Entrepreneurial spirit bears fruit. (Company Profile Life/Health).

Over the past dozen years, Hartford Life has transformed itself from a niche marketer to the fastest-growing major life company, almost entirely through an entrepreneurial culture and good strategic decisions.

Optimism runs high in Connecticut's Farmington Valley. The valley is home to Hartford Life Insurance Co. and the 3,000 employees who work there. The company left its namesake city some 16 years ago--though its parent corporation remains in Hartford--seeking more space and room to grow. Since 1990, Hartford Life has been the fastest-growing major life insurer.

The company's sprawling headquarters building and its spectacular location exude strength. The muscular-looking, four-story stone-and-steel office complex, with 2-inch-thick walls of Connecticut granite, stands on a 172-acre tract of woods and cornfield along the Farmington River. A short distance north is the town center of Simsbury, with its spacious lawns, old white houses and small, tidy businesses.

People enter and exit the headquarters' main entrance, many of them employees in sweat suits out for a lunch-hour run. Across the river rise the steep walls of Talcott Mountain, a 600-foot escarpment topped by a stylish tower that crowns a state park.

Employees speak glowingly of how the autumn afternoon sun casts orange hues on the bedrock stone and blazing colored leaves along the nearby cliffs. They tell of a red-tailed hawk that rests on a ledge outside an executive meeting room or greets pedestrians from the top of a berm along a sidewalk. They say they can see deer, raccoons and wild turkeys foraging the property.

The main entrance opens to a spacious foyer filled with light coming through windows from floor to roof. The foyer bustles with activity: Employees leave their desks to buy beverages, browse vendor displays for holiday gifts or just pass through to another wing of the building.

A painting some 20 feet long and 6 feet high depicts the four seasons in a Connecticut woodland. The artist, Paul Andrew Bean, is paralyzed from the chest down and has limited use of his arms and no use of his hands. It took Bean 11 months to paint the mural. The artwork represents Hartford's optimistic, can-do attitude, said company spokesman David Potter. Another wall maintains the theme with photos of Team Ability, athletes with disabilities whom Hartford sponsors to compete m highly competitive alpine skiing, track, swimming and other events.

In other areas of the foyer are citations, certificates and even quilts that recognize the efforts of the entrepreneurial business teams that Hartford Life fosters. Much of the company's success flows from what it calls its "micro-enterprise" management philosophy, in which each of the company's businesses has the latitude to make decisions and be responsible for its results. The building brims with energy, good cheer and a business aura.

Explosive Growth

It was not always this way for Hartford Life. Only a dozen years ago, the company was a niche marketer managing $13.7 billion in assets. Its group of companies then was ranked 23rd in the life industry by assets. It made but a small contribution to the overall earnings of its parent organization, Hartford Insurance Group.

Since then, Hartford Life has increased its assets faster than any other life insurance group, to more than $155 billion, fueled by explosive sales of individual annuities and life insurance products. Significantly, the growth in assets has not been a market-share grab. A mantra among executives is "profitable growth." And today, Hartford Life accounts for about two-thirds of its parent organization's earnings.

The company has continued to receive favorable ratings from equity analysts. In a Nov. 6, 2001, report, Credit Suisse First Boston rated Hartford Financial Services, the parent organization that includes the property/casualty business, a "buy" with a 12-month target price of $85 a share. Like other stocks, Hartford Financial was battered down in September, when it hit a low of $50. On Nov. 5, the stock traded at $56.94, and it closed at $62.07 on Dec. 20.

CSFB's research team of Charles B. Gates and Jonathan Tischler said Hartford distinguishes itself from other multiline insurers through the "strength of its life operations, the breadth of its activities, the diversity of its sales channels and the capability of its management." They added that the acquisition in 2001 of both minority interests in its life insurance company and of Fortis Financial Group "increases the importance of life insurance earnings, which over time are more stable than property/casualty earnings."

Gates and Tischler include variable annuities as part of life insurance earnings, and they cautioned that Hartford's leadership position in variable annuities exposes the company more than others to equity market volatility. They estimated that a 1% change in the S&P 500 index impacts Hartford's earnings by almost two cents a share.

On Oct. 31, UBS Warburg's Michael A. Lewis and Peter C. Streit rated Hartford Financial a "strong buy," citing their belief that management would deliver on its commitment to "grow earnings at a low double-digit clip" and generate 13% to 15% returns on equity. Their concerns rested on the property/casualty side of the business rather than the life side.

Earlier in October, Putnam Lovell's Alfred M. Capra maintained Hartford Financial as a buy and a good long-term holding. He lowered his expectations for the businesses linked to the stock markets, which he said represented a challenging environment for variable annuities, variable life and group disability.

