end of period	$	(1,417	)	$	(1,632	)	$	(1,417	)	$	(1,632	)


[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.


	September 30, 2011												December 31, 2010
	Cost or		Gross		Gross					Non-			Cost or		Gross		Gross					Non-
	Amortized		Unrealized		Unrealized			Fair		Credit			Amortized		Unrealized		Unrealized			Fair		Credit
	Cost		Gains		Losses			Value		OTTI [1]			Cost		Gains		Losses			Value		OTTI [1]
ABS	$	2,600	$	62	$	(294	)	$	2,368	$	(5	)	$	2,395	$	29	$	(356	)	$	2,068	$	(1	)
CDOs		2,085		—		(302	)		1,783		(33	)		2,278		—		(379	)		1,899		(59	)
CMBS		4,470		149		(319	)		4,300		(18	)		5,283		146		(401	)		5,028		(15	)
Corporate [2]		27,418		2,584		(519	)		29,432		—			25,934		1,545		(538	)		26,915		6
Foreign govt./govt. agencies		1,022		91		(5	)		1,108		—			963		48		(9	)		1,002		—
Municipal		1,393		112		(40	)		1,465		—			1,149		7		(124	)		1,032		—
RMBS		3,799		147		(413	)		3,533		(113	)		4,450		79		(411	)		4,118		(113	)
U.S. Treasuries		1,943		173		(2	)		2,114		—			2,871		11		(110	)		2,772		—

Total fixed maturities, AFS		44,730		3,318		(1,894	)		46,103		(169	)		45,323		1,865		(2,328	)		44,834		(182	)
Equity securities, AFS		454		26		(64	)		416		—			320		61		(41	)		340		—

Total AFS securities	$	45,184	$	3,344	$	(1,958	)	$	46,519	$	(169	)	$	45,643	$	1,926	$	(2,369	)	$	45,174	$	(182	)


[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 September 30, 2011 and December 31, 2010.

[2]		Gross unrealized gains (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).

The following table presents the Company’s fixed maturities, AFS, by contractual maturity year.


	September 30, 2011
Contractual Maturity	Amortized Cost		Fair Value
One year or less	$	1,776	$	1,796
Over one year through five years		9,764		10,190
Over five years through ten years		7,829		8,347
Over ten years		12,407		13,786

Subtotal		31,776		34,119
Mortgage-backed and asset-backed securities		12,954		11,984

Total fixed maturities, AFS	$	44,730	$	46,103

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.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Security 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.


	September 30, 2011
	Less Than 12 Months							12 Months or More							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	327	$	319	$	(8	)	$	1,105	$	819	$	(286	)	$	1,432	$	1,138	$	(294	)
CDOs		331		305		(26	)		1,735		1,459		(276	)		2,066		1,764		(302	)
CMBS		805		724		(81	)		1,575		1,337		(238	)		2,380		2,061		(319	)
Corporate [1]		2,850		2,741		(100	)		2,421		1,960		(419	)		5,271		4,701		(519	)
Foreign govt./govt. agencies		80		79		(1	)		45		41		(4	)		125		120		(5	)
Municipal		27		26		(1	)		352		313		(39	)		379		339		(40	)
RMBS		147		134		(13	)		1,239		839		(400	)		1,386		973		(413	)
U.S. Treasuries		198		197		(1	)		25		24		(1	)		223		221		(2	)
Total fixed maturities		4,765		4,525		(231	)		8,497		6,792		(1,663	)		13,262		11,317		(1,894	)
Equity securities		115		98		(17	)		130		83		(47	)		245		181		(64	)

Total securities in an unrealized loss	$	4,880	$	4,623	$	(248	)	$	8,627	$	6,875	$	(1,710	)	$	13,507	$	11,498	$	(1,958	)


	December 31, 2010
	Less Than 12 Months							12 Months or More							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	237	$	226	$	(11	)	$	1,226	$	881	$	(345	)	$	1,463	$	1,107	$	(356	)
CDOs		316		288		(28	)		1,934		1,583		(351	)		2,250		1,871		(379	)
CMBS		374		355		(19	)		2,532		2,150		(382	)		2,906		2,505		(401	)
Corporate [1]		3,726		3,591		(130	)		2,777		2,348		(408	)		6,503		5,939		(538	)
Foreign govt./govt. agencies		250		246		(4	)		40		35		(5	)		290		281		(9	)
Municipal		415		399		(16	)		575		467		(108	)		990		866		(124	)
RMBS		1,187		1,155		(32	)		1,379		1,000		(379	)		2,566		2,155		(411	)
U.S. Treasuries		1,142		1,073		(69	)		158		117		(41	)		1,300		1,190		(110	)

Total fixed maturities		7,647		7,333		(309	)		10,621		8,581		(2,019	)		18,268		15,914		(2,328	)
Equity securities		18		17		(1	)		148		108		(40	)		166		125		(41	)

Total securities in an unrealized loss	$	7,665	$	7,350	$	(310	)	$	10,769	$	8,689	$	(2,059	)	$	18,434	$	16,039	$	(2,369	)


[1]		Unrealized losses exclude the 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 September 30, 2011, AFS securities in an unrealized loss position, comprised of 1,917 securities, largely related to commercial real estate, corporate securities primarily within the financial services sector and RMBS which have experienced price deterioration. As of September 30, 2011, 72% of securities in a gross unrealized loss position were depressed less than 20% of cost or amortized cost. The improvement in unrealized losses during 2011 was primarily attributable to declining interest rates, partially offset by credit spread widening.

Most of the securities depressed for twelve months or more relate to structured securities primarily within commercial and residential real estate, including structured securities that have a floating-rate coupon referenced to a market index such as LIBOR. Also included are financial services securities that have a floating-rate coupon and/or long-dated maturities. Current market spreads continue to be significantly wider for these securities as compared to spreads at the security’s respective purchase date, largely due to the economic and market uncertainties regarding future performance of commercial and residential real estate. Deteriorations in valuation are also the result of substantial declines in certain market indices. The Company reviewed these securities as part of its impairment analysis and where a credit impairment has not been recorded, the Company’s best estimate is that expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Mortgage Loans


	September 30, 2011							December 31, 2010
	Amortized		Valuation			Carrying		Amortized		Valuation			Carrying
	Cost [1]		Allowance			Value		Cost [1]		Allowance			Value
Commercial	$	4,007	$	(24	)	$	3,983	$	3,306		(62	)		3,244

Total mortgage loans	$	4,007	$	(24	)	$	3,983	$	3,306	$	(62	)	$	3,244


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

As of September 30, 2011, the carrying value of mortgage loans associated with the valuation allowance was $368. Included in the table above, are mortgage loans held-for-sale with a carrying value and valuation allowance of $57 and $4 as of September 30, 2011 and $64 and $4 as of December 31, 2010. The carrying value of these loans is included in mortgage loans in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2011, 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.


	2011			2010
Balance as of January 1	$	(62	)	$	(260	)
(Additions)/Reversals		25			(111	)
Deductions		13			301

Balance as of September 30	$	(24	)	$	(70	)

The current weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 68% as of September 30, 2011, 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. DSCRs compare a property’s net operating income to the borrower’s principal and interest payments. The current weighted average DSCR of the Company’s commercial mortgage loan portfolio was 1.93x as of September 30, 2011. The Company did not hold any commercial mortgage loans greater than 60 days past due.

The following table presents the carrying value of the Company’s commercial mortgage loans by LTV and DSCR.

Commercial Mortgage Loans Credit Quality

September 30, 2011

December 31, 2010

Avg. Debt-

Carrying

Service

Carrying

Service

Loan-to-value

Value

Coverage Ratio

Value

Coverage Ratio

Greater than 80%

519

1.53

961

1.67

65% – 80%

1,865

1.56

1,366

2.11

Less than 65%

1,599

2.48

917

2.44

Total commercial mortgage loans

3,983

1.93

3,244

2.07

The following tables present the carrying value of the Company’s mortgage loans by region and property type.

Mortgage Loans by Region


	September 30, 2011					December 31, 2010
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
East North Central	$	47		1.2	%	$	51		1.6	%
Middle Atlantic		402		10.1	%		344		10.6	%
Mountain		62		1.6	%		49		1.5	%
New England		202		5.1	%		188		5.8	%
Pacific		1,147		28.7	%		898		27.7	%
South Atlantic		741		18.6	%		679		20.9	%
West North Central		16		0.4	%		19		0.6	%
West South Central		115		2.9	%		117		3.6	%
Other [1]		1,251		31.4	%		899		27.7	%

Total mortgage loans	$	3,983		100.0	%	$	3,244		100.0	%


[1]		Primarily represents loans collateralized by multiple properties in various regions.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Mortgage Loans by Property Type


	September 30, 2011					December 31, 2010
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
Commercial
Agricultural	$	125		3.1	%	$	177		5.5	%
Industrial		1,218		30.6	%		833		25.7	%
Lodging		85		2.1	%		123		3.8	%
Multifamily		733		18.4	%		479		14.8	%
Office		762		19.1	%		796		24.5	%
Retail		848		21.4	%		556		17.1	%
Other		212		5.3	%		280		8.6	%

Total mortgage loans	$	3,983		100.0	%	$	3,244		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 manager and as an investor through normal investment activities, as well as a means of accessing capital. 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.

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 investment management services and original investment.


	September 30, 2011						December 31, 2010
					Maximum						Maximum
	Total		Total		Exposure		Total		Total		Exposure
	Assets		Liabilities [1]		to Loss [2]		Assets		Liabilities [1]		to Loss [2]
CDOs [3]	$	492	$	466	$	32	$	729	$	416	$	265
Limited partnerships		7		3		4		14		6		8

Total	$	499	$	469	$	36	$	743	$	422	$	273


[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, and fixed maturities, FVO, 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. Limited partnerships represent one hedge fund for which the Company holds a majority interest in the fund as an investment.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Non-Consolidated VIEs

The Company does not hold any investments issued by VIEs for which the Company is not the primary beneficiary as of September 30, 2011 and December 31, 2010.

In addition, 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.

Derivative Instruments

The Company utilizes a variety of over-the-counter 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 otherwise be permissible investments under the Company’s investment policies. The Company also purchases and issues 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 rider included with certain variable annuity products.

Cash flow hedges

Interest rate swaps

Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed maturity securities or interest payments on floating-rate guaranteed investment contracts to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities.

The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the purchase of fixed-rate securities. These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Foreign currency swaps

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

Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to fluctuations in interest rates.

Foreign currency swaps

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

Interest rate swaps, swaptions, caps, floors, and futures

The Company uses interest rate swaps, swaptions, caps, floors, 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 September 30, 2011 and December 31, 2010, the notional amount of interest rate swaps in offsetting relationships was $5.1 billion and $4.7 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.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Japan 3Win foreign currency swaps

Prior to the second quarter of 2009, The Company offered certain variable annuity products with a GMIB rider through an affiliate, HLIKK, in Japan. The GMIB rider is reinsured to a wholly-owned U.S. subsidiary, which invests in U.S. dollar denominated assets to support the liability. The U.S. subsidiary entered into pay U.S. dollar, receive yen swap contracts to hedge the currency and interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.

Japanese fixed annuity hedging instruments

Prior to the second quarter of 2009, The Company offered a yen denominated fixed annuity product through HLIKK and reinsured to a wholly-owned U.S. subsidiary. The U.S. subsidiary invests in U.S. dollar denominated securities to support the yen denominated fixed liability payments and entered into currency rate swaps to hedge the foreign currency exchange rate and yen interest rate exposures that exist as a result of U.S. dollar assets backing the yen denominated liability.

Japanese variable annuity hedging instruments

The Company enters into foreign currency forward and option contracts to hedge the foreign currency risk associated with certain Japanese variable annuity liabilities reinsured from HLIKK. Foreign currency risk may arise for some segments of the business where assets backing the liabilities are denominated in U.S. dollars while the liabilities are denominated in yen. Foreign currency risk may also arise when certain variable annuity policyholder accounts are invested in various currencies while the related guaranteed minimum death benefit (“GMDB”) and GMIB guarantees are effectively yen-denominated.

The Company’s net notional amount relating to Japanese variable annuity hedging instruments as of September 30, 2011 was $1.8 billion, which consisted of $2.4 billion of long positions offset by short positions of $582. The Company’s net notional amount relating to Japanese variable annuity hedging instruments as of December 31, 2010 was $1.7 billion which consisted of long positions only.

Credit derivatives that purchase credit protection

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. These contracts require the Company to pay a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract.

Credit derivatives that assume credit risk

Credit default swaps are used to assume credit risk related to an individual entity, referenced index, or asset pool, as a part of replication transactions. These contracts entitle the Company to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk due to credit derivatives embedded within certain fixed maturity securities. These securities are primarily comprised of structured securities that contain credit derivatives that reference a standard index of corporate securities or particular securities.

Credit derivatives in offsetting positions

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, options and futures

The Company offers certain equity indexed products, which may contain an embedded derivative that requires bifurcation. The Company enters into S&P index swaps and options to economically hedge the equity volatility risk associated with these embedded derivatives. During third quarter of 2011 the Company entered into equity index options and futures with the purpose of hedging equity market risk in the investment portfolio in an adverse equity market environment.

GMWB product derivatives

The Company offers certain variable annuity products with a GMWB rider in the U.S. and formerly in the U.K. and Japan. The GMWB is a bifurcated embedded derivative that provides the policyholder with a guaranteed remaining balance (“GRB”) if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. The notional value of the embedded derivative is the GRB.

GMWB reinsurance contracts

The Company has entered into reinsurance arrangements to offset a portion of its risk exposure to the GMWB for the remaining lives of covered variable annuity contracts. Reinsurance contracts covering GMWB are accounted for as free-standing derivatives. The notional amount of the reinsurance contracts is the GRB amount.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

GMWB hedging instruments

The Company enters into derivative contracts to partially hedge exposure associated with a portion of the GMWB liabilities that are not reinsured. These derivative contracts 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 represents notional and fair value for GMWB hedging instruments.


	Notional Amount				Fair Value
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
Customized swaps	$	8,225	$	10,113	$	433	$	209
Equity swaps, options, and futures		5,026		4,943		627		391
Interest rate swaps and futures		2,730		2,800		1		(133	)

Total	$	15,981	$	17,856	$	1,061	$	467

Macro hedge program

The Company utilizes equity options, equity futures contracts, currency forwards, and currency options to partially hedge against a decline in the equity markets or changes in foreign currency exchange rates and the resulting statutory surplus and capital impact primarily arising from GMDB, GMIB and GMWB obligations. The Company also enters into foreign currency denominated interest rate swaps to hedge the interest rate exposure related to the potential annuitization of certain benefit obligations issued in Japan.

