HARTFORD FINANCIAL SERVICES GROUP, INC. - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-Q

____________________________________

(Mark One)



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

For the quarterly period ended March 31, 2017



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

For the transition period from ____________ to ______________

Commission file number 001-13958

____________________________________

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)



Delaware		13-3317783
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Hartford Plaza, Hartford, Connecticut 06155

(Address of principal executive offices) (Zip Code)

(860) 547-5000

(Registrant’s telephone number, including area code)



Indicate by check mark:	Yes	No

• 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.	ý	¨

• 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).	ý	¨

• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨



• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)	¨	ý

As of April 25, 2017, there were outstanding 367,360,904 shares of Common Stock, $0.01 par value per share, of the registrant.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

TABLE OF CONTENTS



Item	Description	Page
	Part I
1.	FINANCIAL STATEMENTS
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	5
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	6
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	7
	CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF MARCH 31, 2017 AND DECEMBER 31, 2016	8
	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	9
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	10
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	11
2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	58
3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	112
4.	CONTROLS AND PROCEDURES	113
	PART II. OTHER INFORMATION
1.	LEGAL PROCEEDINGS	114
1A.	RISK FACTORS	115
2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	116
6.	EXHIBITS	117

	SIGNATURE	118
	EXHIBITS INDEX	119

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 management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company" or "The Hartford"). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statements or in Part I, Item 1A, Risk Factors in The Hartford’s 2016 Form 10-K Annual Report, and those identified from time to time in our other filings with the Securities and Exchange Commission ("SEC").


•	Risks Related to Economic, Political and Global Market Conditions:


◦	challenges related to the Company’s current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns or other potentially adverse macroeconomic developments on the demand for our products, returns in our investment portfolios and the hedging costs associated with our run-off annuity block;


◦	financial risk related to the continued reinvestment of our investment portfolios and performance of our hedge program for our run-off annuity block;


◦	market risks associated with our business, including changes in credit spreads, equity prices, interest rates, inflation rate, market volatility and foreign exchange rates;


◦	the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;


•	Insurance Industry and Product-Related Risks:


◦	the possibility of unfavorable loss development, including with respect to long-tailed exposures;


◦	the possibility of a pandemic, earthquake, or other natural or man-made disaster that may adversely affect our businesses;


◦	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 possible occurrence of terrorist attacks and the Company’s inability to contain its exposure as a result of, among other factors, the inability to exclude coverage for terrorist attacks from workers' compensation policies and limitations on reinsurance coverage from the federal government under applicable laws;


◦	the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;


◦	actions by competitors that may be larger or have greater financial resources than we do;


◦	technology changes, such as usage-based methods of determining premiums, advancement in automotive safety features, the development of autonomous vehicles, and platforms that facilitate ride sharing, which may alter demand for the Company's products, impact the frequency or severity of losses, and/or impact the way the Company markets, distributes and underwrites its products;


◦	the Company’s ability to market, distribute and provide insurance products and investment advisory services through current and future distribution channels and advisory firms;


◦	the uncertain effects of emerging claim and coverage issues;


◦	volatility in our statutory and United States ("U.S.") Generally Accepted Accounting Principles ("GAAP") earnings and potential material changes to our results resulting from our risk management program to emphasize protection of economic value;


•	Financial Strength, Credit and Counterparty Risks:


◦	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 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;


◦	losses due to nonperformance or defaults by others, including sourcing partners, derivative counterparties and other third parties;


◦	the potential for losses due to our reinsurers’ unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;


•	Risks Relating to Estimates, Assumptions and Valuations;


◦	risk associated with the use of analytical models in making decisions in key areas such as underwriting, capital management, hedging, reserving, and catastrophe risk management;


◦	the potential for differing interpretations of the methodologies, estimations and assumptions that underlie Company’s fair value estimates for its investments and the evaluation of other-than-temporary impairments on available-for-sale securities;


◦	the potential for further acceleration of deferred policy acquisition cost amortization and an increase in reserve for certain guaranteed benefits in our variable annuities;


◦	the potential for further impairments of our goodwill or the potential for changes in valuation allowances against deferred tax assets;


◦	the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims;


•	Strategic and Operational Risks:


◦	risks associated with the run off of our Talcott Resolution business;


◦	the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;


◦	the risks, challenges and uncertainties associated with our capital management plan, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;


◦	the potential for difficulties arising from outsourcing and similar third-party relationships;


◦	the Company’s ability to protect its intellectual property and defend against claims of infringement.


•	Regulatory and Legal Risks:


◦	the cost and other potential effects of increased regulatory and legislative developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels;


◦	unfavorable judicial or legislative developments;


◦	the impact of changes in federal or state tax laws;


◦	regulatory requirements that could delay, deter or prevent a takeover attempt that shareholders might consider in their best interests; and


◦	the impact of potential changes in accounting principles and related financial reporting requirements.

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 - Item 1. Financial Statements

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

The Hartford Financial Services Group, Inc.

Hartford, Connecticut

We have reviewed the accompanying condensed consolidated balance sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the "Company") as of March 31, 2017, and the related condensed consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the three-month periods ended March 31, 2017 and 2016. 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, 2016, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2017, 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, 2016 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

April 27, 2017

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Operations



	Three Months Ended March 31,
(In millions, except for per share data)	2017			2016
	(Unaudited)
Revenues
Earned premiums	$	3,473		$	3,404
Fee income	455			445
Net investment income	728			696
Net realized capital gains (losses):
Total other-than-temporary impairment ("OTTI") losses	(3		)	(27		)
OTTI losses recognized in other comprehensive income (“OCI”)	2			4
Net OTTI losses recognized in earnings	(1		)	(23		)
Other net realized capital losses	(19		)	(132		)
Total net realized capital losses	(20		)	(155		)
Other revenues	19			20
Total revenues	4,655			4,410
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	2,757			2,641
Amortization of deferred policy acquisition costs ("DAC")	363			374
Insurance operating costs and other expenses	965			928
Interest expense	83			86
Total benefits, losses and expenses	4,168			4,029
Income before income taxes	487			381
Income tax expense	109			58
Net income	$	378		$	323
Net income per common share
Basic	$	1.02		$	0.81
Diluted	$	1.00		$	0.79
Cash dividends declared per common share	$	0.23		$	0.21

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended March 31,
(In millions)	2017			2016
	(Unaudited)
Net income	$	378		$	323
Other comprehensive income (loss):
Changes in net unrealized gain on securities	137			522
Changes in OTTI losses recognized in other comprehensive income	(1		)	(8		)
Changes in net gain on cash flow hedging instruments	(18		)	54
Changes in foreign currency translation adjustments	2			6
Changes in pension and other postretirement plan adjustments	10			9
OCI, net of tax	130			583
Comprehensive income	$	508		$	906

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Balance Sheets



(In millions, except for share and per share data)	March 31, 2017			December 31, 2016
	(Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $53,908 and $53,805)	$	56,326		$	56,003
Fixed maturities, at fair value using the fair value option	160			293
Equity securities, available-for-sale, at fair value (cost of $1,135 and $1,020) (includes equity securities, at fair value using the fair value option, of $123 and $0)	1,223			1,097
Mortgage loans (net of allowances for loan losses of $19 and $19)	5,685			5,697
Policy loans, at outstanding balance	1,442			1,444
Limited partnerships and other alternative investments	2,418			2,456
Other investments	340			403
Short-term investments	4,595			3,244
Total investments	72,189			70,637
Cash (includes variable interest entity assets, at fair value, of $5 and $5)	337			882
Premiums receivable and agents’ balances, net	3,764			3,731
Reinsurance recoverables, net	23,405			23,311
Deferred policy acquisition costs	1,693			1,711
Deferred income taxes, net	3,105			3,281
Goodwill	567			567
Property and equipment, net	984			991
Other assets	1,839			1,786
Assets held for sale	923			870
Separate account assets	116,582			115,665
Total assets	$	225,388		$	223,432
Liabilities
Unpaid losses and loss adjustment expenses	$	27,687		$	27,605
Reserve for future policy benefits	14,051			13,929
Other policyholder funds and benefits payable	30,863			31,176
Unearned premiums	5,609			5,499
Short-term debt	320			416
Long-term debt	4,817			4,636
Other liabilities (includes variable interest entity liabilities of $5 and $5)	7,789			6,992
Liabilities held for sale	661			611
Separate account liabilities	116,582			115,665
Total liabilities	$	208,379		$	206,529
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 402,923,222 and 402,923,222 shares issued	4			4
Additional paid-in capital	5,177			5,247
Retained earnings	13,406			13,114
Treasury stock, at cost — 33,726,771 and 28,974,069 shares	(1,371		)	(1,125		)
Accumulated other comprehensive income ("AOCI"), net of tax	(207		)	(337		)
Total stockholders’ equity	$	17,009		$	16,903
Total liabilities and stockholders’ equity	$	225,388		$	223,432

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity



	Three Months Ended March 31,
(In millions, except for share data)	2017			2016
	(Unaudited)
Common Stock	$	4		$	5
Additional Paid-in Capital, beginning of period	5,247			8,973
Issuance of shares under incentive and stock compensation plans	(66		)	(124		)
Stock-based compensation plans expense	36			19
Tax benefit on employee stock options and share-based awards	—			24
Issuance of shares for warrant exercise	(40		)	(7		)
Additional Paid-in Capital, end of period	5,177			8,885
Retained Earnings, beginning of period	13,114			12,550
Net income	378			323
Dividends declared on common stock	(86		)	(84		)
Retained Earnings, end of period	13,406			12,789
Treasury Stock, at cost, beginning of period	(1,125		)	(3,557		)
Treasury stock acquired	(325		)	(350		)
Issuance of shares under incentive and stock compensation plans	72			125
Net shares acquired related to employee incentive and stock compensation plans	(33		)	(46		)
Issuance of shares for warrant exercise	40			7
Treasury Stock, at cost, end of period	(1,371		)	(3,821		)
Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period	(337		)	(329		)
Total other comprehensive income (loss)	130			583
Accumulated Other Comprehensive Income (Loss), net of tax, end of period	(207		)	254
Total Stockholders’ Equity	$	17,009		$	18,112
Common Shares Outstanding, beginning of period (in thousands)	373,949			401,821
Treasury stock acquired	(6,709		)	(8,394		)
Issuance of shares under incentive and stock compensation plans	1,690			3,069
Return of shares under incentive and stock compensation plans to treasury stock	(674		)	(1,066		)
Issuance of shares for warrant exercise	940			173
Common Shares Outstanding, at end of period	369,196			395,603

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows



	Three Months Ended March 31,
(In millions)	2017			2016
Operating Activities	(Unaudited)
Net income	$	378		$	323
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital losses	20			155
Amortization of deferred policy acquisition costs	363			374
Additions to deferred policy acquisition costs	(352		)	(354		)
Depreciation and amortization	96			95
Other operating activities, net	111			81
Change in assets and liabilities:
(Increase) decrease in reinsurance recoverables	(7		)	53
Increase (decrease) in deferred and accrued income taxes	256			(14		)
Increase in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums	293			158
Net change in other assets and other liabilities	(933		)	(473		)
Net cash provided by operating activities	225			398
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	8,020			5,460
Fixed maturities, fair value option	62			19
Equity securities, available-for-sale	216			414
Mortgage loans	213			114
Partnerships	83			235
Payments for the purchase of:
Fixed maturities, available-for-sale	(7,809		)	(5,752		)
Fixed maturities, fair value option	—			(38		)
Equity securities, available-for-sale	(278		)	(130		)
Mortgage loans	(199		)	(128		)
Partnerships	(86		)	(88		)
Net (payments for) proceeds from derivatives	(56		)	189
Net increase in policy loans	2			2
Net additions to property and equipment	(41		)	(84		)
Net payments for short-term investments	(1,317		)	(29		)
Other investing activities, net	(18		)	10
Net cash provided (used) by investing activities	(1,208		)	194
Financing Activities
Deposits and other additions to investment and universal life-type contracts	1,398			1,165
Withdrawals and other deductions from investment and universal life-type contracts	(3,773		)	(4,174		)
Net transfers from separate accounts related to investment and universal life-type contracts	2,057			2,810
Repayments at maturity or settlement of consumer notes	(7		)	(5		)
Net increase in securities loaned or sold under agreements to repurchase	1,115			64
Repayment of debt	(416		)	—
Proceeds from the issuance of debt	500			—
Net (return) issuance of shares under incentive and stock compensation plans	(26		)	10
Treasury stock acquired	(325		)	(350		)
Dividends paid on common stock	(87		)	(85		)
Net cash provided (used) for financing activities	436			(565		)
Foreign exchange rate effect on cash	2			4
Net (decrease) increase in cash	(545		)	31
Cash – beginning of period	882			448
Cash – end of period	$	337		$	479
Supplemental Disclosure of Cash Flow Information
Income tax refunds received	$	132		$	—
Interest paid	$	71		$	71

See Notes to Condensed Consolidated Financial Statements

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in millions, except for per share data, unless otherwise stated)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The Hartford Financial Services Group, Inc. is a holding company for insurance and financial services subsidiaries that provide property and casualty insurance, group life and disability products and mutual funds and exchange-traded products to individual and business customers in the United States (collectively, “The Hartford”, the “Company”, “we” or “our”). Also, the Company continues to run off life and annuity products previously sold.

On July 26, 2016, the Company announced the signing of a definitive agreement to sell its United Kingdom ("U.K.") property and casualty run-off subsidiaries. For discussion of this transaction, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. 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 2016 Form 10-K Annual Report. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year.

The accompanying Condensed Consolidated Financial Statements and Notes are unaudited. These financial statements reflect all adjustments (generally 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. The Company's significant accounting policies are summarized in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2016 Form 10-K Annual Report.

Consolidation

The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., and entities in which the Company directly or indirectly has a controlling financial interest. Entities in which the Company has significant influence over the operating and financing decisions but does not control are reported using the equity method. All intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated.

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 property and casualty and group long-term disability (LTD) insurance product reserves, net of reinsurance; estimated gross

profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; living benefits required to be fair valued; evaluation of goodwill for impairment; valuation of investments and derivative instruments, including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans; 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.

Reclassifications

Certain reclassifications have been made to prior year financial information to conform to the current year presentation. In particular, billing installment fees that were previously reflected as an offset to insurance operating costs and other expenses are now classified as revenues.

Adoption of New Accounting Standards

Stock Compensation

On January 1, 2017 the Company adopted new stock compensation guidance issued by the Financial Accounting Standards Board ("FASB") on a prospective basis. The updated guidance requires the excess tax benefit or tax deficiency on vesting or settlement of stock-based awards to be recognized in earnings as an income tax benefit or expense, respectively, instead of as an adjustment to additional paid-in capital. The new guidance also requires the related cash flows to be presented in operating activities instead of in financing activities. The amount of excess tax benefit or tax deficiency realized on vesting or settlement of awards depends upon the difference between the market value of awards at vesting or settlement and the grant date fair value recognized through compensation expense. The excess tax benefit or tax deficiency is a discrete item in the reporting period in which it occurs and is not considered in determining the annual estimated effective tax rate for interim reporting. The excess tax benefit recognized in earnings for the three months ended March 31, 2017 was $7 and the excess tax benefit recognized in additional paid in capital for the three months ended March 31, 2016 was $24.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Business Disposition

Sale of U.K. business

On July 26, 2016, the Company announced it had entered into an agreement to sell its U.K. property and casualty run-off subsidiaries, Hartford Financial Products International Limited and Downlands Liability Management Limited, in a cash transaction to Catalina Holdings U.K. Limited ("buyer"), for approximately $262, net of transaction costs. The Company's U.K. property and casualty run-off subsidiaries are included in the P&C Other Operations reporting segment. Revenues and earnings are not material to the Company's consolidated results of operations for the three months ended March 31, 2017 and 2016.

The pending sale resulted in a total estimated after-tax capital loss from the transaction of $5 in the year ended December 31, 2016. The accrual for the estimated before tax loss is included as a reduction of the carrying value of assets held for sale in the Company's Condensed Consolidated Balance Sheets as of March 31, 2017. The transaction is expected to close in the second quarter of 2017, subject to customary closing conditions.

Carrying Values of the Assets and Liabilities to be Transferred by the Company to the Buyer in Connection with the Sale



	Carrying Value as of
	March 31, 2017	December 31, 2016
Assets
Cash and investments	$657	$657
Reinsurance recoverables and other [1]	266	213
Total assets held for sale	$923	$870
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses	$646	$600
Other liabilities	15	11
Total liabilities held for sale	$661	$611


[1]	Includes intercompany reinsurance recoverables of $69 and $71 to be settled in cash or securities prior to closing as of March 31, 2017 and December 31, 2016, respectively.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Earnings Per Common Share



Computation of Basic and Diluted Earnings per Common Share
	Three Months Ended March 31,
(In millions, except for per share data)	2017		2016
Earnings
Net income	$	378	$	323
Shares
Weighted average common shares outstanding, basic	371.4		398.5
Dilutive effect of stock compensation plans	4.2		4.2
Dilutive effect of warrants	3.0		3.6
Weighted average common shares outstanding and dilutive potential common shares	378.6		406.3
Net income per common share
Basic	$	1.02	$	0.81
Diluted	$	1.00	$	0.79

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Segment Information

The Company currently conducts business principally in six reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds and Talcott Resolution, as well as a Corporate category. The Company's revenues are generated primarily in the United States ("U.S."). Any foreign sourced revenue is immaterial.

Net Income (Loss)



	Three Months Ended March 31,
Net Income (Loss)	2017			2016
Commercial Lines [1]	$	231		$	225
Personal Lines [1]	33			23
Property & Casualty Other Operations	24			17
Group Benefits	45			50
Mutual Funds	23			20
Talcott Resolution	68			17
Corporate	(46		)	(29		)
Net income	$	378		$	323


[1]	For the three months ended March 31, 2017 and 2016 there was a segment change which resulted in a movement from Commercial Lines to Personal Lines of $3 of net servicing revenues associated with our participation in the National Flood Insurance Program.

Revenues



	Three Months Ended March 31,
Revenues	2017			2016
Earned premiums and fee income
Commercial Lines
Workers’ compensation	$	813		$	759
Liability	148			143
Package business	314			308
Automobile	161			158
Professional liability	60			53
Bond	55			53
Property	147			159
Total Commercial Lines [1]	1,698			1,633
Personal Lines
Automobile	662			685
Homeowners	283			299
Total Personal Lines [1] [2]	945			984
Group Benefits
Group disability	381			369
Group life	399			375
Other	55			51
Total Group Benefits	835			795
Mutual Funds
Mutual Fund	167			142
Talcott	24			25
Total Mutual Funds	191			167
Talcott Resolution	258			269
Corporate	1			1
Total earned premiums and fee income	3,928			3,849
Net investment income	728			696
Net realized capital losses	(20		)	(155		)
Other revenues	19			20
Total revenues	$	4,655		$	4,410


[1]	Commercial Lines and Personal Lines includes installment fees of $10 and $11, respectively, for the three months ended March 31, 2017. Commercial Lines and Personal Lines includes installment fees of $10 and $9, respectively, for the three months ended March 31, 2016.


[2]	For the three months ended March 31, 2017 and 2016, AARP members accounted for earned premiums of $800 and $807, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements

The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. The fair value hierarchy levels are as follows:


Level 1	Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date.


Level 2	Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.

Level 3

Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.

The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of March 31, 2017
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
Asset-backed-securities ("ABS")	$	2,265		$	—	$	2,140		$	125
Collateralized debt obligations ("CDOs")	2,311			—		1,992			319
Commercial mortgage-backed securities ("CMBS")	5,099			—		4,982			117
Corporate	25,730			—		24,652			1,078
Foreign government/government agencies	1,187			—		1,121			66
Bonds of municipalities and political subdivisions ("municipal bonds")	11,780			—		11,663			117
Residential mortgage-backed securities ("RMBS")	3,921			—		1,873			2,048
U.S. Treasuries	4,033			688		3,345			—
Total fixed maturities	56,326			688		51,768			3,870
Fixed maturities, FVO	160			—		160			—
Equity securities, trading [1]	11			11		—			—
Equity securities, AFS	1,223			936		188			99
Derivative assets
Credit derivatives	2			—		2			—
Equity derivatives	4			—		—			4
Foreign exchange derivatives	3			—		3			—
Interest rate derivatives	48			—		43			5
GMWB hedging instruments	80			—		36			44
Macro hedge program	113			—		9			104
Total derivative assets [2]	250			—		93			157
Short-term investments	4,595			2,077		2,518			—
Reinsurance recoverable for GMWB	60			—		—			60
Modified coinsurance reinsurance contracts	66			—		66			—
Separate account assets [3]	113,585			73,539		38,882			277
Total assets accounted for at fair value on a recurring basis	$	176,276		$	77,251	$	93,675		$	4,463
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB embedded derivative	$	(157	)	$	—	$	—		$	(157	)
Equity linked notes	(36		)	—		—			(36		)
Total other policyholder funds and benefits payable	(193		)	—		—			(193		)
Derivative liabilities
Credit derivatives	(2		)	—		(2		)	—
Equity derivatives	37			—		37			—
Foreign exchange derivatives	(262		)	—		(262		)	—
Interest rate derivatives	(517		)	—		(488		)	(29		)
GMWB hedging instruments	3			—		1			2
Macro hedge program	58			—		3			55
Total derivative liabilities [4]	(683		)	—		(711		)	28
Contingent consideration [5]	(26		)	—		—			(26		)
Total liabilities accounted for at fair value on a recurring basis	$	(902	)	$	—	$	(711	)	$	(191	)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2016
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,382		$	—	$	2,300		$	82
CDOs	1,916			—		1,502			414
CMBS	4,936			—		4,856			80
Corporate	25,666			—		24,586			1,080
Foreign government/government agencies	1,171			—		1,107			64
Municipal bonds	11,486			—		11,368			118
RMBS	4,767			—		2,795			1,972
U.S. Treasuries	3,679			620		3,059			—
Total fixed maturities	56,003			620		51,573			3,810
Fixed maturities, FVO	293			1		281			11
Equity securities, trading [1]	11			11		—			—
Equity securities, AFS	1,097			821		177			99
Derivative assets
Credit derivatives	17			—		17			—
Foreign exchange derivatives	27			—		27			—
Interest rate derivatives	(427		)	—		(427		)	—
GMWB hedging instruments	74			—		14			60
Macro hedge program	128			—		8			120
Other derivative contracts	1			—		—			1
Total derivative assets [2]	(180		)	—		(361		)	181
Short-term investments	3,244			878		2,366			—
Reinsurance recoverable for GMWB	73			—		—			73
Modified coinsurance reinsurance contracts	68			—		68			—
Separate account assets [3]	111,634			71,606		38,856			201
Total assets accounted for at fair value on a recurring basis	$	172,243		$	73,937	$	92,960		$	4,375
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB embedded derivative	$	(241	)	$	—	$	—		$	(241	)
Equity linked notes	(33		)	—		—			(33		)
Total other policyholder funds and benefits payable	(274		)	—		—			(274		)
Derivative liabilities
Credit derivatives	(13		)	—		(13		)	—
Equity derivatives	33			—		33			—
Foreign exchange derivatives	(237		)	—		(237		)	—
Interest rate derivatives	(542		)	—		(521		)	(21		)
GMWB hedging instruments	20			—		(1		)	21
Macro hedge program	50			—		3			47
Total derivative liabilities [4]	(689		)	—		(736		)	47
Contingent consideration [5]	(25		)	—		—			(25		)
Total liabilities accounted for at fair value on a recurring basis	$	(988	)	$	—	$	(736	)	$	(252	)


[1]	Included in other investments on the Condensed Consolidated Balance Sheets.


[2]	Includes OTC and OTC-cleared derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law. See footnote 4 to this table for derivative liabilities.

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5. Fair Value Measurements (continued)

[3]

Approximately $3.0 billion and $4.0 billion of investment sales receivable, as of March 31, 2017, and December 31, 2016, respectively, are excluded from this disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value. Included in the total fair value amount are $887 and $1.0 billion of investments, as of March 31, 2017 and December 31, 2016, for which the fair value is estimated using the net asset value per unit as a practical expedient which are excluded from the disclosure requirement to classify amounts in the fair value hierarchy.


[4]	Includes OTC and OTC-cleared derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements, which may be imposed by agreements, clearing house rules and applicable law.


[5]	For additional information see the Contingent Consideration section below.

Fixed Maturities, Equity Securities, Short-term Investments, and Free-standing Derivatives

Valuation Techniques

The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order:


•	Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1.

•

Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, including certain municipal securities, foreign government/government agency securities, and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3.

•

Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads 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 market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an

independent public security index and trade information, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the inputs are observable or can be corroborated with observable data.

•

Independent broker quotes, which are typically non-binding and use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3.

The fair value of free-standing derivative instruments are determined primarily using a discounted cash flow model or option model technique and incorporate counterparty credit risk. In some cases, quoted market prices for exchange-traded and OTC-cleared derivatives may be used and in other cases independent broker quotes may be used. The pricing valuation models primarily use inputs that are observable in the market or can be corroborated by observable market data. The valuation of certain derivatives may include significant inputs that are unobservable, such as volatility levels, and reflect the Company’s view of what other market participants would use when pricing such instruments. Unobservable market data is used in the valuation of customized derivatives that are used to hedge certain GMWB variable annuity riders. See the section “GMWB Embedded, Customized, and Reinsurance Derivatives” below for further discussion of the valuation model used to value these customized derivatives.

Valuation Controls

The fair value process for investments is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company that meets at least quarterly. The purpose of the committee is to oversee the pricing policy and procedures, as well as approving changes to valuation methodologies and pricing sources. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews.

There are also two working groups under the Valuation Committee: a Securities Fair Value Working Group (“Securities Working Group”) and a Derivatives Fair Value Working Group ("Derivatives Working Group"). The working groups, which include various investment, operations, accounting and risk management professionals, meet monthly to review market data trends, pricing and trading statistics and results, and any proposed pricing methodology changes.

The Securities Working Group reviews prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The group considers trading volume, new

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5. Fair Value Measurements (continued)

issuance activity, market trends, new regulatory rulings and other factors to determine whether the market activity is significantly different than normal activity in an active market. A dedicated pricing unit follows up with trading and investment sector professionals and challenges prices of third-party pricing services when the estimated assumptions used differ from what the unit believes a market participant would use. If the available evidence indicates that pricing from third-party pricing services or broker quotes is based upon transactions that are stale or not from trades made in an orderly market, the Company places little, if any, weight on the third party service’s transaction price and will estimate fair value using an internal process, such as a pricing matrix.

The Derivatives Working Group reviews the inputs, assumptions and methodologies used to ensure that the prices represent a reasonable estimate of the fair value. A dedicated pricing team works directly with investment sector professionals to investigate the impacts of changes in the market environment on prices or valuations of derivatives. New models and any changes to current models are required to have detailed documentation and are validated to a second source. The model validation documentation and results of validation are presented to the Valuation Committee for approval.

The Company conducts other monitoring controls around securities and derivatives pricing including, but not limited to, the following:


•	Review of daily price changes over specific thresholds and new trade comparison to third-party pricing services.


•	Daily comparison of OTC derivative market valuations to counterparty valuations.


•	Review of weekly price changes compared to published bond prices of a corporate bond index.


•	Monthly reviews of price changes over thresholds, stale prices, missing prices, and zero prices.


•	Monthly validation of prices to a second source for securities in most sectors and for certain derivatives.

In addition, the Company’s enterprise-wide Operational Risk Management function, led by the Chief Risk Officer, is responsible for model risk management and provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models.

Valuation Inputs

Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries, money market funds, exchange-traded equity securities, open-ended mutual funds, short-term investments, and exchange traded futures and option contracts.

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5. Fair Value Measurements (continued)



Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Freestanding Derivatives
Level 2 Primary Observable Inputs		Level 3 Primary Unobservable Inputs
Fixed Maturity Investments
Structured securities (includes ABS, CDOs CMBS and RMBS)
	• Benchmark yields and spreads • Monthly payment information • Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions • Credit default swap indices Other inputs for ABS and RMBS: • Estimate of future principal prepayments, derived based on the characteristics of the underlying structure • Prepayment speeds previously experienced at the interest rate levels projected for the collateral		• Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for less liquid securities or those that trade less actively, including subprime RMBS: • Estimated cash flows • Credit spreads, which include illiquidity premium • Constant prepayment rates • Constant default rates • Loss severity
Corporates
	• Benchmark yields and spreads • Reported trades, bids, offers of the same or similar securities • Issuer spreads and credit default swap curves Other inputs for investment grade privately placed securities that utilize internal matrix pricing : • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature		• Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for below investment grade privately placed securities: • Independent broker quotes • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
U.S Treasuries, Municipals, and Foreign government/government agencies
	• Benchmark yields and spreads • Issuer credit default swap curves • Political events in emerging market economies • Municipal Securities Rulemaking Board reported trades and material event notices • Issuer financial statements		• Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve
Equity Securities
	• Quoted prices in markets that are not active		• For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable; or they may be held at cost
Short Term Investments
	• Benchmark yields and spreads • Reported trades, bids, offers • Issuer spreads and credit default swap curves • Material event notices and new issue money market rates		Not applicable
Derivatives
Credit derivatives
	• Swap yield curve • Credit default swap curves		• Independent broker quotes • Yield curves beyond observable limits
Equity derivatives
	• Equity index levels • Swap yield curve		• Independent broker quotes • Equity volatility
Foreign exchange derivatives
	• Swap yield curve • Currency spot and forward rates • Cross currency basis curves		• Independent broker quotes
Interest rate derivatives
	• Swap yield curve		• Independent broker quotes • Interest rate volatility

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5. Fair Value Measurements (continued)



Significant Unobservable Inputs for Level 3 - Securities
Assets accounted for at fair value on a recurring basis	Fair Value		Predominant Valuation Technique	Significant Unobservable Input	Minimum	Maximum	Weighted Average [1]	Impact of Increase in Input on Fair Value [2]
As of March 31, 2017
CMBS [3]	$	76	Discounted cash flows	Spread (encompasses prepayment, default risk and loss severity)	9 bps	1,272 bps	463 bps	Decrease
Corporate [4]	438		Discounted cash flows	Spread	107 bps	963 bps	328 bps	Decrease
Municipal [3]	101		Discounted cash flows	Spread	186 bps	241 bps	208 bps	Decrease
RMBS [3]	2,038		Discounted cash flows	Spread	34 bps	1,371 bps	179 bps	Decrease
				Constant prepayment rate	—%	20%	4%	Decrease [5]
				Constant default rate	1%	10%	5%	Decrease
				Loss severity	—%	100%	73%	Decrease
As of December 31, 2016
CMBS [3]	$	52	Discounted cash flows	Spread (encompasses prepayment, default risk and loss severity)	10 bps	1,273 bps	366 bps	Decrease
Corporate [4]	510		Discounted cash flows	Spread	122 bps	1,302 bps	359 bps	Decrease
Municipal [3]	101		Discounted cash flows	Spread	135 bps	286 bps	221 bps	Decrease
RMBS [3]	1,963		Discounted cash flows	Spread	16 bps	1,830 bps	192 bps	Decrease
				Constant prepayment rate	—%	20%	4%	Decrease [5]
				Constant default rate	—%	11%	5%	Decrease
				Loss severity	—%	100%	75%	Decrease


[1]	The weighted average is determined based on the fair value of the securities.