Choosing Markets

Coincidentally or not, Hartford Life's rise began in 1986 after it left the urban congestion of downtown Hartford and sank its roots about a dozen miles away into the soils of Simsbury. Company leaders were so confident of their plans for the future that they audaciously built big. For years, the work force wandered through open halls and past empty work spaces. Now, some 3,000 employees squeeze into cubicles. As of December, the company employed 6,541 people nationwide.

Unlike many competitors, Hartford Life mostly built its own businesses from within rather than growing through acquisition. Thomas Marra, president and chief operating officer, said his company's growth strategy was carefully crafted. "The essence is choosing the right businesses and then investing in them," said Marra, who on Jan. 1, 2002, succeeded he retiring Lon Smith as president. "First and foremost, we have a strong financial discipline. We're going to look where we can get attractive margins and returns with an acceptable risk. But the second big point is that we pick growth markets, and they're businesses that we are good at--annuities, mutual funds, life insurance, group life and disability. We've chosen them carefully and found them to be growth markets with good profit potential and, as importantly, great market potential."

Hartford Life also has decided what it won't do, and it has partnered with groups that perform those functions. "Effectively, we make the products and service the products," Marra said. "We partner primarily for investment management and then for retail distribution." Partners include Wellington Management, Putnam Investments and American Funds on the investment side, and Merrill Lynch, Smith Barney and Bank of America for distribution.

Within its organization, Hartford uses a "people approach," Marra said. "The organization has a lot of pride with a real service focus. Our people excel, and we are always challenging each other to take the next hill, and the culture has been a big part of our success. It's enabled us to expand into other businesses," he said.

Marra credited Smith with steering the company through its period of remarkable growth, with other leaders doing their part to build the specific pieces. "Now it's my turn to take what we've together built and to move it further. I don't expect any major changes or shifts, because we're in the right businesses. We'll expand some product lines into new ones that make sense, such as '529' college savings plans, and we'll look at more countries, like a Japan model," Marra said. "We'll take what we've done well here and move it out. And while we've grown organically...there are acquisition opportunities because the industry will continue to consolidate. I think we've demonstrated that we can do that with the Fortis acquisition, which is going very well."

Hartford broke into the life business in 1959, when Hartford Fire bought Columbian National Life, a company it renamed Hartford Life in 1960. In 1970, ITT Corp. bought Hartford Group for $1.4 billion, in what was then the largest takeover in U.S. history. Hartford did not become an independent entity again until 1995, when it began trading on the New York Stock Exchange as "HIG."

Marra joined Hartford in 1980, and while he doesn't remember the company ever being in a crisis, he recalled that the toughest times were early in his career. "It was really a scale and focus issue then," he said. "We were small, and we didn't really have a market presence. We were under the gun, frankly. We had to get going, or we risked being sold off."

Even 20 years ago, people recognized that annuities and life insurance were going to become scale businesses, Marra said, "and it was clear that as competitive pressures mounted, the big and successful were going to survive, and the small and high-expense models weren't."

Distribution Decisions

Facing those circumstances, Hartford Life made two defining decisions. The first and biggest was that it had to find another way to distribute its products besides only through independent property and casualty agents. That's when it started looking to retail financial advisers--first the stock brokers and later bank representatives and financial planners. As one of the first to reach these distributors, Hartford established relationships early and still holds advantages over competitors in this distribution arm. The second was Smith's decision in 1993 to exit the group medical business. "That allowed us to focus on group life and disability, where we could carve out a competitive edge and not get mired in group medical, which was extremely capital intensive and has had earnings volatility," Marra said.

The distribution decision was more important, not only because it proved to be smart from a distribution standpoint, but because it led to other improvements. "Stock brokers are not faint of heart when it comes to their demands for products, service and investment choices, so they led us to better and better ourselves, said Marra. "They were independent, and they didn't owe us anything. It wasn't like having a career company, where they have to sell your product."

Today, the top life and annuity companies have significant distribution through independent retail distribution, but that was not the case 15 to 20 years ago, when most insurance sales came through career agents. Still, the switch to stock brokers was "not that scary" for Hartford at that time, Marra said.

"Everything else we were doing was not leading to scale," he said. "It was never going to be the focus of P/C agents to sell life products. What we saw with the stock brokers was the opportunity to get at literally tens of thousands of producers who were moving toward these products as another program they could bring to their customer.And so we hit it at the right time."

Making the move was not scary, because Hartford did not have to buy anything to get into it, Marra added. "This was more of an iterative investment," he said. "We invested our energies, but there was no capital required to get in."