The following table represents notional and fair value for the macro hedge program.


	Notional Amount				Fair Value
	September 30,		December 31,		September 30,			December 31,
	2011		2010		2011			2010
Currency forwards	$	5,049	$	3,232	$	406		$	93
Currency options [1]		7,153		5,296		151			62
Equity futures		4,195		1,168		—			—
Equity options		6,703		13,963		468			207
Equity swaps		402		369		(45	)		1
Interest rate futures		695		—		—			—
Interest rate swaps		3,458		—		29			—

Total	$	27,655	$	24,028	$	1,009		$	363


[1]		As of September 30, 2011, and December 31, 2010, notional amounts include $6.0 and $3.1 billion, respectively, related to long positions and $1.2 billion and $2.2 billion, respectively, related to short positions.

The Company’s notional amount relating to the macro hedge program increased since December 31, 2010, primarily due to an increase in the hedging of Japan variable annuities. The Company increased the notional amount related to currency forwards, currency options, equity futures, and Yen interest rate swaps. These increases were partially offset by a decline in notional of S&P index equity options primarily due to the expiration of certain out of the money options in January of 2011.

GMAB, GMWB and GMIB reinsurance contracts

The Company reinsured the GMAB, GMWB, and GMIB embedded derivatives for host variable annuity contracts written by HLIKK. The reinsurance contracts are accounted for as free-standing derivative contracts. The notional amount of the reinsurance contracts is the yen denominated GRB balance value converted at the period-end yen to U.S. dollar foreign spot exchange rate. For further information on this transaction, refer to Note 10 of the Notes to Condensed Consolidated Financial Statements.

Coinsurance and modified coinsurance reinsurance contracts

During 2009, 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 contract GMAB, GMWB and GMIB riders reinsured by the Company that have been assumed from HLIKK and is accounted for as a free-standing derivative. For further information on this transaction, refer to Note 10 of the Notes to Condensed Financial Statements.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

Derivative Balance Sheet Classification

The table below 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. The fair value amounts presented do not include income accruals or cash collateral held amounts, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts are not included because the associated gains and losses accrue directly to policyholders. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the table below. 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.


	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
	Sept. 30,		Dec. 31,		Sept. 30,			Dec. 31,			Sept. 30,		Dec. 31,		Sept. 30,			Dec. 31,
Hedge Designation/ Derivative Type	2011		2010		2011			2010			2011		2010		2011			2010
Cash flow hedges
Interest rate swaps	$	7,058	$	7,652	$	375		$	144		$	375	$	182	$	—		$	(38	)
Foreign currency swaps		240		255		(5	)		—			19		18		(24	)		(18	)

Total cash flow hedges		7,298		7,907		370			144			394		200		(24	)		(56	)

Fair value hedges
Interest rate swaps		944		1,079		(87	)		(47	)		2		4		(89	)		(51	)
Foreign currency swaps		677		677		(23	)		(12	)		74		71		(97	)		(83	)

Total fair value hedges		1,621		1,756		(110	)		(59	)		76		75		(186	)		(134	)

Non-qualifying strategies
Interest rate contracts
Interest rate swaps, swaptions, caps, floors, and futures		5,696		5,490		(235	)		(255	)		593		121		(828	)		(376	)
Foreign exchange contracts
Foreign currency swaps and forwards		185		196		(7	)		(14	)		—		—		(7	)		(14	)
Japan 3Win foreign currency swaps		2,285		2,285		191			177			191		177		—			—
Japanese fixed annuity hedging instruments		2,016		2,119		544			608			566		608		(22	)		—
Japanese variable annuity hedging instruments		2,977		1,720		1			73			66		74		(65	)		(1	)
Credit contracts
Credit derivatives that purchase credit protection		1,014		1,730		30			(5	)		44		18		(14	)		(23	)
Credit derivatives that assume credit risk [1]		1,766		2,035		(538	)		(376	)		2		7		(540	)		(383	)
Credit derivatives in offsetting positions		5,116		5,175		(47	)		(57	)		135		60		(182	)		(117	)
Equity contracts
Equity index swaps and options		1,280		188		27			(10	)		36		5		(9	)		(15	)
Variable annuity hedge program
GMWB product derivatives [2]		37,856		42,278		(2,815	)		(1,625	)		—		—		(2,815	)		(1,625	)
GMWB reinsurance contracts		7,519		8,767		485			280			485		280		—			—
GMWB hedging instruments		15,981		17,856		1,061			467			1,180		647		(119	)		(180	)
Macro hedge program		27,655		24,028		1,009			363			1,087		372		(78	)		(9	)
Other
GMAB, GMWB, and GMIB reinsurance contracts		21,827		21,423		(3,051	)		(2,633	)		—		—		(3,051	)		(2,633	)
Coinsurance and modified coinsurance reinsurance contracts		50,765		51,934		2,511			1,722			2,745		2,342		(234	)		(620	)

Total non-qualifying strategies		183,938		187,224		(834	)		(1,285	)		7,130		4,711		(7,964	)		(5,996	)

Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	192,857	$	196,887	$	(574	)	$	(1,200	)	$	7,600	$	4,986	$	(8,174	)	$	(6,186	)

Balance Sheet Location
Fixed maturities, available-for-sale	$	416	$	441	$	(51	)	$	(26	)	$	—	$	—	$	(51	)	$	(26	)
Other investments		56,902		51,633		2,582			1,453			3,620		2,021		(1,038	)		(568	)
Other liabilities		17,478		20,318		(225	)		(357	)		749		343		(974	)		(700	)
Consumer notes		39		39		(4	)		(5	)		—		—		(4	)		(5	)
Reinsurance recoverables		55,726		58,834		2,996			2,002			3,231		2,622		(235	)		(620	)
Other policyholder funds and benefits payable		62,296		65,622		(5,872	)		(4,267	)		—		—		(5,872	)		(4,267	)

Total derivatives	$	192,857	$	196,887	$	(574	)	$	(1,200	)	$	7,600	$	4,986	$	(8,174	)	$	(6,186	)


[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.

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, 2010, was primarily due to the following:

•

The GMWB product derivative notional decreased $4.4 billion primarily as a result of policyholder lapses and withdrawals.

•

The GMWB hedging instruments notional decreased $1.9 billion primarily due to a decrease in equity markets.

•

Change in Fair Value

The change in the total fair value of derivative instruments since December 31, 2010, was primarily related to the following:

•

The fair value related to the macro hedge program increased primarily due to lower equity market valuation and the Japanese yen strengthening in comparison to the euro.

•

The decrease in the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of a general decrease in long-term interest rates and higher interest rate volatility.

•

Under an internal reinsurance agreement with an affiliate, the decrease in fair value associated with the GMAB, GMWB, and GMIB reinsurance contracts along with a portion of the GMWB related derivatives are ceded to the affiliated reinsurer and result in an offsetting fair value of the coinsurance and modified coinsurance reinsurance contracts.

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. No components of each derivative’s gain or loss were excluded from the assessment of hedge effectiveness.

The following table presents 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
		Gain (Loss) Recognized in OCI												Income on Derivative
		on Derivative (Effective Portion)												(Ineffective Portion)
		Three Months						Nine Months						Three Months					Nine Months
		Ended						Ended						Ended					Ended
		September 30,						September 30,						September 30,					September 30,
		2011			2010			2011			2010			2011			2010		2011			2010
Interest rate swaps	Net realized capital gains (losses)	$	211		$	142		$	253		$	427		$	(2	)	$	1	$	(2	)	$	2
Foreign currency swaps	Net realized capital gains (losses)		(4	)		(10	)		(2	)		(6	)		—			—		—			—

Total		$	207		$	132		$	251		$	421		$	(2	)	$	1	$	(2	)	$	2

Derivatives in Cash Flow Hedging Relationships


		Gain (Loss) Reclassified from AOCI into Income
		(Effective Portion)
		Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2011			2010		2011		2010
Interest rate swaps	Net realized capital gains	$	4		$	3	$	6	$	4
Interest rate swaps	Net investment income		20			17		59		36
Foreign currency swaps	Net realized capital gains (losses)		(9	)		11		2		(5	)

Total		$	15		$	31	$	67	$	35

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

As of September 30, 2011, 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 $64. 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. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for forecasted transactions, excluding interest payments on existing variable-rate financial instruments) is approximately two years.

During the three and nine months ended September 30, 2011, 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. For the three and nine months ended September 30, 2010, the Company had less than $1 of 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.

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. No components of each derivative’s gain or loss were excluded from 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 (Loss) Recognized in Income [1]
	Three Months Ended											Nine Months Ended
	September 30,											September 30,
	2011					2010						2011						2010
				Hedge					Hedge						Hedge						Hedge
	Derivative			Item		Derivative			Item			Derivative			Item			Derivative			Item
Interest rate swaps
Net realized capital gains (losses)	$	(42	)	$	43	$	(25	)	$	25		$	(57	)	$	57		$	(77	)	$	72
Benefits, losses and loss adjustment expenses		—			—		(1	)		2			—			—			(3	)		5
Foreign currency swaps
Net realized capital gains (losses)		(28	)		28		44			(44	)		8			(8	)		4			(4	)
Benefits, losses and loss adjustment expenses		(5	)		5		(5	)		5			(14	)		14			(6	)		6

Total	$	(75	)	$	76	$	13		$	(12	)	$	(63	)	$	63		$	(82	)	$	79


[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.

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 or losses. The following table presents the gain or loss recognized in income on non-qualifying strategies:

Non-qualifying Strategies
Gain (Loss) Recognized within Net Realized Capital Gains (Losses)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Interest rate contracts
Interest rate swaps, swaptions, caps, floors, futures, and forwards	$	9		$	21		$	16		$	17
Foreign exchange contracts
Foreign currency swaps and forwards		11			(14	)		4			2
Japan 3Win related foreign currency swaps [1]		39			84			14			93
Japanese fixed annuity hedging instruments [2]		103			160			98			301
Japanese variable annuity hedging instruments		56			15			—			60
Credit contracts
Credit derivatives that purchase credit protection		18			(20	)		5			5
Credit derivatives that assume credit risk		(146	)		93			(143	)		80
Equity contracts
Equity index swaps, options, and futures		(40	)		2			(38	)		7
Variable annuity hedge program
GMWB product derivatives		(1,347	)		652			(1,074	)		(478	)
GMWB reinsurance contracts		241			(101	)		180			84
GMWB hedging instruments		751			(384	)		567			278
Macro hedge program		1,193			(443	)		863			(210	)
Other
GMAB, GMWB, and GMIB reinsurance contracts		(548	)		(224	)		(212	)		(780	)
Coinsurance and modified coinsurance reinsurance contracts		866			(174	)		370			669

Total	$	1,206		$	(333	)	$	650		$	128


[1]		The associated liability is adjusted for changes in spot rates through realized capital gains and was (93) and $(114) for the three months ended September 30, 2011 and 2010, respectively, and $(100) and $(210) for the nine months ended September 30, 2011 and 2010, respectively.

[2]		The associated liability is adjusted for changes in spot rates through realized capital gains and was $(115) and $(140) for the three months ended September 30, 2011 and 2010, respectively, and $(125) and $(258) for the nine months ended September 30, 2011 and 2010, respectively.

For the three and nine months ended September 30, 2011, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

•

The net gain associated with the macro hedge program was driven by a lower equity market valuation and foreign currency movements, primarily the Japanese yen strengthening in comparison to the euro.

•

For the three months ended September 30, 2011 the net loss associated with GMAB, GMWB, and GMIB product reinsurance contracts, which are reinsured to an affiliated captive reinsurer, was primarily due to a decrease in equity markets and the strengthening of the Japanese yen in comparison to the euro. For the nine months ended September 30, 2011 the net loss associated with GMAB, GMWB, and GMIB product reinsurance contracts, which are reinsured to an affiliated captive reinsurer, was primarily due to a decrease in equity markets and an increase in Japan currency volatility.

•

The net gain on the coinsurance and modified coinsurance reinsurance agreement, which is accounted for as a derivative instrument primarily offsets the net loss on GMAB, GMWB, and GMIB reinsurance contracts. For a discussion related to the reinsurance agreement refer to Note 10 of the Notes to Condensed Consolidated Financial Statements for more information on this transaction.

•

The loss related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of a general decrease in long-term interest rates and higher interest rate volatility.

•

The loss on credit derivatives that assume credit risk was primarily due to credit spread widening.

•

The net gain related to the Japanese fixed annuity hedging instruments was primarily due to the U.S. dollar weakening in comparison to the Japanese yen.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

For the three and nine months ended September 30, 2010, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily due to the following:

•

The net loss associated with the macro hedge program is primarily due to a higher equity market valuation, time decay, and lower implied market volatility.

•

The net gain on the Japanese fixed annuity hedging instruments is primarily due to the U.S. dollar weakening in comparison to the Japanese yen and a decrease in Japanese interest rates.

•

The net gain related to the Japan 3Win hedging derivatives is primarily due to the U.S. dollar weakening in comparison to the Japanese yen, partially offset by the decrease in long-term interest rates.

•

The net loss on derivatives associated with GMAB, GMWB, and GMIB product reinsurance contracts, which are reinsured to an affiliated captive reinsurer, was primarily due to an increase in Japan equity market volatility, and a decrease in Japan interest rates, partially offset by the impact of credit standing.

•

The net gain for the nine months ended September 30, 2010 on the coinsurance and modified coinsurance reinsurance agreement, which is accounted for as a derivative instrument, primarily offsets the net loss on the GMAB, GMWB, and GMIB reinsurance contracts as well as a portion of the GMWB product derivatives. For a discussion related to the reinsurance agreement refer to Note 11 “Transactions with Affiliates” for more information on this transaction.

•

The gain for the three months ended September 30, 2010 related to the net GMWB product, reinsurance, and hedging derivatives is primarily driven by liability model assumption updates and lower implied market volatility, partially offset by losses due to a general decrease in long-term rates. The loss for the nine months ended September 30, 2010 related to the net GMWB product, reinsurance, and hedging derivatives is primarily driven by a general decrease in long-term interest rates, partially offset by gains on liability model assumption updates.

For a discussion related to the reinsurance agreement refer to Note 10 “Transactions with Affiliates” for more information on this transaction.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity, referenced index, or asset pool 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 trades ranging from baskets of up to five corporate issuers to standard and customized diversified portfolios of corporate issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and are typically 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 September 30, 2011 and December 31, 2010.

