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Derivatives

Hartford Life Steps Into Equity-Linked Business

Hartford Life Insurance is selling equity index-linked notes and planning to offer a variety of other structured investments.

Hartford Life Insurance is selling equity index-linked notes and planning to offer a variety of other structured investments. The insurer is working with brokers to distribute the notes and invests the proceeds in higher-yielding securities.

David Bottomly, director, told DW the notes are an extension of a funding program it has run over the last two years selling fixed- and floating-rate notes. Last year, for example, that program raised on average between USD15 million and USD20 million per week through selling these fixed-income notes.

"Our primary focus is principal protection," said Bottomly, noting it is aiming always to have an issue of its Standard & Poor's 500-linked note available to investors. The S&P note was first issued in December. "We would like to be able to offer a product that will stay in the market long enough that people who do not have access or understand it initially can get comfortable with it," explained Bottomly. Hartford is also looking at notes linked to other equity indices or even commodity-linked notes. "It's on the drawing board," said Bottomly, of a commodity-linked note, but declined to give further details.

The insurer has been distributing the notes through Bear Stearns' broker network as well as other brokers off the back of reverse enquiries. "The hope is that we will get more and more dealers participating and increase the breadth of distribution," said Bottomly. It is in the market now with a four-and-a-half-year note issued from a reverse enquiry, linked to both the Dow Jones Industrial Average and the MSCI Europe, Australasia and Far East index. The note returns a minimum of the investor's capital plus 20%. The insurance company hedges each note it issues, but Bottomly declined to give details of its hedging strategy.

Other U.S. insurance companies have started offering some structured notes in the form of equity-indexed annuities (DW, 11/22). Hartford is not active in this business, but it is has not been ruled out for the future. If Hartford were to launch structured annuities, it could be complementary with its structured note issuance.

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