Also making the move easier was that Hartford had not career agents to complain about being undercut. As far back as 1810, Hartford had tied its distribution to the independent channel. "It's actually worked to our advantage," Marra said. "In the early 1980s, if you were a life company with a career system, virtually all of your production came through that career channel, and it was very difficult to go outside of it. So not to be trite here, but there was no one there to yell at us for going out to this distribution. So we got a free deal, we took advantage of it, and we caught the stock brokers at the right time. In some respects, we helped pave the way for the industry to move in that direction."

Hartford was also early moving into banks, beginning in 1990, when it virtually had that channel to itself. Previously, banks had been selling a lot of fixed annuities, but primarily though platform representatives or third-party marketing organizations, Marra said.

"But our approach was to go to the bank broker-dealer and penetrate it for the sale of variable annuities," he said. "That was a great win for us. We still enjoy a more than 20% market share in the sale of bank variable annuities, but in the early years, it was more like a 60% share of the bank annuity market."

Now, even in the face of growing competition, Hartford has the benefit of strong and long-term relationships, as well as a scale advantage in its operating costs as the largest variable annuity company. "The key is we've held shelf space. We've delivered for our distribution partners by providing a great product, great service and great investments behind it. And it's difficult to make a run of it if you're not at scale." Marra said a major competitive edge for Hartford in its variable annuity business is that it has its expense ratio down to 22 basis points.

Micro-Enterprises

A big key to Hartford's success--and a way to build leaders--has been its micro-enterprise, entrepreneurial philosophy.

"We believe in complete accountability, and to do that you must give complete autonomy and control to unit business leaders," Marra said. Each business unit has its own technology group, service organization, marketing and sales functions and product-development area. The corporation then allocates the expense of the "truly corporate" functions, such as human resources and law," so that at the end we have a complete profit-and-loss statement for each," Marra said.

Within each business line, an individual is accountable for each of the sublines, such as mutual funds under investment products.

As far as building leadership, Marra said he is a case in point. In the late 1980s, he ran the profit and loss for the individual annuity business. At the time, the business "was a peanut," he said, but it was a springboard to other products and businesses. "Annuities opened up all these relationships," he said. "We brought variable life into these, then mutual funds and 401(k)s. In my own career, I followed that growth and assumed more responsibility."

Micro-enterprise management is not uncommon in the industry, but Hartford has put an emphasis on it. Along the way, however, the company has been careful not to give up too many opportunities for synergy. Marra said business leaders still talk with each other to benefit from their knowledge gained through experience.

Looking ahead, Marra said he sees nothing to worry him about Hartford's businesses. "Our market position is good, and our financial discipline and risk management are where we want to be," he said." "And we're not having to dig ourselves out of any hole or problem line of business or profitability issue. So we have the advantage of being able to look forward."

The real challenges will be in maintaining the company's startling momentum in earnings and returns on equity.

"My goal is to keep earnings growing at 15% a year," said Marra. "To do that, we're going to have to continually challenge ourselves to expand into broader distribution."

Since Hartford Life businesses are primarily equity based, the company's revenue and earnings will move up and down, but from a long-term investor's standpoint, the businesses are great propositions, Marra said.

The businesses are also great propositions from an employee's standpoint, he added. Optimism abounds. "People find this a good place to work and chart a career course," he said. "We try to advance from within as much as possible. We have an pen culture, a clear culture with purpose and beliefs. The culture of an organization is really important, and the culture here encourages people to get into the game and get the ball."

[Graph omitted]

Employment Growth At Hartford Life

Along with the growth of sales and earnings has come an increase in
Hartford's U.S.-based employees, about 3,000 of whom work at the
headquarters in Simsbury, Conn.


1996      3,707
1997      4,241
1998      4,760
1999      4,910
2000      5,425
2001 (*)  6,541

(*)Through Nov. 30, 2001

Source: Hartford Life Insurance Co.
Hartford Life Earnings, Revenues and Assets, 1992 vs. 2000

Sales are not part of revenues. Among the factors included in revenues
are policy fees, earned premiums, net investment income and net realized
capital losses.

                                      1992       2000  8-Year CAGR (1)

Hartford Life

   Revenues ($ Billions)             $2.32      $5.99           12.58%
   Operating Income (2,3)           $94.30    $600.00           26.02%
    ($ Millions)
   Assets Under Management          $23.49    $155.05           26.60%
    ($ Billions)

Investment Products

   Operating Income ($ Millions)    $56.00    $424.00           28.79%
   Assets Under Management          $17.75    $116.04           26.45%
    ($ Billions)
   Sales ($ Billions)                $4.15     $19.67           21.48%

Individual Annuity

(A subset of Investment Products)
   Operating Income ($ Millions)    $19.50    $367.00           44.32%
   Sales ($ Billions)                $2.21     $10.74           21.84%
   Assets Under Management           $6.86     $87.23           37.43%
    ($ Billions)