As of September 30, 2011


							Underlying Referenced Credit
						Weighted	Obligation(s) [1]
						Average		Average	Offsetting
Credit Derivative type by derivative	Notional		Fair			Years to		Credit	Notional		Offsetting
risk exposure	Amount [2]		Value			Maturity	Type	Rating	Amount [3]		Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,021	$	(24	)	3 years	Corporate Credit/ Foreign Gov.	A+	$	936	$	(15	)
Below investment grade risk exposure		130		(10	)	2 years	Corporate Credit	B+		114		(2	)
Basket credit default swaps [4]
Investment grade risk exposure		2,018		(89	)	3 years	Corporate Credit	BBB+		1,155		26
Investment grade risk exposure		353		(85	)	5 years	CMBS Credit	BBB+		353		85
Below investment grade risk exposure		477		(420	)	3 years	Corporate Credit	BBB+		—		—
Embedded credit derivatives
Investment grade risk exposure		25		23		3 years	Corporate Credit	BBB-		—		—
Below investment grade risk exposure		300		239		5 years	Corporate Credit	BB+		—		—

Total	$	4,324	$	(366	)				$	2,558	$	94

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Investments and Derivative Instruments (continued)

As of December 31, 2010


							Underlying Referenced Credit
						Weighted	Obligation(s) [1]
						Average		Average	Offsetting
Credit Derivative type by derivative	Notional		Fair			Years to		Credit	Notional		Offsetting
risk exposure	Amount [2]		Value			Maturity	Type	Rating	Amount [3]		Fair Value [3]
Single name credit default swaps
							Corporate Credit/
Investment grade risk exposure	$	1,038	$	(6	)	3 years	Foreign Gov.	A+	$	945	$	(36	)
Below investment grade risk exposure		151		(6	)	3 years	Corporate Credit	BB-		135		(11	)
Basket credit default swaps [4]
Investment grade risk exposure		2,064		(7	)	4 years	Corporate Credit	BBB+		1,155		(7	)
Investment grade risk exposure		352		(32	)	6 years	CMBS Credit	A-		352		32
Below investment grade risk exposure		667		(334	)	4 years	Corporate Credit	BBB+		—		—
Embedded credit derivatives
Investment grade risk exposure		25		25		4 years	Corporate Credit	BBB-		—		—
Below investment grade risk exposure		325		286		6 years	Corporate Credit	BB		—		—

Total	$	4,622	$	(74	)				$	2,587	$	(22	)


[1]		The average credit ratings are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, and Fitch. 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. There is no specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.

[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 $2.4 billion and $2.6 billion as of September 30, 2011 and December 31, 2010, 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. Also includes $477 and $467 as of September 30, 2011 and December 31, 2010, respectively, of customized diversified portfolios of corporate issuers referenced through credit default swaps.

5. Deferred Policy Acquisition Costs and Present Value of Future Profits

Changes in the DAC balance are as follows:


	2011			2010
Balance, January 1	$	4,949		$	5,779
Deferred costs		385			383
Amortization — DAC		(350	)		(255	)
Amortization — Unlock benefit (charge), pre-tax		(192	)		141
Amortization — DAC from discontinued operations		—			(14	)
Adjustments to unrealized gains and losses on securities available-for-sale and other		(311	)		(1,380	)
Effect of currency translation		1			(1	)
Effect of new accounting guidance		—			11

Balance, September 30	$	4,482		$	4,664

The Unlock charge, pre-tax, for the nine months ended September 30, 2011 was driven by declines in equity markets and assumption changes which reduce expected future gross profits. The Unlock benefit, pre-tax, for the nine months ended September 30, 2010 was primarily driven by actual separate account returns being above our aggregated estimated return.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

The following table provides details concerning GMDB and GMIB exposure as of September 30, 2011:

Breakdown of Variable Annuity Account Value by GMDB/GMIB Type


					Retained Net
	Account		Net amount		Amount		Weighted Average
	Value		at Risk		at Risk		Attained Age of
Maximum anniversary value (“MAV”) [1]	(“AV”) [8]		(“NAR”) [9]		(“RNAR”) [9]		Annuitant
MAV only	$	20,113	$	7,357		644		68
With 5% rollup [2]		1,407		612		45		68
With Earnings Protection Benefit Rider (“EPB”) [3]
Benefit Rider (“EPB”) [3]		5,225		1,271		25		65
With 5% rollup & EPB		572		206		8		68

Total MAV		27,317		9,446		722
Asset Protection Benefit (APB) [4]		21,875		4,495		887		66
Lifetime Income Benefit (LIB) — Death Benefit [5]		1,052		187		59		64
Reset [6] (5-7 years)		3,030		446		246		68
Return of Premium [7] /Other		20,557		1,360		401		65

Subtotal U.S. GMDB		73,831	$	15,934		2,315		66
Less: General Account Value with U.S. GMBD		7,172

Subtotal Separate Account Liabilities with GMDB		66,659
Separate Account Liabilities without U.S. GMDB		77,254

Total Separate Account Liabilities	$	143,913

Japan GMDB [10], [11]	$	17,004	$	5,346	$	—		67
Japan GMIB [10], [11]	$	16,278	$	4,981	$	—		67


[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 the contract’s growth. The 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.

[10]		Assumed GMDB includes a ROP and MAV (before age 80) paid in a single lump sum. GMIB is a guarantee to return initial investment, adjusted for earnings liquidity, paid through a fixed annuity, after a minimum deferral period of 10, 15 or 20 years. The guaranteed remaining balance (“GRB”) related to the Japan GMIB was $21.3 billion and $20.9 billion as of September 30, 2011 and December 31, 2010, respectively. The GRB related to the Japan GMAB and GMWB was $573 and $570 as of September 30, 2011 and December 31, 2010, respectively. These liabilities are not included in the Separate Account as they are not legally insulated from the general account liabilities of the insurance enterprise. As of September 30, 2011, 100% of RNAR is reinsured to an affiliate. See Note 10 of the Notes to Condensed Consolidated Financial statements.

[11]		Policies with a guaranteed living benefit (a GMWB in the US or a GMIB in Japan) also have a guaranteed death benefit. The NAR for each benefit is shown, however these benefits are not additive. When a policy terminates due to death, any NAR related to GMWB or GMIB is released. Similarly, when a policy goes into benefit status on a GMWB or GMIB, its GMDB NAR is released.

See Note 3 of the Notes to Condensed Consolidated Financial Statements for a description of the Company’s guaranteed living benefits that are accounted for at fair value.

Account balances of contracts with guarantees were invested in variable separate accounts as follows:


Asset type	September 30, 2011		December 31, 2010
Equity securities (including mutual funds)	$	59,253	$	75,601
Cash and cash equivalents		7,406		8,365

Total	$	66,659	$	83,966

As of September 30, 2011 and December 31, 2010, approximately 18% and 15%, respectively, of the equity securities above were invested in fixed income securities through these funds and approximately 82% and 85%, respectively, were invested in equity securities.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Sales Inducements

Changes in deferred sales inducement activity were as follows for the nine months ended September 30:


	2011			2010
Balance, January 1	$	197		$	194
Sales inducements deferred		5			8
Unlock charge, pre-tax		(5	)		0
Amortization charged to income		(10	)		(5	)

Balance, September 30	$	187		$	197

8. 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, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, improper sales practices in connection with the sale of life insurance and other investment products; and improper fee arrangements in connection with investment products and structured settlements. The Company also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. 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.

Mutual Funds Litigation — In October 2010, a derivative action was brought on behalf of six Hartford retail mutual funds in the United States District Court for the District of Delaware, alleging that Hartford Investment Financial Services, LLC received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. In February 2011, a nearly identical derivative action was brought against Hartford Investment Financial Services, LLC in the United States District Court for the District of New Jersey on behalf of six additional Hartford retail mutual funds. Both actions are assigned to the Honorable Renee Marie Bumb, a judge in the District of New Jersey who is sitting by designation with respect to the Delaware action. Plaintiffs in each action seek to rescind the investment management agreements and distribution plans between Hartford Investment Financial Services, LLC and the six mutual funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation Hartford Investment Financial Services, LLC received. In addition, plaintiff in the New Jersey action seeks recovery of lost earnings. The Company disputes the allegations and moved to dismiss both actions. In September 2011, the motions to dismiss were granted in part and denied in part. The district court gave the plaintiffs leave to amend their complaints by November 14, 2011 and ordered Hartford Investment Financial Services, LLC to respond by January 16, 2012.

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 September 30, 2011, is $321. Of this $321, the legal entities have posted collateral of $330 in the normal course of business. Based on derivative market values as of September 30, 2011, a downgrade of one or two levels below the current financial strength ratings by either Moody’s or S&P would not require additional collateral to be posted. 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 and U.S. Treasury notes.

9. Stock Compensation Plans

The Hartford has three primary stock-based compensation plans. The Company is included in these plans and has been allocated compensation (benefit)/expense $(6) and $6 for the three months ended September 30, 2011 and 2010 and $8 and $20 for the nine months ended September 30, 2011 and 2010, respectively. The Company’s income tax (expense)/benefit recognized for stock-based compensation plans was $(2) and $2 for the three months ended June 30, 2011 and 2010 and $3 and $7 for the nine months ended September 30, 2010 and 2011, respectively. The Company did not capitalize any cost of stock-based compensation.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Transactions with Affiliates

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 non-contingent and contingent life 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 September 30, 2011 and December 31, 2010 the Company had $54 and $53 of reserves for claim annuities purchased by affiliated entities. The Company recorded intercompany claim annuity earned premiums of $2 and less than $1 for the three months ended September 30, 2011 and September 30, 2010, and $6 and $20 for the nine months ended September 30, 2011 and September 30, 2010, respectively. In the fourth quarter of 2008, The Company issued a payout annuity to an affiliate for $2.2 billion of consideration. The Company will pay the benefits associated with this payout annuity over 12 years.

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.

Reinsurance Assumed from Affiliates

Prior to June 1, 2009, Hartford Life sold fixed market value adjusted (“MVA”) annuity products to customers in Japan. The yen based MVA product was written by the HLIKK, a wholly owned Japanese subsidiary of Hartford Life and subsequently reinsured to the Company. As of September 30, 2011 and December 31, 2010, $2.7 billion of the account value had been assumed by the Company.

A subsidiary of the Company, Hartford Life and Annuity Insurance Company (“HLAI”), entered into a reinsurance agreement with HLIKK. Through this agreement, HLIKK agreed to cede and HLAI agreed to reinsure 100% of the risks associated with the in-force and prospective GMIB riders and the GMDB riders on covered contracts that have an associated GMIB rider issued by HLIKK on its variable annuity business. The reinsurance agreement applies to all contracts, GMIB riders and GMDB riders in-force and issued as of July 31, 2006 and prospectively, except for policies and GMIB riders issued prior to April 1, 2005. This agreement contains a tiered reinsurance premium structure. While the form of the agreement between HLAI and HLIKK for GMIB business is reinsurance, in substance and for accounting purposes the agreement is a free standing derivative. As such, the reinsurance agreement for GMIB business is 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. The fair value of GMIB liability at September 30, 2011 and December 31, 2010 is $3 billion and $2.6 billion, respectively.

In addition to this agreement, HLAI has two additional reinsurance agreements with HLIKK, one to assume 100% of the GMAB, GMIB and GMDB riders issued by HLIKK on certain of its variable annuity business. The second agreement is for HLAI to assume 100% of the in-force and prospective GMWB riders issued by HLIKK on certain variable annuity business. The GMAB, GMIB and GMWB reinsurance is accounted for as freestanding derivatives at fair value. The fair value of the GMWB and GMAB was a liability of $25 and $0 at September 30, 2011 and $21 and $1 at December 31, 2010, respectively. The Reinsurance Agreement for GMDB business is accounted for as a Death Benefit and Other Insurance Benefit Reserves which is not reported at fair value. The liability for the assumed GMDB reinsurance and net amount at risk for the assumed GMDB reinsurance was $52 and $5.3 billion at September 30, 2011 and $54 and $4.1 billion at December 31, 2010, respectively.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Transactions with Affiliates (continued)

Effective November 1, 2010, HLAI entered into a reinsurance agreement with Hartford Life Limited Ireland, (“HLL”), a wholly-owned subsidiary of HLAI. Through this agreement, HLL agreed to cede and HLAI agreed to reinsure 100% of the risks associated with the in-force GMWB and GMDB riders issued by HLL on its variable annuity business. While the form of the agreement between HLAI and HLL for GMWB business is reinsurance, in substance and for accounting purposes the agreement is a free standing derivative. As such, the reinsurance agreement for GMWB business is 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. The fair value of GMWB liability at September 30, 2011 is $4 and $21 at December 31, 2010.

Reinsurance Ceded to Affiliates

Effective October 1, 2009, and amended on November 1, 2010, HLAI entered into a modified coinsurance (“modco”) and coinsurance with funds withheld reinsurance agreement with an affiliated captive reinsurer, White River Life Reinsurance (“WRR”). The agreement provides that HLAI will cede, and WRR will reinsure 100% of the in-force and prospective variable annuities and riders written or reinsured by HLAI summarized below:

•

Direct written variable annuities and the associated GMDB and GMWB riders.

•

Variable annuity contract rider benefits written by HLIKK, which are reinsured to HLAI.

•

Annuity contracts and riders written by Union Security Insurance Company, which are reinsured to HLAI.

•

Variable annuity contract rider benefits written by HLL, which are reinsured to HLAI as of November 1, 2010

•

Annuitizations of, and certain other settlement options offered under, deferred annuity contracts.

Under modco, the assets and the liabilities associated with the reinsured business will remain on the consolidated balance sheet of HLIC in segregated portfolios, and WRR will receive the economic risks and rewards related to the reinsured business. These modco adjustments are recorded as an adjustment to operating expenses.

For the nine months ending September 30, 2011 the impact of this transaction was a decrease to earnings of $638 after-tax. Included in this amount are net realized capital gains of $484, which represents the change in valuation of the derivative, associated with this transaction. In addition, the balance sheet of the Company reflects a modco reinsurance (payable)/recoverable, a deposit liability as well as a net reinsurance recoverable that is comprised of an embedded derivative. The balance of the modco reinsurance (payable)/recoverable, deposit liability and net reinsurance recoverable were $2.5 billion, $233, $2.5 billion and $(864), $78, and $1.7 billion at September 30, 2011 and December 31, 2010, respectively.