[2]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.


[3]	Excludes securities for which the Company based fair value on broker quotations.


[4]	Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value.


[5]	Decrease for above market rate coupons and increase for below market rate coupons.

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5. Fair Value Measurements (continued)



Significant Unobservable Inputs for Level 3 - Freestanding Derivatives
	Fair Value			Predominant Valuation Technique	Significant Unobservable Input	Minimum		Maximum		Impact of Increase in Input on Fair Value [1]
As of March 31, 2017
Interest rate derivatives
Interest rate swaps	$	(29	)	Discounted cash flows	Swap curve beyond 30 years	3	%	3	%	Decrease
Interest rate swaptions [2]	5			Option model	Interest rate volatility	2	%	2	%	Increase
GMWB hedging instruments
Equity variance swaps	(39		)	Option model	Equity volatility	16	%	20	%	Increase
Equity options	9			Option model	Equity volatility	26	%	28	%	Increase
Customized swaps	76			Discounted cash flows	Equity volatility	9	%	30	%	Increase
Macro hedge program [3]
Equity options	164			Option model	Equity volatility	15	%	32	%	Increase
As of December 31, 2016
Interest rate derivatives
Interest rate swaps	$	(29	)	Discounted cash flows	Swap curve beyond 30 years	3	%	3	%	Decrease
Interest rate swaptions [2]	8			Option model	Interest rate volatility	2	%	2	%	Increase
GMWB hedging instruments
Equity variance swaps	(36		)	Option model	Equity volatility	20	%	23	%	Increase
Equity options	17			Option model	Equity volatility	27	%	30	%	Increase
Customized swaps	100			Discounted cash flows	Equity volatility	12	%	30	%	Increase
Macro hedge program [3]
Equity options	188			Option model	Equity volatility	17	%	28	%	Increase


[1]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions.


[2]	The swaptions presented are purchased options that have the right to enter into a pay-fixed swap.


[3]	Excludes derivatives for which the Company bases fair value on broker quotations.

The tables above exclude the portion of ABS, CRE CDOs, index options and certain corporate securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. For the three months ended March 31, 2017, no significant adjustments were made by the Company to broker prices received.

Transfers between Levels

Transfers of securities among the levels occur at the beginning of the reporting period. The amount of transfers from Level 1 to Level 2 was $621 and $741 for the three months ended March 31, 2017 and March 31, 2016, respectively, which represented previously on-the-run U.S. Treasury securities that are now off-the-run. For the three months ended March 31, 2017 and 2016, there were no transfers from Level 2 to Level 1. See the fair value roll-forward tables for the three months ended March 31, 2017 and 2016, for the transfers into and out of Level 3.

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5. Fair Value Measurements (continued)

GMWB Embedded, Customized and Reinsurance Derivatives



GMWB Embedded Derivatives	The Company formerly offered certain variable annuity products with GMWB riders that provide the policyholder with a guaranteed remaining balance ("GRB") which is generally equal to premiums less withdrawals. If the policyholder’s account value is reduced to a specified level through a combination of market declines and withdrawals but the GRB still has value, the Company is obligated to continue to make annuity payments to the policyholder until the GRB is exhausted. When payments of the GRB are not life-contingent, the GMWB represents an embedded derivative carried at fair value reported in other policyholder funds and benefits payable in the Condensed Consolidated Balance Sheets with changes in fair value reported in net realized capital gains and losses.
Free-standing Customized Derivatives	The Company holds free-standing customized derivative contracts to provide protection from certain capital markets risks for the remaining term of specified blocks of non-reinsured GMWB riders. These customized derivatives are based on policyholder behavior assumptions specified at the inception of the derivative contracts. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices. These derivatives are reported in the Condensed Consolidated Balance Sheets within other investments or other liabilities, as appropriate, after considering the impact of master netting agreements.
GMWB Reinsurance Derivative	The Company has reinsurance arrangements in place to transfer a portion of its risk of loss due to GMWB. These arrangements are recognized as derivatives carried at fair value and reported in reinsurance recoverables in the Condensed Consolidated Balance Sheets. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses.

Valuation Techniques

Fair values for GMWB embedded derivatives, free-standing customized derivatives and reinsurance derivatives are classified as Level 3 in the fair value hierarchy and are calculated using internally developed models that utilize significant unobservable inputs because active, observable markets do not exist for these items. In valuing the GMWB embedded derivative, the Company attributes to the derivative a portion of the expected fees to be collected over the expected life of the contract from the contract holder equal to the present value of future GMWB claims. The excess of fees collected from the contract holder in the current period over the portion of fees attributed to the embedded derivative in the current period are associated with the host variable annuity contract and reported in fee income.

Valuation Controls

Oversight of the Company's valuation policies and processes for GMWB embedded, reinsurance, and customized derivatives is performed by a multidisciplinary group comprised of finance, actuarial and risk management professionals. This multidisciplinary group reviews and approves changes and enhancements to the Company's valuation model as well as associated controls.

Valuation Inputs

The fair value for each of the non-life contingent GMWBs, the free-standing customized derivatives and the GMWB reinsurance derivative is calculated as an aggregation of the following components: Best Estimate Claim Payments; Credit Standing Adjustment; and Margins. The Company believes the aggregation of these components results in an amount that a market participant in an active liquid market would require, if such a market existed, to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. Each component described in the following discussion is unobservable in the marketplace and requires subjectivity by the Company in determining its value.

Best Estimate Claim Payments

The Best Estimate Claim Payments are 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 unobservable inputs including expectations concerning policyholder behavior. These assumptions are input into a stochastic risk neutral scenario process that is used to determine the valuation and involves numerous estimates and subjective judgments regarding a number of variables.

The Company 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. In addition, the Company will continue to evaluate policyholder behavior assumptions should we implement initiatives to reduce the size of the variable annuity business. At a minimum, all policyholder behavior assumptions are reviewed and updated at least annually as part of the Company’s annual fourth-quarter comprehensive study to refine its estimate of future gross profits. In addition, the Company recognizes non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices.

Credit Standing Adjustment

The credit standing adjustment is an estimate of the additional amount that market participants would require in determining fair value to reflect the risk that GMWB benefit obligations or the GMWB reinsurance recoverables will not be fulfilled. The Company incorporates a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability.

Margins

The behavior risk margin adds a margin that market participants would require, in determining fair value, 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.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Valuation Inputs Used in Levels 2 and 3 Measurements for GMWB Embedded, Customized and Reinsurance Derivatives
Level 2 Primary Observable Inputs		Level 3 Primary Unobservable Inputs
	• Risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates • Correlations of 10 years of observed historical returns across underlying well-known market indices • Correlations of historical index returns compared to separate account fund returns • Equity index levels		• Market implied equity volatility assumptions Assumptions about policyholder behavior, including: • Withdrawal utilization • Withdrawal rates • Lapse rates • Reset elections



Significant Unobservable Inputs for Level 3 GMWB Embedded Customized and Reinsurance Derivatives
	As of March 31, 2017
Significant Unobservable Input	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]
Withdrawal Utilization [2]	15%	100%	Increase
Withdrawal Rates [3]	—%	8%	Increase
Lapse Rates [4]	—%	40%	Decrease
Reset Elections [5]	20%	75%	Increase
Equity Volatility [6]	9%	30%	Increase
	As of December 31, 2016
Significant Unobservable Input	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]
Withdrawal Utilization [2]	15%	100%	Increase
Withdrawal Rates [3]	—%	8%	Increase
Lapse Rates [4]	—%	40%	Decrease
Reset Elections [5]	20%	75%	Increase
Equity Volatility [6]	12%	30%	Increase


[1]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.


[2]	Range represents assumed cumulative percentages of policyholders taking withdrawals.


[3]	Range represents assumed cumulative annual amount withdrawn by policyholders.


[4]	Range represents assumed annual percentages of full surrender of the underlying variable annuity contracts across all policy durations for in force business.


[5]	Range represents assumed cumulative percentages of policyholders that would elect to reset their guaranteed benefit base.


[6]	Range represents implied market volatilities for equity indices based on multiple pricing sources.

Separate Account Assets

Separate account assets are primarily invested in mutual funds. Other separate account assets include fixed maturities, limited partnerships, equity securities, short-term investments and derivatives that are valued in the same manner, and using the same pricing sources and inputs, as those investments held by the Company. For limited partnerships in which fair value represents the separate account's share of the NAV, 42% and 39% were subject to significant liquidation restrictions as of March 31, 2017 and December 31, 2016, respectively. Total limited partnerships that do not allow any form of redemption were 12% and 11% as of March 31, 2017 and December 31, 2016, respectively. Separate account assets classified as Level 3 primarily include long-dated bank loans, subprime RMBS, and commercial mortgage loans.

Contingent Consideration

The acquisition of Lattice Strategies LLC ("Lattice") in 2016 requires the Company to make payments to former owners of Lattice of up to $60 contingent upon growth in exchange-traded products ("ETP") AUM over a four-year period beginning on the date of acquisition. The contingent consideration is measured at fair value on a quarterly basis by projecting future eligible ETP AUM over the contingency period to estimate the amount of expected payout. The future expected payout is discounted back to the valuation date using a risk-adjusted discount rate of 18.8%. The risk-adjusted discount rate is an internally generated and significant unobservable input to fair value.

Level 3 Assets and Liabilities Measured at Fair Value on a

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)

Recurring Basis Using Significant Unobservable Inputs

The Company uses 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 asset or liability. Therefore, the realized and unrealized gains and losses on derivatives reported in the Level 3 roll-forward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.



Fair Value Roll-forwards for Financial Instruments Classified as Level 3 for the Three Months Ended March 31, 2017
					Total realized/unrealized gains (losses)
		Fair value as of January 1, 2017			Included in net income [1] [2] [6]			Included in OCI [3]			Purchases [8]		Settlements			Sales			Transfers into Level 3 [4]		Transfers out of Level 3 [4]			Fair value as of March 31, 2017
Assets
Fixed Maturities, AFS
	ABS	$	82		$	—		$	—		$	45	$	(5	)	$	—		$	26	$	(23	)	$	125
	CDOs	414			—			4			—		(1		)	—			—		(98		)	319
	CMBS	80			(1		)	—			56		(3		)	—			—		(15		)	117
	Corporate	1,080			6			16			169		(36		)	(160		)	40		(37		)	1,078
	Foreign Govt./Govt. Agencies	64			—			3			—		(1		)	—			—		—			66
	Municipal	118			—			5			—		—			(6		)	—		—			117
	RMBS	1,972			—			6			173		(96		)	(7		)	—		—			2,048
Total Fixed Maturities, AFS		3,810			5			34			443		(142		)	(173		)	66		(173		)	3,870
Fixed Maturities, FVO		11			—			—			4		(2		)	(13		)	—		—			—
Equity Securities, AFS		99			—			(4		)	4		—			—			—		—			99
Freestanding Derivatives, net [5]
	Equity	—			(1		)	—			5		—			—			—		—			4
	Interest rate	(21		)	(3		)	—			—		—			—			—		—			(24		)
	GMWB hedging instruments	81			(35		)	—			—		—			—			—		—			46
	Macro hedge program	167			(8		)	—			—		—			—			—		—			159
	Other contracts	1			(1		)	—			—		—			—			—		—			—
Total Freestanding Derivatives, net [5]		228			(48		)	—			5		—			—			—		—			185
Reinsurance Recoverable for GMWB		73			(17		)	—			—		4			—			—		—			60
Separate Accounts		201			—			3			97		(4		)	(8		)	3		(15		)	277
Total Assets		$	4,422		$	(60	)	$	33		$	553	$	(144	)	$	(194	)	$	69	$	(188	)	$	4,491
Liabilities
Other Policyholder Funds and Benefits Payable
	Guaranteed Withdrawal Benefits	$	(241	)	$	100		$	—		$	—	$	(16	)	$	—		$	—	$	—		$	(157	)
	Equity Linked Notes	(33		)	(3		)	—			—		—			—			—		—			(36		)
Total Other Policyholder Funds and Benefits Payable		(274		)	97			—			—		(16		)	—			—		—			(193		)
Contingent Consideration [7]		(25		)	(1		)	—			—		—			—			—		—			(26		)
Total Liabilities		$	(299	)	$	96		$	—		$	—	$	(16	)	$	—		$	—	$	—		$	(219	)

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Fair Value Roll-forwards for Financial Instruments Classified as Level 3 for the Three Months Ended March 31, 2016
					Total realized/unrealized gains (losses)
		Fair value as of January 1, 2016			Included in net income [1] [2] [6]			Included in OCI [3]			Purchases [8]		Settlements			Sales			Transfers into Level 3 [4]		Transfers out of Level 3 [4]			Fair value as of March 31, 2016
Assets
Fixed Maturities, AFS
	ABS	$	37		$	—		$	—		$	—	$	(3	)	$	—		$	5	$	(7	)	$	32
	CDOs	541			—			—			—		1			—			—		—			542
	CMBS	150			(1		)	(8		)	40		(9		)	—			—		(38		)	134
	Corporate	854			(13		)	(7		)	30		(5		)	(25		)	58		(58		)	834
	Foreign Govt./Govt. Agencies	60			—			5			14		(1		)	(2		)	—		—			76
	Municipal	49			—			1			—		—			—			—		—			50
	RMBS	1,622			—			(14		)	333		(57		)	—			2		—			1,886
Total Fixed Maturities, AFS		3,313			(14		)	(23		)	417		(74		)	(27		)	65		(103		)	3,554
Fixed Maturities, FVO		16			(2		)	—			5		(1		)	—			—		(4		)	14
Equity Securities, AFS		93			(1		)	2			—		—			(2		)	—		—			92
Freestanding Derivatives, net [5]
	Equity	—			(11		)	—			16		—			—			—		—			5
	Interest rate	(22		)	(6		)	—			—		—			—			—		—			(28		)
	GMWB hedging instruments	135			9			—			—		—			—			—		—			144
	Macro hedge program	147			—			—			—		(2		)	—			—		—			145
	Other contracts	7			(2		)	—			—		—			—			—		—			5
Total Freestanding Derivatives, net [5]		267			(10		)	—			16		(2		)	—			—		—			271
Reinsurance Recoverable for GMWB		83			12			—			—		4			—			—		—			99
Separate Accounts		139			—			4			38		(5		)	(10		)	3		(15		)	154
Total Assets		$	3,911		$	(15	)	$	(17	)	$	476	$	(78	)	$	(39	)	$	68	$	(122	)	$	4,184
Liabilities
Other Policyholder Funds and Benefits Payable
	Guaranteed Withdrawal Benefits	$	(262	)	$	(82	)	$	—		$	—	$	(17	)	$	—		$	—	$	—		$	(361	)
	Equity Linked Notes	(26		)	1			—			—		—			—			—		—			(25		)
Total Other Policyholder Funds and Benefits Payable		(288		)	(81		)	—			—		(17		)	—			—		—			(386		)
Total Liabilities		$	(288	)	$	(81	)	$	—		$	—	$	(17	)	$	—		$	—	$	—		$	(386	)


[1]	The Company classifies realized and unrealized gains (losses) on GMWB reinsurance derivatives and GMWB embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.


[2]	Amounts in these rows are generally reported in net realized capital gains (losses). The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. All amounts are before income taxes and amortization of DAC.


[3]	All amounts are before income taxes and amortization of DAC.


[4]	Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.


[5]	Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Condensed Consolidated Balance Sheets in other investments and other liabilities.


[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).


[7]	For additional information, see the Contingent Consideration section of Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.


[8]	Includes issuance of contingent consideration associated with the Lattice acquisition, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements for additional discussion.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Changes in Unrealized Gains (Losses) Included in Net Income for Financial Instruments Classified as Level 3 Still Held at:
		March 31, 2017 [1] [2]			March 31, 2016 [1] [2]
Assets
Fixed Maturities, AFS
	ABS	$	—		$	—
	CDOs	—			—
	CMBS	(1		)	(1		)
	Corporate	—			(13		)
	Foreign Govt./Govt. Agencies	—			—
	Municipal	—			—
	RMBS	—			—
Total Fixed Maturities, AFS		(1		)	(14		)
Fixed Maturities, FVO		—			(1		)
Equity Securities, AFS		—			(1		)
Freestanding Derivatives, net
	Equity	(1		)	(11		)
	Interest rate	(3		)	(6		)
	GMWB hedging instruments	(36		)	9
	Macro hedge program	(8		)	(1		)
	Other Contracts	—			(2		)
Total Freestanding Derivatives, net		(48		)	(11		)
Reinsurance Recoverable for GMWB		(17		)	12
Separate Accounts		—			—
Total Assets		$	(66	)	$	(15	)
Liabilities
Other Policyholder Funds and Benefits Payable
	Guaranteed Withdrawal Benefits	$	100		$	(82	)
	Equity Linked Notes	(3		)	1
Total Other Policyholder Funds and Benefits Payable		97			(81		)
Contingent Consideration [3]		(1		)	—
Total Liabilities		$	96		$	(81	)


[1]	All amounts in these rows are reported in net realized capital gains (losses). The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. All amounts are before income taxes and amortization of DAC.


[2]	Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.


[3]	For additional information, see the Contingent Consideration section of Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

Fair Value Option

The Company has elected the fair value option for certain securities that contain embedded credit derivatives with underlying credit risk primarily related to residential real estate, and these securities are included within Fixed Maturities, FVO on the Condensed Consolidated Balance Sheets. The Company previously classified the underlying fixed maturities held in certain consolidated investment funds within Fixed Maturities, FVO. The Company reported the underlying fixed maturities of these consolidated investment companies at fair value with changes in the fair value of these securities recognized in net realized capital gains and losses, which is consistent with accounting requirements for investment companies.

The Company also elected the fair value option for certain equity securities in order to align the accounting with total return swap contracts that hedge the risk associated with the investments. The swaps do not qualify for hedge accounting and the change in value of both the equity securities and the total return swaps are recorded in net realized capital gains and losses. These equity securities are classified within equity securities, AFS on the Condensed Consolidated Balance Sheets. Income earned from FVO securities is recorded in net investment income and changes in fair value are recorded in net realized capital gains and losses.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)



Changes in Fair Value of Assets using Fair Value Option
	Three Months Ended March 31,
	2017			2016
Assets
Fixed maturities, FVO
Corporate	$	(1	)	$	—
Foreign government	—			(1		)
RMBS	1			1
Total fixed maturities, FVO	$	—		$	—
Equity, FVO	(1		)	(34		)
Total realized capital gains (losses)	$	(1	)	$	(34	)



Fair Value of Assets and Liabilities using the Fair Value Option
	March 31, 2017		December 31, 2016
Assets
Fixed maturities, FVO
ABS	$	—	$	7
CDOs	—		3
CMBS	—		8
Corporate	—		40
U.S government	—		7
RMBS	160		228
Total fixed maturities, FVO	$	160	$	293
Equity, FVO [1]	$	123	$	—


[1]	Included in equity securities, AFS on the Condensed Consolidated Balance Sheets.



Financial Assets and Liabilities Not Carried at Fair Value
	Fair Value Hierarchy Level	Carrying Amount		Fair Value
	March 31, 2017
Assets
Policy loans	Level 3	$	1,442	$	1,442
Mortgage loans	Level 3	5,685		5,689
Liabilities
Other policyholder funds and benefits payable [1]	Level 3	$	6,626	$	6,809
Senior notes [2]	Level 2	3,554		4,110
Junior subordinated debentures [2]	Level 2	1,583		1,708
Consumer notes [3] [4]	Level 3	14		14
Assumed investment contracts [3]	Level 3	514		547
	December 31, 2016
Assets
Policy loans	Level 3	$	1,444	$	1,444
Mortgage loans	Level 3	5,697		5,721
Liabilities
Other policyholder funds and benefits payable [1]	Level 3	$	6,714	$	6,906
Senior notes [2]	Level 2	3,969		4,487
Junior subordinated debentures [2]	Level 2	1,083		1,246
Consumer notes [3] [4]	Level 3	20		20
Assumed investment contracts [3]	Level 3	487		526


[1]	Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance.


[2]	Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.


[3]	Excludes amounts carried at fair value and included in preceding disclosures.


[4]	Included in other liabilities in the Condensed Consolidated Balance Sheets.

Fair values for policy loans were determined using current loan coupon rates, which reflect the current rates available under the contracts. As a result, the fair value approximates the carrying value of the policy loans.

Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans.

Fair values for other policyholder funds and benefits payable and assumed investment contracts, not carried at fair value, are estimated based on the cash surrender values of the underlying policies or by estimating future cash flows discounted at current interest rates adjusted for credit risk.

Fair values for senior notes and junior subordinated debentures are determined using the market approach based on reported trades, benchmark interest rates and issuer spread for the Company which may consider credit default swaps.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)

Fair values for consumer notes were estimated using discounted cash flow calculations using current interest rates adjusted for estimated loan durations.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments



Net Realized Capital Gains (Losses)
	Three Months Ended March 31,
(Before tax)	2017			2016
Gross gains on sales	$	112		$	90
Gross losses on sales	(75		)	(108		)
Net OTTI losses recognized in earnings	(1		)	(23		)
Results of variable annuity hedge program
GMWB derivatives, net	18			(17		)
Macro hedge program	(86		)	(14		)
Total results of variable annuity hedge program	(68		)	(31		)
Transactional foreign currency revaluation	(13		)	(44		)
Non-qualifying foreign currency derivatives	11			39
Other, net [1]	14			(78		)
Net realized capital gains (losses)	$	(20	)	$	(155	)


[1]	Includes non-qualifying derivatives, excluding variable annuity hedge program and foreign currency derivatives, of $10 and $(37), respectively for the three months ended March 31, 2017 and 2016.

Net realized capital gains and losses from investment sales are reported as a component of revenues and are determined on a specific identification basis. Before tax, net gains (and losses) on sales and impairments previously reported as unrealized gains (or losses) in AOCI were $36 and $41 for the three months ended March 31, 2017 and 2016, respectively. Proceeds from sales of AFS securities totaled $6.7 billion and $4.9 billion for the three months ended March 31, 2017 and 2016, respectively.

Recognition and Presentation of Other-Than-Temporary Impairments

The Company will record an other-than-temporary impairment (“OTTI”) for fixed maturities and certain equity securities with debt-like characteristics (collectively “debt securities”) if the Company intends to sell or it is more likely than not that the Company will be required to sell the security before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value and amortized cost basis of the security.

The Company will also record an OTTI for those debt securities for which the Company does not expect to recover the entire amortized cost basis. For these securities, the excess of the amortized cost basis over its fair value is separated into the portion representing a credit OTTI, which is recorded in net realized capital losses, and the remaining non-credit amount, which is recorded in OCI. The credit OTTI amount is the excess of its amortized cost basis over the Company’s best estimate of discounted expected future cash flows. The non-credit amount is the excess of the best estimate of the discounted expected future cash flows over the fair value. The Company’s best estimate of discounted expected future cash flows becomes the new cost

basis and accretes prospectively into net investment income over the estimated remaining life of the security.

The Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company considers, but is not limited to (a) changes in the financial condition of the issuer and the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security.

For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, security-specific developments, industry earnings multiples and the issuer’s ability to restructure and execute asset sales.

For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ("LTV") ratios, average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value.

The Company will also record an OTTI for equity securities where the decline in the fair value is deemed to be other-than-temporary. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The previous cost basis less the impairment becomes the new cost basis. The Company’s evaluation and assumptions used to determine an equity OTTI include, but is not limited to, (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on preferred stock dividends and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery. For the remaining equity securities which are determined to be temporarily impaired, the Company asserts its intent and ability to retain those equity securities until the price recovers.



Impairments in Earnings by Type
	Three Months Ended March 31,
	2017		2016
Credit impairments	$	1	$	18
Intent-to-sell impairments	—		2
Impairments on equity securities	—		3
Total impairments	$	1	$	23

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)



Cumulative Credit Impairments
	Three Months Ended March 31,
(Before tax)	2017			2016
Balance as of beginning of period	$	(280	)	$	(324	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired	(1		)	(17		)
Securities previously impaired	—			(1		)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period	12			1
Securities due to an increase in expected cash flows	9			5
Balance as of end of period	$	(260	)	$	(336	)


[1]	These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.

Available-for-Sale Securities



AFS Securities by Type
	March 31, 2017												December 31, 2016
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit OTTI [1]			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit OTTI [1]
ABS	$	2,267	$	20	$	(22	)	$	2,265	$	—		$	2,396	$	17	$	(31	)	$	2,382	$	—
CDOs [2]	2,243		71		(3		)	2,311		—			1,853		67		(4		)	1,916		—
CMBS	5,055		102		(58		)	5,099		(7		)	4,907		97		(68		)	4,936		(6		)
Corporate	24,371		1,548		(189		)	25,730		—			24,380		1,510		(224		)	25,666		—
Foreign govt./govt. agencies	1,151		48		(12		)	1,187		—			1,164		33		(26		)	1,171		—
Municipal	11,076		759		(55		)	11,780		—			10,825		732		(71		)	11,486		—
RMBS	3,866		69		(14		)	3,921		—			4,738		66		(37		)	4,767		—
U.S. Treasuries	3,879		189		(35		)	4,033		—			3,542		182		(45		)	3,679		—
Total fixed maturities, AFS	$	53,908	$	2,806	$	(388	)	$	56,326	$	(7	)	$	53,805	$	2,704	$	(506	)	$	56,003	$	(6	)
Equity securities, AFS [3]	1,011		107		(18		)	1,100		—			1,020		96		(19		)	1,097		—
Total AFS securities	$	54,919	$	2,913	$	(406	)	$	57,426	$	(7	)	$	54,825	$	2,800	$	(525	)	$	57,100	$	(6	)


[1]	Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of March 31, 2017, and December 31, 2016.


[2]	Gross unrealized gains (losses) exclude the fair value of bifurcated embedded derivatives within certain securities. Subsequent changes in value are recorded in net realized capital gains (losses).


[3]	Excludes equity securities, FVO, with a cost and fair value of $124 and $123 as of March 31, 2017. The Company held no equity securities, FVO as of December 31, 2016.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)



Fixed maturities, AFS, by Contractual Maturity Year
	March 31, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	1,693	$	1,709	$	1,896	$	1,912
Over one year through five years	9,145		9,422		9,015		9,289
Over five years through ten years	9,079		9,325		9,038		9,245
Over ten years	20,560		22,274		19,962		21,556
Subtotal	40,477		42,730		39,911		42,002
Mortgage-backed and asset-backed securities	13,431		13,596		13,894		14,001
Total fixed maturities, AFS	$	53,908	$	56,326	$	53,805	$	56,003

Estimated maturities may differ from contractual maturities due to security call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.

Concentration of Credit Risk

The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where

applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company had no investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity, other than the U.S. government and certain U.S. government agencies as of March 31, 2017 and December 31, 2016.

Unrealized Losses on AFS Securities



Unrealized Loss Aging for AFS Securities by Type and Length of Time as of March 31, 2017
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	544	$	542	$	(2	)	$	276	$	256	$	(20	)	$	820	$	798	$	(22	)
CDOs [1]	1,253		1,251		(2		)	284		283		(1		)	1,537		1,534		(3		)
CMBS	1,804		1,764		(40		)	309		291		(18		)	2,113		2,055		(58		)
Corporate	4,813		4,671		(142		)	865		818		(47		)	5,678		5,489		(189		)
Foreign govt./govt. agencies	350		341		(9		)	36		33		(3		)	386		374		(12		)
Municipal	1,372		1,318		(54		)	35		34		(1		)	1,407		1,352		(55		)
RMBS	865		856		(9		)	453		448		(5		)	1,318		1,304		(14		)
U.S. Treasuries	1,425		1,390		(35		)	—		—		—			1,425		1,390		(35		)
Total fixed maturities, AFS	$	12,426	$	12,133	$	(293	)	$	2,258	$	2,163	$	(95	)	$	14,684	$	14,296	$	(388	)
Equity securities, AFS [2]	238		223		(15		)	30		27		(3		)	268		250		(18		)
Total securities in an unrealized loss position	$	12,664	$	12,356	$	(308	)	$	2,288	$	2,190	$	(98	)	$	14,952	$	14,546	$	(406	)

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)



Unrealized Loss Aging for AFS Securities by Type and Length of Time as of December 31, 2016
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	582	$	579	$	(3	)	$	368	$	340	$	(28	)	$	950	$	919	$	(31	)
CDOs [1]	641		640		(1		)	370		367		(3		)	1,011		1,007		(4		)
CMBS	2,076		2,027		(49		)	293		274		(19		)	2,369		2,301		(68		)
Corporate	5,418		5,248		(170		)	835		781		(54		)	6,253		6,029		(224		)
Foreign govt./govt. agencies	573		550		(23		)	27		24		(3		)	600		574		(26		)
Municipal	1,567		1,498		(69		)	43		41		(2		)	1,610		1,539		(71		)
RMBS	1,655		1,624		(31		)	591		585		(6		)	2,246		2,209		(37		)
U.S. Treasuries	1,432		1,387		(45		)	—		—		—			1,432		1,387		(45		)
Total fixed maturities, AFS	$	13,944	$	13,553	$	(391	)	$	2,527	$	2,412	$	(115	)	$	16,471	$	15,965	$	(506	)
Equity securities, AFS [2]	330		315		(15		)	38		34		(4		)	368		349		(19		)
Total securities in an unrealized loss position	$	14,274	$	13,868	$	(406	)	$	2,565	$	2,446	$	(119	)	$	16,839	$	16,314	$	(525	)


[1]	Unrealized losses exclude the change in fair value of bifurcated embedded derivatives within certain securities, for which changes in fair value are recorded in net realized capital gains (losses).