Individual Life

   Operating Income ($ Millions)    $17.00     $79.00           21.17%
   Account Values ($ Billions)       $0.82      $5.85           27.92%
   Sales ($ Millions)               $90.00    $200.24           10.51%
   Life Insurance In Force          $29.42     $75.11           12.43%
    ($ Billions)

Group Benefits

   Operating Income ($ Millions)    $33.00     $90.00           13.36%
   Premium Revenue ($ Millions)    $794.00  $1,964.00           11.99%

(1)Compounded Annual Growth Rate

(2)Excludes net realized capital gains (losses), after tax, in 1992 and
2000, and excludes a $32 million benefit from a favorable tax settlement
in 2000.

(3)Excludes the cumulative effect of changes in accounting principles in
1992.

Source: Hartford Life Insurance Co.

RELATED ARTICLE: Mutual Fund, 401(k) Enrollment Growing Fast

Hartford Life hasn't been in the mutual fund or 401(k) business as long as in variable annuities, but these two lines are growing very fast. The company's investment division launched its mutual fund family in 1996. Leveraging all of the company's strengths in product manufacturing, distribution and customer service, the division has grown assets faster than any other mutual fund family over a comparable period, according to Hartford Life. During the 12 months ending June 30, 2001, the division nearly doubled its mutual fund assets to $16.2 billion from $8.7 billion. The company launched its 401(k) business in 1999 and services about 2,500 plans with about 130,000 participants. In 2001, the company signed on about 1,000 new plans.

As of Nov. 30, there were 21 retail funds in the family plus a money market account. Fifteen funds are older than a year, and 14 of them have beaten their Lipper peer group averages going back to their inceptions, said David Levenson, who runs the mutual fund family and 401(k) business.

Levenson estimated that even in the bear market of 2000-2001, Hartford's mutual fund sales grew between 5% and 10%. "We've really expanded our reach to brokers, too," he said. "As their business gets stronger, we're confident we'll get a lot more business. And our micro-enterprise philosophy helps us a lot. It gives us focus, and then the chance of success increases dramatically, as opposed to having 20 people running the business part time."

For 401(k)s, Hartford operates in the smallbusiness market, with a focus on start-ups through companies with about $5 million in assets. Its main competitors are Nationwide, ING and Aetna, Levenson said.

Hartford's wholesalers help financial advisers find leads and parlay them into sales. Levenson said 40 wholesalers do solely 401(k)s "so they know the business inside out." The operation benefits from Hartford's commitment to information technology, which Levenson said is particularly important in the 401(k) world. "If you give somebody year-end statements in June, you won't be in business very long," he said. "On average, about 20% to 30% of plans switch companies every year, but at Hartford, fewer than 5% have switched."

Hartford's voice-response unit operates in 140 languages. Enrollees in about 15% of the company's plans are Spanish speaking, Levenson said.

Customer Service Buttressed With New Technology

In 1994, as the economy emerged from a tough year for both stocks and bonds, Hartford Life's sales really started to take off. It was also then that the company realized it needed to make significant investments in information technology if it wanted to keep up its customer service, said Patrice Kelly Ellis, senior vice president in the investment product division and head of the Retirement Plan Service Center.

Ellis, who came to Hartford Life in 1994 from Travelers Insurance Cos., now oversees the 1,300 people who work in customer service, plus the technology staff. They keep track of nearly 1.4 million in-force contracts and field an average of 5,500 calls a day at the retail center from brokers and policyholders.

Ellis estimated that Hartford Life had spent about $40 million over the past four years on its technology infrastructure, including its ability to transact business over the Internet. A team of 25 people trains new service representatives in a six- to eight-week course. Another team of six trainers provide support for service reps by mentoring them if they make an error during a call. Hartford provides an extra incentive for service reps to keep up their performance: They can earn bonuses each year of up to 8% of their salaries, Ellis said.

A big improvement since Ellis came to Hartford has been an imaging system. When a call comes into the service center, the service rep can bring up an imaged policy, document or form to the desktop computer screen. For legal reasons, the company still stores hard copies, Ellis said.

Hartford also has beefed up its ability to transact business electronically with brokers such as Edward Jones Investments, Morgan Stanley and Prudential Financial. Such transactions cut costs for the business, Ellis said. Policyholders can access their accounts without talking to a Hartford employee by using voice-recognition phone calls and the Internet. But despite these services, the service center has seen no decrease in phone calls. Ellis offered two theories to explain why: She suspects that without the new services, the number of phone calls would have increased, or perhaps, making information available in more ways prompts people to check it more often.