The following table illustrates the transaction’s impact on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and September 30, 2010, respectively.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Earned premiums	$	(19	)	$	(15	)	$	(50	)	$	(40	)
Net realized gains (losses)		977			(77	)		484			853

Total revenues		958			(92	)		434			813
Benefits, losses and loss adjustment expenses		(12	)		(11	)		(37	)		(28	)
Insurance operating costs and other expenses		1,821			(530	)		1,445			304

Total benefits, losses and expenses		1,809			(541	)		1,408			276
Income (loss) before income taxes		(851	)		449			(974	)		537
Income tax expense (benefit)		(298	)		157			(336	)		188

Net income (loss)	$	(553	)	$	292		$	(638	)	$	349

Effective November 1, 2007, HLAI, a subsidiary insurance company (“Ceding Company”), entered into a modco agreement with funds withheld with an affiliate captive reinsurer, Champlain Life Reinsurance Company (“Reinsurer”) to provide statutory surplus relief for certain life insurance policies. The Agreement is accounted for as a financing transaction for U.S. GAAP. A standby unaffiliated third party Letter of Credit supports a portion of the statutory reserves that have been ceded to the Reinsurer.


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 September 30, 2011, and its results of operations for the three and nine months ended September 30, 2011 compared to the equivalent 2010 periods. This discussion should be read in conjunction with the MD&A in Hartford Life Insurance Company’s 2010 Form 10-K Annual Report.

The Company meets the conditions specified in General Instruction H(1)(a) and (b) 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


Description	Page

Consolidated Results of Operations		50

Critical Accounting Estimates		51

Investment Results		53

Investment Credit Risk Management		56

Capital Markets Risk Management		64

Capital Resources and Liquidity		70

Impact of New Accounting Standards		74

CONSOLIDATED RESULTS OF OPERATIONS


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
Operating Summary	2011			2010			Change			2011			2010			Change
Fee income and other	$	945		$	923			2	%	$	2,899		$	2,825			3	%
Earned premiums		60			74			(19	%)		180			191			(6	%)
Net investment income (loss)
Securities available-for-sale and other		652			649			—			1,977			1,976			—
Equity securities, trading [1]		(147	)		146		NM				(103	)		159		NM

Total net investment income		505			795			(36	%)		1,874			2,135			(12	%)
Net realized capital gains (losses)		1,027			(563	)	NM				537			(472	)	NM

Total revenues		2,537			1,229			106	%		5,490			4,679			17	%
Benefits, losses and loss adjustment expenses		938			697			35	%		2,414			2,275			6	%
Benefits, losses and loss adjustment expenses — returns credited on international unit — linked bonds and pension products [1]		(146	)		146		NM				(103	)		159		NM
Amortization of deferred policy acquisition costs and present value of future profits		280			(81	)	NM				542			114		NM
Insurance operating costs and other expenses		2,308			(75	)	NM				2,904			1,762			65	%
Dividends to policyholders		5			3			67	%		10			10			—

Total benefits, losses and expenses		3,385			690		NM				5,767			4,320			33	%
Income (loss) from continuing operations before income taxes		(848	)		539		NM				(277	)		359		NM
Income tax expense (benefit)		(323	)		160		NM				(315	)		71		NM

Income (loss) from continuing operations, net of tax		(525	)		379		NM				38			288			(87	%)
Loss from discontinued operations, net of tax		—			(3	)		100	%		—			(5	)		100	%

Net income (loss)		(525	)		376		NM				38			283			(87	%)
Net income (loss) attributable to the noncontrolling interest		(4	)		2		NM				(2	)		7		NM

Net income (loss) attributable to Hartford Life Insurance Company	$	(521	)	$	374		NM			$	40		$	276			(86	%)


[1]		Net investment income includes investment income and mark-to-market effects of equity securities, trading, supporting international unit — linked bonds and pension products business, which are classified in net investment income with corresponding amounts credited to policyholders.

Three and nine months ended September 30, 2011 compared to the three and nine months ended September 30, 2010

Net income declined for the three and nine months ended September 30, 2011 as a result of the impact to losses from the affiliate modco reinsurance agreement and the third quarter Unlock, which resulted in an increase in DAC amortization. These expenses were partially offset by favorable net realized capital gains.

The affiliate modco reinsurance agreement decreased earnings by $845 and $986 for the three and nine months ended September 30, 2011 compared to 2010 for a net loss of $553 and $638, respectively. The most significant fluctuations of the modco agreement were net realized capital losses and insurance operating costs and other expenses. For further discussion on the affiliate modco reinsurance agreement see Note 10 of the Notes to Condensed Consolidated Financial Statements.

The Company recorded an Unlock charge of $216, after-tax, for the third quarter of 2011 compared to an Unlock benefit of $151, after-tax, for the third quarter of 2010 and an Unlock charge of $190, after-tax for the first nine months of 2011 compared to an Unlock benefit of $113 for the first nine months of 2010. The charge in 2011 was attributable to actual separate account returns being below our aggregated estimated return and the impact of assumption updates. The Unlock benefit in 2010 was attributable to actual separate account returns being above our aggregated estimated return. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A.

Net realized gains, excluding the impacts of the modco reinsurance agreement increased by $505 and $1.2 billion for the three and nine months ended September 30, 2011 compared to 2010 for a net realized gain of $92 and $144, respectively. For further discussion on the Net realized gains, see Net Realized Capital Gains (Losses) within the MD&A.

Income tax expense (benefit) includes a $56 income tax benefit for the release of the income tax valuation allowance associated with investment realized capital losses for the nine months ended September 30, 2011. This valuation allowance was recorded during the nine months ended September 30, 2010. Also included in the income tax expense (benefit) for the nine months ended September 30, 2011 is a $52 income tax benefit related to a resolution of a tax matter with the Internal Revenue Service (“IRS”) for the computation of dividends received deduction for years 1998, 2000 and 2001. See Note 1 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes.

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 has differed, from those estimates.

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

•

estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts;

•

living benefits required to be fair valued (in other policyholder funds and benefits payable);

•

valuation of investments and derivative instruments;

•

evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments;

•

goodwill impairment;

•

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. In developing these estimates management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements. The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2010 Form 10-K Annual Report. The following discussion updates certain of the Company’s critical accounting estimates for September 30, 2011 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 Company’s deferred policy acquisition cost (“DAC”) asset, which includes the present value of future profits; sales inducement assets (“SIA”); and unearned revenue reserves (“URR”). See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information on DAC. See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information on SIA. EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and universal life-type contracts. See Note 6 of the Notes to Condensed Consolidated Financial Statements for additional information on death and other insurance benefit feature reserves.

The after-tax (charge) benefit to net income by asset and liability as a result of the Unlocks for the three months ended September 30, 2011 and 2010 was as follows:


	Global Annuity					Life Insurance						Retirement Plans					Other					Total
	2011			2010		2011			2010			2011			2010		2011			2010		2011			2010
DAC	$	(49	)	$	53	$	(35	)	$	30		$	(43	)	$	19	$	—		$	—	$	(127	)	$	102
SIA		(1	)		1		—			(1	)		(1	)		—		—			—		(2	)		—
URR		—			—		11			(2	)		—			—		—			—		11			(2	)
Death and Other Insurance Benefit Reserves		(53	)		42		(43	)		1			—			—		(2	)		8		(98	)		51

Total	$	(103	)	$	96	$	(67	)	$	28		$	(44	)	$	19	$	(2	)	$	8	$	(216	)	$	151

The after-tax (charge) benefit to net income by asset and liability as a result of the Unlocks for the nine months ended September 30, 2011 and 2010 was as follows:


	Global Annuity					Life Insurance						Retirement Plans					Other					Total
	2011			2010		2011			2010			2011			2010		2011			2010		2011			2010
DAC	$	(43	)	$	50	$	(39	)	$	24		$	(43	)	$	15	$	—		$	—	$	(125	)	$	89
SIA		(1	)		1		—			(1	)		(1	)		—		—			—		(2	)		—
URR		—			—		12			4			—			—		—			—		12			4
Death and Other Insurance Benefit Reserves		(30	)		14		(43	)		1			—			—		(2	)		5		(75	)		20

Total	$	(74	)	$	65	$	(70	)	$	28		$	(44	)	$	15	$	(2	)	$	5	$	(190	)	$	113

The most significant contributor to the Unlock charge recorded during the three and nine months ended September 30, 2011 was attributed to actual separate account returns being below the estimated separate account return.

An Unlock revises EGPs, on a quarterly basis, to reflect market the Company’s current best estimate assumptions. 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 September 30, 2011, the margin between the DAC balance and the present value of future EGPs was 2% for U.S. individual variable annuities, reflective of the reinsurance of a block of individual variable annuities with an affiliated captive reinsurer. If the margin between the DAC asset and the present value of future EGPs is exhausted, further reductions in EGPs would cause portions of DAC to be unrecoverable and the DAC asset would be written down to equal future EGPs.

Goodwill Impairment

The Company completed its annual goodwill assessment for the individual reporting units as of January 1, 2011, which resulted in no write-downs of goodwill in 2011. The reporting units passed the first step of their annual impairment tests with significant margins.

During the fourth quarter of 2011, the Company will change the date of its annual impairment test to October 31st. All individual reporting units will perform an impairment test in the fourth quarter even if previously performed during the fiscal year. The change is being made to more closely align the impairment testing date with the long-range planning and forecasting process.

Investment Results

Composition of Invested Assets


	September 30, 2011					December 31, 2010
	Amount		Percent			Amount		Percent
Fixed maturities, AFS, at fair value	$	46,103		73.4	%	$	44,834		78.7	%
Fixed maturities, at fair value using the fair value option		1,314		2.1	%		639		1.1	%
Equity securities, AFS, at fair value		416		0.7	%		340		0.6	%
Mortgage loans		3,983		6.3	%		3,244		5.7	%
Policy loans, at outstanding balance		2,125		3.4	%		2,128		3.7	%
Limited partnerships and other alternative investments		1,340		2.1	%		838		1.5	%
Other investments [1]		2,584		4.1	%		1,461		2.6	%
Short-term investments		4,949		7.9	%		3,489		6.1	%

Total investments excluding equity securities, trading		62,814		100.0	%		56,973		100.0	%
Equity securities, trading, at fair value [2]		1,953					2,279

Total investments	$	64,767				$	59,252


[1]		Primarily relates to derivative instruments.

[2]		These assets primarily support the Global Annuity-International variable annuity business. Changes in these balances are also reflected in the respective liabilities.

Total investments increased since December 31, 2010 primarily due to increases in short-term investments, fixed maturities, AFS, other investments and mortgage loans. The increase in short-term investments was a result of an increase in derivative cash collateral received from counterparties as derivatives increased in value. The Company holds a liability within other liabilities to reflect the obligation to return the collateral. The increase in fixed maturities, AFS, was largely the result of improved valuations as a result of declining interest rates. The increase in other investments primarily relates to increases in value of derivatives largely due to a decline in the equity market, strengthening of the Japanese yen in comparison to the U.S. dollar and a decline in interest rates. The increase in mortgage loans related to the funding of commercial whole loans.

Net Investment Income (Loss)


	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2011						2010						2011						2010
(Before-tax)	Amount			Yield [1]			Amount			Yield [1]			Amount			Yield [1]			Amount			Yield [1]
Fixed maturities [2]	$	480			4.3	%	$	493			4.3	%	$	1,460			4.4	%	$	1,485			4.4	%
Equity securities, AFS		1			0.9	%		4			4.0	%		7			2.6	%		11			3.7	%
Mortgage loans		53			5.5	%		48			5.7	%		150			5.5	%		148			5.3	%
Policy loans		31			5.8	%		31			5.8	%		97			6.1	%		98			6.1	%
Limited partnerships and other alternative investments		50			20.5	%		30			16.5	%		146			22.4	%		87			15.9	%
Other [3]		56						61						172						195
Investment expense		(19	)					(18	)					(55	)					(48	)

Total securities AFS and other		652			4.5	%		649			4.5	%		1,977			4.7	%		1,976			4.6	%
Equity securities, trading		(147	)					146						(103	)					159

Total net investment income	$	505					$	795					$	1,874					$	2,135

Total securities, AFS and other excluding limited partnerships and other alternative investments	$	602			4.3	%	$	619			4.4	%	$	1,831			4.4	%	$	1,889			4.5	%


[1]		Yields calculated using annualized investment income before investment expenses divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding consolidated variable interest entity noncontrolling interests. Included in the fixed maturity yield is Other, which primarily relates to derivatives (see footnote [3] below). Included in the total net investment income yield is investment expense.

[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 nine months ended September 30, 2011 compared to the three and nine months ended September 30, 2010

Total net investment income declined largely due to equity securities, trading, resulting from deteriorations in market performance of the underlying investment funds supporting the European variable annuity product and net outflows, partially offset by the appreciation of currency. Total securities AFS and other remained relatively flat, driven by an increase in limited partnership and other alternative investment income due to strong private equity and real estate returns, as well as an increase in mortgage loan income due to additional investments in commercial whole loans. These increases were largely offset by lower income on fixed maturities resulting from the proceeds from sales being reinvested at lower rates.

Net Realized Capital Gains (Losses)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Before-tax)*	2011			2010			2011			2010
Gross gains on sales	$	116		$	99		$	317		$	404
Gross losses on sales		(26	)		(40	)		(159	)		(155	)
Net OTTI losses recognized in earnings		(42	)		(73	)		(92	)		(299	)
Valuation allowance on mortgage loans		—			—			25			(111	)
Japanese fixed annuity contract hedges, net [1]		9			11			(2	)		22
Periodic net coupon settlements on credit derivatives/Japan		4			—			—			(4	)
Results of variable annuity hedge program
GMWB derivatives, net		(355	)		167			(327	)		(116	)
Macro hedge program		1,193			(443	)		863			(210	)

Total results of variable annuity hedge program		838			(276	)		536			(326	)
GMIB/GMAB/GMWB reinsurance		(548	)		(224	)		(212	)		(780	)
Coinsurance and modified coinsurance reinsurance contracts		866			(174	)		370			669
Other, net [2]		(190	)		114			(246	)		108

Net realized capital gains (losses)	$	1,027		$	(563	)	$	537		$	(472	)


[3]		Relates to the Japanese fixed annuity product (adjustment of product liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding periodic net coupon settlements, and Japan fair value option securities).

[4]		Primarily consists of gains and losses on non-qualifying derivatives and fixed maturities, FVO, Japan 3Win related foreign currency swaps, and other investment gains and losses.

