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

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

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 o 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 April 26, 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.

 

 

HARTFORD LIFE INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

TABLE OF CONTENTS

Item		Description		Page
		Part I. FINANCIAL INFORMATION
1.		Financial Statements
		Report of Independent Registered Public Accounting Firm			5
		Condensed Consolidated Statements of Operations — For the Three Months Ended March 31, 2011 and 2010			6
		Condensed Consolidated Balance Sheets — As of March 31, 2011 and December 31, 2010			7
		Condensed Consolidated Statements of Changes in Stockholder’s Equity — For the Three Months Ended March 31, 2011 and 2010			8
		Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2011 and 2010			9
		Notes to Condensed Consolidated Financial Statements			10
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
3.		Quantitative and Qualitative Disclosures About Market Risk			73
4.		Controls and Procedures			73
		Part II. OTHER INFORMATION
1.		Legal Proceedings			74
1A.		Risk Factors			74
6.		Exhibits			74
		Signature			75
		Exhibits Index			76
EX-12.01
EX-15.01
EX-31.01
EX-31.02
EX-32.01
EX-32.02

Forward-Looking Statements

Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding economic, competitive, legislative and other developments. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon Hartford Life Insurance Company and its subsidiaries (collectively, the “Company”). Future developments may not be in line with management’s expectations or may have unanticipated effects. Actual results could differ materially from expectations, depending on the evolution of various factors, including those set forth in Part I, Item 1A, Risk Factors in the Company’s 2010 Form 10-K Annual Report. These important risks and uncertainties include:

•		challenges related to the Company’s current operating environment, including continuing uncertainty about the 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 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 Office of Thrift Supervision (the “OTS”), and in the future, as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the Federal Reserve 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 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 March 31, 2011, and the related condensed consolidated statements of operations, changes in stockholder’s equity, and cash flows for the three-month periods ended March 31, 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
May 2, 2011

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

		Three Months ended
		March 31,
(In millions)		2011				2010
		(Unaudited)
Revenues
Fee income and other		$	977			$	951
Earned premiums			66				55
Net investment income:
Securities available-for-sale and other			660				637
Equity securities, trading			24				118
Total net investment income			684				755
Net realized capital losses:
Total other-than-temporary impairment (“OTTI”) losses			(89	)			(316	)
OTTI losses recognized in other comprehensive income			50				179
Net OTTI losses recognized in earnings			(39	)			(137	)
Net realized capital losses, excluding net OTTI losses recognized in earnings			(507	)			(377	)
Total net realized capital losses			(546	)			(514	)
Total revenues			1,181				1,247
Benefits, losses and expenses
Benefits, loss and loss adjustment expenses			727				727
Benefits, loss and loss adjustment expenses — returns credited on international unit-linked bonds and pension products			24				118
Amortization of deferred policy acquisition costs and present value of future profits			105				64
Insurance operating costs and other expenses			19				327
Dividends to policyholders			2				2
Total benefits, losses and expenses			877				1,238
Income from continuing operations before income taxes			304				9
Income tax expense			65				16
Income (loss) from continuing operations			239				(7	)
Loss from discontinued operations, net of tax			—				(1	)
Net income (loss)			239				(8	)
Net income attributable to noncontrolling interest			1				2
Net income (loss) attributable to Hartford Life Insurance Company		$	238			$	(10	)