[2]	As of March 31, 2017, excludes equity securities, FVO which are included in equity securities, AFS on the Condensed Consolidated Balance Sheets. The Company held no equity securities, FVO as of December 31, 2016.

As of March 31, 2017, AFS securities in an unrealized loss position consisted of 3,528 securities, primarily in the corporate sector, which were depressed primarily due to an increase in interest rates and/or widening of credit spreads since the securities were purchased. As of March 31, 2017, 94% of these securities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during first quarter 2017 was primarily attributable to a decline in long-term interest rates as well as tighter credit spreads across most sectors.

Most of the securities depressed for twelve months or more relate to corporate securities primarily in the financial services and energy-related sectors, student loan ABS and structured securities with exposure to commercial real estate. Corporate financial services securities and student loan ABS were primarily depressed because the securities have floating-rate coupons and have long-dated maturities, and current credit spreads are wider than when these securities were purchased. Corporate securities within the energy sector are in an unrealized loss position primarily due to depressed oil prices. For certain commercial real estate securities, current spreads are wider than market spreads at the securities' respective purchase dates. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined in the preceding discussion.

Mortgage Loans

Mortgage Loan Valuation Allowances

Commercial mortgage loans are considered to be impaired when management estimates that, based upon current information and events, it is probable that the Company will be unable to collect amounts due according to the contractual terms of the loan agreement. The Company reviews mortgage loans on a quarterly basis to identify potential credit losses. Among other factors, management reviews current and projected macroeconomic

trends, such as unemployment rates and property-specific factors such as rental rates, occupancy levels, LTV ratios and debt service coverage ratios (“DSCR”). In addition, the Company considers historical, current and projected delinquency rates and property values. Estimates of collectibility require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates.

For mortgage loans that are deemed impaired, a valuation allowance is established for the difference between the carrying amount and estimated fair value. The mortgage loan's estimated fair value is most frequently the Company's share of the fair value of the collateral but may also be the Company’s share of either (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate or (b) the loan’s observable market price. A valuation allowance may be recorded for an individual loan or for a group of loans that have an LTV ratio of 90% or greater, a low DSCR or have other lower credit quality characteristics. Changes in valuation allowances are recorded in net realized capital gains and losses. Interest income on impaired loans is accrued to the extent it is deemed collectible and the borrowers continue to make payments under the original or restructured loan terms. The Company stops accruing interest income on loans when it is probable that the Company will not receive interest and principal payments according to the contractual terms of the loan agreement. The Company resumes accruing interest income when it determines that sufficient collateral exists to satisfy the full amount of the loan principal and interest payments and when it is probable cash will be received in the foreseeable future. Interest income on defaulted loans is recognized when received.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)

As of March 31, 2017 and December 31, 2016, commercial mortgage loans had an amortized cost of $5.7 billion, with a valuation allowance of $19 and a carrying value of $5.7 billion.

As of March 31, 2017 and December 31, 2016, the carrying value of mortgage loans that had a valuation allowance was $57 and $31, respectively. There were no mortgage loans held-for-sale as of March 31, 2017 or December 31, 2016. As of March 31, 2017, the Company had an immaterial amount of mortgage loans that have had extensions or restructurings other than what is allowable under the original terms of the contract.

The following table presents the activity within the Company’s valuation allowance for mortgage loans. These loans have been evaluated both individually and collectively for impairment. Loans evaluated collectively for impairment are immaterial.



Valuation Allowance Activity
	2017			2016
Balance, as of January 1	$	(19	)	$	(23	)
(Additions)/Reversals	—			—
Deductions	—			1
Balance, as of March 31	$	(19	)	$	(22	)

The weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 51% as of March 31, 2017, while the weighted-average LTV ratio at origination of these loans was 62%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan collateral values are updated no less than annually through reviews of the underlying properties. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments. The weighted average DSCR of the Company's commercial mortgage loan portfolio was 2.67x as of March 31, 2017. As of March 31, 2017, the Company held two delinquent commercial mortgage loan past due by 90 days or more. The loans had a total carrying value and valuation allowance of $27 and $18, respectively, and neither loan was accruing income. As of December 31, 2016, the Company held one delinquent commercial mortgage loans past due by 90 days or more. The loan had a total carrying value and valuation allowance of $15 and $16, respectively, and was not accruing income.



Commercial Mortgage Loans Credit Quality
	March 31, 2017			December 31, 2016
Loan-to-value	Carrying Value		Avg. Debt-Service Coverage Ratio	Carrying Value		Avg. Debt-Service Coverage Ratio
Greater than 80%	$	21	0.59x	$	20	0.59x
65% - 80%	524		2.20x	568		2.17x
Less than 65%	5,140		2.74x	5,109		2.78x
Total commercial mortgage loans	$	5,685	2.67x	$	5,697	2.70x



Mortgage Loans by Region
	March 31, 2017				December 31, 2016
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	293	5.2	%	$	293	5.1	%
East South Central	14		0.2	%	14		0.2	%
Middle Atlantic	557		9.8	%	534		9.4	%
Mountain	61		1.1	%	61		1.1	%
New England	389		6.8	%	345		6.1	%
Pacific	1,604		28.2	%	1,609		28.3	%
South Atlantic	1,217		21.4	%	1,198		21.0	%
West North Central	40		0.7	%	40		0.7	%
West South Central	347		6.1	%	338		5.9	%
Other [1]	1,163		20.5	%	1,265		22.2	%
Total mortgage loans	$	5,685	100.0	%	$	5,697	100.0	%


[1]	Primarily represents loans collateralized by multiple properties in various regions.



Mortgage Loans by Property Type
	March 31, 2017				December 31, 2016
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Agricultural	$	16	0.3	%	$	16	0.3	%
Industrial	1,397		24.6	%	1,468		25.7	%
Lodging	25		0.4	%	25		0.4	%
Multifamily	1,372		24.1	%	1,365		24.0	%
Office	1,427		25.1	%	1,361		23.9	%
Retail	1,012		17.8	%	1,036		18.2	%
Other	436		7.7	%	426		7.5	%
Total mortgage loans	$	5,685	100.0	%	$	5,697	100.0	%

Mortgage Servicing

The Company originates, sells and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of March 31, 2017, under this program, the Company serviced commercial mortgage loans with a total outstanding principal of $983, of which $266 was serviced on behalf of third parties and $717 was retained and reported on the Company’s Condensed Consolidated Balance Sheets, including $143 in separate account assets. As of December 31, 2016, the Company serviced commercial mortgage loans with a total outstanding principal balance of $901, of which $251 was serviced on behalf of third parties and $650 was retained and reported as assets on the Company’s Condensed Consolidated Balance Sheets, including $124 in separate account assets. Servicing rights are carried at the lower of cost or fair value and were zero as of March 31, 2017 and December 31, 2016, because servicing fees were market-

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)

level fees at origination and remain adequate to compensate the Company for servicing the loans.

Variable Interest Entities

The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager and previously as a means of accessing capital through a contingent capital facility ("facility").

A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.

Consolidated VIEs

As of March 31, 2017 and December 31, 2016, the Company held one CDO for which it is the primarily beneficiary. The CDO represents a structured investment vehicle for which the Company has a controlling financial interest. As of March 31, 2017 and December 31, 2016 the Company held total CDO assets of $5 included in cash with an associated liability of $5 included in other liabilities on the Company's Condensed Consolidated Balance Sheets. The Company does not have any additional exposure to loss associated with this investment.

Non-Consolidated VIEs

The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of March 31, 2017 and December 31, 2016 is limited to the total carrying value of $1.7 billion which are included in limited partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of March 31, 2017 and December 31, 2016, the Company has outstanding commitments totaling $1.1 billion and $1.2 billion, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. For further discussion of these investments, see Equity Method Investments within Note 6 - Investments of Notes to Consolidated Financial Statements included in the Company’s 2016 Form 10-K Annual Report.

In addition, the Company also makes passive investments in structured securities issued by VIEs for which the Company is not the manager and, therefore, does not consolidate. These investments are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.

As of December 31, 2016, the Company held a significant variable interest in a VIE for which it is not the primary beneficiary. This VIE represented a facility that was held by the Company since February 2007. Assets and liabilities recorded for the contingent capital facility were $1 and $3, respectively, as of December 31, 2016. as well as a maximum exposure to loss of $3. The Company did not have a controlling financial interest and as such, did not consolidate its variable interest in the facility. As of March 31, 2017, after having exercised its put option under the facility to issue debt, the Company no longer held a significant interest in the facility. For further information on the facility, see Note 10 - Debt of Notes to Condensed Consolidated Financial Statements.

Securities Lending, Repurchase Agreements and Other Collateral Transactions

The Company enters into securities financing transactions as a way to earn additional income or manage liquidity, primarily through securities lending and repurchase agreements.

Securities Lending

Under a securities lending program, the Company lends certain fixed maturities within the corporate, foreign government/government agencies, and municipal sectors as well as equity securities to qualifying third-party borrowers in return for collateral in the form of cash or securities. For domestic and non-domestic loaned securities, respectively, borrowers provide collateral of 102% and 105% of the fair value of the securities lent at the time of the loan. Borrowers will return the securities to the Company for cash or securities collateral at maturity dates generally of 90 days or less. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, except in the event of default by the counterparty, and is not reflected on the Company’s Condensed Consolidated Balance Sheets. Additional collateral is obtained if the fair value of the collateral falls below 100% of the fair value of the loaned securities. The agreements provide the counterparty the right to sell or re-pledge the securities loaned. If cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)

and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. Income associated with securities lending transactions is reported as a component of net investment income in the Company’s Condensed Consolidated Statements of Operations. As of March 31, 2017, the fair value of securities on loan and the associated liability for cash collateral received was $1.5 billion and $1.5 billion, respectively. The Company also received securities collateral of $59 which was not included on the Company's Condensed Consolidated Balance Sheets. As of December 31, 2016, the fair value of securities on loan and the associated liability for cash collateral received was $488 and $461, respectively. The Company also received securities collateral of $39 which was not included on the Company's Condensed Consolidated Balance Sheets.

Repurchase Agreements

From time to time, the Company enters into repurchase agreements to manage liquidity or to earn incremental income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. These transactions generally have a contractual maturity of ninety days or less.

Under repurchase agreements, the Company transfers collateral of U.S. government and government agency securities and receives cash. For repurchase agreements, the Company obtains cash in an amount equal to at least 95% of the fair value of the securities transferred. The agreements require additional collateral to be transferred when necessary and provide the counterparty the right to sell or re-pledge the securities transferred. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. Repurchase agreements include master netting provisions that provide both counterparties the right to offset claims and apply securities held by them with respect to their obligations in the event of a default. Although the Company has the contractual right to offset claims, fixed maturities do not meet the specific conditions for net presentation under U.S. GAAP. The Company accounts for the repurchase agreements as collateralized borrowings. The securities transferred under repurchase agreements are included in fixed maturities, AFS with the obligation to repurchase those securities recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets.

As of March 31, 2017 and December 31, 2016, the Company reported in fixed maturities, AFS on the Condensed Consolidated Balances Sheets financial collateral pledged relating to repurchase agreements of $318 and $226, respectively. As of December 31, 2016, the Company also reported cash collateral pledged relating to repurchase agreements of $22 . The Company reported a corresponding obligation to repurchase the pledged securities of $313 and $241 , respectively, as of March 31, 2017 and December 31, 2016 in other liabilities on the Condensed Consolidated Balance Sheets.

Under reverse repurchase agreements, the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The agreements require

additional collateral to be transferred to the Company when necessary and the Company has the right to sell or re-pledge the securities received. The Company accounts for reverse repurchase agreements as collateralized financing. As of March 31, 2017, the Company reported $96 within short-term investments on the Condensed Consolidated Balance Sheets representing a receivable for the amount of cash transferred to purchase the securities. The Company did not hold any reverse repurchase agreements as of December 31, 2016.

Other Agreements

The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of March 31, 2017 and December 31, 2016, the fair value of securities on deposit was approximately $2.5 billion.

As of March 31, 2017 and December 31, 2016, the Company has pledged as collateral $104 and $102, respectively, of U.S. government securities and government agency securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement. These amounts also include collateral related to letters of credit.

For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section of Note 7 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments

The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. The Company also may enter into and has previously issued financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or as embedded derivative instruments, such as GMWB riders included with certain variable annuity products.

Strategies that Qualify for Hedge Accounting

Some of the Company's derivatives satisfy the hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements, included in The Hartford’s 2016 Form 10-K Annual Report. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or liability contracts. The hedge strategies by hedge accounting designation include:

Cash Flow Hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on floating-rate fixed maturity securities to fixed rates. The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the future purchase of fixed-rate securities, primarily to hedge interest rate risk inherent in the assumptions used to price certain product liabilities.

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Fair Value Hedges

The Company previously used interest rate swaps to hedge the changes in fair value of fixed maturity securities due to fluctuations in interest rates. These swaps were typically used to manage interest rate duration.

Non-qualifying Strategies

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's variable annuity products as well as the hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities, equities and liabilities do

not qualify for hedge accounting. The non-qualifying strategies include:

Interest Rate Swaps, Swaptions and Futures

The Company uses interest rate swaps, swaptions, and futures to manage interest rate duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of March 31, 2017, and December 31, 2016, the notional amount of interest rate swaps in offsetting relationships was $10.2 billion and $10.6 billion, respectively.

Foreign Currency Swaps and Forwards

The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars. The Company also enters into foreign currency forwards to hedge currency impacts on changes in equity of the U.K. property and casualty run-off subsidiaries that are held for sale. For further information on the disposition, see Note 2 - Business Acquisitions, Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements, included in The Hartford’s 2016 Form 10-K Annual Report. The Company had previously entered into foreign currency forwards to hedge non-U.S. dollar denominated cash and equity securities.

Fixed Payout Annuity Hedge

The Company has obligations for certain yen denominated fixed payout annuities under an assumed reinsurance contract. The Company invests in U.S. dollar denominated assets to support the assumed reinsurance liability. The Company has in place pay U.S. dollar, receive yen swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.

Credit Contracts

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk related to certain structured fixed maturity securities that have embedded credit derivatives, which reference a standard index of corporate securities. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity Index Swaps and Options

The Company enters into total return swaps to hedge equity risk of specific common stock investments which are accounted for

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)

using fair value option in order to align the accounting treatment within net realized capital gains (losses). The Company also enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. In addition, the Company formerly offered certain equity indexed products that remain in force, a portion of which contain embedded derivatives that require changes in value to be bifurcated from the host contract. The Company uses equity index swaps to economically hedge the equity volatility risk associated with the equity indexed products.

GMWB Derivatives, net

The Company formerly offered certain variable annuity products with GMWB riders. The GMWB product is a bifurcated embedded derivative (“GMWB product derivatives”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to GMWB. The reinsurance contracts covering GMWB (“GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB reinsured.

The Company utilizes derivatives (“GMWB hedging instruments”) as part of a dynamic hedging program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB riders. The GMWB hedging instruments hedge changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options and futures, on certain indices including the S&P 500 index, EAFE index and NASDAQ index. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.



GMWB Hedging Instruments
	Notional Amount				Fair Value
	Mar. 31, 2017		Dec. 31, 2016		Mar. 31, 2017			Dec. 31, 2016
Customized swaps	$	5,213	$	5,191	$	76		$	100
Equity swaps, options, and futures	1,374		1,362		(35		)	(27		)
Interest rate swaps and futures	3,350		3,703		42			21
Total	$	9,937	$	10,256	$	83		$	94

Macro Hedge Program

The Company utilizes equity swaps, options, and forwards to provide partial protection against the statutory tail scenario risk arising from GMWB and guaranteed minimum death benefit ("GMDB") liabilities on the Company's statutory surplus. These derivatives cover some of the residual risks not otherwise covered by the dynamic hedging program.

Contingent Capital Facility Put Option

The Company previously entered into a put option agreement that provided the Company the right to require a third-party trust

to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. On February 8, 2017, The Hartford exercised the put option resulting in the issuance of $500 in junior subordinated notes with proceeds received on February 15, 2017. Under the put option agreement, The Hartford had been paying premiums on a periodic basis and has agreed to reimburse the trust for certain fees and ordinary expenses. For further information on the put option agreement, see the Contingent Capital Facility section within Note 13 - Debt of Notes to Consolidated Financial Statements, included in The Hartford's 2016 Form 10-K Annual Report.

Modified Coinsurance Reinsurance Contracts

As of March 31, 2017, and December 31, 2016, the Company had $875 of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business, which was structured as a reinsurance transaction. The assets are primarily held in a trust established by the Company. The Company pays or receives cash quarterly to settle the operating results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value of investments subject to interest rate and credit risk. The notional amount of the embedded derivative reinsurance contracts are the invested assets which are carried at fair value and support the reinsured reserves.

Derivative Balance Sheet Classification

For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The Company has also elected to offset within assets or liabilities OTC-cleared derivative instruments based on clearing house agreements. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivative fair value reported as liabilities after taking into account the master netting agreements was $877 and $963 as of March 31, 2017, and December 31, 2016, respectively. Derivatives in the Company’s separate accounts, where the associated gains and losses accrue directly to policyholders, are not included in the table below. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. The following tables exclude investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)

Measurements of Notes to the Condensed Consolidated Financial Statements.



Derivative Balance Sheet Presentation
	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Mar. 31, 2017		Dec. 31, 2016		Mar. 31, 2017			Dec. 31, 2016			Mar. 31, 2017		Dec. 31, 2016		Mar. 31, 2017			Dec. 31, 2016
Cash flow hedges
Interest rate swaps	$	3,480	$	3,440	$	5		$	(79	)	$	97	$	11	$	(92	)	$	(90	)
Foreign currency swaps	239		239		(14		)	(15		)	11		11		(25		)	(26		)
Total cash flow hedges	3,719		3,679		(9		)	(94		)	108		22		(117		)	(116		)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps, swaptions, and futures	11,080		11,743		(474		)	(890		)	648		264		(1,122		)	(1,154		)
Foreign exchange contracts
Foreign currency swaps and forwards	307		1,064		(3		)	68			—		70		(3		)	(2		)
Fixed payout annuity hedge	804		804		(242		)	(263		)	—		—		(242		)	(263		)
Credit contracts
Credit derivatives that purchase credit protection	159		209		(4		)	(4		)	1		—		(5		)	(4		)
Credit derivatives that assume credit risk [1]	1,904		1,309		—			10			26		15		(26		)	(5		)
Credit derivatives in offsetting positions	3,128		3,317		3			(1		)	36		39		(33		)	(40		)
Equity contracts
Equity index swaps and options	339		105		5			—			41		33		(36		)	(33		)
Variable annuity hedge program
GMWB product derivatives [2]	12,631		13,114		(157		)	(241		)	—		—		(157		)	(241		)
GMWB reinsurance contracts	2,616		2,709		60			73			60		73		—			—
GMWB hedging instruments	9,937		10,256		83			94			171		190		(88		)	(96		)
Macro hedge program	6,722		6,532		171			178			186		201		(15		)	(23		)
Other
Contingent capital facility put option	—		500		—			1			—		1		—			—
Modified coinsurance reinsurance contracts	875		875		66			68			66		68		—			—
Total non-qualifying strategies	50,502		52,537		(492		)	(907		)	1,235		954		(1,727		)	(1,861		)
Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	54,221	$	56,216	$	(501	)	$	(1,001	)	$	1,343	$	976	$	(1,844	)	$	(1,977	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	296	$	322	$	—		$	1		$	—	$	1	$	—		$	—
Other investments	23,717		23,620		250			(180		)	821		377		(571		)	(557		)
Other liabilities	14,036		15,526		(683		)	(689		)	396		457		(1,079		)	(1,146		)
Reinsurance recoverables	3,491		3,584		126			141			126		141		—			—
Other policyholder funds and benefits payable	12,681		13,164		(194		)	(274		)	—		—		(194		)	(274		)
Total derivatives	$	54,221	$	56,216	$	(501	)	$	(1,001	)	$	1,343	$	976	$	(1,844	)	$	(1,977	)


[1]	The derivative instruments related to this strategy are held for other investment purposes.


[2]	These derivatives are embedded within liabilities and are not held for risk management purposes.

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance

Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)

offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.



Offsetting Derivative Assets and Liabilities
	(i)			(ii)			(iii) = (i) - (ii)						(iv)				(v) = (iii) - (iv)
							Net Amounts Presented in the Statement of Financial Position							Collateral Disallowed for Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Derivative Assets [1] (Liabilities) [2]			Accrued Interest and Cash Collateral (Received) [3] Pledged [2]				Financial Collateral (Received) Pledged [4]			Net Amount
As of March 31, 2017
Other investments	$	1,217		$	1,101		$	250		$	(134	)		$	73		$	43
Other liabilities	$	(1,650	)	$	(820	)	$	(683	)	$	(147	)		$	(811	)	$	(19	)
As of December 31, 2016
Other investments	$	834		$	670		$	(180	)	$	344			$	103		$	61
Other liabilities	$	(1,703	)	$	(884	)	$	(689	)	$	(130	)		$	(763	)	$	(56	)


[1]	Included in other investments in the Company's Condensed Consolidated Balance Sheets.


[2]	Included in other liabilities in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.


[3]	Included in other investments in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.


[4]	Excludes collateral associated with exchange-traded derivative instruments.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.



Derivatives in Cash Flow Hedging Relationships
	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
	Three Months Ended March 31,
	2017			2016
Interest rate swaps	$	(7	)	$	106
Foreign currency swaps	1			1
Total	$	(6	)	$	107
	Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended March 31,
	2017			2016
Interest rate swaps
Net realized capital gain/(loss)	$	4		$	5
Net investment income	16			15
Foreign currency swaps
Net realized capital gain/(loss)	1			4
Total	$	21		$	24

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)

During the three months ended March 31, 2017, and March 31, 2016, the Company had no ineffectiveness recognized in income within net realized capital gains (losses).

As of March 31, 2017, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $46. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to net investment income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows for forecasted transactions, excluding interest payments on existing variable-rate financial instruments, is approximately less than two years.

During the three months ended March 31, 2017, and March 31, 2016, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the

offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

For the three months ended March 31, 2017, the Company did not hold any fair value hedges. For the three months ended March 31, 2016, the Company recognized in income immaterial gains and (losses) for the ineffective portion of fair value hedges related to the derivative instrument and the hedged item.

Non-Qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses).



Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
	Three Months Ended March 31,
	2017			2016
Variable annuity hedge program
GMWB product derivatives	$	101		$	(79	)
GMWB reinsurance contracts	(18		)	12
GMWB hedging instruments	(65		)	50
Macro hedge program	(86		)	(14		)
Total variable annuity hedge program	(68		)	(31		)
Foreign exchange contracts
Foreign currency swaps and forwards	(10		)	3
Fixed payout annuity hedge	21			36
Total foreign exchange contracts	11			39
Other non-qualifying derivatives
Interest rate contracts
Interest rate swaps, swaptions, and futures	7			(24		)
Credit contracts
Credit derivatives that purchase credit protection	(11		)	(5		)
Credit derivatives that assume credit risk	17			(2		)
Equity contracts
Equity index swaps and options	—			18
Other
Contingent capital facility put option	(1		)	(2		)
Modified coinsurance reinsurance contracts	(2		)	(22		)
Total other non-qualifying derivatives	10			(37		)
Total [1]	$	(47	)	$	(29	)


[1]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security

issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.



Credit Derivatives by Type
							Underlying Referenced Credit Obligation(s) [1]
	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
As of March 31, 2017
Single name credit default swaps
Investment grade risk exposure	$	229	$	2		4 years	Corporate Credit/ Foreign Gov.	A-	$	40	$	—
Below investment grade risk exposure	52		—			1 year	Corporate Credit	B-	52		(1		)
Basket credit default swaps [4]
Investment grade risk exposure	2,589		8			3 years	Corporate Credit	BBB+	1,204		(7		)
Below investment grade risk exposure	50		4			4 years	Corporate Credit	B+	49		—
Investment grade risk exposure	246		(4		)	4 years	CMBS Credit	AA	116		1
Below investment grade risk exposure	102		(19		)	less than 1 year	CMBS Credit	CCC	103		19
Embedded credit derivatives
Investment grade risk exposure	200		200			less than 1 year	Corporate Credit	A+	—		—
Total [5]	$	3,468	$	191					$	1,564	$	12
As of December 31, 2016
Single name credit default swaps
Investment grade risk exposure	$	169	$	—		4 years	Corporate Credit/ Foreign Gov.	A-	$	50	$	—
Below investment grade risk exposure	77		—			1 year	Corporate Credit	B+	77		—
Basket credit default swaps [4]
Investment grade risk exposure	2,065		22			3 years	Corporate Credit	BBB+	1,204		(10		)
Below investment grade risk exposure	50		3			4 years	Corporate Credit	B	50		(3		)
Investment grade risk exposure	297		(5		)	4 years	CMBS Credit	AA	167		1
Below investment grade risk exposure	110		(26		)	1 year	CMBS Credit	CCC	111		26
Embedded credit derivatives
Investment grade risk exposure	200		201			Less than 1 year	Corporate Credit	A+	—		—
Total [5]	$	2,968	$	195					$	1,659	$	14


[1]	The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.


[2]	Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements, clearing house rules and applicable law, which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.


[3]	The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)


[4]	Includes $3.0 billion and $2.5 billion as of March 31, 2017, and December 31, 2016, respectively, of notional amount on swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.


[5]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements.

Derivative Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of March 31, 2017, and December 31, 2016, the Company pledged cash collateral associated with derivative instruments with a fair value of $26 and $623, respectively, for which the collateral receivable has been primarily included within other investments on the Company's Condensed Consolidated Balance Sheets. As of March 31, 2017, and December 31, 2016, the Company also pledged securities collateral associated with derivative instruments with a fair value of $862 and $1.1 billion, respectively, which have been included in fixed maturities on the Condensed Consolidated Balance Sheets. The counterparties have the right to sell or re-pledge these securities.

As of March 31, 2017, and December 31, 2016, the Company accepted cash collateral associated with derivative instruments of $386 and $387, respectively, which was invested and recorded in the Company's Condensed Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other liabilities. The Company also accepted securities collateral as of March 31, 2017, and December 31, 2016, with a fair value of $77 and $109, respectively, of which the Company has the ability to sell or repledge $27 and $81, respectively. As of March 31, 2017, and December 31, 2016, the Company had no repledged securities and did not sell any securities. In addition, as of March 31, 2017, and December 31, 2016, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. Reserve for Unpaid Losses and Loss Adjustment Expenses

Property and Casualty Insurance Products

Roll-forward of Liabilities for Unpaid Losses and Loss Adjustment Expenses



	For the three months ended March 31,
	2017		2016
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	21,833	$	21,825
Reinsurance and other recoverables	2,776		2,882
Beginning liabilities for unpaid losses and loss adjustment expenses, net	19,057		18,943
Provision for unpaid losses and loss adjustment expenses
Current accident year	1,762		1,636
Prior accident year development	12		33
Total provision for unpaid losses and loss adjustment expenses	1,774		1,669
Less: payments
Current accident year	352		358
Prior accident years	1,300		1,266
Total payments	1,652		1,624
Ending liabilities for unpaid losses and loss adjustment expenses, net	19,179		18,988
Reinsurance and other recoverables [1]	2,772		2,835
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	21,951	$	21,823


[1]	Includes reinsurance recoverables of $2,365 and $2,451 for the three months ended March 31, 2017 and 2016, respectively.

(Favorable) Unfavorable Prior Accident Year Development



	For the three months ended March 31,
	2017			2016
Workers’ compensation	$	(20	)	$	(79	)
Workers’ compensation discount accretion	8			7
General liability	10			32
Package business	—			45
Commercial property	1			(2		)
Professional liability	—			(33		)
Bond	(10		)	(6		)
Automobile liability - Commercial Lines	20			9
Automobile liability - Personal Lines	—			65
Homeowners	—			(6		)
Net asbestos reserves	—			—
Net environmental reserves	—			—
Catastrophes	(3		)	(7		)
Uncollectible reinsurance	—			—
Other reserve re-estimates, net	6			8
Total prior accident year development	$	12		$	33

Re-estimates of prior accident year reserves for the three months ended March 31, 2017

Workers’ compensation reserves in Small Commercial were reduced given the continued emergence of favorable frequency for accident years 2013 to 2015. Management has placed additional weight on this favorable experience as it becomes more credible.

General liability reserves were increased for the 2013 to 2016 accident years on a class of business that insures service and maintenance contractors. This increase was partially offset by a decrease in recent accident year reserves for other Middle Market general liability reserves.

Automobile liability reserves within Commercial Lines were increased in Small Commercial and large national accounts for the 2013 to 2016 accident years, driven by higher frequency of more severe accidents, including litigated claims.

Bond business reserves related to recent accident years were reduced as reported losses for commercial and contract surety have emerged favorably.

Re-estimates of prior accident year reserves for the three months ended March 31, 2016

Workers' compensation reserves decreased for accident years 2013 through 2015 due to favorable frequency

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. Reserve for Unpaid Losses and Loss Adjustment Expenses (continued)

and, to a lesser extent, lower medical severity trends. Loss costs for these accident years continued to emerge favorably as evidenced by the reserve review completed in the first quarter and management has been placing additional weight on this favorable experience as it becomes more credible.

General liability reserves increased for accident years 2012 through 2015 primarily due to higher severity losses incurred on a class of business that insures service and maintenance contractors.

Small commercial package business reserves increased due to higher than expected severity on liability claims, principally for accident years 2013 through 2015. Severity for these accident years has developed unfavorably and management has placed more weight on emerged experience.

Automobile liability reserves increased in personal lines automobile liability for accident years 2014 and 2015

primarily due to higher emerged bodily injury severity and, for the third and fourth accident quarters of 2015, an increase in bodily injury frequency. Increases in automobile liability loss costs were across both the AARP direct and the independent agency lines of business.