Details on the Company’s net realized capital gains and losses are as follows:


Gross gains and losses on sales		• Gross gains and losses on sales for the three and nine months ended September 30, 2011 were predominately from investment grade corporate securities, U.S. Treasuries and commercial real estate related securities.
		• Gross gains and losses on sales for the three and nine months ended September 30, 2010 were predominantly from sales of U.S. Treasuries, investment grade corporate securities and previously reserved mortgage loans in order to take advantage of attractive market opportunities.

Net OTTI losses		• For further information, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A.

Valuation allowances on mortgage loans		• For further information, see Valuation Allowances on Mortgage Loans within the Investment Credit Risk section of the MD&A.

Variable annuity hedge program		• The loss on GMWB related derivatives, net, for the three and nine months ended September 30, 2011 was primarily due to a decrease in long-term interest rates that resulted in a charge of ($247) and ($261), respectively, and a higher interest rate volatility that resulted in a charge of ($72) and ($76), respectively. The gain on the macro hedge program for the three and nine months ended September 30, 2011 is driven by a lower equity market valuation and foreign currency movements, primarily the Japanese yen strengthening in comparison to the euro.
		• The gain on GMWB derivatives, net, for the three months ended September 30, 2010 was primarily due to gains on liability model assumption updates of $164 and gains driven by lower implied market volatility of $117, partially offset by losses due to a general decrease in long-term rates of ($94). The loss on GMWB derivatives, net, for the nine months ended September 30, 2010 was primarily due to a general decrease in long-term interest rates that resulted in a charge of ($309), partially offset by gains on liability model assumption updates of $164. The net loss on the macro hedge program was primarily the result of higher equity market valuation.


Other, net		• Other, net loss for the three and nine months ended September 30, 2011 was primarily due to losses of ($152) and ($125), respectively, on credit derivatives and fair value option securities driven by credit spread widening and losses of ($54) and ($86), respectively, on Japan 3Win foreign currency swaps primarily driven by a decrease in long-term U.S. interest rates. In addition, losses of ($42) for the three and nine months ended September 30, 2011 resulted from equity futures and options used to hedge equity market risk in the investment portfolio due to an increase in the equity market during the hedged period.
		• Other, net gain for the three months ended September 30, 2010 was primarily due to gains of $91 on credit derivatives that assume credit risk driven by credit spreads tightening, gains of $22 on interest rate derivatives used to manage portfolio duration driven by a decline in long-term interest rates, and gains of $15 on the Japan variable annuity hedges due to the appreciation of the Japanese yen. These gains were partially offset by net losses of ($30) related to the Japan 3Win hedging derivatives primarily due to the decrease in long-term interest rates.
		• Other, net gains for the nine months ended September 30, 2010 was primarily due to gains of $105 on credit derivatives, gains of $60 related to Japan variable annuity hedges due to the appreciation of the Japanese yen, and gains of $19 on interest rate derivatives used to manage portfolio duration driven by a decline in long-term interest rates. These gains were partially offset by losses of ($117) on Japan 3Win hedging derivatives primarily due to the decrease in long-term interest rates and losses of ($36) on transactional foreign currency re-valuation due to an increase in value of the Japanese yen versus the U.S. dollar associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI.

INVESTMENT CREDIT RISK MANAGEMENT

The Company has established investment credit policies that focus on the credit quality of obligors and counterparties, limit credit concentrations, encourage diversification and require frequent creditworthiness reviews. Investment activity, including setting of policy and defining acceptable risk levels, is subject to regular review and approval by senior management.

The Company invests primarily in securities which are rated investment grade and has established exposure limits, diversification standards and review procedures for all credit risks including borrower, issuer and counterparty. Creditworthiness of specific obligors is determined by consideration of external determinants of creditworthiness, typically ratings assigned by nationally recognized ratings agencies and is supplemented by an internal credit evaluation. Obligor, asset sector and industry concentrations are subject to established Company limits and are monitored on a regular basis.

The Company 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 government agencies backed by the full faith and credit of the U.S. government. For further discussion of concentration of credit risk, see the Concentration of Credit Risk section in Note 4 of the Notes to Consolidated Financial Statements in the Company’s 2010 Form 10-K Annual Report.

Derivative Instruments

In the normal course of business, the Company uses various derivative counterparties in executing its derivative transactions. The use of counterparties creates credit risk that the counterparty may not perform in accordance with the terms of the derivative transaction. The Company has developed a derivative counterparty exposure policy which limits the Company’s exposure to credit risk.

The derivative counterparty exposure policy establishes market-based credit limits, favors long-term financial stability and creditworthiness of the counterparty and typically requires credit enhancement/credit risk reducing agreements. The Company minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties rated A/A- or better, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The Company also generally requires that derivative contracts, other than exchange traded contracts, certain forward contracts, and certain embedded and reinsurance derivatives, be governed by an International Swaps and Derivatives Association Master Agreement, which is structured by legal entity and by counterparty and permits right of offset.

The Company has developed credit exposure thresholds which are based upon counterparty ratings. Credit exposures are measured using the market value of the derivatives, resulting in amounts owed to the Company by its counterparties or potential payment obligations from the Company to its counterparties. Credit exposures are generally quantified daily based on the prior business day’s market value and collateral is pledged to and held by, or on behalf of, the Company to the extent the current value of derivatives exceeds the contractual thresholds. In accordance with industry standards and the contractual agreements, collateral is typically settled on the next business day. The Company has exposure to credit risk for amounts below the exposure thresholds which are uncollateralized, as well as for market fluctuations that may occur between contractual settlement periods of collateral movements.

The maximum uncollateralized threshold for a derivative counterparty for a single legal entity is $10. The Company currently transacts over-the-counter derivatives in two legal entities and therefore the maximum combined threshold for a single counterparty across all legal entities that use derivatives is $20. In addition, the Company may have exposure to multiple counterparties in a single corporate family due to a common credit support provider. As of September 30, 2011, the maximum combined threshold for all counterparties under a single credit support provider across all legal entities that use derivatives is $40. Based on the contractual terms of certain collateral agreements, these thresholds may be immediately reduced due to a downgrade in either party’s credit rating. For further discussion, see the Derivative Commitments Section of Note 9 of the Notes to Condensed Consolidated Financial Statements.

For the three and nine months ended September 30, 2011, the Company has incurred no losses on derivative instruments due to counterparty default.

In addition to counterparty credit risk, the Company enters into credit default swaps to manage credit exposure. Credit default swaps involve a transfer of credit risk of one or many referenced entities from one party to another in exchange for periodic payments. The party that purchases credit protection will make periodic payments based on an agreed upon rate and notional amount, and for certain transactions there will also be an upfront premium payment. The second party, who assumes credit risk, will typically only make a payment if there is a credit event as defined in the contract and such payment will be typically equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation. A credit event is generally defined as default on contractually obligated interest or principal payments or bankruptcy of the referenced entity.

The Company uses credit derivatives to purchase credit protection and assume credit risk with respect to a single entity, referenced index, or asset pool. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio. The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would otherwise be permissible investments under the Company’s investment policies. These swaps reference investment grade single corporate issuers and baskets, which include customized diversified portfolios of corporate issuers, which are established within sector concentration limits and may be divided into tranches which possess different credit ratings.

Investments

The following table presents the Company’s fixed maturities, AFS, by credit quality. The ratings referenced below are based on the ratings of a nationally recognized rating organization or, if not rated, assigned based on the Company’s internal analysis of such securities.

Fixed Maturities by Credit Quality


	September 30, 2011							December 31, 2010
					Percent of							Percent of
	Amortized				Total Fair			Amortized				Total Fair
	Cost		Fair Value		Value			Cost		Fair Value		Value
United States Government/Government agencies	$	4,688	$	5,021		10.9	%	$	6,074	$	6,040		13.5	%
AAA		4,990		5,213		11.3	%		5,175		5,216		11.6	%
AA		6,455		6,401		13.9	%		6,560		6,347		14.2	%
A		12,995		14,025		30.4	%		12,396		12,552		28.1	%
BBB		12,591		13,109		28.4	%		11,878		12,059		26.8	%
BB & below		3,011		2,334		5.1	%		3,240		2,620		5.8	%

Total fixed maturities	$	44,730	$	46,103		100.0	%	$	45,323	$	44,834		100.0	%

The movement in the overall credit quality of the Company’s portfolio was primarily attributable to sales of U.S. Treasuries as the Company continues to reinvest in spread product, partially offset by net purchases of investment grade corporate securities concentrated in high quality industrial, utility and financial services issuers. Fixed maturities, FVO, are not included in the above table. For further discussion on fair value option securities, see Note 3 of the Notes to Condensed Consolidated Financial Statements.

The following table presents the Company’s AFS securities by type, as well as fixed maturities, FVO.

Securities by Type


	September 30, 2011												December 31, 2010
										Percent												Percent
	Cost or		Gross		Gross					of Total			Cost or		Gross		Gross					of Total
	Amortized		Unrealized		Unrealized			Fair		Fair			Amortized		Unrealized		Unrealized			Fair		Fair
	Cost		Gains		Losses			Value		Value			Cost		Gains		Losses			Value		Value
Asset-backed securities (“ABS”)
Consumer loans	$	1,940		22		(176	)		1,786		3.9	%	$	1,761	$	14	$	(199	)	$	1,576		3.5	%
Small business		358		—		(115	)		243		0.5	%		369		—		(125	)		244		0.5	%
Other		302		40		(3	)		339		0.7	%		265		15		(32	)		248		0.6	%
CDOs
Collateralized loan obligations (“CLOs”)		1,641		—		(140	)		1,501		3.3	%		1,713		—		(151	)		1,562		3.5	%
CREs		441		—		(162	)		279		0.6	%		562		—		(228	)		334		0.7	%
Other		3		—		—			3		—			3		—		—			3		—
CMBS
Agency backed [1]		341		18		—			359		0.8	%		295		5		(2	)		298		0.7	%
Bonds		3,774		91		(305	)		3,560		7.7	%		4,519		91		(383	)		4,227		9.4	%
Interest only (“IOs”)		355		40		(14	)		381		0.8	%		469		50		(16	)		503		1.1	%
Corporate
Basic industry [2]		2,243		201		(18	)		2,425		5.3	%		2,006		127		(20	)		2,113		4.7	%
Capital goods		2,180		238		(11	)		2,407		5.2	%		2,095		154		(15	)		2,234		5.0	%
Consumer cyclical		1,419		132		(8	)		1,543		3.3	%		1,259		79		(8	)		1,330		3.0	%
Consumer non-cyclical		4,217		509		(9	)		4,717		10.3	%		4,262		316		(25	)		4,553		10.2	%
Energy		2,612		306		(6	)		2,912		6.3	%		2,421		167		(14	)		2,574		5.7	%
Financial services		5,331		256		(384	)		5,203		11.4	%		4,999		189		(345	)		4,843		10.8	%
Tech./comm.		2,760		280		(37	)		3,003		6.5	%		2,844		188		(45	)		2,987		6.7	%
Transportation		806		84		(2	)		888		1.9	%		845		56		(9	)		892		2.0	%
Utilities		5,411		574		(30	)		5,955		12.9	%		4,661		259		(40	)		4,880		10.9	%
Other [2]		439		4		(14	)		379		0.8	%		542		10		(17	)		509		1.1	%
Foreign govt./govt. agencies		1,022		91		(5	)		1,108		2.4	%		963		48		(9	)		1,002		2.2	%
Municipal — Taxable		1,393		112		(40	)		1,465		3.2	%		1,149		7		(124	)		1,032		2.3	%
Residential mortgage-backed securities (“RMBS”)
Agency		2,404		144		—			2,548		5.5	%		2,908		78		(16	)		2,970		6.6	%
Non-agency		53		—		(1	)		52		0.1	%		64		—		(2	)		62		0.1	%
Alt-A		108		—		(18	)		90		0.2	%		144		—		(18	)		126		0.3	%
Sub-prime		1,234		3		(394	)		843		1.8	%		1,334		1		(375	)		960		2.1	%
U.S. Treasuries		1,943		173		(2	)		2,114		4.6	%		2,871		11		(110	)		2,772		6.3	%

Fixed maturities, AFS		44,730		3,318		(1,894	)		46,103		100.0	%		45,323		1,865		(2,328	)		44,834		100.0	%
Equity securities
Financial services		129		—		(47	)		82					151		—		(40	)		111
Other		325		26		(17	)		334					169		61		(1	)		229

Equity securities, AFS		454		26		(64	)		416					320		61		(41	)		340

Total AFS securities	$	45,184	$	3,344	$	(1,958	)	$	46,519				$	45,643	$	1,926	$	(2,369	)	$	45,174

Fixed maturities, FVO								$	1,314											$	639


[1]		Represents securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.

[2]		Gross unrealized gains (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).

The Company continues to reallocate to investment grade corporate securities concentrated in high quality industrial, utility and financial services issuers, while reducing its exposure to U.S. Treasuries, commercial real estate and subordinated financial services securities. The Company’s AFS net unrealized position improved primarily as a result of improved security valuations largely due to declining interest rates, partially offset by credit spread widening. Fixed maturities, FVO, represents Japan government securities supporting the Japan fixed annuity product, as well as securities containing an embedded credit derivative for which the Company elected the fair value option. The underlying credit risk of the securities containing credit derivatives are primarily investment grade CRE CDOs and a subordinated position on a basket of corporate bonds. For further discussion on fair value option securities, see Note 3 of the Notes to Condensed Consolidated Financial Statements.

The Company’s European investment exposure, excluding hedging derivatives, has an amortized cost and fair value of $4.9 billion and $5.2 billion, respectively, as of September 30, 2011 and $5.3 billion and $5.5 billion, respectively, as of December 31, 2010. Approximately 85% of this exposure largely relates to corporate entities, primarily industrials, utilities and financial services, which are domiciled in or generated a significant portion of their revenue within the United Kingdom, Switzerland, the Netherlands, and Germany, the majority of which is US dollar-denominated. The securities that are euro-denominated are hedged to US dollars or support foreign-denominated liabilities. Included in the Company’s European investment exposure were investments in Greece, Ireland, Italy, Portugal and Spain (“GIIPS”) with an amortized cost and fair value of $491 and $463, respectively, as of September 30, 2011 and $607 and $596, respectively, as of December 31, 2010. The Company holds less than $1 of corporate securities of companies domiciled in Greece. Additionally, the Company does not hold any sovereign debt exposure in GIIPS.

Financial Services

The Company’s exposure to the financial services sector is predominantly through banking and insurance institutions. The following table presents the Company’s exposure to the financial services sector included in the Securities by Type table above.