See Notes to Condensed Consolidated Financial Statements

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

		March 31,				December 31,
(In millions, except for share data)		2011				2010
		(Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $45,293 and $45,323) (includes variable interest entity assets, at fair value, of $334 and $406)		$	45,045			$	44,834
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets, at fair value, of $329 and $323)			1,219				639
Equity securities, trading, at fair value (cost of $2,086 and $2,061)			2,283				2,279
Equity securities, available-for-sale, at fair value (cost of $301 and $320)			351				340
Mortgage loans (net of allowance for loan losses of $64 and $62)			3,422				3,244
Policy loans, at outstanding balance			2,128				2,128
Limited partnerships, and other alternative investments (includes variable entity assets of $9 and $14)			860				838
Other investments			445				1,461
Short-term investments			2,946				3,489
Total investments			58,699				59,252
Cash			787				531
Premiums receivable and agents’ balances			64				67
Reinsurance recoverables			3,406				3,924
Deferred policy acquisition costs and present value of future profits			4,997				4,949
Deferred income taxes, net			1,978				2,138
Goodwill			470				470
Other assets			1,437				692
Separate account assets			164,030				159,729
Total assets		$	235,868			$	231,752
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses		$	11,398			$	11,385
Other policyholder funds and benefits payable			42,379				43,395
Other policyholder funds and benefits payable — international unit-linked bonds and pension products			2,241				2,252
Consumer notes			382				382
Other liabilities (including variable interest entity liabilities of $450 and $422)			6,824				6,398
Separate account liabilities			164,030				159,729
Total liabilities			227,254				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			8,267				8,265
Accumulated other comprehensive loss, net of tax			(208	)			(372	)
Retained earnings			549				312
Total stockholder’s equity			8,614				8,211
Total liabilities and stockholder’s equity		$	235,868			$	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)
Three months ended March 31, 2011
Balance, December 31, 2010		$	6			$	8,265			$	(569	)		$	265			$	(68	)		$	312			$	—			$	8,211
Capital contributions from parent			—				2				—				—				—				—				—				2
Dividends declared			—				—				—				—				—				(1	)			—				(1	)
Change in noncontrolling interest ownership			—				—				—				—				—				—				(1	)			(1	)
Comprehensive income
Net income			—				—				—				—				—				238				1				239
Other comprehensive income (loss), net of tax
Net change in unrealized capital losses on securities			—				—				207				—				—				—				—				207
Net losses on cash flow hedging instruments			—				—				—				(56	)			—				—				—				(56	)
Cumulative translation adjustments			—				—				—				—				13				—				—				13
Total other comprehensive income (loss)			—				—				207				(56	)			13				—				—				164
Total comprehensive income (loss)			—				—				207				(56	)			13				238				1				403
Balance, March 31, 2011		$	6			$	8,267			$	(362	)		$	209			$	(55	)		$	549			$	—			$	8,614
Three months ended March 31, 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			—				—				—				—				—				25				—				25
Balance, January 1, 2010			6				8,457				(2,039	)			148				(50	)			(262	)			61				6,321
Capital contributions from parent			—				3				—				—				—				—				—				3
Change in noncontrolling interest ownership			—				—				—				—				—				—				(63	)			(63	)
Comprehensive income
Net income (loss)			—				—				—				—				—				(10	)			2				(8	)
Other comprehensive income, net of tax
Net change in unrealized capital losses on securities			—				—				559				—				—				—				—				559
Net gains on cash flow hedging instruments			—				—				—				51				—				—				—				51
Cumulative translation adjustments			—				—				—				—				(47	)			—				—				(47	)
Total other comprehensive income (loss)			—				—				559				51				(47	)			—				—				563
Total comprehensive income (loss)			—				—				559				51				(47	)			(10	)			2				555
Balance, March 31, 2010		$	6			$	8,460			$	(1,480	)		$	199			$	(97	)		$	(272	)		$	—			$	6,816