Professional liability reserves decreased for claims made years 2008 through 2013, primarily for large accounts, including on non-securities class action cases. Claim costs have emerged favorably as these years have matured and management has placed more weight on the emerged experience.

Group Life, Disability and Accident Products

Roll-forward of Liabilities for Unpaid Losses and Loss Adjustment Expenses



	For the three months ended March 31,
	2017			2016 [1]
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	5,772		$	5,889
Reinsurance recoverables	208			218
Beginning liabilities for unpaid losses and loss adjustment expenses, net	5,564			5,671
Provision for unpaid losses and loss adjustment expenses
Current incurral year	678			638
Prior year's discount accretion	52			54
Prior incurral year development [2]	(69		)	(53		)
Total provision for unpaid losses and loss adjustment expenses [3]	661			639
Less: payments
Current incurral year	178			174
Prior incurral years	519			509
Total payments	697			683
Ending liabilities for unpaid losses and loss adjustment expenses, net	5,528			5,627
Reinsurance recoverables	208			219
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	5,736		$	5,846


[1]	Certain prior year amounts have been reclassified to conform to the current year presentation for unpaid losses and loss adjustment expenses.


[2]	Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.


[3]	Includes unallocated loss adjustment expenses of $24, and $24 for for the three months ended March 31, 2017 and 2016, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.

Re-estimates of prior incurral years reserves for the three months ended March 31, 2017

Group Disability- Prior period reserve estimates decreased by approximately $35 largely driven by group long-term disability claim recoveries higher than prior reserve assumptions. This favorability was partially offset by lower Social Security Disability approvals driven by lower approval rates and ongoing backlogs in the Social Security Administration.

Group Life and Accident (including Group Life Premium Waiver)- Prior period reserve estimates decreased by approximately $35 largely driven by lower than previously expected claim incidence. This was partially offset by higher than expected claim severity.

Re-estimates of prior incurral years reserves for the three months ended March 31, 2016

Group Disability- Prior period reserve estimates decreased by approximately $35 largely driven by group long-term disability claim recoveries higher than prior reserve

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. Reserve for Unpaid Losses and Loss Adjustment Expenses (continued)

assumptions. This favorability was partially offset by lower Social Security Disability approvals driven by lower approval rates and ongoing backlogs in the Social Security Administration.

Group Life and Accident (including Group Life Premium Waiver)- Prior period reserve estimates decreased by approximately $20 largely driven by lower than previously expected incidence on Group Life Premium Waiver and lower than previously expected severity on Group Accidental Death & Dismemberment.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. Reserve for Future Policy Benefits and Separate Account Liabilities



Changes in Reserves for Future Policy Benefits
	Universal Life - Type Contracts
	GMDB/GMWB [1]			Universal Life Secondary Guarantees		Traditional Annuity and Other Contracts [2]			Total Future Policy Benefits
Liability balance as of January 1, 2017	$	786		$	2,627	$	10,516		$	13,929
Incurred [3]	24			79		225			328
Paid	(27		)	—		(197		)	(224		)
Change in unrealized investment gains and losses	—			—		18			18
Liability balance as of March 31, 2017	$	783		$	2,706	$	10,562		$	14,051
Reinsurance recoverable asset, as of January 1, 2017	$	432		$	2,627	$	1,392		$	4,451
Incurred [3]	17			79		46			142
Paid	(23		)	—		(11		)	(34		)
Reinsurance recoverable asset, as of March 31, 2017	$	426		$	2,706	$	1,427		$	4,559



	Universal Life - Type Contracts
	GMDB/GMWB [1]			Universal Life Secondary Guarantees		Traditional Annuity and Other Contracts [2]			Total Future Policy Benefits
Liability balance as of January 1, 2016	$	863		$	2,313	$	10,683		$	13,859
Incurred [3]	28			69		227			324
Paid	(38		)	—		(196		)	(234		)
Change in unrealized investment gains and losses	—			—		224			224
Liability balance as of March 31, 2016	$	853		$	2,382	$	10,938		$	14,173
Reinsurance recoverable asset, as of January 1, 2016	$	523		$	2,313	$	1,478		$	4,314
Incurred [3]	25			69		37			131
Paid	(29		)	—		(15		)	(44		)
Reinsurance recoverable asset, as of March 31, 2016	$	519		$	2,382	$	1,500		$	4,401


[1]	These liability balances include all GMDB benefits, plus the life-contingent portion of GMWB benefits in excess of the return of the GRB. GMWB benefits that make up a shortfall between the account value and the GRB are embedded derivatives held at fair value and are excluded from these balances.


[2]	Represents life-contingent reserves for which the company is subject to insurance and investment risk.


[3]	Includes the portion of assessments established as additions to reserves as well as changes in estimates affecting the reserves.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. Reserve for Future Policy Benefits and Separate Account Liabilities (continued)



Account Value by GMDB/GMWB Type as of March 31, 2017
Maximum anniversary value (“MAV”) [1]	Account Value (“AV”) [8]		Net Amount at Risk (“NAR”) [9]		Retained Net Amount at Risk (“RNAR”) [9]		Weighted Average Attained Age of Annuitant
MAV only	$	13,713	$	2,166	$	326	71
With 5% rollup [2]	1,166		166		53		71
With Earnings Protection Benefit Rider (“EPB”) [3]	3,484		493		77		71
With 5% rollup & EPB	475		104		23		73
Total MAV	18,838		2,929		479
Asset Protection Benefit (“APB”) [4]	10,416		127		83		69
Lifetime Income Benefit (“LIB”) — Death Benefit [5]	463		5		5		70
Reset [6] (5-7 years)	2,436		7		7		70
Return of Premium (“ROP”) [7]/Other	8,795		63		60		69
Subtotal Variable Annuity with GMDB/GMWB [10]	40,948		$	3,131	$	634	70
Less: General Account Value with GMDB/GMWB	3,727
Subtotal Separate Account Liabilities with GMDB	37,221
Separate Account Liabilities without GMDB	79,361
Total Separate Account Liabilities	$	116,582


[1]	MAV GMDB is the greatest of current AV, net premiums paid and the highest AV on any anniversary before age 80 years (adjusted for withdrawals).


[2]	Rollup GMDB is the greatest of the MAV, current AV, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 years or 100% of adjusted premiums.


[3]	EPB GMDB is the greatest of the MAV, current AV, or contract value plus a percentage of the contract’s growth. The contract’s growth is AV less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals.


[4]	APB GMDB is the greater of current AV or MAV, not to exceed current AV plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months).


[5]	LIB GMDB is the greatest of current AV; net premiums paid; or, for certain contracts, a benefit amount generally based on market performance that ratchets over time.


[6]	Reset GMDB is the greatest of current AV, net premiums paid and the most recent five to seven year anniversary AV before age 80 years (adjusted for withdrawals).


[7]	ROP GMDB is the greater of current AV or net premiums paid.


[8]	AV includes the contract holder’s investment in the separate account and the general account.


[9]	NAR is defined as the guaranteed benefit in excess of the current AV. RNAR represents NAR reduced for reinsurance. NAR and RNAR are highly sensitive to equity markets movements and increase when equity markets decline.

[10] Some variable annuity contracts with GMDB also have a life-contingent GMWB that may provide for benefits in excess of the return of the GRB. Such contracts included in this amount have $6.4 billion of total account value and weighted average attained age of 72 years. There is no NAR or retained NAR related to these contracts. Includes $1.5 billion of contracts that had a GMDB at issue but no longer have a GMDB due to certain elections made by policyholders or their beneficiaries.



Account Balance Breakdown of Variable Separate Account Investments for Contracts with Guarantees
Asset type	As of March 31, 2017		As of December 31, 2016
Equity securities (including mutual funds)	$	34,244	$	33,880
Cash and cash equivalents	2,977		3,045
Total	$	37,221	$	36,925

As of March 31, 2017 and December 31, 2016, approximately 15% and 16%, respectively, of the equity securities (including mutual funds), in the preceding table were funds invested in fixed income securities and approximately 85% and 84%, respectively, were funds invested in equity securities.

For further information on guaranteed living benefits that are accounted for at fair value, such as GMWB, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Debt

Senior Notes

On March 15, 2017, the Company repaid its $416, 5.375% senior notes at maturity.

Junior Subordinated Debentures

On February 15, 2017, pursuant to a put option agreement with the Glen Meadow ABC Trust, the Company issued $500 junior subordinated notes with a scheduled maturity of February 12, 2047, and a final maturity of February 12, 2067. The junior subordinated notes bear interest at an annual rate of three-month LIBOR plus 2.125%, payable quarterly. The Hartford will have the right, on one or more occasions, to defer interest payments due on the junior subordinated notes under specified circumstances.

Upon receipt of the proceeds, the Company entered into a replacement capital covenant (the "RCC"). Under the terms of the RCC, if the Company redeems the notes at any time prior to February 12, 2047 (or such earlier date on which the RCC terminates by its terms) it can only do so with the proceeds from the sale of certain qualifying replacement securities. The RCC also prohibits the Company from redeeming all or any portion of the notes on or prior to February 15, 2022.

In April, 2017, the Company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the variable interest payments into fixed interest payments of approximately 4.39%.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Income Taxes



Income Tax Rate Reconciliation
	Three Months Ended March 31,
	2017			2016
Tax provision at U.S. federal statutory rate	$	170		$	133
Tax-exempt interest	(30		)	(32		)
Dividends-received deduction ("DRD")	(19		)	(22		)
Decrease in valuation allowance	—			(25		)
Stock compensation	(7		)	—
Other	(5		)	4
Provision for income taxes	$	109		$	58

In addition to the effect of tax-exempt interest and DRD, the Company’s effective tax rate for the three months ended March 31, 2017 reflects a $7 federal income tax benefit related to a deduction for stock-based compensation that vested at a fair value per share greater than the fair value on the date of grant.

The Company's effective tax rate for the three months ended March 31, 2016 reflects a $25 benefit from the partial reduction of the deferred tax asset valuation allowance on the capital loss carryover due to taxable gains on sales of investments during the period.

The separate account DRD is estimated for the current year using information from the most recent return, 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 in 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.



Roll-forward of Unrecognized Tax Benefits
	Three Months Ended March 31,
	2017		2016
Balance, beginning of period	$	12	$	12
Gross increases - tax positions in prior period	—		—
Gross decreases - tax positions in prior period	—		—
Balance, end of period	$	12	$	12

The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release.

The federal audit of the years 2012 and 2013 began in March 2015 and was completed as of March 31, 2017 with no additional adjustments. The Company has received notification from the Internal Revenue Service of its intention to audit the recently acquired subsidiary, Maxum, for its 2014 tax year. Management believes that adequate provision has been made in the consolidated financial statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.

Net deferred income taxes include the future tax benefits associated with the net operating loss carryover, foreign tax credit carryover, capital loss carryover, and alternative minimum tax credit carryover.



Future Tax Benefits
	As of
	March 31, 2017				December 31, 2016				Expiration
	Carryover amount		Expected tax benefit, gross		Carryover amount		Expected tax benefit, gross		Dates			Amount
Net operating loss carryover - U.S.	$	5,165	$	1,808	$	5,412	$	1,894	2020			$	1
									2023	-	2036	$	5,164
Net operating loss carryover - foreign [1]	$	51	$	10	$	48	$	9	No expiration			$	51
Foreign tax credit carryover	$	49	$	49	$	56	$	56	2021	-	2024	$	49
Capital loss carryover	$	—	$	—	$	—	$	—	0			$	—
Alternative minimum tax credit carryover	$	650	$	650	$	640	$	640	No expiration			$	650
General business credit carryover	$	90	$	90	$	99	$	99	2031	-	2036	$	90


[1]	Related to subsidiaries included in the sale of the U.K. property and casualty run-off business and part of the assets held for sale. For additional information, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements.

Net Operating Loss Carryover

Utilization of these loss carryovers is dependent upon the generation of sufficient future taxable income. Most of the net operating loss carryover originated from the Company's U.S. and

international annuity business, including from the hedging program. Given the continued run off of the U.S. fixed and variable annuity business, the exposure to taxable losses from the

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Income Taxes (continued)

Talcott Resolution business is significantly lessened. Given the expected earnings of its property and casualty, group benefits and mutual fund businesses, the Company expects to generate sufficient taxable income in the future to utilize its net operating loss carryover. Although the Company projects there will be sufficient future taxable income to fully recover the remainder of the loss carryover, the Company's estimate of the likely realization may change over time.

Tax Credit Carryovers

Alternative Minimum Tax Credits- These credit carryovers are available to offset regular federal income taxes from future taxable income and have no expiration date. Since the Company believes there will be sufficient regular federal taxable income in the future, and these credits have no expiration date, the Company believes it is more likely than not they will be fully utilized and thus no valuation allowance has been provided.

Foreign Tax Credits- As with the alternative minimum tax credits, these credits are available to offset regular federal income taxes from future taxable income. The use of these credits prior to expiration depends on the generation of sufficient taxable income to first utilize all U.S. net operating loss carryovers. However, the Company has identified and begun to purchase certain investments which allow for utilization of the foreign tax credits without first using the net operating loss carryover. Consequently, the Company believes it is more likely than not the foreign tax credit carryover will be fully realized. Accordingly, no valuation allowance has been provided.

General Business Credits- General business credits are comprised primarily of solar credits acquired in 2016. Solar credits may offset all tax liability including alternative minimum tax; thus, the Company believes it is more likely than not the credits will be fully utilized and, accordingly, no valuation allowance has been provided.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. Commitments and Contingencies

Litigation

The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties in the following discussion under the caption “Asbestos and Environmental Claims,” management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford.

The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, and in addition to the matters in the following discussion, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, disability, life and inland marine. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.

In addition to the inherent difficulty of predicting litigation outcomes, the Mutual Funds Litigation identified below purports to seek substantial damages for unsubstantiated conduct spanning a multi-year period based on novel applications of complex legal theories. The alleged damages are not quantified or factually supported in the complaint, and, in any event, the Company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. The application of the legal standard identified by the court for assessing the potentially available damages, as described below, is inherently unpredictable, and no legal precedent has been identified that would aid in determining a reasonable estimate of potential loss. Accordingly, management cannot reasonably estimate the possible loss or range of loss, if any.

LLC (“HIFSCO”), an indirect subsidiary of the Company, received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. During the course of the litigation, the claims regarding distribution fees were dismissed without prejudice, the lineup of funds as plaintiffs changed several times, and the plaintiffs added as a defendant Hartford Funds Management Company (“HFMC”), an indirect subsidiary of the Company that assumed the role of advisor to the funds as of January 2013. In June 2015, HFMC and HIFSCO moved for summary judgment, and plaintiffs cross-moved for partial summary judgment with respect to one fund. In March 2016, the court denied the plaintiff's motion, and granted summary judgment for HIFSCO and HFMC with respect to one fund, leaving six funds as plaintiffs: The Hartford Balanced Fund, The Hartford Capital Appreciation Fund, The Hartford Floating Rate Fund, The Hartford Growth Opportunities Fund, The Hartford Healthcare Fund, and The Hartford Inflation Plus Fund. The court further ruled that the appropriate measure of damages on the surviving claims would be the difference, if any, between the actual advisory fees paid through trial and the fees permitted under the applicable legal standard. A bench trial on the issue of liability was held in November 2016. In February 2017, the court granted judgment for HIFSCO and HFMC as to all claims. Plaintiffs have appealed to the United States Court of Appeals for the Third Circuit.

Asbestos and Environmental Claims –The Company continues to receive asbestos and environmental claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.

The Company principally relies on exposure-based analysis to estimate the ultimate costs of these claims, both gross and net of reinsurance, and regularly evaluates new account information in assessing its potential asbestos and environmental exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year.

While the Company believes that its current asbestos and environmental reserves are appropriate, significant uncertainties limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not reasonably estimable now, could be material to The Hartford’s consolidated operating results and liquidity.

Under an adverse development cover (“ADC”) reinsurance agreement with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., the Company paid $650 to reinsure adverse development of net asbestos and environmental loss and allocated loss adjustment expense reserves of up to $1.5 billion above the Company’s net asbestos and environmental reserves as of December 31, 2016 of approximately $1.7 billion.

Under retroactive reinsurance accounting, net adverse asbestos and environmental reserve development after December 31,

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. Commitments and Contingencies (continued)

2016, if any, will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid would be recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings. Furthermore, there is a risk that cumulative adverse development of asbestos and environmental claims could ultimately exceed the $1.5 billion treaty limit in which case all adverse development in excess of the treaty limit would be absorbed as a charge to earnings by the Company. In these scenarios, the effect of these changes could be material to the Company’s consolidated operating results and liquidity.

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances enable the counterparties to terminate the agreements and demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of March 31, 2017 was $826. For this $826, the legal entities have posted collateral of $866 in the normal course of business. In addition, the Company has posted collateral of $31 associated with a customized GMWB derivative. Based on derivative market values as of March 31, 2017 a downgrade of one level below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. Based on derivative market values as of March 31, 2017, a downgrade of two levels below the current financial strength ratings by either Moody's or S&P would require additional $10 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we post, when required, is primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. Equity

Capital Purchase Program ("CPP") Warrants

As of March 31, 2017 and December 31, 2016, respectively, the Company has 3.0 million and 4.0 million of CPP warrants outstanding and exercisable. CPP warrant exercises were 1.0 million and 0.2 million for the three months ended March 31, 2017 and 2016, respectively.

The declaration of common stock dividends by the Company in excess of a threshold triggers a provision in the Company's warrant agreement with The Bank of New York Mellon resulting in adjustments to the CPP warrant exercise price. Accordingly, the declaration of a common stock dividend during the three months ended March 31, 2017 resulted in an adjustment to the

CPP warrant exercise price. The CPP warrant exercise price was $9.093 as of March 31, 2017 and $9.126 as of December 31, 2016.

Equity Repurchase Program

The Company's authorization for equity repurchases is $1.3 billion for the period October 31, 2016 through December 31, 2017 with $975 remaining as of March 31, 2017.

During the three months ended March 31, 2017, the Company repurchased 6.7 million common shares for $325. During the period April 1, 2017 through April 25, 2017, the Company repurchased approximately 1.9 million common shares for $92.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. Changes In and Reclassifications From Accumulated Other Comprehensive Income



Changes in AOCI, Net of Tax for the Three Months Ended March 31, 2017
	Changes in
	Net Unrealized Gain on Securities			OTTI Losses in OCI			Net Gain on Cash Flow Hedging Instruments			Foreign Currency Translation Adjustments		Pension and Other Postretirement Plan Adjustments			AOCI, net of tax
Beginning balance	$	1,276		$	(3	)	$	76		$	6	$	(1,692	)	$	(337	)
OCI before reclassifications	160			(1		)	(4		)	2		—			157
Amounts reclassified from AOCI	(23		)	—			(14		)	—		10			(27		)
OCI, net of tax	137			(1		)	(18		)	2		10			130
Ending balance	$	1,413		$	(4	)	$	58		$	8	$	(1,682	)	$	(207	)



Reclassifications from AOCI
	Three Months Ended March 31, 2017			Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities
Available-for-sale securities	$	36		Net realized capital gains (losses)
	36			Total before tax
	13			Income tax expense (benefit)
	$	23		Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps	$	4		Net realized capital gains (losses)
Interest rate swaps	16			Net investment income
Foreign currency swaps	1			Net realized capital gains (losses)
	21			Total before tax
	7			Income tax expense (benefit)
	$	14		Net income
Pension and Other Postretirement Plan Adjustments
Amortization of prior service credit	$	1		Insurance operating costs and other expenses
Amortization of actuarial loss	(16		)	Insurance operating costs and other expenses
	(15		)	Total before tax
	(5		)	Income tax expense (benefit)
	$	(10	)	Net income
Total amounts reclassified from AOCI	$	27		Net income

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. Changes In and Reclassifications From Accumulated Other Comprehensive Income (continued)



Changes in AOCI, Net of Tax for the Three Months Ended March 31, 2016
	Changes in
	Net Unrealized Gain on Securities			OTTI Losses in OCI			Net Gain on Cash Flow Hedging Instruments			Foreign Currency Translation Adjustments			Pension and Other Postretirement Plan Adjustments			AOCI, net of tax
Beginning balance	$	1,279		$	(7	)	$	130		$	(55	)	$	(1,676	)	$	(329	)
OCI before reclassifications	549			(9		)	70			6			1			617
Amounts reclassified from AOCI	(27		)	1			(16		)	—			8			(34		)
OCI, net of tax	522			(8		)	54			6			9			583
Ending balance	$	1,801		$	(15	)	$	184		$	(49	)	$	(1,667	)	$	254



Reclassifications of AOCI
	Three Months Ended March 31, 2016			Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities
Available-for-sale securities	$	41		Net realized capital gains (losses)
	41			Total before tax
	14			Income tax expense (benefit)
	$	27		Net income
OTTI Losses in OCI
Other than temporary impairments	$	(1	)	Net realized capital gains (losses)
	(1		)	Total before tax
	—			Income tax expense (benefit)
	$	(1	)	Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps	$	5		Net realized capital gains (losses)
Interest rate swaps	15			Net investment income
Foreign currency swaps	4			Net realized capital gains (losses)
	24			Total before tax
	8			Income tax expense (benefit)
	$	16		Net income
Pension and Other Postretirement Plan Adjustments
Amortization of prior service credit	$	2		Insurance operating costs and other expenses
Amortization of actuarial loss	(15		)	Insurance operating costs and other expenses
	(13		)	Total before tax
	(5		)	Income tax expense (benefit)
	$	(8	)	Net income
Total amounts reclassified from AOCI	$	34		Net income

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. Employee Benefit Plans

The Company’s employee benefit plans are described in Note 18 - Employee Benefit Plans of Notes to Consolidated Financial Statements included in The Hartford’s 2016 Annual Report on Form 10-K.

Beginning with the first quarter of 2017, the Company adopted the full yield curve approach in the estimation of the interest cost component of net periodic benefit costs for its qualified and non-qualified pension plans and the postretirement benefit plan. The full yield curve approach applies the specific spot rates along the yield curve that are used in its determination of the projected benefit obligation at the beginning of the year. The change has been made to provide a better estimate of the interest cost component of net periodic benefit cost by better aligning projected benefit cash flows with corresponding spot rates on the yield curve rather than using a single weighted average discount rate derived from the yield curve as had been done historically.

This change does not affect the measurement of the Company's total benefit obligations as the change in the interest cost in net income is completely offset in the actuarial (gain) loss reported for the period in other comprehensive income. The change reduced the interest cost component of net periodic benefit cost in the first quarter of 2017 by $9 before tax. The discount rate being used to measure interest cost during 2017 is 3.58%, 3.55% and 3.13% for the qualified pension plan, non-qualified pension plan and postretirement benefit plan, respectively. Under the Company's historical estimation approach, the weighted average discount rate for the interest cost component would have been 4.22%, 4.19% and 3.97% for the qualified pension plan, non-qualified pension plan and postretirement benefit plan, respectively. The Company accounted for the change in estimation approach as a change in estimate, and accordingly, is recognizing the effect prospectively beginning in 2017.



Components of Net Periodic Cost (Benefit)
	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2017			2016
Service cost	$	1		$	—		$	—		$	—
Interest cost	49			59			2			3
Expected return on plan assets	(79		)	(77		)	(2		)	(2		)
Amortization of prior service credit	—			—			(1		)	(2		)
Amortization of actuarial loss	15			14			1			1
Net periodic benefit	$	(14	)	$	(4	)	$	—		$	—

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(Dollar amounts in millions except share data unless otherwise stated)

The Hartford provides projections and other forward-looking information in the following discussions, which contain many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the cautionary statements set forth on pages 3 and 4 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion and in Part I, Item 1A, Risk Factors in The Hartford’s 2016 Form 10-K Annual Report, and those identified from time to time in our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

On July 29, 2016, the Company completed the acquisition of Maxum Specialty Insurance Group and Lattice Strategies LLC. Maxum's revenue and earnings since the acquisition date are included in the operating results of the Company's Commercial Lines reporting segment. Lattice's revenue and earnings since the acquisition date are included in the operating results of the Company's Mutual Funds reporting segment.

On July 26, 2016, the Company announced it had entered into an agreement to sell its U.K. property and casualty run-off subsidiaries. The operating results of the Company's U.K. property and casualty run-off subsidiaries are included in the P&C Other Operations reporting segment. For discussion of this transaction, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements.

Certain reclassifications have been made to historical financial information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to conform to the current period presentation.

Fee income from installment fees reported by the Commercial Lines and Personal Lines reporting segments has been reclassified from underwriting expenses to fee income and included in total revenues. The reclassification of installment fees did not impact previously reported underwriting gain (loss), underwriting ratios, or net income (loss) either in the Commercial Lines or Personal Lines reporting segments and did not impact previously reported consolidated net income or core earnings.

Separately, the flood servicing business has been realigned from Specialty Commercial within the Commercial Lines reporting segment to the Personal Lines reporting segment. This realignment did not materially impact previously reported Commercial Lines or Personal Lines underwriting results or net income. The realignment of the flood servicing business did not

impact previously reported consolidated net income or core earnings.

The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful.

INDEX



Description	Page
Key Performance Measures and Ratios	58
The Hartford's Operations	62
Consolidated Results of Operations	65
Investment Results	66
Critical Accounting Estimates	68
Commercial Lines	77
Personal Lines	81
Property & Casualty Other Operations	85
Group Benefits	86
Mutual Funds	88
Talcott Resolution	90
Corporate	92
Enterprise Risk Management	93
Capital Resources and Liquidity	105
Impact of New Accounting Standards	111

KEY PERFORMANCE MEASURES AND RATIOS

The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these ratios and measures are useful in understanding the underlying trends in The Hartford’s businesses. However, these key performance indicators should only be used in conjunction with, and not in lieu of, the results presented in the segment discussions that follow in this MD&A. These ratios and measures may not be comparable to other performance measures used by the Company’s competitors.

Definitions of Non-GAAP and Other Measures and Ratios

Account Value- includes policyholders’ balances for investment and insurance contracts and reserves for certain future policy benefits insurance contracts. Account value is a measure used by the Company because a significant portion of

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

the Company’s fee income is based upon the level of account value. These revenues increase or decrease with a rise or fall in assets under management whether caused by changes in the market or through net flows.

Assets Under Management ("AUM")- include account values, mutual fund and ETP assets. AUM is a measure used by the Company because a significant portion of the Company’s revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

Book Value per Diluted Share- a U.S. GAAP financial measure that represents a per share assessment of the value of a company's equity. It is calculated by dividing (a) common stockholders' equity by (b) common shares outstanding and dilutive potential common shares. The Company provides book value per diluted share to enable investors to assess the value of the Company’s equity.

Catastrophe Ratio- (a component of the loss and loss adjustment expense ratio) represents the ratio of catastrophe losses incurred in the current calendar year (net of reinsurance) to earned premiums and includes catastrophe losses incurred for both the current and prior accident years. A catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers. The catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums.

Combined Ratio- the sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses.

Core Earnings- a non-GAAP measure, is an important measure of the Company’s operating performance. The Company believes that core earnings provides investors with a valuable measure of the underlying performance of the Company’s businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain realized capital gains and losses, certain restructuring and other costs, pension settlements, loss on extinguishment of debt, reinsurance gains and losses from disposal of businesses, income tax benefit from reduction in deferred income tax valuation allowance, discontinued operations, and the impact of Unlocks to deferred policy acquisition cos ("DAC"), sales inducement assets ("SIA'), and death and other insurance benefit reserve balances. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of DAC) that tend to be highly variable from period to period based on capital market conditions. The Company believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Net income (loss) is the most directly comparable U.S. GAAP measure. Core earnings should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of the Company’s business. Therefore, the Company believes that it is useful for investors to evaluate both net income (loss) and core earnings when reviewing the Company’s performance.

Reconciliation of Net Income to Core Earnings



	Three Months Ended March 31,
	2017			2016
Net income	$	378		$	323
Less: Unlock benefit (charge), before tax	18			13
Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax	(20		)	(148		)
Less: Income tax benefit (expense) [1]	2			73
Core earnings	$	378		$	385

[1] Includes income tax benefit on items not included in core earnings and other federal income tax benefits and charges.

Core Earnings Margin- a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, the Group Benefits segment’s operating performance. Core earnings margin is calculated by dividing core earnings by revenues excluding buyouts and realized gains (losses). Net income margin is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses). Core earnings margin should not be considered as a substitute for

net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits.

Expense Ratio- for the underwriting segments of Commercial Lines and Personal Lines is the ratio of underwriting expenses less fee income, to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs and insurance operating costs and expenses, including

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

certain centralized services costs and bad debt expense. Deferred policy acquisition costs include commissions, taxes, licenses and fees and other incremental direct underwriting expenses and are amortized over the policy term.

The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses and amortization of deferred policy acquisition costs, to premiums and other considerations, excluding buyout premiums.

Fee Income- largely driven from amounts earned as a result of contractually defined percentages of assets under management, including account value of annuities and other products. These fees are generally earned on a daily basis. Therefore, the growth in assets under management either through positive net flows or net sales, or favorable market performance will have a favorable impact on fee income. Conversely, either negative net flows or net sales, or unfavorable market performance will reduce fee income. Fee income also includes installment billing fees charged to Commercial Lines and Personal Lines insureds.

Full Surrender Rates- an internal measure of contract surrenders calculated using annualized full surrenders divided by a two-point average of annuity account values. The full surrender rate represents full contract liquidation and excludes partial withdrawals.

Loss and Loss Adjustment Expense Ratio- a measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses incurred for both the current and prior accident years, as well as the costs of mortality and morbidity and other contractholder benefits to policyholders. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment.

The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the ratemaking process, adjust the assumption as appropriate for the particular state, product or coverage.

Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- a measure of the cost of non-catastrophe claims incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the

impact of volatile and unpredictable catastrophe losses and prior accident year development.

Loss Ratio, excluding Buyouts- utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the underwriting results of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts.

Mutual Fund and Exchange-Traded Product Assets- owned by the shareholders of those products and not by the Company and therefore are not reflected in the Company’s consolidated financial statements. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

New Business Written Premium- represents the amount of premiums charged for policies issued to customers who were not insured with the Company in the previous policy term. New business written premium plus renewal policy written premium equals total written premium.