Hartford Exports Its Skills

Greg Boyko wasn't having much luck late in 2000 trying to open a distribution door with the brokerage firm Nikko Securities in Japan. Boyko, a senior vice president at Hartford Life and chairman and chief executive officer of Hartford Life International Ltd., went there well prepared and with shined shoes, but he wasn't allowed to meet with top executives. The lower-ranking people he met with showed little interest in his initial overtures.

"I was thinking that I spent a lot of money to travel over there, but I had nothing to show for it," Boyko recalled," I wasn't getting through."

But he was wrong. The experience taught Boyko that building relationships in Japan takes longer than in the United States. Upon his return, Boyko received a call from Nikko asking to send two executives to visit Boyko at his office in Simsbury, Conn., for three days. The visit went well, and Nikko called again on Oct. 1 to see if it could send more people. Boyko readily agreed, asking how many and when.

The answer startled him. Nikko wanted to send 175 branch managers and brokers on Nov. 9.

Boyko scrambled to find lodging, some as far away as 20 miles. The visitors stayed for three days that culminated in a Thanksgiving feast.

"That did it," Boyko said. "They signed with us in December." Another 350 representatives from Nikko visited later. Photos and gifts from the visits adorn Boyko's office.

Planting the Flag

Hartford launched its international business in 1994 and is currently learning to do business not only in Japan, but in Brazil, Argentina, Mexico and China. It is currently considering Germany, Korea and Taiwan. The international operation offers five basic kinds of products: pensions, asset accumulation, life insurance, variable annuities and disability insurance.

Boyko said Japan is an attractive market because it has more than one-quarter of the world's life insurance and pension businesses. Moreover, its approved products are similar to those marketed in the United States, allowing Hartford to leverage existing skills.

Hartford has been in Argentina since 1994 and in Brazil since 1996, but the efforts in the other countries are part of a new strategy to focus on selling life and asset-accumulation products in significant markets. Hartford has sold its life business in Argentina, which has big economic problems, and as written about $15 million to $20 million in immediate annuities there. Argentina started to privatize its Social Security system five years ago, Boyko said. Brazil generates about $700 million a year in premium.

Hartford now chooses countries with a big market, a demographic need for private, personal retirement savings, government policies that favor such savings and the need for people to supplement government benefits with private plans, Boyko said. Hartford also considers the amount of personal financial assets and how they are deployed. In Japan, for example, two-thirds of $13 trillion in savings are currently earning less than 1% annually.

Mexico is poor by comparison, but Boyko said Hartford doesn't want to "shut our eyes to a promising market." Hartford is starting there by offering a simple savings product with a competitive rate.

Hartford avoids countries that do not offer free access or a level playing field. It seeks stable political and legal systems and the ability to enact business in an ethical way. In Argentina, the company has argued its case for more regulatory transparency through the press, Boyko said.

In Japan, Hartford competes against ING, Skandia and American Internat on al Group. The country approved the sale of variable annuities only two years ago, but Boyko said he expects the product line to become a $30 billion to $60 billion business with-in a few years.

Boyko welcomes the competition, because the companies help to publicize the product. There is little brand recognition in the variable annuity market so far in Japan, and building a brand can be expensive and risky, he said. But Hartford has embarked on some television advertising--Boyko appears in one commercial--and is using promotional staff to work with the press The company also has its special marketing contract with Nikko Securities, one that Boyko suspects will prove to be well worth the effort Hartford Life made to obtain it.

Annuities Paved the Way for Other Investment Products

Over the past dozen years, investment products have been an easier sell to the public than life insurance. So it should not be surprising that Hartford Life's remarkable growth in that time was driven more by investment products than life insurance.

Overall, Hartford's investment products from 1992 through 2000 generated compounded annual growth rates of more than 26% in assets under management and nearly 29% in operating income. But it was individual annuities--primarily variable--that led this surge, with more than a 37% compounded annual gain in assets under management and more than in operating income.

The success in annuities led the company to expand its presence into mutual funds, 457 plans, 401(k)s, terminal funding, structured settlements and guaranteed investment contracts. These new product lines account for about 25% of the investment products division's earnings, said John waiters, executive vice president and head of the division, but he expects them to contribute 50% in five years.

Hartford Life has been the top seller of broker-sold variable annuities since 1993. In 1999, it cracked the $10 billion mark, and its market share has been close to 9% in a line with many competitors. Walters said his division is following the same formula for the other products as it did for annuities.

At the heart of Hartford's strategy for its annuities business is a focus on product innovation, asset management, independent distributors and customer service. Hartford was the first to offer the maximum-anniversary-value death benefit in its variable annuities, for example. "At the time, the industry offered a guarantee of principal or a 5% ratchet," said Walters, who came to Hartford in June 2000 after 16 years with a brokerage firm and a bank. "During the bull market of the '90s, our MAV provided 15% to 20% gains in death benefits without any extra charge."