	September 30, 2011							December 31, 2010
	Amortized				Net			Amortized				Net
	Cost		Fair Value		Unrealized			Cost		Fair Value		Unrealized
AAA	$	197	$	206	$	9		$	157	$	162	$	5
AA		1,438		1,449		11			1,472		1,480		8
A		2,617		2,532		(85	)		2,496		2,381		(115	)
BBB		1,007		950		(57	)		885		809		(76	)
BB & below		201		148		(53	)		140		122		(18	)

Total	$	5,460	$	5,285	$	(175	)	$	5,150	$	4,954	$	(196	)

Financial companies continued to stabilize in 2011 due to positive earnings performance, improvement in asset quality and fewer loan defaults. However, spread volatility in the financial sector increased during the third quarter on concerns around European sovereign risks, regulatory pressures and a weaker U.S. macroeconomic environment. Financial institutions remain vulnerable to ongoing stress in the real estate markets including high unemployment and global economic uncertainty, which could adversely impact the Company’s net unrealized position. Included in the table above as of September 30, 2011 is $901 of high quality European investment exposure, of which only $20 relates to GIIPS.

Commercial Real Estate

The commercial real estate market continued to show signs of improving fundamentals, such as increases in transaction activities, more readily available financing and new issuances. While delinquencies still remain at historically high levels, they are expected to move lower in early 2012.

The following table presents the Company’s exposure to commercial mortgage backed-securities (“CMBS”) bonds by current credit quality and vintage year, included in the Securities by Type table above. Credit protection represents the current weighted average percentage of the outstanding capital structure subordinated to the Company’s investment holding that is available to absorb losses before the security incurs the first dollar loss of principal and excludes any equity interest or property value in excess of outstanding debt.

CMBS — Bonds [1]

September 30, 2011


	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	254	$	258		$	60	$	58		$	36	$	34		$	10	$	8		$	22	$	20		$	382	$	378
2004		193		202			57		62			39		36			27		26			6		5			322		331
2005		314		333			48		44			105		92			135		108			41		33			643		610
2006		551		578			512		456			70		63			209		170			301		253			1,643		1,520
2007		173		178			146		117			45		38			112		85			101		86			577		504
2008		30		32			—		—			—		—			—		—			—		—			30		32
2010		6		7			—		—			—		—			—		—			—		—			6		7
2011		171		178			—		—			—		—			—		—			—		—			171		178
Total	$	1,692	$	1,766		$	823	$	737		$	295	$	263		$	493	$	397		$	471	$	397		$	3,774	$	3,560

Credit protection				27.8	%				23.5	%				18.9	%				13.3	%				8.4	%				21.8	%

December 31, 2010


	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	545	$	558		$	65	$	64		$	33	$	32		$	14	$	13		$	18	$	16		$	675	$	683
2004		287		302			25		24			39		35			27		22			6		5			384		388
2005		335		347			48		43			138		115			112		94			74		59			707		658
2006		703		728			509		481			183		159			322		266			335		262			2,052		1,896
2007		187		196			116		93			45		35			137		104			186		143			671		571
2008		30		31			—		—			—		—			—		—			—		—			30		31
Total	$	2,087	$	2,162		$	763	$	705		$	438	$	376		$	612	$	499		$	619	$	485		$	4,519	$	4,227

Credit protection				29.7	%				22.9	%				12.3	%				14.1	%				7.6	%				21.8	%


[1]		The vintage year represents the year the pool of loans was originated.

The Company has AFS exposure to commercial real estate (“CRE”) collateralized debt obligations (“CDOs”) with an amortized cost and fair value of $441 and $279, respectively, as of September 30, 2011 and $562 and $334, respectively, as of December 31, 2010. These securities are comprised of diversified pools of commercial mortgage loans or equity positions of other CMBS securitizations. Although the Company does not plan to invest in this asset class going forward, we continue to monitor these investments as economic and market uncertainties regarding future performance impacts market liquidity and results in higher risk premiums.

In addition to CMBS bonds and CRE CDOs, the Company has exposure to commercial mortgage loans as presented in the following table. These loans are collateralized by a variety of commercial properties and are diversified both geographically throughout the United States and by property type. These loans may be either in the form of a whole loan, where the Company is the sole lender, or a loan participation. Loan participations are loans where the Company has purchased or retained a portion of an outstanding loan or package of loans and participates on a pro-rata basis in collecting interest and principal pursuant to the terms of the participation agreement. In general, A-Note participations have senior payment priority, followed by B-Note participations and then mezzanine loan participations. As of September 30, 2011, 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.

Commercial Mortgage Loans


	September 30, 2011							December 31, 2010
	Amortized		Valuation			Carrying		Amortized		Valuation			Carrying
	Cost [1]		Allowance			Value		Cost [1]		Allowance			Value
Agricultural	$	130	$	(5	)	$	125	$	182	$	(5	)	$	177
Whole loans		3,375		(14	)		3,361		2,479		(16	)		2,463
A-Note participations		236		—			236		288		—			288
B-Note participations		177		(5	)		172		195		(5	)		190
Mezzanine loans		89		—			89		162		(36	)		126

Total	$	4,007	$	(24	)	$	3,983	$	3,306	$	(62	)	$	3,244


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

Since December 31, 2010, the Company funded $1.1 billion of commercial whole loans with a weighted average loan-to-value (“LTV”) ratio of 63% and a weighted average yield of 4.6%. The Company continues to originate commercial whole loans in primary markets, focusing on loans with strong LTV ratios and high quality property collateral. As of September 30, 2011, the Company had mortgage loans held-for-sale with a carrying value and valuation allowance of $57 and $4, respectively.

Limited Partnerships and Other Alternative Investments

The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, mortgage and real estate funds, mezzanine debt funds, and private equity and other funds. Hedge funds include investments in funds of funds and direct funds. Mortgage and real estate funds consist of investments in funds whose assets consist of mortgage loans, mortgage loan participations, mezzanine loans or other notes which may be below investment grade, as well as equity real estate and real estate joint ventures. Mezzanine debt funds include investments in funds whose assets consist of subordinated debt that often incorporates equity-based options such as warrants and a limited amount of direct equity investments. Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small non-public businesses with high growth potential.


	September 30, 2011					December 31, 2010
	Amount		Percent			Amount		Percent
Hedge funds	$	426		31.8	%	$	33		4.0	%
Mortgage and real estate funds		207		15.5	%		161		19.2	%
Mezzanine debt funds		62		4.6	%		68		8.1	%
Private equity and other funds		645		48.1	%		576		68.7	%

Total	$	1,340		100.0	%	$	838		100.0	%

Since December 31, 2010, the increase in hedge funds relate to a newly established fund of hedge funds special purpose entity.

Available-for-Sale Securities — Unrealized Loss Aging

The total gross unrealized losses were $2.0 billion as of September 30, 2011, which is an improvement of $411, or 17%, from December 31, 2010 as interest rates declined, partially offset by credit spread widening. As of September 30, 2011, $669 of the gross unrealized losses were associated with securities depressed less than 20% of cost or amortized cost.

The remaining $1.3 billion of gross unrealized losses were associated with securities depressed greater than 20%, which includes $196 associated with securities depressed over 50% for twelve months or more. These securities are backed primarily by commercial and residential real estate that have market spreads that continue to be wider than the spreads at the security’s respective purchase date. The unrealized losses remain largely due to the continued market and economic uncertainties surrounding residential and certain commercial real estate. Based upon the Company’s cash flow modeling and current market and collateral performance assumptions, these securities have sufficient credit protection levels to receive contractually obligated principal and interest payments. Also included in the gross unrealized losses depressed greater than 20% are financial services securities that have a floating-rate coupon and/or long-dated maturities.

As part of the Company’s ongoing security monitoring process, the Company has reviewed its AFS securities in an unrealized loss position and concluded that there were no additional impairments as of September 30, 2011 and that these securities are temporarily depressed and are expected to recover in value as the securities approach maturity or as real estate related market spreads continue to improve. For these securities in an unrealized loss position where a credit impairment has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities. For further information regarding the Company’s impairment analysis, see Other-Than-Temporary Impairments in the Investment Credit Risk Section of this MD&A.

The following table presents the Company’s unrealized loss aging for AFS securities by length of time the security was in a continuous unrealized loss position.


	September 30, 2011									December 31, 2010
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
	Items		Cost		Value		Loss [1]			Items		Cost		Value		Loss [1]
Three months or less		775	$	3,228	$	3,134	$	(94	)		200	$	6,892	$	6,631	$	(257	)
Greater than three to six months		228		872		794		(78	)		219		353		335		(17	)
Greater than six to nine months		41		167		156		(11	)		60		293		269		(24	)
Greater than nine to eleven months		77		613		539		(65	)		82		127		115		(12	)
Twelve months or more		796		8,627		6,875		(1,710	)		1,024		10,769		8,689		(2,059	)

Total		1,917	$	13,507	$	11,498	$	(1,958	)		1,585	$	18,434	$	16,039	$	(2,369	)


[1]		Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses).

The following tables present the Company’s unrealized loss aging for AFS securities continuously depressed over 20% by length of time (included in the table above).


	September 30, 2011									December 31, 2010
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
Consecutive Months	Items		Cost		Value		Loss [1]			Items		Cost		Value		Loss
Three months or less		258	$	1,443	$	1,039	$	(366	)		47	$	433	$	322	$	(111	)
Greater than three to six months		44		416		283		(133	)		15		126		97		(29	)
Greater than six to nine months		—		—		—		—			24		155		107		(48	)
Greater than nine to eleven months		14		34		20		(14	)		9		20		16		(4	)
Twelve months or more		222		1,887		1,111		(776	)		342		3,547		2,244		(1,303	)

Total		538	$	3,780	$	2,453	$	(1,289	)		437	$	4,281	$	2,786	$	(1,495	)


[1]		Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in value will be recorded in net realized capital gains (losses).

The following tables present the Company’s unrealized loss aging for AFS securities continuously depressed over 50% by length of time (included in the tables above).


	September 30, 2011									December 31, 2010
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
Consecutive Months	Items		Cost		Value		Loss			Items		Cost		Value		Loss
Three months or less		28	$	121	$	55	$	(66	)		15	$	25	$	11	$	(14	)
Greater than three to six months		7		33		12		(21	)		4		2		1		(1	)
Greater than six to nine months		5		8		2		(6	)		11		64		28		(36	)
Greater than nine to eleven months		7		14		5		(9	)		—		—		—		—
Twelve months or more		52		279		83		(196	)		88		635		233		(402	)

Total		99	$	455	$	157	$	(298	)		118	$	726	$	273	$	(453	)

Other-Than-Temporary Impairments

The following table presents the Company’s impairments recognized in earnings by security type.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
ABS	$	12	$	—	$	20	$	5
CRE CDOs		20		33		30		122
CMBS
Bonds		1		21		5		111
IOs		—		1		2		1
Corporate		9		14		24		16
Equity		—		—		7		5
RMBS
Non-agency		—		1		—		2
Alt-A		—		—		—		8
Sub-prime		—		3		3		29
Other		—		—		1		—

Total	$	42	$	73	$	92	$	299

For the three and nine months ended September 30, 2011, impairments recognized in earnings were comprised of credit impairments of $29 and $68, respectively, impairments on equity securities of $13 and $17, respectively, and securities that the Company intends to sell of $0 and $7, respectively.

Credit impairments were primarily concentrated in structured securities associated with commercial real estate, as well as direct private equity investments. The structured securities were impaired primarily due to property-specific deterioration of the underlying collateral. The Company calculated these impairments utilizing both a top down modeling approach and a security-specific collateral review. The top down modeling approach used discounted cash flow models that considered losses under current and expected future economic conditions. Assumptions used over the current period included macroeconomic factors, such as a high unemployment rate, as well as sector specific factors such as property value declines, commercial real estate delinquency levels and changes in net operating income. The macroeconomic assumptions considered by the Company did not materially change from the previous several quarters and, as such, the credit impairments recognized for the three and nine months ended September 30, 2011 were largely driven by actual or expected collateral deterioration, largely as a result of the Company’s security-specific collateral review.

The security-specific collateral review is performed to estimate potential future losses. This review incorporates assumptions about expected future collateral cash flows, including projected rental rates and occupancy levels that varied based on property type and sub-market. The results of the security-specific collateral review allowed the Company to estimate the expected timing of a security’s first loss, if any, and the probability and severity of potential ultimate losses. The Company then discounted these anticipated future cash flows at the security’s book yield prior to impairment.

Included in corporate and equity security types were direct private equity investments that were impaired primarily due to the likelihood of a disruption in contractual principal and interest payments due to the restructuring of the debtor’s obligation. Impairments on equity securities were related to preferred stock associated with these direct private equity investments.

Impairments on securities for which the Company has the intent to sell consisted of corporate financial services securities and ABS collateralized by aircraft where the Company anticipates reducing its exposure to certain investments.

In addition to the credit impairments recognized in earnings, the Company recognized non-credit impairments in other comprehensive income of $9 and $66, respectively, for the three and nine months ended September 30, 2011, predominantly concentrated in CRE CDOs and RMBS. These non-credit impairments represent the difference between fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment, rather than at current market implied credit spreads. These non-credit impairments primarily represent increases in market liquidity premiums and credit spread widening that occurred after the securities were purchased, as well as a discount for variable-rate coupons which are paying less than at purchase date. In general, larger liquidity premiums and wider credit spreads are the result of deterioration of the underlying collateral performance of the securities, as well as the risk premium required to reflect future uncertainty in the real estate market.

Future impairments may develop as the result of changes in intent to sell of specific securities or if actual results underperform current modeling assumptions, which may be the result of, but are not limited to, macroeconomic factors and security-specific performance below current expectations. Continued improvement in commercial real estate property valuations will positively impact future loss development, with future impairments driven by idiosyncratic security-specific risk.

Three and nine months ended September 30, 2010

For the three and nine months ended September 30, 2010, impairments recognized in earnings were comprised of credit impairments of $52 and $273, respectively, primarily concentrated in CMBS bonds and CRE CDOs due to continued property-specific deterioration of the underlying collateral and increased delinquencies. Also included were impairments on debt securities for which the Company intended to sell of $21 and $21, respectively, as the Company continued to reduce its exposure to certain variable-rate CMBS, as well as impairments on equity securities of $0 and $5, respectively.

Valuation Allowances on Mortgage Loans

The following table presents (additions) and reductions to valuation allowances on mortgage loans.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011			2010
Credit-related concerns	$	—	$	—	$	27		$	(43	)
Held for sale
Agricultural loans		—		—		(2	)		(7	)
B-note participations		—		—		—			(10	)
Mezzanine loans		—		—		—			(51	)

Total	$	—	$	—	$	25		$	(111	)

For the nine months ended September 30, 2011, valuation allowances on mortgage loans were largely driven by the release of a reserve associated with the sale of a previously reserved for mezzanine loan. Continued improvements in commercial real estate property valuations will positively impact future loss development, with future impairments driven by idiosyncratic loan-specific risk.