Policies in Force- represent the number of policies with coverage in effect as of the end of the period. The number of policies in force is a growth measure used for Personal Lines and standard commercial lines within Commercial Lines and is affected by both new business growth and policy count retention.

Policy Count Retention- represents the ratio of the number of policies renewed during the period divided by the number of policies available to renew. The number of policies available to renew represents the number of policies, net of any cancellations, written in the previous policy term. Policy count retention is affected by a number of factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew policies because of specific policy underwriting concerns or because of a decision to reduce premium writings in certain classes of business or states. Policy count retention is also affected by advertising and rate actions taken by competitors.

Policyholder Dividend Ratio- the ratio of policyholder dividends to earned premium.

Prior Accident Year Loss and Loss Adjustment Expense Ratio- represents the increase (decrease) in the estimated cost of settling catastrophe and non-catastrophe claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums.

Reinstatement Premiums- represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of a reinsurance loss payment.

Renewal Earned Price Increase (Decrease)- Written premiums are earned over the policy term, which is six

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

months for certain Personal Lines automobile business and twelve months for substantially all of the remainder of the Company’s Property and Casualty business. Since the Company earns premiums over the six to twelve month term of the policies, renewal earned price increases (decreases) lag renewal written price increases (decreases) by six to twelve months.

Renewal Written Price Increase (Decrease)- for Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance carriers increases. Renewal written price statistics are subject to change from period to period, based on a number of factors, including changes in actuarial estimates and the effect of subsequent cancellations and non-renewals, and modifications made to better reflect ultimate pricing achieved.

Return on Assets (“ROA”), Core Earnings- a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, certain of the segment’s operating performance. ROA is the most directly comparable U.S. GAAP measure. The Company believes that ROA, core earnings, provides investors with a valuable measure of the performance of certain of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of realized gains (losses). ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both ROA, core earnings, and ROA when reviewing the Company’s performance. ROA, core earnings is calculated by dividing core earnings by a daily average AUM. A reconciliation of ROA to ROA, core earnings is set forth in the Results of Operations section within MD&A - Mutual Funds.

Underlying Combined Ratio- a non-GAAP financial measure, represents the combined ratio before catastrophes and prior accident year development. Combined ratio is the most directly comparable U.S. GAAP measure. The Company believes

the underlying combined ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. A reconciliation of combined ratio to underlying combined ratio is set forth in the Results of Operations section within MD&A - Commercial Lines and Personal Lines.

Underwriting Gain (Loss)- The Company's management evaluates profitability of the P&C businesses primarily on the basis of underwriting gain (loss). Underwriting gain (loss) is a before-tax measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of the Company's pricing. Underwriting profitability over time is also greatly influenced by the Company's pricing and underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. The Company believes that underwriting gain (loss) provides investors with a valuable measure of before-tax profitability derived from underwriting activities, which are managed separately from the Company's investing activities. A reconciliation of underwriting gain (loss) to net income (loss) for Commercial Lines, Personal Lines and Property & Casualty Other Operations is set forth in segment sections of MD&A.

Written and Earned Premiums- Written premium is a statutory accounting financial measure which represents the amount of premiums charged for policies issued, net of reinsurance, during a fiscal period. Earned premium is a U.S. GAAP and statutory measure. Premiums are considered earned and are included in the financial results on a pro rata basis over the policy period. Management believes that written premium is a performance measure that is useful to investors as it reflects current trends in the Company’s sale of property and casualty insurance products. Written and earned premium are recorded net of ceded reinsurance premium.

Traditional life insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums together with net investment income earned from the overall investment strategy are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of policies remaining in-force from year-to-year.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

THE HARTFORD’S OPERATIONS

Overview

The Hartford conducts business principally in six reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds and Talcott Resolution, as well as a Corporate category. The Hartford includes in its Corporate category the Company’s capital raising activities (including debt financing and related interest expense, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments).

The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) fee income, including asset management fees, on separate account, mutual fund and ETP assets, mortality and expense fees, as well as cost of insurance charges; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force. Asset management fees and mortality and expense fees are primarily generated from separate account assets and assets under management. Cost of insurance charges are assessed on the net amount at risk for investment-oriented life insurance products.

The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments.

The financial results in the Company’s mutual fund, ETP and variable annuity businesses depend largely on the amount of the contractholder or shareholder account value or assets under management on which it earns fees and the level of fees charged. Changes in account value or assets under management are driven by two main factors: net flows, and the market return of the funds, which is heavily influenced by the return realized in the equity and fixed income markets. Net flows are comprised of deposits less withdrawals and surrenders, redemptions, death benefits, policy charges and annuitizations of investment type contracts, such as variable annuity contracts. In the mutual fund

and ETP business, net flows are known as net sales. Net sales are comprised of new sales less redemptions by mutual fund and ETP shareholders. The Company uses the average daily value of the S&P 500 Index as an indicator for evaluating market returns of the underlying account portfolios for the variable annuity business. Financial results of variable products are highly correlated to the growth in account values or assets under management since these products generally earn fee income on a daily basis. Equity and fixed income market movements could also result in benefits for or charges against DAC.

The profitability of fixed annuities and other “spread-based” products depends largely on the Company’s ability to earn target spreads between earned investment rates on its general account assets and interest credited to policyholders.

The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, loss and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, equities, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities and asset-backed securities and collateralized debt obligations.

The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient after-tax income to meet policyholder and corporate obligations. Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations.

For further information on the Company's reporting segments refer to Part I, Item 1, Business - Reporting Segments in The Hartford’s 2016 Form 10-K Annual Report.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Highlights



Net Income	Net Income per Diluted Share	Book Value per Diluted Share

Net income was $378, or $1.02 per basic share and $1.00 per diluted share, compared with first quarter 2016 net income of $323, or $0.81 per basic share and $0.79 per diluted share, primarily due to lower net realized capital losses and higher net investment income.

Common share repurchases during first quarter 2017 totaled $325, or 6.7 million shares and $87 of dividends were paid to shareholders.

Book value per diluted common share increased to $45.25 from $44.35 as of December 31, 2016 as a result of a 1% decrease in common shares outstanding and dilutive potential common shares and a 1% increase in stockholders' equity resulting primarily from an increase in accumulated other comprehensive income driven by higher net unrealized capital gains. Net income for the period largely offset common dividends and share repurchases.



Net Investment Income	Investment Yield After-tax

Net investment income increased 5% to $728 compared with first quarter 2016 primarily due to higher income from investments in limited partnerships and alternative investments, partially offset by lower asset levels and reinvesting at lower interest rates.

Net realized capital losses decreased by $135 compared with first quarter 2016 primarily due to a change to net gains on sales as a result of duration, liquidity and credit management within corporate, residential mortgage-backed securities ("RMBS") and U.S. treasury securities as well as a change from net losses to net gains on non-qualifying interest rate derivatives, partially offset by higher variable annuity hedge program losses.

Annualized investment yield of 3.0%, after-tax, increased from 2.8%, after-tax, compared with first quarter 2016, primarily due to higher income from limited partnerships.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net unrealized gains, after-tax, in the investment portfolio increased by $137 compared with a increase of $522 in first quarter 2016 due to tighter credit spreads.



Written Premiums	Combined Ratio

Written premiums increased 1% compared with first quarter 2016 for Property & Casualty reflecting an increase in Commercial Lines largely offset by a decrease in Personal Lines.

Combined ratio for Property & Casualty increased 2.7 points to 97.4 compared with a combined ratio of 94.7 in first quarter 2016, largely due to higher catastrophe losses and a higher current accident year loss ratio in commercial lines automobile, personal lines automobile and homeowners, partially offset by less net unfavorable prior year reserve development.

Catastrophe losses of $150, before tax, increased from catastrophe losses of $91, before tax, in first quarter 2016, largely due to more severe wind and hail events in first quarter 2017.

Prior accident year development was unfavorable by $12, before tax, primarily due to increased reserves for commercial automobile and general liability, partially offset by a decrease in reserves for workers' compensation, compared with unfavorable prior accident year development of $33, before tax, in first quarter 2016.



Group Benefits Core Earnings Margin [1]	Net Income - Talcott Resolution


[1]	A reconciliation of the net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits.

Core earnings margin for Group Benefits decreased to 4.3% from 5.5% in first quarter 2016, due to $13 after-tax of state guaranty fund assessments, partially offset by higher net investment income and net realized capital gains.

Net income - Talcott Resolution was $68 compared with $17 in first quarter 2016, primarily due to lower net realized capital losses.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS

The Consolidated Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes beginning on page F-1 as well as with the segment operating results sections of MD&A.



	Three Months Ended March 31,
	2017			2016			Change
Earned premiums	$	3,473		$	3,404		2	%
Fee income	455			445			2	%
Net investment income	728			696			5	%
Net realized capital losses	(20		)	(155		)	87	%
Other revenues	19			20			(5	%)
Total revenues	4,655			4,410			6	%
Benefits, losses and loss adjustment expenses	2,757			2,641			4	%
Amortization of deferred policy acquisition costs	363			374			(3	%)
Insurance operating costs and other expenses	965			928			4	%
Interest expense	83			86			(3	%)
Total benefits, losses and expenses	4,168			4,029			3	%
Income before income taxes	487			381			28	%
Income tax expense	109			58			88	%
Net income	$	378		$	323		17	%

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income increased primarily due to lower net realized capital losses, and higher net investment income, partially offset by a state guaranty fund assessment in Group Benefits and a lower Property & Casualty underwriting gain. The lower underwriting gain in Property & Casualty was largely due to higher catastrophes and higher current accident year loss costs in commercial lines automobile, personal lines automobile and homeowners, partially offset by a lower amount of unfavorable net reserve development.

Earned premiums increased by 2% or $69, before tax, reflecting growth of 4% in Commercial Lines, including the effect of the Maxum acquisition, and 5% in Group Benefits, partially offset by a 4% decrease in Personal Lines. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.

Fee income increased reflecting a 14% increase in Mutual Funds, partially offset by a 7% decline in Talcott Resolution. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.

Net investment income increased primarily due to higher income from limited partnerships and other alternative investments due to an increase in valuations of private equity funds as well as losses on hedge funds in first quarter 2016. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).

Net realized capital losses decreased due to a change to net gains on sales as a result of duration, liquidity and credit management within corporate, residential mortgage-backed securities and U.S. treasury securities as well as a change from net losses to net gains on non-qualifying interest rate derivatives, partially offset by higher variable annuity hedge program losses. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).

Benefits, losses and loss adjustment expenses increased in both Property & Casualty and Group Benefits with the increase in Group Benefits primarily due to the effect of growth in earned premium. The net increase in incurred losses for Property & Casualty was driven by:


•	Losses and loss adjustment expenses before catastrophes in Property & Casualty increased $67, before tax, primarily resulting from the effect of Commercial Lines earned premium growth in Small Commercial and higher loss costs in commercial lines automobile, personal lines automobile and homeowners.

•

Current accident year catastrophe losses of $150, before tax, for the three months ended March 31, 2017, compared to $91, before tax, for the prior year period. Catastrophe losses in 2017 were primarily due to multiple wind and hail events across various U.S. geographic regions, primarily in the Midwest, Texas and the Southeast. Catastrophe losses in 2016 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the central and southern plains and, to a lesser extent, winter storms. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Product Reserves, Net of Reinsurance.


•	Unfavorable prior accident year reserve development in Property & Casualty of $12, before tax, for the three months ended March 31, 2017, compared to unfavorable reserve development of $33, before tax, for the prior year period.

▪

Net unfavorable prior accident year reserve development in first quarter 2017 was primarily due to an increase in reserves for commercial automobile liability and general liability, partially offset by a decrease in reserves for bond and workers' compensation. The increase in estimate for commercial automobile was in Small Commercial and large national accounts for the 2013 to 2016 accident years, driven by higher frequency of more severe accidents, including litigated claims.


▪	Prior accident year reserve development in 2016 was primarily due to an increase in reserves in personal lines automobile liability and small commercial package business, partially offset by favorable development in workers' compensation. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll Forwards and Development.

Amortization of deferred policy acquisition costs decreased primarily due to lower acquisition costs on a lower earned premium for Personal Lines and the effect of the runoff of Talcott Resolution, partially offset by higher acquisition costs on higher earned premium for Commercial Lines.

Insurance operating costs and other expenses increased primarily due to a $20 before tax of state guaranty fund assessments in Group Benefits, higher variable expenses in Mutual Funds and higher long-term incentive plan compensation costs, partially offset by a reduction in Personal Lines direct marketing costs. Effective with awards granted in March, 2017, long-term incentive compensation awards to retirement-eligible employees now fully vest when they are granted, which resulted in an accelerated recognition of compensation expense in first quarter 2017 of $18 pre-tax.

Income tax expense increased for the three months ended March 31, 2017 by $51 from $58 for the three months ended March 31, 2016 primarily due to the $106 increase in income before income taxes and the effect of a federal income tax benefit of $25 in first quarter 2016 related to the partial reduction of the deferred tax asset valuation allowance on the capital loss carryover due to taxable gains on sales of investments during the period.

Differences between the Company's effective income tax rate and the U.S. statutory rate of 35% are due primarily to tax-exempt interest earned on invested assets, the dividends received deduction and changes in the valuation allowance recorded on capital loss carryovers. For further discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

INVESTMENT RESULTS



	March 31, 2017				December 31, 2016
	Amount		Percent		Amount		Percent
Fixed maturities, available-for-sale ("AFS"), at fair value	$	56,326	78.0	%	$	56,003	79.3	%
Fixed maturities, at fair value using the fair value option ("FVO")	160		0.2	%	293		0.4	%
Equity securities, AFS, at fair value [1]	1,223		1.7	%	1,097		1.6	%
Mortgage loans	5,685		7.9	%	5,697		8.1	%
Policy loans, at outstanding balance	1,442		2.0	%	1,444		1.9	%
Limited partnerships and other alternative investments	2,418		3.3	%	2,456		3.5	%
Other investments [2]	340		0.5	%	403		0.6	%
Short-term investments	4,595		6.4	%	3,244		4.6	%
Total investments	$	72,189	100.0	%	$	70,637	100.0	%


[1]	Includes equity securities at fair value using the FVO of $123 as of March 31, 2017. The Company did not hold any equity securities, FVO as of December 31, 2016.


[2]	Primarily relates to derivative instruments.

March 31, 2017 compared to December, 31, 2016

Total investments increased primarily due to an increase in short-term investments and fixed maturities, AFS.

Short-term investments increased largely due to an increase in short-term investments held as part of the Company's

securities lending agreements as well as holding more short-term investments until those assets are reinvested into longer duration asset classes. For more information on the securities lending agreements, see Note 6 - Investments.

Fixed maturities, AFS increased primarily due to an increase in valuations as a result of a decline in longer dated interest rates and tighter credit spreads across most sectors.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Net Investment Income (Loss)
	Three Months Ended March 31,
	2017					2016
(Before tax)	Amount			Yield [1]		Amount			Yield [1]
Fixed maturities [2]	$	575		4.2	%	$	595		4.2	%
Equity securities	5			1.9	%	11			4.7	%
Mortgage loans	62			4.3	%	60			4.3	%
Policy loans	19			5.1	%	22			6.0	%
Limited partnerships and other alternative investments	70			11.6	%	8			1.2	%
Other [3]	29					27
Investment expense	(32		)			(27		)
Total net investment income	$	728		4.3	%	$	696		4.0	%
Total net investment income excluding limited partnerships and other alternative investments	$	658		4.0	%	$	688		4.1	%


[1]	Yields calculated using annualized net investment income divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding repurchase agreement and securities lending collateral , if any, and derivatives book value.


[2]	Includes net investment income on short-term investments.


[3]	Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.

Three months ended March 31, 2017, compared to the three months ended March 31, 2016

Total net investment income increased primarily due to higher income from limited partnerships and other alternative investments due to an increase in valuations of private equity funds as well as losses on hedge funds in first quarter 2016. Total net investment income excluding limited partnerships and other alternative investments decreased primarily due to lower asset levels as a result of the continued run-off of Talcott Resolution and lower reinvestment rates.

Annualized net investment income yield, excluding limited partnerships and other alternative investments, was 4.0% in 2017, down slightly from the same period in 2016. Excluding make-whole payments on fixed maturities, income received from previously impaired securities, and prepayment penalties on mortgage loans, the annualized investment income yield was 3.9% for the three months ended March 31, 2017, down from 4.1% for the three months ended March 31, 2016, primarily due to reinvesting at lower rates.

New money yield excluding certain U.S. Treasury securities and cash equivalent securities for the three months ended March 31, 2017, was approximately 3.7% which was below the average yield of sales and maturities of 3.9% for the same period in 2016. For the three months ended March 31, 2017, the new money yield of 3.7% decreased slightly from 3.8% for the three months ended March 31, 2016, due to tighter credit spreads.

We expect the annualized net investment income yield in 2017, excluding limited partnerships and other alternative investments, to be slightly below the portfolio yield earned in 2016. This assumes the Company earns less income in 2017 from make-whole payments on fixed maturities and prepayment penalties on mortgage loans than it did in 2016 and that reinvestment rates continue to be below the average yield of sales and maturities. The estimated impact on net investment income is subject to change as the composition of the portfolio changes through portfolio management and trading activities and changes in market conditions.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Net Realized Capital Gains (Losses)
	Three Months Ended March 31,
(Before tax)	2017			2016
Gross gains on sales	$	112		$	90
Gross losses on sales	(75		)	(108		)
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [1]	(1		)	(23		)
Results of variable annuity hedge program
GMWB derivatives, net	18			(17		)
Macro hedge program	(86		)	(14		)
Total results of variable annuity hedge program	(68		)	(31		)
Transactional foreign currency revaluation	(13		)	(44		)
Non-qualifying foreign currency derivatives	11			39
Other, net [2]	14			(78		)
Net realized capital gains (losses)	$	(20	)	$	(155	)


[1]	See Other-Than-Temporary Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A.


[2]	Primarily consists of changes in value of non-qualifying derivatives, including credit derivatives, interest rate derivatives used to manage duration, and embedded derivatives associated with modified coinsurance reinsurance contracts. Also included for the three months ended March 31, 2017, is a loss related to the sale of the Company's U.K. property and casualty run-off subsidiaries.

Three months ended March 31, 2017

Gross gains and losses on sales were primarily the result of duration, liquidity and credit management within corporate, residential mortgage-backed securities ("RMBS") and U.S. treasury securities.

Variable annuity hedge program losses included losses on the macro hedge program primarily due to losses of $46 driven by an improvement in domestic equity markets, $26 driven by a decline in equity market volatility and $19 driven by time decay on options. These losses were partially offset by net gains on the combined GMWB derivatives, net, which include the GMWB product, reinsurance, and hedging derivatives, primarily driven by gains of $10 due to a decline in equity market volatility and $7 driven by policy holder behavior.

Other, net gains primarily related to $14 of interest rate derivatives used to manage duration.

Three months ended March 31, 2016

Gross gains and losses on sales were primarily due to the sale of U.S. treasury securities, corporate securities and municipal bonds. The sales were primarily a result of duration, liquidity and credit management, as well as tactical changes to the portfolio as a result of changing market conditions, including the sales to reduce exposure to energy, emerging markets and other below investment grade corporate securities.

Variable annuity hedge program losses included losses on the combined GMWB derivatives, net, primarily driven by losses of $9 due to a decline in the value of equity derivatives and losses of $7 driven by liability model fund regression updates. Losses on the macro hedge program were primarily due to losses of $16 driven by a decline in value of equity derivatives and losses of $10 driven by time decay on options, partially offset by gains of $14 driven by a decline in interest rates.

Other, net loss was primarily due to losses of $23 on equity derivatives which were hedging the impact of a decline in the

equity market on the investment portfolio, losses of $19 on interest rate derivatives driven by market changes and losses of $22 associated with modified coinsurance reinsurance contracts driven by a decline in interest rates. Modified coinsurance reinsurance contracts are accounted for as embedded derivatives and transfer to the reinsurer the investment experience related to the assets supporting the reinsured policies.

CRITICAL ACCOUNTING 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 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, and in the past have differed, from those estimates.

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:


•	property and casualty insurance product reserves, net of reinsurance;


•	group benefit long-term disability (LTD) reserves, net of reinsurance;


•	estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts;


•	living benefits required to be fair valued (in other policyholder funds and benefits payable);


•	evaluation of goodwill for impairment;


•	valuation of investments and derivative instruments including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


•	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. In developing these estimates, management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements.

The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2016 Form 10-K Annual Report. In addition, Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2016 Form 10-K Annual Report should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. The following discussion updates certain of the Company’s critical accounting estimates as of March 31, 2017.

Property & Casualty Insurance Product Reserves, Net of Reinsurance

P&C Loss and Loss Adjustment Expense ("LAE") Reserves of $19,179, Net of Reinsurance, by Segment as of March 31, 2017

Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve estimates are adjusted after consideration of numerous factors, including but not limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, adjustments are made more quickly to more mature accident years and less volatile lines of business. Such adjustments of reserves are referred to as “prior accident year development”. Increases in previous estimates of ultimate loss costs are referred to as either an increase in prior accident year reserves or as unfavorable reserve development. Decreases in previous estimates of ultimate loss costs are referred to as either a decrease in prior accident year reserves or as favorable reserve development. Reserve development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and Loss Adjustment Expenses for the Three Months Ended March 31, 2017



	Commercial Lines		Personal Lines			Property & Casualty Other Operations		Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	17,238	$	2,094		$	2,501	$	21,833
Reinsurance and other recoverables	2,325		25			426		2,776
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,913		2,069			2,075		19,057
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	968		644			—		1,612
Current accident year ("CAY") catastrophes ("CATS")	71		79			—		150
Prior accident year development ("PYD")	15		(4		)	1		12
Total provision for unpaid losses and loss adjustment expenses	1,054		719			1		1,774
Less: payments	863		710			79		1,652
Ending liabilities for unpaid losses and loss adjustment expenses, net	15,104		2,078			1,997		19,179
Reinsurance and other recoverables	2,336		25			411		2,772
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	17,440	$	2,103		$	2,408	$	21,951
Earned premiums	$	1,698	$	945
Loss and loss expense paid ratio [1]	50.8		75.1
Loss and loss expense incurred ratio	62.4		77.0
Prior accident year development (pts) [2]	0.9		(0.4		)


[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.


[2]	“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

Catastrophe Losses of $150 for the Three Months Ended March 31, 2017

[1] These amounts represent an aggregation of multiple catastrophes.

[2] Includes Commercial Lines of $1 and Personal Lines of $3.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Prior Accident Year Development of $12 for the Three Months Ended March 31, 2017



	Commercial Lines			Personal Lines			Property & Casualty Other Operations		Total Property & Casualty Insurance
Workers’ compensation	$	(20	)	$	—		$	—	$	(20	)
Workers’ compensation discount accretion	8			—			—		8
General liability	10			—			—		10
Package business	—			—			—		—
Commercial property	1			—			—		1
Professional liability	—			—			—		—
Bond	(10		)	—			—		(10		)
Automobile liability	20			—			—		20
Homeowners	—			—			—		—
Net asbestos reserves	—			—			—		—
Net environmental reserves	—			—			—		—
Catastrophes	—			(3		)	—		(3		)
Uncollectible reinsurance	—			—			—		—
Other reserve re-estimates, net	6			(1		)	1		6
Total prior accident year development	$	15		$	(4	)	$	1	$	12

For discussion of prior accident year development for the three months ended March 31, 2017, refer to the Property and Casualty Insurance Products section of Note 8 - Reserve for

Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Three Months Ended March 31, 2016



	Commercial Lines [3]			Personal Lines		Property & Casualty Other Operations		Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	16,559		$	1,845	$	3,421	$	21,825
Reinsurance and other recoverables	2,293			19		570		2,882
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,266			1,826		2,851		18,943
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	913			632		—		1,545
Current accident year catastrophes	44			47		—		91
Prior accident year development	(20		)	52		1		33
Total provision for unpaid losses and loss adjustment expenses	937			731		1		1,669
Less: payments	854			707		63		1,624
Ending liabilities for unpaid losses and loss adjustment expenses, net	14,349			1,850		2,789		18,988
Reinsurance and other recoverables	2,251			19		565		2,835
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	16,600		$	1,869	$	3,354	$	21,823
Earned premiums	$	1,623		$	975
Loss and loss expense paid ratio [1]	52.6			72.5
Loss and loss expense incurred ratio	57.7			75.0
Prior accident year development (pts) [2]	(1.2		)	5.3


[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.


[2]	“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Catastrophe Losses of $91 for the Three Months Ended March 31, 2016


[1]	These amounts represent an aggregation of multiple catastrophes.

Prior Accident Year Development of $33 for the Three Months Ended March 31, 2016



	Commercial Lines			Personal Lines			Property & Casualty Other Operations		Total Property & Casualty Insurance
Workers’ compensation	$	(79	)	$	—		$	—	$	(79	)
Workers’ compensation discount accretion	7			—			—		7
General liability	32			—			—		32
Package business	45			—			—		45
Commercial property	(2		)	—			—		(2		)
Professional liability	(33		)	—			—		(33		)
Bond	(6		)	—			—		(6		)
Automobile liability	9			65			—		74
Homeowners	—			(6		)	—		(6		)
Catastrophes	(2		)	(5		)	—		(7		)
Other reserve re-estimates, net	9			(2		)	1		8
Total prior accident year development	$	(20	)	$	52		$	1	$	33

For discussion of prior accident year development for the three months ended March 31, 2016, refer to the Property and Casualty Insurance Products section of Note 8 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

P&C Other Operations Total Reserves, Net of Reinsurance [1]

[1] Excludes net reserves of $487 to be transferred to the buyer in connection with the pending sale of the Company's U.K. property and casualty run-off subsidiaries. These net reserves, of which$246 was for asbestos and environmental, are included in liabilities held for sale as of March 31, 2017 and December 31, 2016.

Asbestos and Environmental Reserves

Reserves for asbestos and environmental are primarily within P&C Other Operations with less significant amounts of asbestos and environmental reserves included within Commercial Lines and Personal Lines reporting segments (collectively "Ongoing Operations"). The following tables include all asbestos and environmental reserves, including reserves in P&C Other Operations and Ongoing Operations.

Asbestos and Environmental Net Reserves



	Asbestos		Environmental
March 31, 2017
Property and Casualty Other Operations	$	1,243	$	207
Commercial Lines and Personal Lines	77		57
Ending liability — net	$	1,320	$	264
December 31, 2016
Property and Casualty Other Operations	$	1,282	$	234
Commercial Lines and Personal Lines	81		58
Ending liability — net	$	1,363	$	292

Property & Casualty Reserves Asbestos and Environmental Summary as of March 31, 2017



		Asbestos			Environmental			Total A&E
Gross
	Direct	$	1,513		$	280		$	1,793
	Assumed Reinsurance	162			7			169
	London Market	293			47			340
	Total	1,968			334			2,302
Ceded		(443		)	(29		)	(472		)
Net reserves transferred to liabilities held for sale		(205		)	(41		)	(246		)
Net		$	1,320		$	264		$	1,584

Roll-Forward of Asbestos and Environmental Losses and LAE for the Three Months Ended March 31, 2017 and March 31, 2016



	Asbestos			Environmental
2017
Beginning liability—net	$	1,363		$	292
Reclassification of allowance for uncollectible reinsurance [1]	1			—
Losses and loss adjustment expenses paid	(44		)	(28		)
Ending liability – net	$	1,320		$	264
2016
Beginning liability—net	$	1,803		$	318
Losses and loss adjustment expenses paid	(37		)	(10		)
Ending liability – net	$	1,766		$	308

[1] Related to the reclassification of an allowance for uncollectible reinsurance from the "All Other" category of P&C Other Operations reserves.

The Company classifies its asbestos and environmental reserves into three categories: Direct, Assumed Reinsurance and London Market.


•	Direct Insurance- includes primary and excess coverage. Of the three categories of claims, direct policies tend to have the greatest factual development from which to estimate the Company’s exposures.


•	Assumed Reinsurance- includes both “treaty” reinsurance (covering broad categories of claims or blocks of business) and “facultative” reinsurance (covering specific risks or individual policies of primary or excess insurance companies). Assumed Reinsurance exposures are less predictable than direct insurance exposures because the Company does not generally receive notice of a reinsurance

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

claim until the underlying direct insurance claim is mature. This causes a delay in the receipt of information at the reinsurer level and adds to the uncertainty of estimating related reserves.

•

London Market- includes the business written by one or more of the Company’s subsidiaries in the United Kingdom, which are no longer active in the insurance or reinsurance business. Such business includes both direct insurance and assumed reinsurance. London Market exposures are the most uncertain of the three categories of claims. As a participant in the London Market (comprised of both Lloyd’s of London and London Market companies), certain subsidiaries of the Company wrote business on a subscription basis, with those subsidiaries’ involvement being limited to a relatively small percentage of a total contract placement. Claims are reported, via a broker, to the “lead” underwriter and, once agreed to, are presented to the following markets for concurrence. This reporting and claim agreement process makes estimating liabilities for this business the most uncertain of the three categories of claims.

Net Survival Ratio

Net survival ratio is the quotient of the net carried reserves divided by average annual payments net of reinsurance and is an indication of the number of years that net carried reserves would last (i.e. survive) if future annual net payments were consistent with the calculated historical average.

The net survival ratios shown below are calculated for the one and three year periods ended March 31, 2017 and are calculated excluding the effect of net carried reserves for asbestos and environmental related to the pending sale of the Company's U.K. Property & Casualty runoff subsidiaries as those carried reserves are included in liabilities held for sale in the consolidated balance sheet as of March 31, 2017. See section that follows entitled Adverse Development Cover which could materially affect the survival ratio of net reserves given that adverse development of asbestos and environmental reserves, if any, subsequent to December 31, 2016 will be ceded to NICO up to the reinsurance limit. For asbestos, the table also presents the net survival ratios excluding the effect of the PPG settlement in the second quarter of 2016.

