Transactions with Affiliates

Parent Company Transactions

Transactions of the Company with Hartford Fire Insurance Company, Hartford Holdings and its affiliates relate principally to tax settlements, reinsurance, insurance coverage, rental and service fees, payment of dividends and capital contributions. In addition, an affiliated entity purchased group annuity contracts from the Company to fund structured settlement periodic payment obligations assumed by the affiliated entity as part of claims settlements with property casualty insurance companies and self-insured entities. As of September 30, 2013 and December 31, 2012, the Company had $54 and $53, respectively of reserves for claim annuities purchased by affiliated entities. For the nine months ended September 30, 2013 and 2012 the Company recorded earned premiums of $8 and $26, respectively, for these intercompany claim annuities. In 2008, the Company issued a payout annuity to an affiliate for $2.2 billion of consideration. The Company will pay the benefits associated with this payout annuity over 12 years.

Substantially all general insurance expenses related to the Company, including rent and employee benefit plan expenses are initially paid by The Hartford. Direct expenses are allocated to the Company using specific identification, and indirect expenses are allocated using other applicable methods. Indirect expenses include those for corporate areas which, depending on type, are allocated based on either a percentage of direct expenses or on utilization.

Investment advisory agreements between the Company's Mutual Funds subsidiaries and HL Investment Advisors, LLC, an indirect subsidiary of the Company, were terminated effective December 31, 2012 in connection with HLA's reorganization of its Mutual Funds business. The Company no longer has any significant continuing involvement in HLI's Mutual Funds business.

The Company has issued a guarantee to retirees and vested terminated employees (“Retirees”) of The Hartford Retirement Plan for U.S. Employees (“the Plan”) who retired or terminated prior to January 1, 2004. The Plan is sponsored by The Hartford. The guarantee is an irrevocable commitment to pay all accrued benefits which the Retiree or the Retiree’s designated beneficiary is entitled to receive under the Plan in the event the Plan assets are insufficient to fund those benefits and The Hartford is unable to provide sufficient assets to fund those benefits. The Company believes that the likelihood that payments will be required under this guarantee is remote.

In 1990, Hartford Fire guaranteed the obligations of the Company with respect to life, accident and health insurance and annuity contracts issued after January 1, 1990. The guarantee was issued to provide an increased level of security to potential purchasers of the Company’s products. Although the guarantee was terminated in 1997, it still covers policies that were issued from 1990 to 1997. As of September 30, 2013 and September 30, 2012, no recoverables have been recorded for this guarantee, as the Company was able to meet these policyholder obligations.

Reinsurance Assumed from Affiliates

Prior to June 1, 2009, yen and U.S. dollar based fixed market value adjusted (“MVA”) annuity products, written by HLIKK, were sold to customers in Japan. HLIKK subsequently reinsured in-force and prospective MVA annuities to the Company effective September 1, 2004. As of September 30, 2013 and December 31, 2012, $1.7 billion and $2.1 billion, respectively, of the account value had been assumed by the Company.

HLAI assumed GMDB on covered contracts that have an associated GMIB rider in force on or after July 31, 2006 and GMIB riders issued on or after April 1, 2005. HLAI assumed certain in-force and prospective GMAB, GMIB and GMDB riders issued on or after February 5, 2007 by HLIKK. HLAI assumed certain in-force and prospective GMIB and GMDB riders issued on or after February 1, 2008 by HLIKK. HLAI assumed certain in-force and prospective GMDB riders issued on or after April 1, 2005 by HLIKK.

The GMDB reinsurance is accounted for as a Death Benefit and Other Insurance Benefit Reserve which is not reported at fair value. The liability for the assumed GMDB reinsurance was $0 and $22 and the net amount at risk for the assumed GMDB reinsurance was $0.6 billion and $2.7 billion at September 30, 2013 and December 31, 2012, respectively.

11. Transactions with Affiliates (continued)

While the form of the agreement between HLAI and HLIKK for the GMIB business is reinsurance, in substance and for accounting purposes the agreement is a free standing derivative. As such, the reinsurance agreement for the GMIB business is recorded at fair value on the Company’s balance sheet, with prospective changes in fair value recorded in net realized capital gains (losses) in net income (loss). The fair value of the GMIB liability was $0.8 billion and $1.8 billion at September 30, 2013 and December 31, 2012, respectively.