See Notes to Condensed Consolidated Financial Statements

HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

		Three months ended
		March 31,
(In millions)		2011				2010
		(Unaudited)
Operating Activities
Net income (loss)		$	239			$	(8	)
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			105				68
Additions to deferred policy acquisition costs and present value of future profits			(123	)			(134	)
Change in:
Reserve for future policy benefits and unpaid losses and loss adjustment expenses			31				42
Reinsurance recoverables			(45	)			(9	)
Receivables and other assets			(69	)			(332	)
Payables and accruals			(101	)			159
Accrued and deferred income taxes			295				70
Net realized capital losses			546				515
Net receipts to investment contracts related to policyholder funds — international unit-linked bonds and pension products			(11	)			(111	)
Net (increase) decrease in equity securities, trading			(4	)			108
Depreciation and amortization			39				43
Other, net			(32	)			(28	)
Net cash provided by operating activities			870				383
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities and short-term investments, available-for-sale			5,001				5,520
Equity securities, available-for-sale			6				68
Mortgage loans			48				496
Partnerships			30				40
Payments for the purchase of:
Fixed maturities and short-term investments, available-for-sale			(4,232	)			(5,720	)
Fixed maturities, fair value option			(531	)			—
Equity securities, available-for-sale			(13	)			(6	)
Mortgage loans			(228	)			(2	)
Partnerships			(29	)			(27	)
Derivatives, net			(388	)			(253	)
Change in policy loans, net			—				(5	)
Change in all other, net			—				—
Net cash provided by (used for) investing activities			(336	)			111
Financing Activities
Deposits and other additions to investment and universal life-type contracts			3,137				5,670
Withdrawals and other deductions from investment and universal life-type contracts			(6,319	)			(7,826	)
Net transfers from (to) separate accounts related to investment and universal life-type contracts			2,905				2,009
Net repayments at maturity or settlement of consumer notes			—				(302	)
Net cash used for financing activities			(277	)			(449	)
Foreign exchange rate effect on cash			(1	)			(11	)
Net increase in cash			256				34
Cash — beginning of period			531				781
Cash — end of period		$	787			$	815
Supplemental Disclosure of Cash Flow Information:
Net cash received during the period for income taxes		$	(236	)		$	(43	)
Noncash capital contributions received			2				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 March 31, 2011, and for the three ended March 31, 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 subsidiaries that meet the criteria for reporting as discontinued operations. Income statement 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)

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
		March 31,
		2011				2010
Tax expense at the U.S. federal statutory rate		$	106			$	3
Dividends received deduction			(37	)			(39	)
Foreign related investments			(5	)			(3	)
Valuation allowance			(2	)			56
Other			3				(1	)
Income tax expense		$	65			$	16

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”) as part of the Hartford’s consolidated tax return. 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, the Company is working with the IRS on a possible settlement of a DRD issue related to prior periods which, if settled, may result in the booking of tax benefits. Such benefits are not expected to be material to the Condensed Consolidated Statement of Operations.

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 $137 as of March 31, 2011 and was $139 as of December 31, 2010. In assessing the need for a valuation allowance, management considered future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carry forwards, and taxable income in prior carry back years, as well as tax planning strategies that 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. Such tax planning strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset. Future economic conditions and debt market volatility, including increases in interest rates can adversely impact the Company’s tax planning strategies and in particular the Company’s ability to utilize tax benefits to offset certain previously recognized realized capital losses. Even under a “separate entity” approach, the Company would not record an additional valuation allowance relating to realized capital losses. Under a “separate entity” approach, the current tax benefit related to any of the Company’s tax attributes realized by virtue of its inclusion in The Hartford’s consolidated tax return would have been recorded directly to equity rather than income. These benefits would have been $1 and $81 for the three months ended March 31, 2011 and 2010, respectively.

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”) which is 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, 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
		March 31,
Revenues by Product Line		2011				2010
Earned premiums, fees, and other considerations
Global Annuity
Individual variable annuity		$	450			$	416
Fixed / MVA and other annuity			4				3
IIP			(1	)			15
Total Global Annuity			453				434
Life Insurance
Variable life			90				102
Universal life			100				99
Term life			9				10
PPLI			44				41
Total Life Insurance			243				252
Retirement Plans
401(k)			84				76
Government plans			13				11
Total Retirement Plans			97				87
Mutual Funds
Non-proprietary			142				130
Proprietary			16				16
Total Mutual Funds			158				146
Other			92				87
Total earned premiums, fees, and other considerations			1,043				1,006
Net investment income			684				755
Net realized capital losses			(546	)			(514	)
Total revenues		$	1,181			$	1,247
Net income (loss) attributable to Hartford Life Insurance Company
Global Annuity		$	170			$	6
Life Insurance			31				22
Retirement Plans			15				(6	)
Mutual Funds			27				25
Other			(5	)			(57	)
Total net income (loss) attributable to Hartford Life Insurance Company		$	238			$	(10	)

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 months ended March 31, 2011. 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)