The subsequent bear market's falling market values substantially increased the amount of death benefit at risk in Hartford's variable-annuity contracts, but Walters said the company has "no extra exposure to speak of" because the risk is reinsured. "We're an asset-accumulation and fee-generation company," he said.

In the service area, Hartford has won five consecutive Dalbar awards for service excellence and three consecutive awards from the Operation Managers Roundtable, Walters said.

Despite its successes, Hartford Life is not quite a household name in America. "We're a totally adviser-centered organization," Walters said. "We do a little advertising in trade magazines, but frankly, we're not big believers that ads make a big difference. Our best form of advertising is to have our wholesalers talk to their clients."

'M' Is for Service

A big topic in that kind of talk recently has been "M shares," a bit of jargon unlikely to find its way into dining-room conversations, but a big deal to stakeholders in the business. Hartford introduced the pricing mechanism on its variable annuities last fall, and it has been a big hit with brokers. It replaces the 3% to 5% upfront commission a broker earns with a three-year contingent deferred sales charge; beginning in the fourth year, the broker earns a 1% annual trail payment. Hartford chose the "M" because it represents a middle-ground pricing structure. "It provides the client more liquidity and the broker a fee-based service model," Waiters said, "It's appropriate, because the broker is paid for servicing his clients rather than bringing in new money or moving money around. It brings into sync the needs of the rep and the needs of the client. The rep only gets a raise if the client's assets grow."

In one year, M shares have accounted for $2 billion--or 20%--of Hartford's variable annuity sales flows. "So I would say that the brokers noticed and loved it," Walters said. "Whether the press or media did or not really doesn't matter all that much to us. I'd really rather people paid us with business than with press coverage, because that's what makes the world turn for us."

Hartford paid a price when it chose not to offer bonuses to policyholders on variable annuity sales and temporarily lost its top ranking in 1999 to American Skandia, another Connecticut-based company that did use bonuses and hot funds to boost sales. Walters said Hartford began offering bonuses in 2000, and they now account for 12% to 15% of new business, "but we think the bonus phenomenon has peaked and is receding somewhat." Through the speculative bubble of 1999, Hartford stuck with its lineup of funds designed to collectively perform in any economic climate. "When the market softened, we did relatively better," said Walters. "The hottest fund is not the game we play best. We never wanted to be the hottest fund."

Also during the market downturn, Hartford increased its sales of fixed annuities. These are different from the usual variety for which companies declare interest payments based on investment performance in their general accounts. Instead, Hartford sells a product similar to a zero-coupon bond in which the rate is guaranteed for five to eight years and the value fluctuates before maturity. "The more important business to us is the variable annuity, where pricing is more disciplined and we can sustain a competitive advantage," said Walters, adding that brokers selling fixed annuities tend to be less loyal.

Hartford has considered building an equity-indexed annuity, but decided against it because it is difficult to properly hedge the risk and it is hard to price for the customer. It also runs counter to Hartford's philosophy that active management adds value to investment products, Walters said.

The company also decided against offering an immediate--or payout--annuity, despite widespread industry expectations that it will be the next big growth product. Walters said the company is "cautiously optimistic" and has done a lot of development work, but so far a large market has not developed, and the company wants to see more interest before spending energy in the field. "We're cautious, because it depends on who your customer is," he said. "Most payout annuities are inflexible, and there is a limited market of people willing to give up their investment flexibility." Walters said Hartford is trying to develop income products that provide more flexibility than traditional annuity income streams.

Walters said he is very bullish on the whole retirement savings business in general, which is why Hartford has diversified from annuities into 401(k)s, mutual funds and other products. The number of 60-year-olds will double in 10 years, he noted. "We want to be in front of that train as it comes through with everything we can offer," he said.

But he sees some challenges facing the variable annuity industry because some of the "bells and whistles" companies have added to their products made their annuities expensive, "and the whole industry got painted with a bad brush.

"Some of the benefits being created are easy to sell but are not good values, and that creates distrust," he said.

Walters also said that although Hartford Life's expansion over the past dozen years has been mostly through internal growth, that is likely to change as smaller companies find it tougher to compete because of their lack of scale. "We always want to be delivering real organic growth, but there will be opportunities for us to acquire books of variable annuity business and life insurance business at attractive prices given our scale, and we will look for those opportunities."

Turning Down Business Was Key to Building Group Benefits

The only thing holding back faster sales growth in Hartford Life's Group Benefits division is the management.

That may sound strange, but Executive Vice President Lizabeth Zlatkus sees a big part of her job as restraining sales growth because the group market is full of risk.