HLAI has a reinsurance agreement with Hartford Life Limited, (“HLL”), a wholly owned UK subsidiary of HLAI. HLAI assumes 100% of the risks associated with GMDB and GMWB written by and in-force with HLL as of November 1, 2010. The GMDB reinsurance is accounted for as a Death Benefit and Other Insurance Benefit Reserves which is not reported at fair value. The liability for the assumed GMDB reinsurance was $5 and $4 September 30, 2013 and December 31, 2012, respectively and the net amount at risk for the assumed GMDB reinsurance was $26 and $42 at September 30, 2013 and December 31, 2012, respectively. On June 27, 2013, the Company announced the signing of a definitive agreement to sell Hartford Life International Limited, HLL's parent. For further discussion of this transaction, see Note 2 - Business Dispositions of Notes to Condensed Consolidated Financial Statements.

While the form of the agreements between HLAI and HLIKK and HLAI and HLL for the GMAB/GMWB business is reinsurance, in substance and for accounting purposes these agreements are free standing derivatives. As such, the reinsurance agreements for the GMAB/GMWB business are recorded at fair value on the Company’s Consolidated Balance Sheets, with prospective changes in fair value recorded in net realized capital gains (losses) in net income (loss). The fair value of the GMAB/GMWB liability/(asset) was $(1) and $0 at September 30, 2013 and December 31, 2012, respectively.

Reinsurance Ceded to Affiliates

HLAI has a modified coinsurance (“modco”) and coinsurance with funds withheld reinsurance agreement with WRR. HLAI cedes to WRR variable annuity contracts, associated riders, and payout annuities written by HLAI; annuity contracts and associated riders assumed by HLAI under unaffiliated reinsurance agreements; GMAB, GMIB riders and GMDB risks assumed by HLAI from HLIKK; and, as of November 1, 2010, GMDB and GMWB riders assumed by HLAI from HLL.

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

The impact of this transaction on the Company’s Condensed Consolidated Statements of Operations is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Earned premiums	$	(7	)	$	(15	)	$	(25	)	$	(45	)
Net realized gains (losses) [1]	(323		)	(666		)	(1,250		)	(1,198		)
Total revenues	(330		)	(681		)	(1,275		)	(1,243		)
Benefits, losses and loss adjustment expenses	(2		)	(14		)	(7		)	(42		)
Insurance operating costs and other expenses	(194		)	(317		)	(1,016		)	(821		)
Total expenses	(196		)	(331		)	(1,023		)	(863		)
Income (loss) before income taxes	(134		)	(350		)	(252		)	(380		)
Income tax expense (benefit)	(47		)	(122		)	(88		)	(133		)
Income from continuing operations, net of tax	$	(87	)	$	(228	)	$	(164	)	$	(247	)
Income from discontinued operations, net of tax	3			1			1			1
Net income (loss)	$	(84	)	$	(227	)	$	(163	)	$	(246	)

[1] Amounts represent the change in valuation of the derivative associated with this transaction.

The Company's Condensed Consolidated Balance Sheets include a modco reinsurance (payable)/recoverable and a deposit liability, as well as a net reinsurance recoverable that is comprised of an embedded derivative. The balance of the modco reinsurance (payable)/recoverable, deposit liability and net reinsurance payable were $249, $655, $148, respectively at September 30, 2013 and $1.3 billion, $527, $900, respectively at December 31, 2012.

Champlain Life Reinsurance Company

Effective November 1, 2007, HLAI entered into a modco and coinsurance with funds withheld agreement with Champlain Life Reinsurance Company ("Champlain Life"), an affiliate captive insurance company, to provide statutory surplus relief for certain life insurance policies. The agreement was accounted for as a financing transaction in accordance with U.S. GAAP. Simultaneous with the sale of the Individual Life business to Prudential, HLAI recaptured the business assumed by Champlain Life. As a result, on January 2, 2013, HLAI was relieved of its funds withheld obligation to Champlain Life of $691; HLAI paid a recapture fee of $347 to Champlain Life; and, HLAI recognized a pre-tax gain of $344 ($224 after-tax). HLAI simultaneously ceded the recaptured reserves to Prudential and recognized the gain on recapture as part of the reinsurance loss on disposition.