Net Survival Ratios



	Asbestos	Environmental
One year net survival ratio	2.9	3.6
Three year net survival ratio	4.9	4.4
One year net survival ratio - excluding PPG settlement	7.6
Three year net survival ratio - excluding PPG settlement	7.7

Asbestos and Environmental Paid and Incurred Losses and LAE Development for the Three Months Ended March 31, 2017



	Asbestos					Environmental
	Paid Losses & LAE			Incurred Losses & LAE		Paid Losses & LAE			Incurred Losses & LAE
Gross
Direct	$	41		$	—	$	33		$	—
Assumed Reinsurance	15			—		1			—
London Market	6			—		1			—
Total	62			—		35			—
Ceded	(18		)	—		(7		)	—
Net	$	44		$	—	$	28		$	—

Adverse Development Cover

Effective December 31, 2016, the Company entered into an asbestos and environmental adverse development cover (“ADC”) reinsurance agreement with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., to reduce uncertainty about potential adverse development. Under the ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss and allocated loss adjustment expense reserve development up to $1.5 billion above the Company’s existing net asbestos and environmental (“A&E”) reserves as of December 31, 2016 of approximately $1.7 billion. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit. The ADC excludes risk of adverse development on net asbestos and environmental reserves held by the Company’s U.K. Property and Casualty run-off subsidiaries which have been accounted for as liabilities held for sale in the consolidated balance sheets as of March 31, 2017 and December 31, 2016.

The ADC has been accounted for as retroactive reinsurance and the Company reported the $650 cost as a loss on reinsurance transaction in 2016 in the consolidated statement of operations. Under retroactive reinsurance accounting, net adverse asbestos and environmental reserve development after December 31, 2016, if any, will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid would be recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings.

Uncertainties Regarding Adequacy of Asbestos and Environmental Reserves

A number of factors affect the variability of estimates for asbestos and environmental reserves before considering the effect of the reinsurance agreement with NICO, including assumptions with respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims with no payment, resolution of coverage disputes with our policyholders and the expense to indemnity ratio. The uncertainty with respect to the underlying reserve assumptions for asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for more traditional exposures.

Excluding net asbestos and environmental reserves of the Company's U.K. property and casualty subsidiaries that are included in liabilities held for sale, as of March 31, 2017 , the Company reported $1.3 billion of net asbestos reserves and $264 million of net environmental reserves. The Company believes that its current asbestos and environmental reserves are appropriate. However, analyses of future developments could cause The Hartford to change its estimates of its asbestos and environmental reserves. As discussed above the effect of these changes could be material to the Company's liquidity and, if cumulative adverse development subsequent to December 31, 2016 exceeded $650 million, the effect of the changes could be material to the Company's consolidated operating results. The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in the Company's 2016 Form 10-K Annual Report.

Consistent with the Company's long-standing reserve practices, the Company will continue to review and monitor its reserves in Property & Casualty Other Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables and the allowance for uncollectible reinsurance, and environmental liabilities, and where future developments indicate, make appropriate adjustments to the reserves. For a discussion of the Company's reserving practices, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance in the Company's 2016 Form 10-K Annual Report.

Estimated Gross Profits

Estimated gross profits (“EGPs”) are used in the valuation and amortization of assets, including DAC and SIA. Portions of EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and other universal life type contracts.



Talcott Resolution Significant EGP - based Balances
	As of March 31, 2017		As of December 31, 2016
DAC	$	1,042	$	1,066
SIA	$	53	$	53
Death and Other Insurance Benefit Reserves, net of reinsurance [1]	$	357	$	354


[1]	For additional information on death and other insurance benefit reserves, see Note 9 - Reserve for Future Policy Benefits and Separate Account Liabilities of Notes to Condensed Consolidated Financial Statements.



Talcott Resolution Benefit (Charge) to Income, Net of Tax, as a Result of Unlock
	Three Months Ended March 31,
	2017		2016
DAC	$	12	$	1
SIA	1		1
Death and Other Insurance Benefit Reserves	5		11
Total (before tax)	$	18	$	13
Income tax effect	6		4
Total (after-tax)	$	12	$	9

The Unlock benefit of $12, after-tax, for the three months ended March 31, 2017 was largely due to separate account returns being above our aggregated estimated returns during the period, partially offset by higher than expected lapses.

The Unlock benefit of $9, after-tax, for the three months ended March 31, 2016 was primarily driven by the effect that actual versus expected returns during the quarter had on aggregated estimated return as well as by lower than expected lapses.

Use of Estimated Gross Profits in Amortization and Reserving

For most annuity contracts, the Company estimates gross profits over 20 years as EGPs emerging subsequent to that time frame are immaterial. Products sold in a particular year are aggregated into cohorts. Future gross profits for each cohort are projected over the estimated lives of the underlying contracts, based on future account value projections for variable annuity products. The projection of future account values requires the use of certain assumptions including: separate account returns; separate account fund mix; fees assessed against the contract holder’s account balance; surrender and lapse rates; interest margin; mortality; and the extent and duration of hedging activities and hedging costs. Changes in these assumptions and changes to other policyholder behavior assumptions such as resets, partial surrenders, reaction to price increases, and asset allocations cause EGPs to fluctuate, which impacts earnings.

The Company determines EGPs from a single deterministic reversion to mean (“RTM”) separate account return projection which is an estimation technique commonly used by insurance

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

entities to project future separate account returns. Through this estimation technique, the Company’s DAC model is adjusted to reflect actual account values at the end of each quarter. Through consideration of recent market returns, the Company will unlock, or adjust, projected returns over a future period so that the account value returns to the long-term expected rate of return, providing that those projected returns do not exceed certain caps.

Market Unlocks

In addition to updating assumptions in the fourth quarter of each year, an Unlock revises EGPs, on a quarterly basis, to reflect the Company’s current best estimate assumptions and market updates of policyholder account value. The Unlock for future separate account returns is determined each quarter. Under RTM, the expected long-term weighted average rate of return is 8.3%. The annual return assumed over the next five years of approximately 0.8% was calculated based on the return needed over that period to produce an 8.3% return since March of 2009, the date the Company adopted the RTM estimation technique to project future separate account returns. Based on the expected trend of policy lapses and annuitizations, the Company expects approximately 50% of its block of variable annuities to run off in the next 5 years.

Aggregate Recoverability

After each quarterly Unlock, the Company also tests the aggregate recoverability of DAC by comparing the DAC balance to the present value of future EGPs. The margin between the DAC balance and the present value of future EGPs for variable annuities was 42% as of March 31, 2017. If the margin between the DAC asset and the present value of future EGPs is exhausted, then further reductions in EGPs would cause portions of DAC to be unrecoverable and the DAC asset would be written down to equal future EGPs.

Valuation Allowance on Deferred Tax Assets

Deferred tax assets represent the tax benefit of future deductible temporary differences and tax carryforwards. Deferred tax assets are measured using the enacted tax rates expected to be in effect when such benefits are realized if there is no change in tax law. Under U.S. GAAP, we test the value of deferred tax assets for impairment on a quarterly basis at the entity level within each tax jurisdiction, consistent with our filed tax returns. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The determination of the valuation allowance for our deferred tax assets requires management to make certain judgments and assumptions. In evaluating the ability to recover deferred tax assets, we have considered all available evidence as of March 31, 2017, including past operating results, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. In the event we determine it is not more likely than not that we will be able to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance would be reversed. Our judgments

and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions.

As of March 31, 2017 and December 31, 2016, the Company had no valuation allowance. In assessing the need for a valuation allowance, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of debt securities with market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset-liability matching. Management views such tax planning strategies as prudent and feasible, and would implement them, if necessary, to realize the deferred tax assets.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SEGMENT OPERATING SUMMARIES

COMMERCIAL LINES

Results of Operations

Underwriting Summary



	Three Months Ended March 31,
	2017		2016			Change
Written premiums	$	1,821	$	1,726		6	%
Change in unearned premium reserve	133		103			29	%
Earned premiums	1,688		1,623			4	%
Fee income	10		10			—	%
Losses and loss adjustment expenses
Current accident year before catastrophes	968		913			6	%
Current accident year catastrophes	71		44			61	%
Prior accident year development	15		(20		)	175	%
Total losses and loss adjustment expenses	1,054		937			12	%
Amortization of deferred policy acquisition costs	249		242			3	%
Underwriting expenses	323		305			6	%
Dividends to policyholders	4		4			—	%
Underwriting gain	68		145			(53	%)
Net investment income [1]	243		209			16	%
Net realized capital gains (losses) [1]	11		(33		)	133	%
Other income	1		1			—	%
Income before income taxes	323		322			—	%
Income tax expense [2]	92		97			(5	%)
Net income	$	231	$	225		3	%


[1]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).


[2]	For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Premium Measures [1]



	Three Months Ended March 31,
	2017			2016
New business premium	$	313		$	275
Standard commercial lines policy count retention	85		%	84		%
Standard commercial lines renewal written price increase	3.3		%	2.2		%
Standard commercial lines renewal earned price increase	2.4		%	2.5		%
Standard commercial lines policies in-force as of end of period (in thousands)	1,347			1,314


[1]	Standard commercial lines consists of small commercial and middle market. Standard commercial premium measures exclude middle market programs and livestock lines of business.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Underwriting Ratios



	Three Months Ended March 31,
	2017	2016		Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes	57.3	56.3		1.0
Current accident year catastrophes	4.2	2.7		1.5
Prior accident year development	0.9	(1.2	)	2.1
Total loss and loss adjustment expense ratio	62.4	57.7		4.7
Expense ratio	33.3	33.1		0.2
Policyholder dividend ratio	0.2	0.2		—
Combined ratio	96.0	91.1		4.9
Current accident year catastrophes and prior year development	5.1	1.5		3.6
Underlying combined ratio	90.9	89.6		1.3

Net Income

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income increased primarily due to a change to net realized capital gains in first quarter 2017 from net realized capital losses in first quarter 2016, as well as higher net investment income, partially offset by a lower underwriting gain.

Underwriting Gain

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Underwriting gain decreased due to higher current accident year losses and loss adjustment expenses, including higher catastrophes, as well as a change to unfavorable prior accident year reserve development and higher underwriting expenses, partially offset by earned premium growth. The higher underwriting expenses included an increase in costs for long-term incentive compensation due to recognition of long-term compensation expense for retirement-eligible employees and higher IT costs.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Earned Premiums

[1] Other of $11 and $12 for three months ended March 31, 2016, and 2017, respectively, is included in the total.

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Earned premiums increased reflecting written premium growth over the preceding twelve months.

Written premiums increased for the three months ended March 31, 2017 primarily due to growth in small commercial, middle market' and specialty commercial.


•	Small Commercial growth was primarily due to higher renewal premium driven by slightly higher policy retention and renewal written price increases, as well as growth from the acquisition of Maxum, partially offset by lower new business premium, excluding Maxum.


•	Middle Market growth was primarily driven by higher new business and audit premium.


•	Specialty Commercial growth was primarily due to higher new and renewal premium in Bond.


•	For the three months ended March 31, 2017, renewal written price increases averaged 3.3% in standard commercial, which included 4.5% for Small Commercial and 0.9% for Middle Market.

Loss and LAE Ratio before Catastrophes and Prior Accident Year Development

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Loss and LAE ratio before catastrophes and prior accident year development increased for the three months ended March 31, 2017 principally due to a higher loss and loss adjustment expense ratio in commercial automobile, driven by elevated severity.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Catastrophes and (Favorable) Unfavorable Prior Accident Year Development

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Current accident year catastrophe losses totaled $71, before tax, for the three months ended March 31, 2017, compared to $44, before tax, for the three months ended March 31, 2016. Catastrophe losses for the three months ended March 31, 2017 were primarily due to wind and hail events and winter storms in the Midwest, Texas and the Southeast. Catastrophe losses for the three months ended March 31, 2016 were primarily due to winter storms across various U.S. geographic regions and, to a lesser extent, multiple wind and hail events concentrated in the central and southern plains.

Prior accident year development of $15, before tax, was unfavorable for the three months ended March 31, 2017, compared to favorable prior accident year development of $20, before tax, for the three months ended March 31, 2016. Net reserve increases for the three months ended March 31, 2017 were primarily related to commercial automobile liability and general liability, largely offset by a decrease in reserves for bond and workers’ compensation. Net reserve decreases for the three months ended March 31, 2016 were primarily related to decreases in professional liability and workers' compensation reserves, partially offset by increases in reserves related to the small commercial package business, and in general liability for a class of business that insures service and maintenance contractors.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PERSONAL LINES

Results of Operations

Underwriting Summary



	Three Months Ended March 31,
Underwriting Summary	2017			2016			Change
Written premiums	$	889		$	953		(7	%)
Change in unearned premium reserve	(45		)	(22		)	(105	%)
Earned premiums	934			975			(4	%)
Fee income	11			9			22	%
Losses and loss adjustment expenses
Current accident year before catastrophes	644			632			2	%
Current accident year catastrophes	79			47			68	%
Prior accident year development	(4		)	52			(108	%)
Total losses and loss adjustment expenses	719			731			(2	%)
Amortization of DAC	81			89			(9	%)
Underwriting expenses	138			163			(15	%)
Underwriting gain	7			1			NM
Net servicing income [1]	3			4			(25	%)
Net investment income [2]	36			31			16	%
Net realized capital gains [2]	2			(5		)	140	%
Other expense	(1		)	—			NM
Income before income taxes	47			31			52	%
Income tax expense [3]	14			8			75	%
Net income	$	33		$	23		43	%


[1]	Includes servicing revenues of $19 and $20 for the three months ended March 31, 2017 and 2016, respectively.


[2]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).


[3]	For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Written and Earned Premiums



	Three Months Ended March 31,
Written Premiums	2017		2016		Change
Product Line
Automobile	$	645	$	690	(7	%)
Homeowners	244		263		(7	%)
Total	$	889	$	953	(7	%)
Earned Premiums
Product Line
Automobile	$	654	$	678	(4	%)
Homeowners	280		297		(6	%)
Total	$	934	$	975	(4	%)

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Premium Measures



	Three Months Ended March 31,
Premium Measures	2017			2016
Policies in-force end of period (in thousands)
Automobile	1,905			2,073
Homeowners	1,144			1,262
New business written premium
Automobile	$	42		$	110
Homeowners	$	12		$	23
Policy count retention
Automobile	82		%	84		%
Homeowners	82		%	84		%
Renewal written price increase
Automobile	10.5		%	6.1		%
Homeowners	8.9		%	8.1		%
Renewal earned price increase
Automobile	8.2		%	5.7		%
Homeowners	8.2		%	7.2		%

Underwriting Ratios



	Three Months Ended March 31,
Underwriting Ratios	2017		2016	Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes	69.0		64.8	4.2
Current accident year catastrophes	8.5		4.8	3.7
Prior year development	(0.4	)	5.3	(5.7	)
Total loss and loss adjustment expense ratio	77.0		75.0	2.0
Expense ratio	22.3		24.9	(2.6	)
Combined ratio	99.3		99.9	(0.6	)
Current accident year catastrophes and prior year development	8.1		10.1	(2.0	)
Underlying combined ratio	91.2		89.7	1.5

Product Combined Ratios



	Three Months Ended March 31,
	2017	2016	Change
Automobile
Combined ratio	97.5	106.6	(9.1	)
Underlying combined ratio	96.6	96.2	0.4
Homeowners
Combined ratio	103.4	84.7	18.7
Underlying combined ratio	78.9	75.1	3.8

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Income

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income increased primarily due to a higher underwriting gain, an increase in net investment income and a change from net realized capital losses to net realized capital gains.

Underwriting Gain

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Underwriting gain increased primarily due to the effect of net unfavorable reserve development in first quarter 2016 and a decrease in underwriting expenses, partially offset by higher catastrophes, a higher current accident year loss and loss adjustment expense ratio before catastrophes and the effect of a decline in earned premium. The decrease in underwriting expenses was primarily due to a decrease in direct marketing expenses.

Earned Premiums

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Earned premiums decreased reflecting a decline in written premium over the prior six to twelve months, particularly in non-AARP member Agency business.

Written premiums decreased in both the direct and agency channels primarily due a decline in new business and lower policy count retention in both automobile and homeowners.

Renewal written pricing increased in both automobile and home as the Company increased rates to improve profitability.

Policy count retention for both automobile and homeowners was lower in 2017 driven in part by renewal written pricing increases.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Loss and LAE Ratio before Catastrophes and Prior Accident Year Development

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Loss and LAE ratio before catastrophes and prior accident year development increased primarily as a result of higher automobile liability frequency and severity and higher fire and non-catastrophe weather-related homeowners losses, partially offset by the effect of increases in earned pricing. Taking into account management’s current view of first quarter 2016 loss cost changes, in first quarter 2017, automobile liability frequency has decreased while automobile liability severity has increased modestly.

Catastrophes and (Favorable) Unfavorable Prior Accident Year Development

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Current accident year catastrophe losses of $79, before tax, for the three months ended March 31, 2017, increased compared to $47, before tax, for the three months ended March 31, 2016 due to more severe wind and hail events. Catastrophe losses for the three months ended March 31, 2017 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the Midwest, Texas and the southeast. Catastrophe losses for the three months ended March 31, 2016 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the central and southern plains.

Prior accident year development of $4, before tax, was favorable for the three months ended March 31, 2017, compared to unfavorable prior accident year development of $52, before tax, for the three months ended March 31, 2016. Net reserves decreased for the three months ended March 31, 2017 primarily due to decreases in reserves for prior accident year catastrophes. Net reserves increased for for the three months ended March 31, 2016 primarily due to increased reserves in automobile liability for accident years 2014 and 2015 primarily due to higher emerged bodily injury severity and, for the third and fourth accident quarters of 2015, an increase in bodily injury frequency.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PROPERTY & CASUALTY OTHER OPERATIONS

Results of Operations

Underwriting Summary



	Three Months Ended March 31,
Underwriting Summary	2017			2016			Change
Losses and loss adjustment expenses
Prior accident year development	$	1		$	1		—	%
Total losses and loss adjustment expenses	1			1			—	%
Underwriting expenses	5			7			(29	%)
Underwriting loss	(6		)	(8		)	25	%
Net investment income [1]	31			32			(3	%)
Net realized capital gains (losses) [1]	4			(3		)	NM
Other income	2			2			—	%
Income before income taxes	31			23			35	%
Income tax expense [2]	7			6			17	%
Net income	$	24		$	17		41	%


[1]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

[2] For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Net Income

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income for the three months ended March 31, 2017, as compared to the prior year period, increased primarily due to a change to net realized capital gains in the current year period from net realized capital losses in the prior year period.

Asbestos and environmental reserve reviews will

occur in the fourth quarter of the year, beginning in 2017. For information on asbestos and environmental reserves, see MD&A - Critical Accounting Estimates, Property & Casualty Other Operations Claims, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

GROUP BENEFITS

Results of Operations



Operating Summary
	Three Months Ended March 31,
	2017		2016		Change
Premiums and other considerations	$	835	$	795	5	%
Net investment income	95		88		8	%
Net realized capital gains (losses) [1]	8		2		NM
Total revenues	938		885		6	%
Benefits, losses and loss adjustment expenses	651		618		5	%
Amortization of deferred policy acquisition costs	8		8		—	%
Insurance operating costs and other expenses	220		194		13	%
Total benefits, losses and expenses	879		820		7	%
Income before income taxes	59		65		(9	)%
Income tax expense [2]	14		15		(7	)%
Net income	$	45	$	50	(10	)%


[1]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).


[2]	For discussion of income taxes, see Note 11 - Income Taxes of Notes to the Consolidated Financial Statements.



Premiums and Other Considerations
	Three Months Ended March 31,
	2017		2016		Change
Fully insured – ongoing premiums	$	805	$	772	4	%
Buyout premiums	11		6		83	%
Fee income	19		17		12	%
Total premiums and other considerations	$	835	$	795	5	%
Fully insured ongoing sales, excluding buyouts	$	211	$	266	(21	)%



Ratios, Excluding Buyouts
	Three Months Ended March 31,
	2017		2016		Change
Group disability loss ratio	82.9	%	82.4	%	(0.5)
Group life loss ratio	73.1	%	73.8	%	0.7
Total loss ratio	77.7	%	77.6	%	(0.1)
Expense ratio	27.7	%	25.6	%	(2.1)



Margin
	Three Months Ended March 31,
	2017		2016		Change
Net income margin	4.9	%	5.7	%	(0.8	)
Effect of net capital realized gains (losses), net of tax on after-tax margin	0.6	%	0.2	%	0.4
Core earnings margin	4.3	%	5.5	%	(1.2	)

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Income

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income decreased due to state guaranty fund assessments of $13 after-tax related to the liquidation of a life and health insurance company, partially offset by higher net investment income and net realized capital gains.

Insurance operating costs and other expenses increased 13% due primarily to state guaranty fund assessments of $20 before tax related to the liquidation of a life and health insurance company.

Fully Insured Ongoing Premiums

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Fully insured ongoing premiums increased 4% due to strong group life and group disability persistency and disability pricing increases.

Fully insured ongoing sales, excluding buyouts, were down 21% due to fewer large case sales in the current year.

Ratios

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Total loss ratio increased 0.1 points to 77.7% due to a slightly higher group disability loss ratio, partially offset by a slightly lower group life loss ratio. The group disability loss ratio increased 0.5 points due to an increase in expected long term disability claim severity, partially offset by continued improvements in incidence trends and pricing as well as continued strong long-term disability claim recoveries. The group life loss ratio decreased 0.7 points due to lower incidence.

Expense ratio increased 2.1 points primarily due to state guaranty fund assessments related to the liquidation of a life and health insurance company.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MUTUAL FUNDS

Results of Operations

Operating Summary



	Three Months Ended March 31,
	2017		2016		Change
Fee income and other revenue	$	191	$	167	14	%
Net investment income	1		—		NM
Total revenues	192		167		15	%
Amortization of DAC	6		5		20	%
Operating costs and other expenses	151		131		15	%
Total benefits, losses and expenses	157		136		15	%
Income before income taxes	35		31		13	%
Income tax expense	12		11		9	%
Net income	$	23	$	20	15	%

Daily Average Total Mutual Funds segment AUM	$	101,114	$	87,192	16	%
Return on Assets ("ROA") [1]
Net income	9.2		9.3		(1	)%
Core Earnings	9.2		9.3		(1	)%

[1] Represents annualized earnings divided by a daily average of assets under management, as measured in basis points.

Mutual Funds Segment AUM



	Three Months Ended March 31,
	2017			2016			Change
Mutual Fund AUM - beginning of period	$	81,298		$	74,413		9	%
Sales	7,218			4,699			54	%
Redemptions	(5,885		)	(4,885		)	(20	)%
Net flows	1,333			(186		)	NM
Change in market value and other [1]	4,167			(608		)	NM
Mutual Fund AUM - end of period	$	86,798		$	73,619		18	%
Exchange Traded Products AUM [2] [4]	278						NM
Mutual Funds segment AUM before Talcott Resolution	87,076			73,619			18	%
Talcott Resolution AUM [3]	16,123			16,795			(4	)%
Total Mutual Funds segment AUM	$	103,199		$	90,414		14	%

[1] Other includes AUM from adoption of ten U.S. mutual funds with aggregate AUM of approximately $3.0 billion (as of October 2016) from Schroder Investment Management North America Inc.

[2] Includes AUM of approximately $200 acquired upon acquisition in July 2016 of Lattice Strategies, LLC and subsequent net flows and change in market value.

[3] Talcott Resolution AUM consist of Company-sponsored mutual fund assets held in separate accounts supporting variable insurance and investment products.

[4] Includes two actively managed fixed income ETP's launched in March 2017.

Mutual Fund AUM by Asset Class



	March 31, 2017		March 31, 2016		Change
Equity	$	54,683	$	46,455	18	%
Fixed Income	13,973		12,389		13	%
Multi-Strategy Investments [1]	18,142		14,775		23	%
Mutual Fund AUM	$	86,798	$	73,619	18	%

[1] Includes balanced allocation, and alternative investment products.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Income

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income for the three months ended March 31, 2017 increased compared to the prior year period due to higher investment management fees resulting from higher AUM levels, partially offset by higher variable sub-advisory, distribution and service expenses.

Total Mutual Funds segment AUM for the three months ended March 31, 2017 increased to $103.2 billion compared to first quarter 2016 of $90.4 billion due to market appreciation, the addition of Schroders Mutual Funds (in October 2016) and positive net flows, partially offset by the continued run off of Talcott Resolution AUM. Mutual Fund net flows for the three months ended March 31, 2017 totaled $1.3 billion compared with net outflows of $0.2 billion in the prior year period due to strong sales and positive net flows in all asset classes.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

TALCOTT RESOLUTION

Results of Operations



Operating Summary
	Three Months Ended March 31,
	2017			2016			Change
Earned premiums	$	35		$	28		25	%
Fee income and other	223			241			(7	%)
Net investment income [1]	318			325			(2	%)
Realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses	—			(7		)	100	%
Other net realized capital gains (losses)	(45		)	(105		)	57	%
Net realized capital gains (losses) [1]	(45		)	(112		)	60	%
Total revenues	531			482			10	%
Benefits, losses and loss adjustment expenses	332			354			(6	%)
Amortization of DAC	19			30			(37	%)
Insurance operating costs and other expenses	106			105			1	%
Total benefits, losses and expenses	457			489			(7	%)
Income before income taxes	74			(7		)	NM
Income tax expense (benefit)	6			(24		)	125	%
Net income	$	68		$	17		NM
Assets Under Management (end of period)
Variable annuity account value	$	40,948		$	42,500		(4	%)
Fixed market value adjusted and payout annuities	7,571			8,014			(6	%)
Institutional annuity account value	15,177			15,169			—	%
Other account value [2]	87,237			86,762			1	%
Total account value	$	150,933		$	152,445		(1	%)
Variable Annuity Account Value
Account value, beginning of period	$	40,698		$	44,245		(8	%)
Net outflows	(1,520		)	(1,466		)	(4	%)
Change in market value and other	1,770			(279		)	NM
Account value, end of period	$	40,948		$	42,500		(4	%)


[1]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

[2]

Other account value included $31.3 billion, $14.8 billion, and $41.1 billion as of March 31, 2017 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Other account value included $31.9 billion, $14.5 billion, and 40.4 billion at March 31, 2016 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Account values associated with the Retirement Plans and Individual Life businesses no longer generate asset-based fee income due to the sales of these businesses through reinsurance transactions.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Income (Loss)

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net income increased primarily due to lower net realized capital losses in 2017. Net realized capital losses were down due to a change from net losses to net gains on GMWB derivatives, net gains on sales of investments in first quarter 2017 and lower losses on the modified coinsurance reinsurance contract related to the individual life business reinsured with Prudential, partially offset by higher losses on the variable annuity macro hedge program. Apart from the lower net realized capital losses and a modest increase in unlock benefit, earnings rose due to lower interest credited, partially offset by lower net investment income, lower tax benefits recognized in the current year period and lower fee income due to the continued run off of the variable annuity block. Net investment income decreased due to the run off of the annuity business assets under management, partially offset by higher limited partnership investment income.

Total Account Value

March 31, 2017 compared to March 31, 2016

Account value decreased to approximately $151 billion due to net outflows in variable annuity account value, partially offset by market appreciation.

Variable annuity net outflows were approximately $1.5 billion due to the continued run-off of the business.

Variable Annuity Annualized Full Surrender Rate

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Variable annuity annualized full surrender rate increased to 7.8%. This increase was primarily because as market appreciation has increased account values, contract holders are more likely to surrender since the GMDB and GMWB market level guarantees do not have as much value.

Contract Counts (in thousands)

March 31, 2017 compared to March 31, 2016

Contract counts decreased 9% for annuities, primarily due to the continued run-off of the block.

Income Taxes

The effective tax rates in 2017 and 2016 differ from the U.S. federal statutory rate of 35% primarily due to permanent differences related to separate account DRD. For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CORPORATE

Results of Operations

Operating Summary



	Three Months Ended March 31,
Operating Summary	2017			2016			Change
Fee income [1]	$	1		$	1		—	%
Net investment income	4			11			(64	%)
Net realized capital gains (losses)	—			(4		)	100	%
Total revenues	5			8			(38	%)
Insurance operating costs and other expenses [1]	4			6			(33	%)
Interest expense	83			86			(3	%)
Total benefits, losses and expenses	87			92			(5	%)
Loss before income taxes	(82		)	(84		)	2	%
Income tax benefit	(36		)	(55		)	35	%
Net loss	$	(46	)	$	(29	)	(59	%)


[1]	Fee income includes the income associated with the sales of non-proprietary insurance products in the Company’s broker-dealer subsidiaries that has an offsetting commission expense included in insurance operating costs and other expenses.

Net Loss

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Net loss for the three months ended March 31, 2017 increased from a net loss in the prior year period primarily due to a decrease in income tax benefits. First quarter 2016 included a federal income tax benefit of $25 in the 2016 period related to the reduction of the deferred tax valuation allowance on capital loss carryovers and first quarter 2017 included a $7 federal income tax benefit related to the vesting of stock-based compensation at a fair value per share higher than the grant date fair value per share.

Interest Expense

Three months ended March 31, 2017 compared to the three months ended March 31, 2016

Interest expense decreased primarily due to a decrease in outstanding debt due to debt maturities. Since March 31, 2016, $691 of senior notes have matured. For a discussion of income taxes, see Note 11 Income Taxes of Notes to Condensed Consolidated Financial Statements. For a discussion of investment results, see MD&A - Investment Results, Net Investment Income (loss) and Net Realized Capital Gains (losses).

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

ENTERPRISE RISK MANAGEMENT

The Company’s Board of Directors has ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management is tasked with the day-to-day management of the Company’s risks.

The Company manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) oversees the risk profile and risk management practices of the Company.

The Company's enterprise risk management ("ERM") function supports the ERCC and functional committees, and is tasked with, among other things:


•	risk identification and assessment;


•	the development of risk appetites, tolerances, and limits;


•	risk monitoring; and


•	internal and external risk reporting.

The Company categorizes its main risks as insurance risk, operational risk and financial risk. Insurance risk and financial risk are described in more detail below. Operational risk and specific risk tolerances for natural catastrophes, terrorism risk and pandemic risk are described in the ERM section of the MD&A in The Hartford’s 2016 Form 10-K Annual Report.

Insurance Risk

The Company categorizes its insurance risks across property-

casualty, group benefits and life products. Non-catastrophe insurance risk arises from a number of exposure including to property, liability, mortality, morbidity, disability and longevity. Catastrophe risk primarily arises in the group life, group disability, property, and workers' compensation product lines. The Company establishes risk limits to control potential loss and actively monitors the risk exposures as a percent of statutory surplus. The Company also uses reinsurance to transfer insurance risk to well-established and financially secure reinsurers.