		March 31, 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		$	2,236			$	—			$	1,841			$	395
CDOs			1,957				—				—				1,957
CMBS			4,896				—				4,371				525
Corporate			27,753				—				26,317				1,436
Foreign government/government agencies			971				—				927				44
States, municipalities and political subdivisions (“Municipal”)			1,074				—				816				258
RMBS			3,607				—				2,622				985
U.S. Treasuries			2,551				289				2,262				—
Total fixed maturities, AFS			45,045				289				39,156				5,600
Fixed maturities, FVO			1,219				—				653				566
Equity securities, trading			2,283				2,283				—				—
Equity securities, AFS			351				193				110				48
Derivative assets
Credit derivatives			(12	)			—				(11	)			(1	)
Equity derivatives			3				—				—				3
Foreign exchange derivatives			314				—				314				—
Interest rate derivatives			(61	)			—				(47	)			(14	)
Variable annuity hedging derivatives and macro hedge program			194				—				2				192
Total derivative assets [1]			438				—				258				180
Short-term investments			2,946				288				2,658				—
Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB			1,486				—				—				1,486
Separate account assets [2]			156,179				119,930				35,042				1,207
Total assets accounted for at fair value on a recurring basis		$	209,947			$	122,983			$	77,877			$	9,087
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Guaranteed living benefits		$	(3,573	)		$	—			$	—			$	(3,573	)
Equity linked notes			(10	)			—				—				(10	)
Total other policyholder funds and benefits payable			(3,583	)			—				—				(3,583	)
Derivative liabilities
Credit derivatives			(393	)			—				(55	)			(338	)
Equity derivatives			2				—				—				2
Foreign exchange derivatives			227				—				227				—
Interest rate derivatives			(130	)			—				(89	)			(41	)
Variable annuity hedging derivatives and macro hedge program			207				—				(214	)			421
Total derivative liabilities [3]			(87	)			—				(131	)			44
Other liabilities			(51	)			—				—				(51	)
Consumer notes [4]			(5	)			—				—				(5	)
Total liabilities accounted for at fair value on a recurring basis		$	(3,726	)		$	—			$	(131	)		$	(3,595	)

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	)

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.

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

3. Fair Value Measurements (continued)

The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided by third-party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated with observable market data.

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are fair valued using pricing valuation models; 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 March 31, 2011 and December 31, 2010, 98% 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.

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

3. Fair Value Measurements (continued)

Level 3		Most of the Company’s securities classified as Level 3 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.

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.

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

3. Fair Value Measurements (continued)

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.

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.

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

3. Fair Value Measurements (continued)

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”). As a result of sustained volatility in the Company’s credit default spreads, during 2009 the Company changed its estimate of the Credit Standing Adjustment to incorporate a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. For the three months ended March 31, 2011 and 2010, 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 $1 and $33 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.

There were no policyholder behavior assumption updates for the three months ended March 31, 2011 and 2010.

In addition to the non-market-based updates described above, the Company recognized non-market-based updates driven by the relative outperformance of the underlying actively managed funds as compared to their respective indices resulting in before-tax realized gains of approximately $7 and $8 for the three months ended March 31, 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 months ending March 31, 2011 and 2010, for the financial instruments classified as Level 3.

For the three months ended March 31, 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]			(5	)			(10	)			(6	)			(17	)			—				—				(9	)			(47	)
Included in OCI [3]			17				98				55				—				—				—				36				206
Purchases			—				—				—				12				—				—				—				12
Settlements			(10	)			(30	)			(4	)			(25	)			—				—				(29	)			(98	)
Sales			—				—				(42	)			(62	)			—				—				(16	)			(120	)
Transfers into Level 3 [4]			50				30				30				151				4				—				—				265
Transfers out of Level 3 [4]			(65	)			—				—				(109	)			—				—				(102	)			(276	)
Fair Value as of March 31, 2011		$	395			$	1,957			$	525			$	1,436			$	44			$	258			$	985			$	5,600
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2011 [2]		$	(5	)		$	(10	)		$	(6	)		$	(16	)		$	—			$	—			$	(9	)		$	(46	)