"It makes it difficult to manage in terms of morale and your people, but you have to be a disciplined player in this business," said Zlatkus. "We plan to grow every year, but you'll see some quarters with negative sales growth."

The problem is what Zlatkus refers to as "outrageous" pricing by competitors. "You can't make money at these levels," she said. Turning down business is particularly tough on the division's sales group, which is compensated by what it sells. Often, salespeople will work hard on a case, only to see the sale fall to a competitor that quotes a lower price. "They tell us we're killing them," Zlatkus said. "They say they were banking on that sale for a vacation at the beach or an addition to the house."

The result of this discipline, though, is an excellent earnings record. Group Benefits contributed about $100 million in earnings in the 12 months ending Sept. 30,2001, about one-sixth of Hartford life's earnings and one-tenth of the parent corporation's. In last year's third quarter, the division reported a 13% increase in operating income. Excluding losses from the World Trade Center disaster, it increased 21%, or $28 million, Zlatkus said. The division employs about 1,900 people, including 800 in claims, 250 in sales and 100 in a reinsurance operation that writes for other organizations.

Most of the group business Hartford declines is in life insurance. "life is more of a commodity product," she said. "It's not that hard to be in. It's basically an annual renewable term business, and the lowest price wins. That's not a game Hartford Life plays."

Disability, a much more difficult business, is Hartford's group "flagship line," Zlatkus said. According to Limra International, Hartford was the No. 2 seller of group disability in 2000. The company also writes multinational benefits and stop-loss insurance for self-funded medical plans.

Zlatkus said group disability is much more difficult to run than group life and accident, and many of Hartford's competitors struggle with charges and earnings hits. "We sometimes have choppy sales, but we've had steady earnings growth,' she said. With 80 cents to 85 cents of every premium dollar paid out in disability claims, Zlatkus said claims management is the most important component in that line. Like other disability writers, Hartford stresses a quick return to work and believes in managing each disability case separately "It's a matter of using some tough love," she said. "We'll help them find another job if they can't do their previous job. We've learned that people are happier and more productive when they're working, and we're happier when we're not paying claims." Hartford's Break Away program, which features world-class athletes with disabilities, supports the return-to-work philosophy and helps with sales.

Management of expenses, investments, premium and the rate of plan participation are other components of running the disability business.

Zlatkus said she likes the disability line because it has so much room to grow Employees are much more likely to be enrolled in life insurance programs than in disability, though the chances of becoming disabled before retirement age are much greater than dying. Furthermore, group disability is much less expensive than individual disability; coverage for most employees is available at $150 to $180 a year, she said.

Hartford sells group benefits to employers of any size in three segments: priority (for small employers), regional (500 to 10,000 employees) and national (10,000 employees and up). When it launched its group benefits business in the early 1990s, it concentrated on national accounts, but Zlatkus diversified its markets when she joined Hartford in 1996. Diversification protects against economic downturns in regions of the country, industries or business sizes, and it has led to the division's steady earnings growth. "The chairman only sees the steady growth, and it's almost boring," she said. "But we're sweating the details."

In all, Hartford has plans with about 12,000 employers, not counting what she calls "statutory customers," or those required to provide coverage by state law. Hartford also has an exclusive-rights contract with AARP to offer products to its millions of members.

The division's annual persistency rate is between 85% and 89%. "We believe keeping customers is more important than getting new ones," Zlatkus said. Loss of business is many times due to pricing, but employers are also reluctant to change carriers because of all the problems changes make for them and their employees, she added.

Reaching the Right People in Life

Hartford Life made the decision almost 20 years ago that when it comes to selling life insurance, you have to know the right people.

In hindsight, that decision has to be one of the most astute in the life insurance industry over the past two decades as evidenced by Hartford's growth in the 1990s, and the number of companies that have since adopted it. The right people, as it turned out, are stock brokers, independent broker-dealers, banks and financial planners.

"Our core belief is in the advise model, that intermediaries are going to continue to be a major part of the financial-services business," said Bob Kerzner, executive vice president, individual life. "And the part that they need from us is to give them some assistance?"

Hartford's strategy has been to cultivate relationships with stock brokers and other independent intermediaries who know about investment products but who aren't well versed in insurance and estate-planning solutions. Hartford reaches these professionals through wholesalers--the company's sales force--and then provides products and service. Rather than go through the painstaking process of building a network of career agents, the company taps into the clients of the independent producers. One intermediary provides access to between 200 and 2,000 clients, Kerzner said.

Moreover, the clients of these intermediaries tend to be among the wealthiest 5% of Americans.