CAPITAL MARKETS RISK MANAGEMENT

The Company has a disciplined approach to managing risks associated with its capital markets and asset/liability management activities. Investment portfolio management is organized to focus investment management expertise on the specific classes of investments. The Company invests in various types of investments including derivative instruments, in order to meet its portfolio objectives. Derivative instruments are utilized in compliance with established Company policy and regulatory requirements and are monitored internally and reviewed by senior management.

The Company utilizes a variety of over-the-counter 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 otherwise be permissible investments under the Company’s investment policies. For further information, see Note 4 of the Notes to Condensed Consolidated Financial Statements.

Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The notional amounts of derivative contracts represent the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. For further information on the Company’s use of derivatives, see Note 4 of the Notes to Condensed Consolidated Financial Statements.

Market Risk

The Company is exposed to market risk associated with changes in interest rates, credit spreads including issuer defaults, equity prices or market indices, and foreign currency exchange rates. The Company is also exposed to credit and counterparty repayment risk. Derivative instruments are utilized in compliance with established Company policy and regulatory requirements and are monitored internally and reviewed by senior management. For further discussion of market risk, see the Capital Markets Risk Management section of the MD&A in the Company’s 2010 Form 10-K Annual Report.

Interest Rate Risk

The Company manages its exposure to interest rate risk by constructing investment portfolios that maintain asset allocation limits and asset/liability duration matching targets which may include the use of derivatives. The Company analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios, which may include derivative instruments. For further discussion of interest rate risk, see the Interest Rate Risk discussion within the Capital Markets Risk Management section of the MD&A in the Company’s 2010 Form 10-K Annual Report.

The Company is also exposed to interest rate risk based upon the discount rate assumption associated with the Company’s pension and other postretirement benefit obligations. The discount rate assumption is based upon an interest rate yield curve comprised of bonds rated Aa with maturities primarily between zero and thirty years. For further discussion of interest rate risk associated with the benefit obligations, see the Critical Accounting Estimates Section of the MD&A under Pension and Other Postretirement Benefit Obligations and Note 14 of the Notes to Consolidated Financial Statements in the Company’s 2010 Form 10-K Annual Report. In addition, management evaluates performance of certain products based on net investment spread which is, in part, influenced by changes in interest rates.

A decline in interest rates results in certain mortgage-backed securities being more susceptible to paydowns and prepayments. During such periods, the Company generally will not be able to reinvest the proceeds at comparable yields. Lower interest rates will also likely result in lower net investment income, increased hedging cost associated with variable annuities and, if declines are sustained for a long period of time, it may subject the Company to reinvestment risks, higher pension costs expense and possibly reduced profit margins associated with guaranteed crediting rates on certain products. Conversely, the fair value of the investment portfolio will increase when interest rates decline.

An increase in interest rates from the current levels is generally a favorable development for the Company. Rate increases are expected to provide additional net investment income, increase sales of fixed rate investment products, reduce the cost of the variable annuity hedging program, limit the potential risk of margin erosion due to minimum guaranteed crediting rates in certain products and, if sustained, could reduce the Company’s prospective pension expense. Conversely, a rise in interest rates will reduce the fair value of the investment portfolio, increase interest expense on the Company’s variable rate debt obligations and, if long-term interest rates rise dramatically within a six to twelve month time period, certain businesses may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders will surrender their contracts in a rising interest rate environment requiring the Company to liquidate assets in an unrealized loss position. In conjunction with the interest rate risk measurement and management techniques, certain fixed income product offerings have market value adjustment provisions at contract surrender. An increase in interest rates may also impact the Company’s tax planning strategies and in particular its ability to utilize tax benefits to offset certain previously recognized realized capital losses.

Credit Risk

The Company is exposed to credit risk within our investment portfolio and through counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. The Company manages credit risk through established investment credit policies which address quality of obligors and counterparties, credit concentration limits, diversification requirements and acceptable risk levels under expected and stressed scenarios. These policies are regularly reviewed and approved by the Enterprise Risk Management group and senior management. For further discussion of credit risk, see the Credit Risk section of the MD&A in the Company’s 2010 Form 10-K Annual Report.

For further information on credit risk associated with derivatives, see the Investment Credit Risk section of the MD&A.

The Company is also exposed to credit spread risk related to security market price and cash flows associated with changes in credit spreads. Credit spread widening will reduce the fair value of the investment portfolio and will increase net investment income on new purchases. If issuer credit spreads increase significantly or for an extended period of time, it may result in higher impairment losses. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities and increase the fair value of the investment portfolio. For further discussion of sectors most significantly impacted, see the Investment Credit Risk Section of the MD&A. Also, for a discussion of the movement of credit spread impacts on the Company’s statutory financial results as it relates to the accounting and reporting for market value fixed annuities, see the Capital Resources & Liquidity Section of the MD&A.

Variable Product Equity Risk

The Company’s equity product risk is managed at the Life Operations level of the Hartford Financial Services Group (“HFSG”). The disclosures in the following equity product risk section are reflective of the risk management program, including reinsurance with third parties and the dynamic and macro derivative hedging programs which are structured at a parent company level. The following disclosures are also reflective of the Company’s reinsurance of the majority of variable annuities with living and death benefit riders to an affiliated captive reinsurer, effective October 1, 2009. See Note 10 of the Notes to the Condensed Consolidated Financial Statements for further information on the reinsurance transaction.

The Company’s operations are significantly influenced by the U.S., Japanese and other equity markets. Increases or decreases in equity markets impact certain assets and liabilities related to the Company’s variable products and the Company’s earnings derived from those products. These variable products include variable annuities, mutual funds, and variable life insurance.

Generally, declines in equity markets will:

•

reduce the value of assets under management and the amount of fee income generated from those assets;

•

increase the liability for direct GMWB benefits, and reinsured GMWB and GMIB benefits, resulting in realized capital losses;

•

increase the value of derivative assets used to dynamically hedge product guarantees resulting in realized capital gains;

•

increase the costs of the hedging instruments we use in our hedging program;

•

increase the Company’s net amount at risk for GMDB benefits;

•

decrease the Company’s actual gross profits, resulting in increased DAC amortization;

•

increase the amount of required assets to be held for backing variable annuity guarantees to maintain required regulatory reserve levels and targeted risk based capital ratios;

•

adversely affect customer sentiment toward equity-linked products negative, causing a decline in sales, and

•

decrease the Company’s estimated future gross profits, see Estimated Gross Profits Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity and Other Universal Life-Type Contracts within Critical Accounting Estimates for further information.

Generally, increases in equity markets will reduce the value of the dynamic hedge programs and macro hedge derivative assets, resulting in realized capital losses during periods of market appreciation.

GMWB and Intercompany Reinsurance of GMWB, GMAB, and GMIB

The majority of the Company’s U.S. and U.K. variable annuities include a GMWB rider. In the second quarter of 2009, the Company suspended all product sales in the U.K. Declines in the equity markets will increase the Company’s liability for these benefits. The Company reinsures a majority of the GMWB benefits with an affiliated captive reinsurer. A GMWB contract is ‘in the money’ if the contract holder’s guaranteed remaining benefit (“GRB”) becomes greater than the account value. As of September 30, 2011 and December 31, 2010, 63% and 44%, respectively, of all unreinsured U.S GMWB ‘in-force’ contracts were ‘in the money’. For U.S. and U.K. GMWB contracts that were ‘in the money’ the Company’s exposure to the GRB, after internal and external reinsurance, as of September 30, 2011 and December 31, 2010, was $0.6 billion and $1.0 billion, respectively. However, the Company expects to incur these payments in the future only if the policyholder has an ‘in the money’ GMWB at their death or their account value is reduced to a specified minimum level, through contractually permitted withdrawals and/or market declines. If the account value is reduced to the specified level, the contract holder will receive an annuity equal to the remaining GRB. For the Company’s “life-time” GMWB products, this annuity can continue beyond the GRB. As the account value fluctuates with equity market returns on a daily basis and the “life-time” GMWB payments can exceed the GRB, the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than $3.2 billion. For additional information on the Company’s GMWB liability, see Note 3 of the Notes to Condensed Consolidated Financial Statements.

The Company enters into various reinsurance agreements to reinsure GMWB and GMIB benefits issued by HLIKK, a Japan affiliate of the Company. In the second quarter of 2009, the Company suspended new product sales in the Company’s Japan affiliate and in the fourth quarter of 2009 the Company reinsured 100% of the assumed benefits to an affiliated captive reinsurer. See Note 10 of the Notes to Condensed Consolidated Financial Statements for further discussion.

GMDB and Intercompany Reinsurance of GMDB

The majority of the Company’s variable annuity contracts include a GMDB rider. A majority of the Company’s GMDB benefits, both direct and assumed, are reinsured with an affiliated captive reinsurer and an external reinsurer. Declines in the equity market will increase the Company’s liability GMDB riders. The Company’s total gross exposure (i.e. before reinsurance) to U.S. GMDBs as of September 30, 2011 and December 31, 2010 is $15.8 billion and $10.7 billion, respectively. The Company will incur these payments in the future only if the policyholder has an ‘in-the-money’ GMDB at their time of death. As of September 30, 2011 and December 31, 2010, 83% and 56%, respectively, of all unreinsured U.S. GMDB in-force contracts were ‘in the money’. As of September 30, 2011, of the remaining net amount at risk for the GMDB benefit after the Company’s 55% of external reinsurance, 69% is internally reinsured with an affiliated captive reinsurer. As of December 31, 2010, of the remaining net amount at risk for GMDB benefit after the Company’s 60% of external reinsurance, 69% is internally reinsured with an affiliated captive reinsurer. Under certain of these reinsurance agreements, the reinsurers’ exposure is subject to an annual cap. The Company’s net exposure (i.e. after reinsurance) referred to as the retained net amount at risk is $2.2 billion and $1.4 billion, as of September 30, 2011 and December 31, 2010, respectively. For additional information on the Company’s GMDB liability, see Note 6 of the Notes to Condensed Consolidated Financial Statements.

The Company enters into various reinsurance agreements to reinsure GMDB benefits issued by HLIKK, a Japan affiliate of the Company. In the second quarter of 2009, the Company suspended new product sales in the Company’s Japan affiliate and in the fourth quarter the company reinsured 100% of the assumed benefits to an affiliated captive reinsurer. See Note10 of the Notes to Condensed Consolidated Financial Statements for further discussion.

Variable Product Equity Risk Management

Market Risk Exposures

The following table summarizes the broad Variable Annuity Guarantees offered by the Company and the market risks to which the guarantee is most exposed from a U.S. GAAP accounting perspective.


Variable Annuity Guarantee [1]	U.S. GAAP Treatment [1]	Market Risk Exposures [1]
U.S. GMDB	Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid		Equity Market Levels

Japan GMDB (Assumed)	Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid		Equity Market Levels/Interest Rates / Foreign Currency

GMWB	Fair Value		Equity Market Levels/Implied Volatility/Interest Rates

For Life Component of GMWB	Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid		Equity Market Levels

Japan GMIB (Assumed)	Fair Value		Equity Market Levels/Interest Rate/Foreign Currency

GMAB (Assumed)	Fair Value		Equity Market Levels/Implied Volatility/Interest Rates


[1]		Each of these guarantees and the related U.S. GAAP accounting volatility will also be influenced by actual and estimated policyholder behavior.

Risk Management Approach

The Company analyzes and evaluates GMDB, GMWB, GMIB and GMAB market risk exposures arising from equity markets, interest rates, implied volatility, foreign currency exchange risk and correlation between these market risk exposures. As part of the Company’s risk management strategy, we manage or limit our exposure to certain of the risks associated with our global variable annuity products, primarily through a combination of product design elements, reinsurance and hedging.

The Company’s variable annuity hedging is primarily focused on reducing the economic exposure to market risks associated with guaranteed benefits that are embedded in our global VA contracts. The variable annuity hedging also considers the potential impacts on Statutory accounting results.

The following table depicts the type of hedges being used by the Company to either partially or fully mitigate market risk exposures displayed above by variable annuity guarantees, as of September 30, 2011:

Customized

Dynamic

Macro

Variable Annuity Guarantee

Reinsurance [1]

Derivative

Hedging

Hedging [

GMDB

GMDB (Assumed)

GMWB

For Life Component of GMWB

GMIB (Assumed)

GMAB (Assumed)


[1]		The Company cedes the GMDB and GMWB including “for life component of GMWB”, written by HLAI, and GMDB, GMIB and GMAB assumed by HLAI from HLIKK, to an affiliated captive reinsurer. See Note 10 of the Notes to Condensed Consolidated Financial Statements for further discussion.

Third Party Reinsurance

The Company uses third-party reinsurance for a portion of U.S. contracts issued with GMWB riders prior to the third quarter of 2003 and GMWB risks associated with a block of business sold between the third quarter of 2003 and the second quarter of 2006. The Company also uses third party reinsurance for a majority of the GMDB issued in the U.S.

Derivative Hedging Strategies

The Company maintains derivative hedging strategies to reduce the economic exposure to market risks associated with guaranteed benefits that are embedded in our global VA contracts. The variable annuity hedging program also considers the potential impacts on Statutory accounting results.

GMWB Hedge Program

The Company enters into derivative contracts to hedge market risk exposures associated with the GMWB liabilities that are not reinsured. These derivative contracts 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.

Additionally, the Company holds customized derivative contracts to provide protection from certain capital market risks for the remaining term of specified blocks of non-reinsured GMWB riders. These customized derivative contracts are based on policyholder behavior assumptions specified at the inception of the derivative contracts. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.

While the Company actively manages this dynamic hedging program, increased U.S. GAAP earnings volatility may result from factors including, but not limited to: policyholder behavior, capital markets, divergence between the performance of the underlying funds and the hedging indices, changes in hedging positions and the relative emphasis placed on various risk management objectives.

Macro Hedge Program

The Company’s macro hedging program uses derivative instruments such as options, futures, swaps, and forwards on equities and interest rates to provide protection against the statutory tail scenario risk arising from U.S., U.K., and Japan GMWB, GMDB, GMIB and GMAB liabilities, on the Company’s statutory surplus. These macro hedges cover portions of dynamic hedging programs of The Hartford, as well as, some of the residual risks not otherwise covered by specific dynamic hedging programs. Management assesses this residual risk under various scenarios in designing and executing the macro hedge program. The macro hedge program will result in additional U.S. GAAP earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in U.S. GAAP liabilities.