Reinsurance as a Risk Management Strategy

The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers compensation exposures, and individual risk or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. Facultative reinsurance is used by the Company to manage policy-specific risk exposures based on established underwriting guidelines. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program established under “TRIPRA” and other reinsurance programs relating to particular risks or specific lines of business.

Reinsurance for Catastrophes- The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers' compensation losses aggregating from single catastrophe events.

Primary Catastrophe Treaty Reinsurance Coverages as of March 31, 2017



Coverage	Effective for the period	% of layer(s) reinsurance	Per occurrence limit			Retention
Property losses arising from a single catastrophe event [1] [2]	1/1/2017 to 1/1/2018	88%	$	800		$	350
Property catastrophe losses from a Personal Lines Florida hurricane	6/1/2016 to 6/1/2017	90%	$	109	[3]	$	34
Workers compensation losses arising from a single catastrophe event [4]	1/1/2017 to 12/31/2017	80%	$	350		$	100


[1]	Certain aspects of our principal catastrophe treaty have terms that extend beyond the traditional one year term. While overall treaty is placed at 88%, each layer's placement varies slightly.


[2]	$50 of the property occurrence treaty can alternatively be used as part of the Property Aggregate treaty referenced below.


[3]	The per occurrence limit on the FHCF treaty is $109 for the 6/1/2016 to 6/1/2017 treaty year based on the Company's election to purchase the required coverage from the Florida Hurricane Catastrophe Fund ("FHCF"). Coverage is based on the best available information from FHCF, which was updated in January 2017.


[4]	In addition to the limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of a$30 per event limit in excess of a $20 retention.

In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other catastrophe and working layer treaties and facultative reinsurance agreements that cover property catastrophe losses on an aggregate excess of loss and on a per risk basis. The principal property catastrophe reinsurance program and certain other reinsurance programs include a provision to reinstate limits in the event that a catastrophe loss exhausts limits on one or more layers under the treaties. In addition, covering the period from January 1, 2017 to December 31, 2017, the Company has a Property Aggregate treaty in place which provides one limit of

$200 of aggregate qualifying property catastrophe losses in excess of a net retention of $850.

Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological ("NBCR") attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through the Terrorism Risk Insurance Program ("TRIPRA") to the end of 2020.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

TRIPRA provides a backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, for losses that exceed a threshold of industry losses of $100 in 2015, with the threshold increasing to $200 by 2020. Under the program, in any one calendar year, the federal government would pay a percentage of losses incurred from a certified act of terrorism after an insurer's losses exceed 20% of the Company's eligible direct commercial earned premiums of the prior calendar year up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. The percentage of losses paid by the federal government is 83% in 2017, decreasing by 1 point

annually to 80% in the year 2020. The Company's estimated deductible under the program is $1.2 billion for 2017. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, a future Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.

Reinsurance Recoverables

Property and casualty insurance product reinsurance recoverables represent loss and loss adjustment expense recoverables from a number of entities, including reinsurers and pools.

Property & Casualty Reinsurance Recoverables



	As of March 31, 2017			As of December 31, 2016
Paid loss and loss adjustment expenses	$	85		$	89
Unpaid loss and loss adjustment expenses	2,445			2,449
Gross reinsurance recoverables [1]	$	2,530		$	2,538
Less: Allowance for uncollectible reinsurance	(187		)	(165		)
Net reinsurance recoverables	$	2,365		$	2,373

[1] As of March 31, 2017 and December 31, 2016, excludes reinsurance recoverables of $210 and $178, respectively, to be transferred to the buyer in connection with the pending sale of the Company's U.K. property and casualty run-off subsidiaries.

Group benefits and life insurance product reinsurance recoverables represent future policy benefits and unpaid loss and loss adjustment expenses and other

policyholder funds and benefits payable that are recoverable from a number of reinsurers.

Group Benefits and Life Insurance Reinsurance Recoverables



Reinsurance Recoverables	As of March 31, 2017		As of December 31, 2016
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable	$	21,040	$	20,938
Gross reinsurance recoverables	$	21,040	$	20,938
Less: Allowance for uncollectible reinsurance [1]	—		—
Net reinsurance recoverables	$	21,040	$	20,938

[1] No allowance for uncollectible reinsurance is required as of March 31, 2017 and December 31, 2016.

As of March 31, 2017, the Company has reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $11.2 billion, respectively. As of December 31, 2016, the Company had reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $11.1 billion, respectively. The Company's obligations to its direct policyholders that have been reinsured to MassMutual and Prudential are secured by invested assets held in trust. Net of invested assets held in trust, as of March 31, 2017, the Company has no reinsurance-related concentrations of credit risk greater than 10% of the Company’s Condensed Consolidated Stockholders’ Equity.

For further explanation of the Company's insurance risk management strategy, see MD&A Enterprise Risk Management Insurance RIsk Management in The Hartford's 2016 Form 10-K Annual Report.

Financial Risk

Financial risks include direct and indirect risks to the Company's financial objectives coming from events that impact market

conditions or prices. Some events may cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's general account assets and the liabilities and the guarantees which the company has written over various liability products, particularly its fixed and variable annuity guarantees. Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored, and mitigated where appropriate. The Company uses various risk management strategies, including reinsurance and over-the-counter and exchange traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve one of four Company-approved objectives: hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; or entering into synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity and foreign currency exchange.

Liquidity Risk

Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value.

The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability of liquidity. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact liquidity.

For further discussion on liquidity see the section on Capital Resources and Liquidity.

Credit Risk

Credit risk is the risk to earnings or capital due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with contractually agreed upon terms.

The majority of the Company’s credit risk is concentrated in its investment holdings, but it is also present in the Company’s reinsurance and insurance portfolios, including credit risk associated with reinsurance recoverables and premiums receivable.

The Company primarily manages its credit risk by holding a diversified mix of investment grade issuers and counterparties across its investment, reinsurance, and insurance portfolios. Potential losses are also limited within portfolios by diversifying across geographic regions, asset types, and sectors.

Mitigation strategies vary but may include:


•	Investing in a portfolio of high-quality and diverse securities;


•	Selling investments subject to credit risk;


•	Hedging through use of single name or basket credit default swaps;


•	Clearing transactions through central clearing houses that require daily variation margin;


•	Entering into contracts only with strong creditworthy institutions


•	Requiring collateral; and


•	Non-renewing policies/contracts or reinsurance treaties.

As of March 31, 2017, the Company had no investment exposure to any credit concentration risk of a single issuer or counterparty greater than 10% of the Company’s stockholders' equity, other than the U.S. government and certain U.S. government securities. For further discussion of concentration of credit risk in the investment portfolio, see the Concentration of Credit Risk section in Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

Credit Risk of Derivatives

The Company uses various derivative counterparties in executing its derivative transactions. The use of counterparties creates credit risk that the counterparty may not perform in accordance with the terms of the derivative transaction.

Downgrades to the credit ratings of the Company’s insurance operating companies may have adverse implications for its use of derivatives including those used to hedge benefit guarantees of variable annuities. In some cases, downgrades may give derivative counterparties for over-the-counter ("OTC") derivatives and clearing brokers for OTC-cleared derivatives the right to cancel and settle outstanding derivative trades or require additional collateral to be posted. In addition, downgrades may result in counterparties and clearing brokers becoming unwilling to engage in or clear additional derivatives or may require collateralization before entering into any new trades. This would restrict the supply of derivative instruments commonly used to hedge variable annuity guarantees, particularly long-dated equity derivatives and interest rate swaps.

The Company also has derivative counterparty exposure policies which limit the Company’s exposure to credit risk.

For the company’s derivative programs, the maximum uncollateralized threshold for a derivative counterparty for a single legal entity is $10. The Company currently transacts OTC derivatives in five legal entities that have a threshold greater than zero. The maximum combined threshold for a single counterparty across all legal entities that use derivatives and have a threshold greater than zero is $10. In addition, the Company may have exposure to multiple counterparties in a single corporate family due to a common credit support provider. As of March 31, 2017, the maximum combined threshold for all counterparties under a single credit support provider across all legal entities that use derivatives and have a threshold greater than zero was $10. Based on the contractual terms of the collateral agreements, these thresholds may be immediately reduced due to a downgrade in either party’s credit rating. For further discussion, see the Derivative Commitments section of Note 12 Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.

For the three months ended March 31, 2017, the Company incurred no losses on derivative instruments due to counterparty default.

Use of Credit Derivatives

The Company may also use credit default swaps to manage credit exposure or to assume credit risk to enhance yield.

Credit Risk Reduced Through Credit Derivatives

The Company uses credit derivatives to purchase credit protection with respect to a single entity, referenced index, or asset pool. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio.

Credit Risk Assumed Through Credit Derivatives

The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

policies. These swaps reference investment grade single corporate issuers and baskets, which include customized diversified portfolios of corporate issuers, which are established within sector concentration limits and may be divided into tranches which possess different credit ratings.

For further information on credit derivatives, see Note 7 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements.

Interest Rate Risk

Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities arising from movements in interest rates. Interest rate risk encompasses exposures with respect to changes in the level of interest rates, the shape of the term structure of rates and the volatility of interest rates. Interest rate risk does not include exposure to changes in credit spreads.

The Company has exposure to interest rates arising from its fixed maturity securities, interest sensitive liabilities such as fixed rate annuities and structured settlements and discount rate assumptions associated with the Company’s pension and other post retirement benefit obligations. In addition, certain product liabilities, including those containing GMWB or GMDB, expose the Company to interest rate risk but also have significant equity risk. These liabilities are discussed as part of the Variable Product Guarantee Risks and Risk Management section. Management also evaluates performance of certain Talcott Resolution products based on net investment spread which is, in part, influenced by changes in interest rates.

Changes in interest rates from current levels can have both favorable and unfavorable effects for the Company.

The Company manages its exposure to interest rate risk by constructing investment portfolios that maintain asset allocation limits and asset/liability duration matching targets which may include the use of derivatives.

The Company also utilizes a variety of derivative instruments to mitigate interest rate risk associated with its investment portfolio or to hedge liabilities. Interest rate caps, floors, swaps, swaptions, and futures may be used to manage portfolio duration.

Equity Risk

Equity risk is defined as the risk of financial loss due to changes in the value of global equities or equity indices. The Company has exposure to equity risk from assets under management, embedded derivatives within the Company’s variable annuities and assets that support the Company’s pension plans and other

post retirement benefit plans. The Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, reinsurance of product liabilities and hedging of changes in equity indices. Equity Risk on the Company’s variable annuity products is mitigated through various hedging programs which are primarily focused on mitigating the economic exposure while considering the potential impacts on statutory and GAAP accounting results. (See the Variable Annuity Hedging Program Section).

Talcott Resolution includes certain guaranteed benefits, primarily associated with variable annuity products, which increase the Company's potential benefit exposure in the periods that equity markets decline and the Company has a dynamic and macro hedging program in place to hedge the exposure.

For the assets that support its pension plans and other post retirement benefit plans. The asset allocation mix is reviewed on a periodic basis. In order to minimize risk, the pension plans maintain a listing of permissible and prohibited investments. In addition, the pension plans have certain concentration limits and investment quality requirements imposed on permissible investment options.

Managing Equity Risk on the Company's Variable Annuity Products- Most of the Company’s variable annuities include GMDB and certain contracts with GMDB also include GMWB features. Declines in the equity markets will increase the Company’s liability for these benefits. Many contracts with a GMDB include a maximum anniversary value ("MAV"), which in rising markets resets the guarantee on the anniversary to be 'at the money'. As the MAV increases, it can increase the NAR for subsequent declines in account value. Generally, a GMWB contract is ‘in the money’ if the contractholder’s guaranteed remaining balance ("GRB") becomes greater than the account value.

The NAR is generally defined as the guaranteed minimum benefit amount in excess of the contractholder’s current account value. Variable annuity account values with guarantee features were $40.9 billion and $40.7 billion as of March 31, 2017 and December 31, 2016, respectively.

The following tables summarize the account values of the Company’s variable annuities with guarantee features and the NAR split between various guarantee features (retained net amount at risk does not take into consideration the effects of the variable annuity hedge programs in place as of each balance sheet date).



Total Variable Annuity Guarantees as of March 31, 2017
($ in billions)	Account Value		Gross Net Amount at Risk		Retained Net Amount at Risk		% of Contracts In the Money[2]		% In the Money [2] [3]
U.S. Variable Annuity [1]
GMDB [4]	$	40.9	$	3.1	$	0.6	17	%	22	%
GMWB	$	18.3	$	0.2	$	0.1	6	%	17	%

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Total Variable Annuity Guarantees as of December 31, 2016
($ in billions)	Account Value		Gross Net Amount at Risk		Retained Net Amount at Risk		% of Contracts In the Money [2]		% In the Money [2] [3]
U.S. Variable Annuity [1]
GMDB [4]	$	40.7	$	3.3	$	0.7	28	%	14	%
GMWB	$	18.3	$	0.2	$	0.1	7	%	13	%


[1]	Contracts with a guaranteed living benefit also have a guaranteed death benefit. The NAR for each benefit is shown; however these benefits are not additive. When a contract terminates due to death, any NAR related to GMWB is released. Similarly, when a contract goes into benefit status on a GMWB, the GMDB NAR is reduced to zero.


[2]	Excludes contracts that are fully reinsured.


[3]	For all contracts that are “in the money”, this represents the percentage by which the average contract was in the money.


[4]	Includes contracts that had a GMDB at issue but no longer have a GMDB due to certain elections made by policyholders or their beneficiaries. Such contracts had $1.5 billion of account value as of both March 31, 2017 and December 31, 2016.

Many policyholders with a GMDB also have a GMWB. Policyholders that have a product that offers both guarantees can only receive the GMDB or GMWB. The GMDB NAR disclosed in the preceding tables is a point in time measurement and assumes that all participants utilize the GMDB on that measurement date.

The Company expects to incur GMDB payments in the future only if the policyholder has an “in the money” GMDB at their death. For contracts with a GMWB rider, the company expects to incur GMWB payments in the future only if the account value is reduced over time to a specified level through a combination of market performance and periodic withdrawals, at which point the contractholder will receive an annuity equal to the GRB which is generally equal to premiums less withdrawals. For the Company’s “life-time” GMWB products, this annuity can exceed the GRB. As the account value fluctuates with equity market returns on a daily basis and the “life-time” GMWB payments may exceed the GRB,

the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than the Company’s current carried liability. For additional information on the Company’s GMWB liability, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements. For additional information on the Company's GMDB liability, see Note 9 - Reserve for Future Policy Benefits and Separate Account Liabilities of Notes to Condensed Consolidated Financial Statements.

Variable Annuity Market Risk Exposures

The following table summarizes the broad Variable Annuity Guarantees offered by the Company and the market risks to which the guarantee is most exposed from a U.S. GAAP accounting perspective:



Variable Annuity Guarantees [1]	U.S. GAAP Treatment [1]	Primary Market Risk Exposures [1]
GMDB and life-contingent component of the GMWB	Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid	Equity Market Levels
GMWB (excluding life-contingent portions)	Fair Value	Equity Market Levels / Implied Volatility / Interest Rates


[1]	Each of these guarantees and the related U.S. GAAP accounting volatility will also be influenced by actual and estimated policyholder behavior.

Variable Annuity Hedging Program

The Company’s variable annuity hedging program is primarily focused, through the use of reinsurance and capital market derivative instruments, on reducing the economic exposure to market risks associated with guaranteed benefits that are embedded in our variable annuity contracts. The variable annuity hedging program also considers the potential impacts on statutory capital.

Reinsurance

The Company uses reinsurance for a portion of contracts with GMWB riders issued prior to the second quarter of 2006. The Company also uses reinsurance for a majority of the GMDB with NAR.

GMWB Hedge Program

Under the dynamic hedging program, the Company enters into derivative contracts to hedge market risk exposures associated with the GMWB liabilities that are not reinsured. These derivative contracts include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index.

Additionally, the Company holds customized derivative contracts to provide protection from certain capital market risks for the remaining term of specified blocks of non-reinsured GMWB riders. These customized derivative contracts are based on policyholder behavior assumptions specified at the inception of the derivative contracts. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.

While the Company actively manages this dynamic hedging program, increased U.S. GAAP earnings volatility may result from factors including, but not limited to: policyholder behavior, capital markets, divergence between the performance of the underlying funds and the hedging indices, changes in hedging positions and the relative emphasis placed on various risk management objectives.

Macro Hedge Program

The Company’s macro hedging program uses derivative instruments, such as options and futures on equities and interest rates, to provide protection against the statutory tail scenario risk arising from GMWB and GMDB liabilities on the Company’s

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

statutory surplus. These macro hedges cover some of the residual risks not otherwise covered by the dynamic hedging program. Management assesses this residual risk under various scenarios in designing and executing the macro hedge program. The macro hedge program will result in additional U.S. GAAP earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in GAAP liabilities.

Variable Annuity Hedging Program Sensitivities

The underlying guaranteed withdrawal benefit liabilities (excluding the life contingent portion of GMWB contracts) and hedge assets within the GMWB hedge and Macro hedge programs are carried at fair value.

The following table presents our estimates of the potential instantaneous impacts from sudden market stresses related to

equity market prices, interest rates, and implied market volatilities. The following sensitivities represent: (1) the net estimated difference between the change in the fair value of GMWB liabilities and the underlying hedge instruments and (2) the estimated change in fair value of the hedge instruments for the macro program, before the impacts of amortization of DAC and taxes. As noted in the preceding discussion, certain hedge assets are used to hedge liabilities that are not carried at fair value and will not have a liability offset in the U.S. GAAP sensitivity analysis. All sensitivities are measured as of March 31, 2017 and are related to the fair value of liabilities and hedge instruments in place at that date for the Company’s variable annuity hedge programs. The impacts presented in the table that follows are estimated individually and measured without consideration of any correlation among market risk factors.



GAAP Sensitivity Analysis (before tax and DAC) as of March 31, 2017 [1]
	GMWB									Macro
Equity Market Return	-20		%	-10		%	10		%	-20		%	-10		%	10		%
Potential Net Fair Value Impact	$	(4	)	$	—		$	(5	)	$	248		$	101		$	(66	)
Interest Rates	-50bps			-25bps			+25bps			-50bps			-25bps			+25bps
Potential Net Fair Value Impact	$	(3	)	$	(1	)	$	(1	)	$	3		$	2		$	(1	)
Implied Volatilities	10		%	2		%	-10		%	10		%	2		%	-10		%
Potential Net Fair Value Impact	$	(67	)	$	(13	)	$	63		$	133		$	26		$	(119	)


[1]	These sensitivities are based on the following key market levels as of March 31, 2017: 1) S&P of 2,363; 2) 10yr US swap rate of 2.43%; and 3) S&P 10yr volatility of 25.39%.

The preceding sensitivity analysis is an estimate and should not be used to predict the future financial performance of the Company's variable annuity hedge programs. The actual net changes in the fair value liability and the hedging assets illustrated in the preceding table may vary materially depending on a variety of factors which include but are not limited to:


•	The sensitivity analysis is only valid as of the measurement date and assumes instantaneous changes in the capital market factors and no ability to rebalance hedge positions prior to the market changes;


•	Changes to the underlying hedging program, policyholder behavior, and variation in underlying fund performance relative to the hedged index, which could materially impact the liability; and


•	The impact of elapsed time on liabilities or hedge assets, any non-parallel shifts in capital market factors, or correlated moves across the sensitivities.

Foreign Currency Exchange Risk

Foreign currency exchange risk is the risk of financial loss due to changes in the relative value between currencies.

The Company has foreign currency exchange risk primarily in non-U.S. dollar denominated fixed maturity investments, foreign denominated cash, a yen denominated fixed payout annuity and changes in equity of a P&C run-off entity in the United Kingdom. In addition, the Company’s Talcott Resolution segment formerly issued non-U.S. dollar denominated funding agreement liability contracts.

The open foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using currency futures/forwards/swaps. In order to manage the currency risk related to any non-U.S. dollar denominated liability contracts, the Company enters into foreign currency swaps or holds non-U.S. dollar denominated investments.

Investment Portfolio Risk

The following table presents the Company’s fixed maturities, AFS, by credit quality. The credit ratings referenced throughout this section are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Fixed Maturities by Credit Quality
	March 31, 2017						December 31, 2016
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
United States Government/Government agencies	$	7,089	$	7,281	12.9	%	$	7,474	$	7,626	13.6	%
AAA	6,770		7,032		12.5	%	6,733		6,969		12.5	%
AA	9,193		9,634		17.1	%	8,764		9,182		16.4	%
A	14,078		14,936		26.5	%	14,169		14,996		26.8	%
BBB	13,433		14,003		24.9	%	13,399		13,901		24.8	%
BB & below	3,345		3,440		6.1	%	3,266		3,329		5.9	%
Total fixed maturities, AFS	$	53,908	$	56,326	100	%	$	53,805	$	56,003	100	%

The fair value of securities increased, as compared to December 31, 2016, primarily due to higher valuations as a result of a decline in longer dated interest rates and tighter credit spreads across most sectors. Fixed maturities, FVO, are not

included in the preceding table. For further discussion on FVO securities, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Securities by Type
	March 31, 2017											December 31, 2016
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Percent of Total Fair Value
Asset-backed securities ("ABS")
Consumer loans	$	1,896	$	13	$	(20	)	$	1,889	3.4	%	$	2,057	$	10	$	(30	)	$	2,037	3.6	%
Small business	85		4		(1		)	88		0.2	%	86		3		(1		)	88		0.2	%
Other	286		3		(1		)	288		0.5	%	253		4		—			257		0.5	%
Collateralized debt obligations ("CDOs")
Collateralized loan obligations ("CLOs")	1,988		7		(3		)	1,992		3.5	%	1,597		7		(4		)	1,600		2.9	%
Commercial real estate ("CREs")	16		35		—			51		0.1	%	18		30		—			48		0.1	%
Other [1]	239		29		—			268		0.5	%	238		30		—			268		0.5	%
CMBS
Agency backed [2]	1,639		27		(19		)	1,647		2.9	%	1,439		24		(20		)	1,443		2.6	%
Bonds	2,647		60		(28		)	2,679		4.8	%	2,681		62		(33		)	2,710		4.7	%
Interest only (“IOs”)	769		15		(11		)	773		1.4	%	787		11		(15		)	783		1.4	%
Corporate
Basic industry	1,090		68		(5		)	1,153		2.0	%	1,071		61		(9		)	1,123		2.0	%
Capital goods	1,655		105		(13		)	1,747		3.1	%	1,522		110		(15		)	1,617		2.9	%
Consumer cyclical	1,437		77		(6		)	1,508		2.7	%	1,517		78		(10		)	1,585		2.8	%
Consumer non-cyclical	3,563		202		(36		)	3,729		6.5	%	3,792		206		(45		)	3,953		7.1	%
Energy	2,140		151		(14		)	2,277		4.0	%	2,098		142		(17		)	2,223		4.0	%
Financial services	4,740		278		(25		)	4,993		8.8	%	4,806		262		(32		)	5,036		9.0	%
Tech./comm.	3,512		274		(17		)	3,769		6.7	%	3,385		265		(20		)	3,630		6.5	%
Transportation	905		49		(6		)	948		1.7	%	896		46		(7		)	935		1.7	%
Utilities	5,018		330		(64		)	5,284		9.4	%	5,024		326		(65		)	5,285		9.3	%
Other	311		14		(3		)	322		0.6	%	269		14		(4		)	279		0.5	%
Foreign govt./govt. agencies	1,151		48		(12		)	1,187		2.1	%	1,164		33		(26		)	1,171		2.1	%
Municipal bonds
Taxable	1,459		111		(18		)	1,552		2.8	%	1,497		116		(20		)	1,593		2.8	%
Tax-exempt	9,617		648		(37		)	10,228		18.2	%	9,328		616		(51		)	9,893		17.7	%
RMBS
Agency	1,571		37		(7		)	1,601		2.8	%	2,493		39		(28		)	2,504		4.5	%
Non-agency	154		2		(1		)	155		0.3	%	178		3		(1		)	180		0.3	%
Alt-A	122		4		—			126		0.2	%	117		2		—			119		0.2	%
Sub-prime	2,019		26		(6		)	2,039		3.6	%	1,950		22		(8		)	1,964		3.5	%
U.S. Treasuries	3,879		189		(35		)	4,033		7.2	%	3,542		182		(45		)	3,679		6.6	%
Fixed maturities, AFS	53,908		2,806		(388		)	56,326		100	%	53,805		2,704		(506		)	56,003		100	%
Equity securities
Financial services	177		20		—			197		17.9	%	203		15		(1		)	217		19.8	%
Other	834		87		(18		)	903		82.1	%	817		81		(18		)	880		80.2	%
Equity securities, AFS	1,011		107		(18		)	1,100		100	%	1,020		96		(19		)	1,097		100	%
Total AFS securities	$	54,919	$	2,913	$	(406	)	$	57,426			$	54,825	$	2,800	$	(525	)	$	57,100
Fixed maturities, FVO								$	160										$	293
Equity, FVO [3]								$	123										$	—


[1]	Gross unrealized gains (losses) exclude the fair value of bifurcated embedded derivatives within certain securities. Changes in value are recorded in net realized capital gains (losses).


[2]	Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.


[3]	Included in equity securities, AFS on the Condensed Consolidated Balance Sheets. The Company did not hold any equity securities, FVO as of December 31, 2016.

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The fair value of AFS securities increased as compared to December 31, 2016 due to higher valuations as a result of a decrease in long-term interest rates and tighter credit spreads across most sectors. The Company also reduced its allocation to agency RMBS and reinvested proceeds into CLOs and tax-exempt municipal bonds.

Financial Services

The Company’s investment in the financial services sector is predominantly through investment grade banking and insurance institutions. The following table presents the Company’s fixed maturities and equity, AFS securities in the financial services sector that are included in the preceding Securities by Type table.



Financial Services by Credit Quality
	March 31, 2017						December 31, 2016
	Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)		Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)
AAA	$	33	$	35	$	2	$	13	$	15	$	2
AA	526		548		22		583		602		19
A	2,204		2,346		142		2,219		2,354		135
BBB	1,885		1,966		81		1,856		1,934		78
BB & below	269		295		26		338		348		10
Total [1]	$	4,917	$	5,190	$	273	$	5,009	$	5,253	$	244

[1]Includes equity, AFS securities with an amortized cost and fair value of $177 and $197, respectively as of March 31, 2017 and an amortized cost and fair value of $203 and $217, respectively, as of December 31, 2016 included in the Securities by Type table above.

Commercial Real Estate

The following table presents the Company’s exposure to CMBS bonds by current credit quality and vintage year included in the preceding Securities by Type table. Credit protection represents the current weighted average percentage of the outstanding

capital structure subordinated to the Company’s investment holding that is available to absorb losses before the security incurs the first dollar loss of principal and excludes any equity interest or property value in excess of outstanding debt.



Exposure to CMBS Bonds as of March 31, 2017
	AAA				AA				A				BBB				BB and Below				Total
Vintage Year [1]	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2008 & Prior	$	180	$	193	$	133	$	138	$	62	$	62	$	9	$	9	$	22	$	22	$	406	$	424
2009	—		—		11		11		—		—		—		—		—		—		11		11
2010	18		19		8		8		—		—		—		—		—		—		26		27
2011	55		59		—		—		15		15		—		—		—		—		70		74
2012	39		40		6		6		21		21		19		18		—		—		85		85
2013	16		16		95		98		102		106		4		4		—		—		217		224
2014	301		308		63		65		72		70		5		5		8		8		449		456
2015	165		165		200		198		208		208		109		110		11		10		693		691
2016	133		131		252		246		121		123		79		81		—		—		585		581
2017	—		—		84		84		—		—		21		22		—		—		105		106
Total	$	907	$	931	$	852	$	854	$	601	$	605	$	246	$	249	$	41	$	40	$	2,647	$	2,679
Credit protection	31.8%				24.2%				16.9%				13.2%				21.7%				24.1%

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Exposure to CMBS Bonds as of December 31, 2016
	AAA				AA				A				BBB				BB and Below				Total
Vintage Year [1]	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2008 & Prior	$	278	$	294	$	137	$	143	$	102	$	102	$	14	$	14	$	22	$	22	$	553	$	575
2009	11		11		—		—		—		—		—		—		—		—		11		11
2010	18		19		8		8		—		—		—		—		—		—		26		27
2011	55		59		—		—		13		13		2		2		—		—		70		74
2012	40		41		6		6		30		30		20		18		—		—		96		95
2013	16		17		95		99		110		113		4		4		—		—		225		233
2014	301		309		64		65		72		70		1		1		—		—		438		445
2015	210		210		200		198		207		206		87		87		—		—		704		701
2016	132		130		249		242		113		113		64		64		—		—		558		549
Total	$	1,061	$	1,090	$	759	$	761	$	647	$	647	$	192	$	190	$	22	$	22	$	2,681	$	2,710
Credit protection	33.3%				22.4%				18.0%				16.2%				32.5%				25.3%


[1]	The vintage year represents the year the pool of loans was originated.

The Company also has exposure to CRE CDOs with an amortized cost and fair value of $16 and $51, respectively, as of March 31, 2017, and $18 and $48 respectively, as of December 31, 2016. These securities are comprised of pools of commercial mortgage loans or equity positions of other CMBS securitizations.

In addition to CMBS bonds and CRE CDOs, the Company has exposure to commercial mortgage loans as presented in the following table. These loans are collateralized by a variety of commercial properties and are diversified both geographically

throughout the United States and by property type. These loans are primarily in the form of whole loans, where the Company is the sole lender, but may include participations. Loan participations are loans where the Company has purchased or retained a portion of an outstanding loan or package of loans and participates on a pro-rata basis in collecting interest and principal pursuant to the terms of the participation agreement. In general, A-Note participations have senior payment priority.



Commercial Mortgage Loans
	March 31, 2017							December 31, 2016
	Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value
Whole loans	$	5,568	$	(19	)	$	5,549	$	5,580	$	(19	)	$	5,561
A-Note participations	136		—			136		136		—			136
Total	$	5,704	$	(19	)	$	5,685	$	5,716	$	(19	)	$	5,697

[1] Amortized cost represents carrying value prior to valuation allowances, if any.