Role of Wholesalers

Hartford Life has about 190 wholesalers. Often they go on appointments with a broker or planner. "Many others have tried to build a force like this, but the complexity, expense and knowledge needed to build a sales force of that size--not just to be able to sell, but to work with another professional's client--is another discipline' Kerzner said. "These are people trained to help the top 5% of Americans [in terms of wealth], to work with their attorneys and accountants. It's easier said than done. Many have tried without success?"

The wholesaler's role is often to perform an estate analysis and offer alternative courses of action or to engage in advanced wealth-preservation planning. Wholesalers can identify the best ways to own assets, pass assets to the next generation or design complex family partnerships. "Financial intermediaries are expert in some things, but our model is built around being expert in advice intermediaries can't give," said Kerzner. "Statistics indicate that only 5% of stockbrokers today actually offer life products to their clients, so very little of this space is penetrated today."

From 1996 through 2000, Hartford's compounded annual growth rate in life sales was 11%, growing to $200 million in 2000 from $130 million in 1996. Variable life sales have grown fast, to $178 million from $75 million, while universal life sales dropped to $22 million from $55 million. That trend reversed in the first three quarters last year, however, with universal life sales rebounding to $33 million and variable life increasing slightly during the first three quarters in 2000, to $119 million from $115 million.

Those results look especially good against those of the individual life industry as a whole, which have been flat over the past decade. But over the past 20 months, Kerzner and his staff have expanded the wholesaling model to bring in what he calls the "emerging affluent." Hartford now supplements its high-end wholesaling force with 22 regional marketing specialists and 32 independent broker-dealer wholesalers. The regional marketing specialists are charged with reaching a new set of stockbrokers that need to learn the basics of life insurance.

Similarly, the new wholesalers in the independent broker-dealer channel, where Hartford is the third-largest insurance writer, are charged with developing new relationships. "We concluded we couldn't get at the middle-income market with our existing wholesalers, and that means we're not penetrating 95% of the market," Kerzner said.

Fortis Acquisition

Hartford added to its sales and distribution network in April with its $1.2 billion acquisition of Fortis Financial Group, which sells life insurance, annuities and mutual funds. According to a report by Credit Suisse First Boston, the acquisition provided scale and the ability to lower costs for new business. Hartford Life reported that individual life earnings jumped by 51% during the first three quarters of last year, to $86 million, from $57 million in the same period in 2000, due largely to the acquisition. Growth still would have been in double digits without Fortis, Kerzner said.

The Fortis deal brought to Hartford 2,300 financial representatives that made up Fortis Investors, a broker-dealer firm. Hartford gave Fortis Investors a new name, Woodbury Financial Services, and in June named Kerzner its president. He said Woodbury offers another way to broaden distribution, in that its business is outside the affluent, top-5% market.

While Hartford's distribution system has differentiated the company from its competitors, Kerzner also pointed to the company's fund lineup in its variable life products a contributor. Hartford has had long-term arrangements with investment firms Wellington Management, Putnam Investments and the American funds, initially for its variable annuities, and more recently the Franklin/Templeton Group and MFS Investment Management.

Simplify the Process

The company also has sought to make selling life simple for its distribution partners. Kerzner said Hartford was early in telephone underwriting and was the first to offer online application filing. Through the online process, the broker can enter data to generate a quick quote. Then, if the prospect is interested, the broker can transmit the data electronically to Hartford and set up a telephone interview with an underwriter. The process eliminates the need for a broker to ask a client personal medical questions, Kerzner said.

Another simplification process is a program call Stag Foundation Life, in which specially designed booklets for brokers help to streamline the application process. Those applications can be mailed or faxed.

"What we hope these things do for us is get more people into the game," Kerzner said. "Our objective is to make it easy enough for brokers to want to do our type of business. We're never going to make it a raw commodity, because underwriting is crucial to your ability to make earnings. But we want to make it easier for producers to talk to their clients about our products."

Hartford's Total Individual Life Sales And Earnings

From 1996 through 2000, the compounded annual growth rate in individual
life sales was 11%. Sales through the third quarter of 2001 increased by
17% over sales through the third quarter of 2000.

($ Millions)

          Variable Life Sales  Nonvariable Sales

1996              $75                 $55         $130
1997              $98                 $42         $140
1998             $127                 $36         $163
1999             $139                 $27         $166
2000             $178                 $22         $200
2001 (*)         $119                 $33         $152

Note: Table made from bar graph
Individual life earnings jumped by 51% during the first three quarters
of 2001 compared with the same period in 2000, due largely to the
acquisition of Fortis Financial Group. The compounded annual growth rate
in earnings from 1996 to 2000 was 16%.

          $ Millions

1996      $44
1997      $56
1998      $65
1999      $71
2000      $79
2001 (*)  $86

(*)Through the third quarter and including Fortis

Source: Hartford Life Insurance Co.

Note: Table made from bar graph