Hedging Impact

During the quarter ended September 30, 2011, U.S. GMWB liabilities, net of the dynamic and macro hedging programs, reported a net realized pre-tax loss of $118.8 primarily driven by the transfer of the decrease of $335.5 in GMWB liabilities to an affiliated reinsurer and decreases in equity levels of approximately 14% and increases in volatility of approximately 2.3%, partially offset by strengthened yen by approximately 4.3% against the dollar and 11.7% against the Euro,. See Note 10 of the Notes to Condensed Consolidated Financial Statements for further discussion.

Equity Risk Impact on Statutory Capital and Risked Based Capital

See Statutory Capital under Capital Resources and Liquidity for information on the equity risk impact on statutory results.

Derivative Instruments

The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards, futures and options through one of four Company-approved objectives: to hedge risk arising from interest rate, equity market, credit spread including issuer default, price or currency exchange rate risk or volatility; to manage liquidity; to control transaction costs; or to enter into replication transactions.

Foreign Currency Exchange Risk

The Company’s foreign currency exchange risk is related to non—U.S. dollar denominated investments, which primarily consist of fixed maturity investments, the investment in and net income of the Japanese and U.K. operations, and non-U.S. dollar denominated liability contracts, including its GMDB, GMAB, GMWB and GMIB benefits associated with its Japanese and U.K. variable annuities, and a yen denominated individual fixed annuity product. Also, foreign currency exchange rate risk is inherent when the Japan policyholders’ variable annuity sub-account investments are non-Japanese yen denominated securities while the related GMDB and GMIB guarantees are effectively yen-denominated. A portion of the Company’s foreign currency exposure is mitigated through the use of derivatives.

Fixed Maturity Investments

The risk associated with the non-U.S. dollar denominated fixed maturities relates to potential decreases in value and income resulting from unfavorable changes in foreign exchange rates. In order to manage its currency exposures, the Company enters into foreign currency swaps and forwards to hedge the variability in cash flows as fair value associated with certain foreign denominated fixed maturities declines. These foreign currency swap and forward agreements are structured to match the foreign currency cash flows of the hedged foreign denominated securities.

Liabilities

The Company issued non-U.S. dollar denominated funding agreement liability contracts. The Company hedges the foreign currency risk associated with these liability contracts with currency rate swaps.

The yen based fixed annuity product was written by Hartford Life Insurance K.K. (“HLIKK”), a wholly-owned Japanese subsidiary of Hartford Life, Inc. (“HLI”), and subsequently reinsured to Hartford Life Insurance Company, a U.S. dollar based wholly-owned indirect subsidiary of HLI. During 2009, the Company suspended new sales of the Japan business. The underlying investment involves investing in U.S. securities markets, which offer favorable credit spreads. The yen denominated fixed annuity product (“yen fixed annuities”) is recorded in the consolidated balance sheets with invested assets denominated in dollars while policyholder liabilities are denominated in yen and converted to U.S. dollars based upon the September 30, yen to U.S. dollar spot rate. The difference between U.S. dollar denominated investments and yen denominated liabilities exposes the Company to currency risk. The Company manages this currency risk associated with the yen fixed annuities primarily with pay variable U.S. dollar and receive fixed yen currency swaps.

Prior to 2010, the Company had also issued guaranteed benefits (GMDB and GMIB) that were reinsured from HLIKK to the U.S. insurance subsidiaries. During 2010, the Company entered into foreign currency forward contracts that convert U.S. dollars to yen in order to hedge the foreign currency risk due to U.S. dollar denominated assets backing the yen denominated liabilities. The Company also enters into foreign currency forward contracts that convert euros to yen in order to economically hedge the risk arising when the Japan policyholders’ variable annuity sub-accounts are invested in non-Japanese yen denominated securities while the related GMDB and GMIB guarantees are effectively yen-denominated.

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.

Derivative Commitments

The aggregate notional amount of derivative relationships that could be subject to immediate termination in the event of rating agency downgrades to either BBB+ or Baa1 as of September 30, 2011 was $13.3 billion with a corresponding fair value of $619. The notional and fair value amounts include a customized GMWB derivative with a notional amount of $4.1 billion and a fair value of $231, for which the Company has a contractual right to make a collateral payment in the amount of approximately $44 to prevent its termination. This customized GMWB derivative contains an early termination trigger such that if the unsecured, unsubordinated debt of the counterparty’s related guarantor is downgraded two levels or more below the current ratings by both Moody’s and S&P, the counterparty could terminate all transactions under the applicable International Swaps and Derivatives Association Master Agreement. As of September 30, 2011, the gross fair value of the affected derivative contracts is $254, which would approximate the settlement value.

Insurance Operations

In the event customers elect to surrender separate account assets, international statutory separate accounts or retail mutual funds, 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 (see below) will decrease the Company’s obligation for payments on guaranteed living and death benefits.

As of September 30, 2011, the Company’s cash and short-term investments of $6 billion, included $2.5 billion of collateral received from, and held on behalf of, derivative counterparties and $347 of collateral pledged to derivative counterparties. The Company also held $2.1 billion of treasury securities, of which $330 had been pledged to derivative counterparties.

Total general account contractholder obligations are supported by $64 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 September 30, 2011:


Fixed maturities	$	47,417
Short-term investments		4,949
Cash		1,057
Less: Derivative collateral		(3,158	)

Total	$	50,265

Capital resources available to fund liquidity, upon contract holder surrender, are a function of the legal entity in which the liquidity requirement resides. Annuity obligations of Global Annuity and Life Insurance obligations will be generally funded by both Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company; obligations of Retirement Plans and institutional investment products within Global Annuity 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.

Federal Home Loan Bank of Boston

The Company became a member of the Federal Home Loan Bank of Boston (“FHLBB”) in May 2011. Membership allows the Company access to collateralized advances, which may be used to support various spread-based business and enhance liquidity management. As of September 30, 2011, the Company had no advances outstanding under the FHLBB facility. The Connecticut Department of Insurance (“CTDOI”) permits the Company to pledge up to $1.45 billion in qualifying assets to secure FHLBB advances for 2011. 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
	September 30,
Contractholder Obligations	2011
Total Contractholder obligations	$	202,966
Less: Separate account assets [1]		(143,913	)
International statutory separate accounts [1]		(1,917	)

General account contractholder obligations	$	57,136


Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]	$	22,732
Fixed MVA annuities [3]		9,872
International fixed MVA annuities		2,704
Guaranteed investment contracts (“GIC”) [4]		675
Other [5]		21,153

General account contractholder obligations	$	57,136


[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 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 (see below) 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 held in a statutory separate account, but under U.S. GAAP are recorded in the general account as Fixed MVA annuity contract holders 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 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 Global Annuity’s individual variable annuities and Life Insurance’s variable life contracts, the general account option for Retirement Plans’ annuities and universal life contracts sold by Life Insurance 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.

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 2010 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.

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 $815 in dividends in 2011 without prior approval from the applicable insurance commissioner. For the nine months ended September 30, 2011, the Company received dividends of $7 from its subsidiaries. With respect to dividends to its parent, the Company’s dividend limitation under the holding company laws of Connecticut is $676 in 2011. However, because the Company’s earned surplus was negative as of December 31, 2010, the Company is not permitted to pay any dividends to its parent in 2011 without prior approval from the Connecticut Insurance Commissioner. For the nine months ended September 30, 2011, the Company did not pay dividends to its parent company.


	Nine Months Ended
	September 30,
*Cash Flows*	2011			2010
Net cash provided by operating activities	$	1,832		$	1,606
Net cash provided by (used for) investing activities	$	(1,012	)	$	(51	)
Net cash used for financing activities	$	(293	)	$	(1,906	)
Cash — end of period	$	1,057		$	433

Net cash provided by operating activities increased due to higher fee income, along with the effect of the modco reinsurance agreement.

Net cash used for investing activities in 2011 primarily relates to net purchases of available-for-sale securities of $936, net purchases of mortgage loans of $718 and net purchases of fixed maturities, fair value option, of $621, partially offset by net payments on derivatives of $1.7 billion. Net cash used for investing activities in 2010 primarily relates to net purchases of available-for-sale securities of $1.4 billion, partially offset by net proceeds from sales of mortgage loans of $943 and net proceeds from derivatives of $347.

Net cash used for financing activities in 2011 relates to net outflows on investment and universal life-type contracts and repayments of consumer notes. Net cash used for financing activities in 2010 relates to net outflows on investment and universal life-type contracts of $1.2 billion and repayments of consumer notes of $752.

Operating cash flows in both periods have been adequate to meet liquidity requirements.

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.

The following table summarizes Hartford Life Insurance Company’s significant member companies’ financial ratings from the major independent rating organizations as of October 27, 2011:


			Standard &
	A.M. Best	Fitch	Poor’s	Moody’s
*Insurance Financial Strength Ratings*
Hartford Life Insurance Company	A	A-	A	A3
Hartford Life and Annuity Insurance Company	A	A-	A	A3

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 $6.1 billion as of September 30, 2011 and $5.8 billion as of December 31, 2010, respectively. The statutory surplus amount as of December 31, 2010 is based on actual statutory filings with the applicable regulatory authorities. The statutory surplus amount as of September 30, 2011, is an estimate, as the 2011 statutory filings have not yet been made.

Contingencies

Legal Proceedings — For a discussion regarding contingencies related to the Company’s legal proceedings, please see the information contained under “Litigation” in Note 8 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Legislative Developments

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted on July 21, 2010, mandating changes to the regulation of the financial services industry. The Dodd-Frank Act may affect our operations and governance in ways that could adversely affect our financial condition and results of operations.

In particular, the Dodd-Frank Act vests a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, which will be subject to special regulatory supervision and other provisions intended to prevent, or mitigate the impact of, future disruptions in the U.S. financial system. Systemically important institutions are limited to large bank holding companies and nonbank financial companies that are so important that their potential failure could “pose a threat to the financial stability of the United States.” If our parent is designated as a systemically important institution, it could be subject to higher capital requirements and additional regulatory oversight imposed by The Federal Reserve, as well as to post-event assessments imposed by the Federal Deposit Insurance Corporation (“FDIC”) to recoup the costs associated with the orderly liquidation of other systemically important institutions in the event one or more such institutions fails. Further, the FDIC is authorized to petition a state court to commence an insolvency proceeding to liquidate an insurance company that fails in the event the insurer’s state regulator fails to act. Other provisions will require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, which we expect will increase the costs of our hedging program.

While The Hartford filed an application to deregister as a savings and loan holding company in connection with the closing of the sale of our affiliate thrift subsidiary, Federal Trust Bank, on November 1, 2011, a number of provisions of the Dodd-Frank Act affect The Hartford due to The Hartford’s current status as a savings & loan holding company. For example, because of The Hartford’s status as a savings and loan holding company or if it is designated a systemically important institution, the Dodd-Frank Act may restrict The Hartford and its subsidiaries from sponsoring and investing in private equity and hedge funds, which would limit our discretion in managing our general account. The Dodd-Frank Act will also impose new minimum capital standards on a consolidated basis and additional regulation of compensation for savings and loan holding companies.

Other provisions in the Dodd-Frank Act that may impact us, irrespective of whether or not our parent is a savings and loan holding company include: the possibility that regulators could break up firms that are considered “too big to fail;” a new “Federal Insurance Office” within Treasury to, among other things, conduct a study of how to improve insurance regulation in the United States; new means for regulators to limit the activities of financial firms; discretionary authority for the SEC to impose a harmonized standard of care for investment advisers and broker-dealers who provide personalized advice about securities to retail customers; and enhancements to corporate governance, especially regarding risk management.

The changes resulting from the Dodd-Frank Act could adversely affect our results of operation and financial condition either directly or indirectly, as a result of its impact on The Hartford.

FY 2012, Budget of the United States Government

On February 15, 2011, the Obama Administration released its “FY 2012, Budget of the United States Government” (the “Budget”). Although the Administration has not released proposed statutory language, the Budget includes proposals which if enacted, would affect the taxation of life insurance companies and certain life insurance products. In particular, the proposals would affect the treatment of corporate owned life insurance (“COLI”) policies by limiting the availability of certain interest deductions for companies that purchase those policies. The proposals would also change the method used to determine the amount of dividend income received by a life insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity contracts, that are eligible for the dividends received deduction (“DRD”). The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between the Company’s actual tax expense and expected amount determined using the federal statutory tax rate of 35%. If proposals of this type were enacted, the Company’s sale of COLI, variable annuities, and variable life products could be adversely affected and the Company’s actual tax expense could increase, reducing earnings. The Budget also included a proposal to levy a “Financial Crisis Responsibility Fee,” of $30 billion in the aggregate, over 10 years on large financial institutions, including The Hartford. On September 19, 2011, the Obama Administration included the DRD and COLI proposals, as well as the financial crisis responsibility fee, in a proposal sent to the congress as part of a deficit reduction package.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 of Notes to the Consolidated Financial Statements included in the Company’s 2010 Form 10-K Annual Report and Note 1 of Notes to the Condensed Consolidated Financial Statements.


Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Capital Markets Risk Management section of Management’s Discussion and Analysis for a discussion of the Company’s market risk.


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 September 30, 2011.

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.

Part II. OTHER INFORMATION


Item 1.		LEGAL PROCEEDINGS


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, 2010, 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


Item 6.		EXHIBITS

See Exhibits Index on page 77.

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

EXHIBITS INDEX


Exhibit #

	12.01	Computation of Ratio of Earnings to Fixed Charges

	15.01	Deloitte & Touche LLP Letter of Awareness

	31.01	Certification of David N. Levenson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.02	Certification of David G. Bedard pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.01	Certification of David N. Levenson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.02	Certification of David G. Bedard pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document [1]

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


[1]		Includes the following materials contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language) (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, which is tagged as blocks of text.


				UL Secondary
	GMDB			Guarantees
Liability balance as of January 1, 2011	$	1,115		$	113
Incurred		205			29
Paid		(192	)		—
Unlock		168			66

Liability — gross, as of September 30, 2011	$	1,296		$	208


Reinsurance Recoverable— as of January 1, 2011	$	686		$	30
Incurred		99			(10	)
Paid		(101	)		—
Unlock		113			—

Reinsurance Recoverable — as of September 30, 2011	$	797		$	20


		/s/ Beth A. Bombara Beth A. Bombara
		Chief Accounting Officer
		November 2, 2011