Total assets under management rose 5% to $92.4 billion at Sept. 30, 2013 from $88.1 billion at Sept. 30, 2012 due to 9% growth in Mutual Funds assets during that time period, partially offset by a 4% decline in Annuity assets, reflecting surrender activity on the company's U.S. VA block. Mutual Funds assets under management increased due to strong sales and market appreciation, partially offset by redemptions. During third quarter 2013, Mutual Funds sales rose 35% to $3.8 billion from $2.8 billion in the third quarter 2012 while net outflows declined to $0.6 billion, compared with $0.8 billion in third quarter 2012.

TALCOTT RESOLUTIONThird Quarter 2013 Highlights:
  • Japan VA annualized full surrender rate of 31% and U.S. VA of 20% in the quarter
  • Core earnings of $204 million, after-tax, included Enhanced Surrender Value (ESV) program cost of $11 million, after-tax and deferred acquisition costs (DAC)
  • Net charge for annual assumptions study of $59 million, after-tax
TALCOTT RESOLUTION
($ in millions)         Three Months Ended
          Sept. 30 2013   Sept. 30 2012   Change
Core earnings         $204   $192   6%
Net income (loss)         $7   $(121)   NM
U.S. VA annualized full surrender rate 1         20.3%   10.4%   9.9
Japan VA annualized full surrender rate 1         30.8%   3.0%   27.8
U.S. VA account value         $61,512   $66,707   (8%)
Japan VA account value         $22,846   $28,725   (20%)

[1] Full surrender rate represents full contract liquidation; excludes partial withdrawals

Talcott Resolution third quarter 2013 net income was $7 million compared with net loss of $121 million in third quarter 2012. The third quarter 2013 net income included the following significant items, which are not included in core earnings:
  • Net realized capital losses of $123 million, after-tax and DAC, principally from International VA hedging programs but also including a $49 million, after-tax, benefit on the fair value liability for U.S. VA living benefits;
  • Total unlock charge of $67 million, after-tax, including a $108 million charge from the company's annual assumptions study; and
  • Loss from discontinued operations of $6 million, after-tax, from the sale of the company's U.K. VA business, which is expected to close by year-end 2013;

The annual assumptions update study in third quarter 2013 resulted in a charge to net income of $59 million, after-tax, compared with a benefit of $93 million, after-tax, in third quarter 2012. The third quarter 2013 charge included an unlock of $108 million, after-tax, resulting from faster runoff of U.S. VA account values due to elevated surrender rates, and the impact of persistently low interest rates on U.S. fixed annuities. The third quarter 2013 assumptions update study also resulted in a realized capital gain of $49 million, after-tax, driven by the decline in the value of future benefit guarantees on U.S. variable annuities due to elevated surrender rates.

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