The Company funded $151 of commercial whole loans with a weighted average loan-to-value (“LTV”) ratio of 62% and a weighted average yield of 4.02% during the three months ended March 31, 2017. The Company continues to originate commercial whole loans within primary markets, such as office, industrial and multi-family, focusing on loans with strong LTV ratios and high quality property collateral. There were no mortgage loans held

for sale as of March 31, 2017, or December 31, 2016.

Municipal Bonds

The following table presents the Company's exposure to municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table.

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Available For Sale Investments in Municipal Bonds
	March 31, 2017					December 31, 2016
	Amortized Cost		Fair Value		Weighted Average Credit Quality	Amortized Cost		Fair Value		Weighted Average Credit Quality
General Obligation	$	1,793	$	1,900	AA	$	1,809	$	1,907	AA
Pre-refunded [1]	1,650		1,765		AAA	1,590		1,693		AAA
Revenue
Transportation	1,626		1,759		A+	1,591		1,724		A+
Health Care	1,131		1,199		AA-	1,216		1,285		AA-
Water & Sewer	1,058		1,115		AA	1,019		1,066		AA
Education	1,050		1,086		AA	988		1,023		AA
Sales Tax	579		632		AA	574		627		AA
Leasing [2]	786		847		AA-	681		734		AA-
Power	528		558		A+	571		605		A+
Housing	113		120		A+	136		140		A
Other	762		799		AA-	650		682		AA-
Total Revenue	7,633		8,115		AA-	7,426		7,886		AA-
Total Municipal	$	11,076	$	11,780	AA	$	10,825	$	11,486	AA


[1]	Pre-Refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest.

[2]

Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.

As of March 31, 2017 and December 31, 2016, the largest issuer concentrations were the state of California, the Commonwealth of Massachusetts, and the New York Dormitory Authority, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds.

Limited Partnerships and Other Alternative Investments

The following table presents the Company’s investments in

limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity and other funds. Real estate funds consist of investments primarily in real estate equity funds, including some funds with public market exposure, and real estate joint ventures. Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small to mid-sized non-public businesses with high growth potential as well as limited exposure to public markets.



Investments in Limited Partnerships and Other Alternative Investments
	March 31, 2017				December 31, 2016
	Amount		Percent		Amount		Percent
Hedge funds	$	152	6.3	%	$	155	6.3	%
Real estate funds	600		24.8	%	629		25.6	%
Private equity and other funds	1,280		52.9	%	1,291		52.6	%
Other alternative investments [1]	386		16.0	%	381		15.5	%
Total	$	2,418	100	%	$	2,456	100	%

[1] Consists of an insurer-owned life insurance policy which is primarily invested in hedge funds and other investments. This amount was previously included in hedge funds.

Available-for-sale Securities — Unrealized Loss Aging

The total gross unrealized losses were $406 as of March 31, 2017 and have decreased $119, or 23%, from December 31, 2016, primarily due to a decline in longer term interest rates and tighter credit spreads across most sectors. As of March 31, 2017, $385 of the gross unrealized losses were associated with securities depressed less than 20% of cost or amortized cost. The remaining

$21 of gross unrealized losses were associated with securities depressed greater than 20%. The securities depressed more than 20% are primarily securities with exposure to commercial real estate and municipal securities which are depressed primarily due to higher rates since the securities were purchased, as well as equity securities depressed due to issuer specific deterioration.

As part of the Company’s ongoing security monitoring process, the Company has reviewed its AFS securities in an unrealized loss position and concluded that these securities are temporarily

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depressed and are expected to recover in value as the securities approach maturity or as market spreads tighten. For these securities in an unrealized loss position where a credit impairment has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company

neither has an intention to sell nor does it expect to be required to sell these securities. For further information regarding the Company’s impairment analysis, see Other-Than-Temporary Impairments in the Investment Portfolio Risks and Risk Management section of this MD&A.



Unrealized Loss Aging for AFS Securities
	March 31, 2017								December 31, 2016
Consecutive Months	Items	Cost or Amortized Cost		Fair Value		Unrealized Loss [1]			Items	Cost or Amortized Cost		Fair Value		Unrealized Loss [1]
Three months or less	1,120	$	4,529	$	4,495	$	(34	)	2,119	$	11,299	$	11,037	$	(262	)
Greater than three to six months	1,091	6,177		6,010		(167		)	1,109	2,039		1,934		(105		)
Greater than six to nine months	580	1,525		1,443		(82		)	151	484		456		(28		)
Greater than nine to eleven months	119	433		408		(25		)	151	452		441		(11		)
Twelve months or more	618	2,288		2,190		(98		)	657	2,565		2,446		(119		)
Total	3,528	$	14,952	$	14,546	$	(406	)	4,187	$	16,839	$	16,314	$	(525	)


[1]	Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities as changes in value are recorded in net realized capital gains (losses).



Unrealized Loss Aging for AFS Securities Continuously Depressed Over 20%
	March 31, 2017								December 31, 2016
Consecutive Months	Items	Cost or Amortized Cost		Fair Value		Unrealized Loss			Items	Cost or Amortized Cost		Fair Value		Unrealized Loss [1]
Three months or less	80	$	21	$	15	$	(6	)	83	$	24	$	18	$	(6	)
Greater than three to six months	33	15		11		(4		)	38	13		9		(4		)
Greater than six to nine months	23	9		6		(3		)	21	14		10		(4		)
Greater than nine to eleven months	16	8		6		(2		)	11	1		—		(1		)
Twelve months or more	57	16		10		(6		)	56	19		11		(8		)
Total	209	$	69	$	48	$	(21	)	209	$	71	$	48	$	(23	)


[1]	Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities as changes in value are recorded in net realized capital gains (losses).



Other-than-temporary Impairments Recognized in Earnings by Security Type
	For the three months ended March 31,
	2017		2016
CMBS	$	1	$	1
Corporate	—		19
Equity	—		3
Total	$	1	$	23

Three months ended March 31, 2017

For the three months ended March 31, 2017, impairments recognized in earnings were comprised of credit impairments of $1. These impairments were primarily related to interest-only CMBS and were identified through security specific review of the expected future cash flows. The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific

trends, as well as our expectations with respect to security specific developments.

Non-credit impairments recognized in other comprehensive income were $2 for the three months ended March 31, 2017.

Future impairments may develop as the result of changes in intent-to-sell specific securities or if actual results underperform current modeling assumptions, which may be the result of, but are not limited to, macroeconomic factors and security-specific performance below current expectations.

Three months ended March 31, 2016

For the three months ended March 31, 2016, impairments recognized in earnings were comprised of credit impairments of $18 and intent-to-sell impairments of $2, both of which were primarily concentrated in corporate securities. Also, impairments recognized in earnings included impairments on equity securities of $3 that were in an unrealized loss position and the Company no longer believed the securities would recover in the foreseeable future.

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CAPITAL RESOURCES AND LIQUIDITY

The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months.

SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY

Capital available at the holding company as of March 31, 2017:


•	$1.3 billion in fixed maturities, short-term investments and cash at HFSG Holding Company


•	Borrowings available under a commercial paper program to a maximum of $1 billion. As of March 31, 2017 there was no commercial paper outstanding


•	A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to $1 billion of unsecured credit through October 31, 2019. No borrowings were outstanding as of March 31, 2017

Expected liquidity requirements for the next twelve months as of March 31, 2017:


•	$320 maturing debt payment due in March of 2018


•	$320 of interest on debt


•	$335 of common stockholders dividends, subject to the discretion of the Board of Directors

Equity repurchase program:


•	Authorization for equity repurchases of up to $1.3 billion for the period October 31, 2016 through December 31, 2017


•	$975 remaining as of March 31, 2017

2017 subsidiary dividend capacity:


•	Dividend capacity of $1.5 billion for property and casualty subsidiaries with $850 net dividends expected in 2017. During the first three months of 2017, property and casualty subsidiaries paid $220 in dividends to the holding company including $20 related to an intercompany note.


•	Dividend capacity of $207 for Hartford Life and Accident Insurance Company ("HLA") with $250 of dividends expected in 2017, subject to regulatory approval. During the first three months of 2017, HLA paid $63 in dividends to the holding company.


•	Dividend capacity of $1 billion for Hartford Life Insurance Company. On January 30, 2017, Hartford Life Insurance Company ("HLIC") paid a dividend of $300.


•	Over the remainder of 2017, HSFG Holding Company anticipates receiving additional net dividends of approximately $650 from its property-casualty insurance subsidiaries, $300 from HLIC, and$187 from HLA, subject to regulatory approval.

Liquidity Requirements and Sources of Capital

The Hartford Financial Services Group, Inc. (Holding Company)

The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. (“HFSG Holding Company”) have been and will continue to be met by HFSG Holding Company’s fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities, as needed.

As of March 31, 2017, HFSG Holding Company held fixed maturities, short-term investments and cash of $1.3 billion. Expected liquidity requirements of the HFSG Holding Company for the next twelve months include payments of 6.3% senior notes of $320 at maturity in March 2018 and interest payments on debt of approximately $320 and common stockholder dividends, subject to the discretion of the Board of Directors, of approximately $335.

The Hartford has an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2 billion for liquidity and other general corporate purposes. The Connecticut Insurance Department ("CTDOI") granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including the HFSG Holding Company, as admitted assets for statutory accounting purposes. As of March 31, 2017, there were no amounts outstanding from the HFSG Holding Company.

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Debt

On March 15, 2017, the Company repaid its $416, 5.375% senior notes at maturity.

On February 15, 2017, pursuant to the put option agreement with the Glen Meadow ABC Trust, the Company issued $500 junior subordinated notes with a scheduled maturity of February 12, 2047, and a final maturity of February 12, 2067. The junior subordinated notes bear interest at an annual rate of three-month LIBOR plus 2.125%, payable quarterly. The Hartford will have the right, on one or more occasions, to defer interest payments due on the junior subordinated notes under specified circumstances.

The Company expects to use the proceeds of the junior subordinated notes to fund the call of $500 in 8.125% junior subordinated debentures that are due 2068 and that are first callable in June 2018. As such, the proceeds of the $500 of junior subordinated notes issued under the contingent capital facility will be held at the holding company until June of 2018, resulting in an increase in debt to capital ratios during that time.

Intercompany Liquidity Agreements

On January 5, 2017, Hartford Fire Insurance Company, a subsidiary of the Company, issued a Revolving Note (the "Note") in the principal amount of $230 to Hartford Accident and Indemnity Company, an indirect wholly-owned subsidiary of the Company, under the intercompany liquidity agreement. The note was issued to fund the liquidity needs associated with the $650 ceded premium paid in January 2017 for the adverse development cover with NICO. The Note was repaid on March 29, 2017. The company has $2.0 billion available under the intercompany liquidity agreement as of March 31, 2017.

Equity

The Company's authorization for equity repurchases is $1.3 billion for the period October 31, 2016 through December 31, 2017 with $975 remaining as of March 31, 2017.

For further information about equity repurchases, see Part II. Other Information, Item 2.

Dividends

On February 23, 2017, The Hartford’s Board of Directors declared a quarterly dividend of $0.23 per common share payable on April 3, 2017 to common shareholders of record as of March 6, 2017.

There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its shareholders.

For a discussion of restrictions on dividends to the HFSG Holding Company from its insurance subsidiaries, see the following "Dividends from Insurance Subsidiaries" discussion. For a discussion of potential restrictions on the HFSG Holding Company's ability to pay dividends, see the risk factor "Our ability to declare and pay dividends is subject to limitations" in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Pension Plans and Other Postretirement Benefits

The Company does not have a 2017 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. The Company has not determined whether, and to what extent, contributions may be made to the U.S. qualified defined benefit pension plan in 2017. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2017 to make this determination.

Dividends from Insurance Subsidiaries

Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. Dividends paid to HFSG Holding Company by its life insurance subsidiaries are further dependent on cash requirements of Hartford Life, Inc. ("HLI") and other factors. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to expected earnings and capitalization of the subsidiaries, regulatory capital requirements and liquidity requirements of the individual operating company.

In 2017, The Company’s property and casualty insurance subsidiaries are permitted to pay up to a maximum of

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

approximately $1.5 billion in dividends to HFSG Holding Company without prior approval from the applicable insurance commissioner. During the first three months of 2017, HFSG Holding Company received approximately $220 in dividends from its property and casualty insurance subsidiaries. Dividends received from its property-casualty subsidiaries included approximately $20 related to principal and interest payments on an intercompany note between Hartford Holdings, Inc. ("HHI") and Hartford Fire Insurance Company, resulting in a net dividend of $200.

In 2017, Hartford Life and Accident Insurance Company ("HLA") is permitted to pay up to a maximum of $207 in dividends without prior approval from the insurance commissioner. During the first three months of 2017, HFSG Holding Company received approximately $63 in dividends from HLA.

In 2017, Hartford Life Insurance Company ("HLIC") is permitted to pay up to a maximum of $1 billion in dividends to HFSG Holding Company without prior approval from the insurance commissioner. However, to meet the liquidity needed to pay dividends up to the HFSG Holding Company, HLIC may require receiving regulatory approval for extraordinary dividends from HLIC's wholly-owned subsidiary, Hartford Life and Annuity Insurance Company. During the first three months of 2017, HLIC paid dividends of $300.

Over the remainder of 2017, HSFG Holding Company anticipates receiving additional net dividends of approximately $650 from its property-casualty insurance subsidiaries, $300 from HLIC, and$187 from HLA, subject to regulatory approval.

Other Sources of Capital for the HFSG Holding Company

The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support its competitive position in the financial services marketplace (see the "Ratings" section below for further discussion), and shareholder returns. As a result, the Company may from time to time raise capital from the issuance of equity, equity-related debt or other capital securities and is continuously evaluating strategic opportunities. The issuance of debt, common equity, equity-related debt or other capital securities could result in the dilution of shareholder interests or reduced net income due to additional interest expense.

Shelf Registrations

The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on July 29, 2016 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.

Commercial Paper and Revolving Credit Facility

Commercial Paper

The Hartford’s maximum borrowings available under its commercial paper program are $1 billion. The Company is dependent upon market conditions to access short-term financing through the issuance of commercial paper to investors. As of March 31, 2017, there was no commercial paper outstanding.

Revolving Credit Facilities

The Company has a senior unsecured five-year revolving credit

facility (the “Credit Facility”) that provides for borrowing capacity up to $1 billion of unsecured credit through October 31, 2019 available in U.S. dollars, Euro, Sterling, Canadian dollars and Japanese Yen. As of March 31, 2017, no borrowings were outstanding under the Credit Facility. As of March 31, 2017, the Company was in compliance with all financial covenants within the Credit Facility.

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of March 31, 2017 was $826. For this $826, the legal entities have posted collateral of $866 in the normal course of business. In addition, the Company has posted collateral of $31 associated with a customized GMWB derivative. Based on derivative market values as of March 31, 2017, a downgrade of one level below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. Based on derivative market values as of March 31, 2017, a downgrade of two levels below the current financial strength ratings by either Moody's or S&P would require additional $10 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.

As of March 31, 2017, the aggregate notional amount and fair value of derivative relationships that could be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings was $1.1 billion and $21, respectively. These amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated.

Insurance Operations

While subject to variability period to period, claim frequency and severity patterns and the level of policy surrenders continue to be within historical norms and, therefore, the Company’s insurance operations’ current liquidity position is considered to be sufficient to meet anticipated demands over the next twelve months. For a discussion and tabular presentation of the Company’s current contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Capital Resources and Liquidity section of the MD&A included in The Hartford’s 2016 Form 10-K Annual Report.

The principal sources of operating funds are premiums, fees earned from assets under management and investment income, while investing cash flows originate from maturities and sales of invested assets. The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting expenses, to pay taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company.

The Company’s insurance operations consist of property and casualty insurance products (collectively referred to as “Property & Casualty Operations”) and life insurance and legacy annuity products (collectively referred to as “Life Operations”).

Property & Casualty Operations

Property & Casualty Operations holds fixed maturity securities including a significant short-term investment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs.



Property & Casualty
	As of March 31, 2017
Fixed maturities	$	24,804
Short-term investments	1,606
Cash	84
Less: Derivative collateral	101
Total	$	26,393

Liquidity requirements that are unable to be funded by Property & Casualty Operation’s short-term investments would be satisfied with current operating funds, including premiums received or through the sale of invested assets. A sale of invested assets could result in significant realized capital gains (losses).

Life Operations

Life Operations’ total general account contractholder obligations are supported by $40 billion of cash and total general account invested assets, which included the following significant short-term investment position to meet liquidity needs.



Life Operations
	As of March 31, 2017
Fixed maturities	$	31,153
Short-term investments	2,236
Cash	253
Less: Derivative collateral	1,148
Total	$	32,494

Capital resources available to fund liquidity upon contractholder surrender or termination are a function of the legal entity in which the liquidity requirement resides. Generally, obligations of Group Benefits will be funded by Hartford Life and Accident Insurance Company. Obligations of Talcott Resolution will generally be funded by Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company.

HLIC, an indirect wholly-owned subsidiary, is a member of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows HLIC access to collateralized advances, which may be used to support various spread-based businesses and enhance liquidity management. FHLBB membership requires the company to own member stock and advances require the purchase of activity stock. The amount of advances that can be taken is dependent on the asset types pledged to secure the advances. The CTDOI will permit HLIC to pledge up to $1.1 billion in qualifying assets to secure FHLBB advances for 2017. The pledge limit is recalculated annually based on statutory admitted assets and capital and surplus. HLIC would need to seek the prior approval of the CTDOI in order to exceed these limits. As of March 31, 2017, HLIC had no advances outstanding under the FHLBB facility.



Contractholder Obligations
	As of March 31, 2017
Total Life contractholder obligations	$	167,246
Less: Separate account assets [1]	116,582
General account contractholder obligations	$	50,664
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]	$	24,629
U.S. Fixed MVA annuities [3]	5,037
Other [4]	20,998
General account contractholder obligations	$	50,664

[1]

In the event customers elect to surrender separate account assets, Life Operations will use the proceeds from the sale of the assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In some instances Life Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life Operations’ liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see the following) will decrease Life Operations’ obligation for payments on guaranteed living and death benefits.


[2]	Relates to contracts such as payout annuities, institutional notes, term life, group benefit contracts, or death and living benefit reserves, which cannot be surrendered for cash.

[3]

Relates to annuities that are recorded in the general account under U.S. GAAP as the contractholders are subject to the Company's credit risk, although these annuities are held in a statutory separate account. In the statutory separate account, Life Operations is required to maintain invested assets with a fair value greater than or equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life Operations is required to contribute additional capital to the statutory separate account. Life Operations will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are at least equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life Operations.

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

[4]

Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Life Operations' individual variable annuities and the variable life contracts of the former Individual Life business, the general account option for annuities of the former Retirement Plans business and universal life contracts sold by the former Individual Life business, may be funded through operating cash flows of Life Operations, available short-term investments, or Life Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. The Company has ceded reinsurance in connection with the sales of its Retirement Plans and Individual Life businesses to MassMutual and Prudential, respectively. These reinsurance transactions do not extinguish the Company's primary liability on the insurance policies issued under these businesses.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

There have been no material changes to the Company’s off-

balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s 2016 Form 10-K Annual Report.

Capitalization



Capital Structure
	March 31, 2017			December 31, 2016			Change
Short-term debt (includes current maturities of long-term debt)	$	320		$	416		(23	)%
Long-term debt	4,817			4,636			4	%
Total debt [1]	5,137			5,052			2	%
Stockholders’ equity excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	17,216			17,240			—	%
AOCI, net of tax	(207		)	(337		)	(39	)%
Total stockholders’ equity	$	17,009		$	16,903		1	%
Total capitalization including AOCI	$	22,146		$	21,955		1	%
Debt to stockholders’ equity	30		%	30		%
Debt to capitalization	23		%	23		%


[1]	Total debt of the Company excludes $14 and $20 of consumer notes as of March 31, 2017 and December 31, 2016, respectively.

Total capitalization increased $191, or 1%, as of March 31, 2017 compared to December 31, 2016 primarily due to increases in AOCI.

For additional information on AOCI, net of tax, and unrealized capital gains from securities, see Note 14 - Changes In and

Reclassifications From Accumulated Other Comprehensive Income, and Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

Cash Flow



	Three Months Ended March 31,
	2017			2016
Net cash provided by operating activities	$	225		$	398
Net cash provided (used) by investing activities	$	(1,208	)	$	194
Net cash provided (used) for financing activities	$	436		$	(565	)
Cash – end of period	$	337		$	479

Cash provided by operating activities decreased in 2017 as compared to the prior year period primarily due to a $650 premium payment for an asbestos and environmental adverse development cover reinsurance agreement, largely offset by an increase in securities lending payables.

Cash used by investing activities in 2017 primarily relates to net payments for short-term investments of $1,317 and net payments for derivatives of $56. Cash provided by investing activities in 2016 primarily relates to net proceeds from derivatives of $189 and net proceeds from partnerships of $147, partially offset by additions to property and equipment of of $84.

Cash provided for financing activities in 2017 consists primarily of net increase in securities loaned or sold

under agreements to repurchase of $1,115. Cash used for financing activities in 2016 consists primarily of acquisitions of treasury stock of $350 and net payments for deposits, transfers and withdrawals for investments and universal life products of $199.

Operating cash flows for the three months ended March 31, 2017 have been adequate to meet liquidity requirements.

Equity Markets

For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk Liquidity Risk and Financial Risk on Statutory Capital sections in this MD&A.

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Ratings

Ratings are an important factor in establishing competitive position in the insurance marketplace and impact the Company’s ability to access financing and its cost of borrowing. There can be no assurance that the Company’s ratings will continue for any given period of time, or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s competitive position, ability to access financing, and its cost of borrowing, may be adversely impacted.



Insurance Financial Strength Ratings as of April 25, 2017
	A.M. Best	Standard & Poor’s	Moody’s
Hartford Fire Insurance Company	A+	A+	A1
Hartford Life and Accident Insurance Company	A	A	A2
Hartford Life Insurance Company	A-	BBB+	Baa2
Hartford Life and Annuity Insurance Company	A-	BBB+	Baa2
Other Ratings:
The Hartford Financial Services Group, Inc.:
Senior debt	a-	BBB+	Baa2
Commercial paper	AMB-1	A-2	P-2

These ratings are not a recommendation to buy or hold any of The Hartford’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

The agencies consider many factors in determining the final rating of an insurance company. One consideration is the relative level of statutory capital and surplus (referred to collectively as "statutory capital") necessary to support the business written and is reported in accordance with accounting practices prescribed by the applicable state insurance department.

Statutory Capital



Statutory Capital Roll Forward for the Company's Insurance Subsidiaries
	Property and Casualty Insurance Subsidiaries			Life Insurance Subsidiaries			Total
U.S. statutory capital at December 31, 2016	$	8,261		$	6,022		$	14,283
Variable annuity surplus impacts	—			(31		)	(31		)
Statutory earnings (excluding VA for Life)	346			122			468
Dividends to parent	(221		)	(363		)	(584		)
Other items	(152		)	6			(146		)
Net change to U.S. statutory capital	(27		)	(266		)	(293		)
U.S. statutory capital at March 31, 2017	$	8,234		$	5,756		$	13,990

Contingencies

Legal Proceedings – For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” in Note 12 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements and Part II, Item 1 Legal Proceedings, which are incorporated herein by reference.

Legislative and Regulatory Developments

Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act")

The outcome of the new Administration’s stated intention to repeal and replace the Affordable Care Act may have an impact on various aspects of our business, including our insurance businesses. It is unclear what a replacement of the Affordable Care Act would entail, and to what extent there may be a transition period for the phase out of the Affordable Care Act. The impact to The Hartford as an employer is consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business. We will continue to monitor the impact of the Affordable Care Act and any reforms on consumer, broker and medical provider behavior for leading indicators of changes in medical costs or loss payments primarily on the Company's workers' compensation and disability liabilities.

United States Department of Labor Fiduciary Rule

On April 6, 2016, the U.S. Department of Labor (“DOL”) issued a final regulation that expands the range of activities considered to be fiduciary investment advice under the Employee Retirement

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. On April 4, 2017, the DOL extended the applicability date for the final rule from April 10, 2017 to June 9, 2017. Implementation will be phased in, with the regulation in full effect by January 1, 2018. The impact of the new regulation on our mutual fund business is difficult to assess because the regulation is new and is still being studied. While we continue to analyze the regulation, we believe the regulation may impact the compensation paid to the financial intermediaries who sell our mutual funds to their retirement clients and could negatively impact our mutual funds business.

In 2016, several plaintiffs, including insurers and industry groups such as the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA), filed a lawsuit against the DOL challenging the constitutionality of the fiduciary rule, and the DOL's rulemaking authority. In most cases, the district courts have entered a summary judgment in favor of the DOL. It is unclear whether the plaintiffs will appeal. We continue to monitor potential effects of case law and the regulatory landscape on our mutual funds business.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in The Hartford’s 2016 Form 10-K Annual Report and Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

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Part I - Item 3. Quantitative and Qualitative Disclosure About Market Risk

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in the Financial Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

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Part I - Item 4. Controls and Procedures

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company’s disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of March 31, 2017.

Changes in Internal Control Over Financial Reporting

There was no change in the Company's internal control over financial reporting that occurred during the Company's current fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II - Item 1. Legal Proceedings

Item 1. LEGAL PROCEEDINGS

Litigation

The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties related to The Hartford's asbestos and environmental claims discussed in Note 12 - Commitments and Contingencies of the Notes to Consolidated Financial Statements, management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford.

The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, and in addition to the matters in the following description, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, disability, life and inland marine. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.

potential loss. Accordingly, management cannot reasonably estimate the possible loss or range of loss, if any.

Mutual Funds Litigation — In February 2011, a derivative action was brought on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that Hartford Investment Financial Services, LLC (“HIFSCO”), an indirect subsidiary of the Company, received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. During the course of the litigation, the claims regarding distribution fees were dismissed without prejudice, the lineup of funds as plaintiffs changed several times, and the plaintiffs added as a defendant Hartford Funds Management Company (“HFMC”), an indirect subsidiary of the Company that assumed the role of advisor to the funds as of January 2013. In June 2015, HFMC and HIFSCO moved for summary judgment, and plaintiffs cross-moved for partial summary judgment with respect to one fund. In March 2016, the court denied the plaintiff's motion, and granted summary judgment for HIFSCO and HFMC with respect to one fund, leaving six funds as plaintiffs: The Hartford Balanced Fund, The Hartford Capital Appreciation Fund, The Hartford Floating Rate Fund, The Hartford Growth Opportunities Fund, The Hartford Healthcare Fund, and The Hartford Inflation Plus Fund. The court further ruled that the appropriate measure of damages on the surviving claims would be the difference, if any, between the actual advisory fees paid through trial and the fees permitted under the applicable legal standard. A bench trial on the issue of liability was held in November 2016. In February 2017, the court granted judgment for HIFSCO and HFMC as to all claims. Plaintiffs have appealed to the United States Court of Appeals for the Third Circuit.

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Part I - Item 1A. Risk Factors

Item 1A. RISK FACTORS

Investing in The Hartford involves risk. In deciding whether to invest in The Hartford, you should carefully consider the risk factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, any of which could have a significant or material adverse effect on the business, financial condition, operating results or liquidity of The Hartford. This information should be considered carefully together with the other information contained in this report and the other reports and materials filed by The Hartford with the SEC.

115

Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

The Company’s repurchase authorization permits purchases of common stock, as well as warrants or other derivative securities. Repurchases may be made in the open market, through derivative, accelerated share repurchase and other privately negotiated transactions, and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended. The timing of any future repurchases will be

dependent upon several factors, including the market price of the Company’s securities, the Company’s capital position, consideration of the effect of any repurchases on the Company’s financial strength or credit ratings, and other corporate considerations. The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

The Company's authorization for equity repurchases is $1.3 billion for the period commencing October 31, 2016 through December 31, 2017.



Repurchases of Common Stock by the Issuer for the Three Months Ended March 31, 2017
Period	Total Number of Shares Purchased [1]	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(in millions)
January 1, 2017 - January 31, 2017	2,275,500	$	48.43	2,275,500	$	1,190
February 1, 2017 - February 28, 2017	2,161,100	$	48.20	2,161,100	$	1,086
March 1, 2017 - March 31, 2017	2,271,954	$	48.75	2,271,954	$	975
Total	6,708,554	$	48.47	6,708,554

[1]

Excludes 674,279 shares in net settlement of employee tax withholding obligations related to equity awards under the Company's Incentive Stock Plan. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that otherwise would have been issued as a result of the vesting of equity awards. The Company paid approximately $33 million in employee tax withholding obligations related to net share settlements in the three months ended March 31, 2017.

116

Part II - Item 6. Exhibits

Item 6. EXHIBITS



See Exhibits Index on page	119.

117

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



		The Hartford Financial Services Group, Inc.
		(Registrant)

Date:	April 27, 2017	/s/ Scott R. Lewis
		Scott R. Lewis
		Senior Vice President and Controller
		(Chief accounting officer and duly authorized signatory)

118

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

FOR THE QUARTER ENDED MARCH 31, 2017

FORM 10-Q

EXHIBITS INDEX



Exhibit No.	Description	Form	File No.	Exhibit No	Filing Date
3.01	Amended and Restated By-Laws of The Hartford Financial Services Group, Inc. ("The Hartford"), amended effective on July 21, 2016.	8-K	001-13958	3.1	7/21/2016
*10.01	The Hartford 2014 Incentive Stock Plan Form of Individual Award Agreement. **
15.01	Deloitte & Touche LLP Letter of Awareness.**
31.01	Certification of Christopher J. Swift pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
31.02	Certification of Beth A. Bombara pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32.01	Certification of Christopher J. Swift pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.02	Certification of Beth A. Bombara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	XBRL Instance Document.**
101.SCH	XBRL Taxonomy Extension Schema.**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.**
101.DEF	XBRL Taxonomy Extension Definition Linkbase.**
101.LAB	XBRL Taxonomy Extension Label Linkbase.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.**
*	Management contract, compensatory plan or arrangement.
**	Filed with the Securities and Exchange Commission as an exhibit to this report.

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