SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

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. ¨

As of April ~~27, 2016~~25, 2017, there were outstanding ~~393,384,892~~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, ~~2016~~2017

Condensed Consolidated Balance Sheets — As of March 31, 2016 and December 31, 2015

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2016 and 2015

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 ~~our~~management's current expectations and assumptions regarding future economic, competitive, legislative and other ~~developments.~~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. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the “Company” or “The Hartford”). Future developments may not be in line with management’s expectations or may have unanticipated effects. 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~~forward-looking statements or in Part I, Item 1A, Risk Factors in The Hartford’s ~~2015~~2016 Form 10-K Annual Report, and those identified from time to time in our other filings with the Securities and Exchange ~~Commission.~~Commission ("SEC").

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. FINANCIAL INFORMATION~~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, ~~2016~~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, ~~2016~~2017 and ~~2015.~~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, ~~2015~~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 ~~26, 2016,~~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, ~~2015~~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 ~~28, 2016~~27, 2017

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Operations

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Balance Sheets

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Changes in ~~Stockholders’~~Stockholders' Equity

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows

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)

~~(Unaudited)~~

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 ~~runoff~~run off life and annuity products previously sold.

On ~~March 16,~~July 26, 2016, the Company announced ~~it had entered into~~the signing of a definitive agreement ~~for~~to sell its ~~wholly-owned subsidiary, Hartford Fire Insurance Company,~~United Kingdom ("U.K.") property and casualty run-off subsidiaries. For discussion of this transaction, see Note 2 - Business Disposition of Notes to purchase Northern Homelands Company, the holding company of Maxum Specialty Insurance Group headquartered in Alpharetta, Georgia for $170, subject to post closing adjustments. Maxum will maintain its brand and limited wholesale distribution model and will be managed as a separate unit within The Hartford's Small Commercial line of business. The transaction, which will not have a material impact on the Company's financial position, results of operations or cashflows, is expected to close in the third quarter of 2016, subject to regulatory approvals.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 ~~2015~~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 ~~2015~~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; ~~evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments;~~ living benefits required to be fair valued; evaluation of goodwill for impairment; valuation of investments and derivative ~~instruments;~~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 ~~period~~year financial information to conform to the current ~~period~~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, ~~2016~~2017 the Company adopted new ~~consolidation~~stock compensation guidance issued by the Financial Accounting Standards Board ~~(“FASB”~~("FASB"). The updates revise when to consolidate variable interest entities ("VIEs") and general partners’ investments in limited partnerships, end the deferral granted for applying the VIE guidance to certain investment companies, and reduce the number of circumstances where a decision maker’s or service provider’s fee arrangement is deemed to be a variable interest in an entity. The updates also modify guidance for determining whether limited partnerships are VIEs or voting interest entities. The new guidance did not have a material effect on the Company’s Condensed Consolidated Financial Statements though one investment in a hedge fund of funds that was previously consolidated as a voting interest entity is now consolidated as a VIE. For further discussion, see Note 5 - Investments and Derivative Instruments of Notes to Condensed Consolidated Financial Statements.

~~Future Adoption of New Accounting Standards~~

~~Leases~~

In February 2016, the FASB issued updated guidance on lease accounting. Under the new guidance, lessees with operating leases will be required to recognize a liability for the present value of future minimum lease payments with a corresponding asset for the right of use of the property. Under existing guidance, future minimum lease payments on operating leases are commitments that are not recognized as liabilities on the balance sheet. The updated guidance is to be adopted effective January 1, 2019 through a cumulative effect adjustment to retained earnings for the earliest period presented, with early application permitted. Leases will be classified as financing or operating leases similar to capital and operating leases, respectively, under current accounting guidance. Where the lease is economically similar to a purchase because The Hartford obtains control of the underlying asset, the lease will be a financing lease and the Company will recognize amortization of the right of use asset and interest expense on the liability. Where the lease provides The Hartford with only the right to control the use of the underlying asset over the lease term and the lease term is greater than one year, the lease will be an operating lease and the amortization and interest cost will be recognized as rental expense over the lease term on a ~~straight-line~~prospective basis. Leases with a term of one year or less will also be expensed over the lease term but will not be recognized on the balance sheet. The Company is currently evaluating the potential impact of the new guidance to the consolidated financial statements, including the timing of adoption. We do not expect a material impact to the consolidated financial statements; however, it is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date.

~~Stock Compensation~~

~~In March 2016, the FASB issued updated guidance on accounting for share-based payments to employees.~~ 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. This recognition~~respectively, instead of ~~excess tax benefits and deficiencies will result in earnings volatility as current accounting guidance recognizes these amounts~~ as an adjustment to additional paid-in capital. The ~~excess tax benefit was $27 and $6 for~~new guidance also requires the years ended December 31, 2015 and 2014, respectively, which would have increased net income in each of those years. The excess tax benefits or deficiencies are discrete items in the reporting period in which they occur, and so will not be considered in determining the annual estimated effective tax rate. The excess tax benefits or deficiencies willrelated cash flows to be presented ~~as a cash flow within~~in operating activities instead of ~~within~~in financing ~~activities as is the case under current accounting.~~activities. The ~~Hartford will adopt the updated guidance January 1, 2017 and will recognize~~amount of excess tax ~~benefits~~benefit or ~~deficiencies in net income, as well as the related cash flows in operating activities, on a prospective basis. The impact of the adoption will depend on the excess~~ tax ~~benefits or deficiencies~~deficiency realized on vesting or settlement of awards ~~resulting from~~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)

2.3. Earnings Per Common Share

~~The following table presents the computation of basic and diluted earnings per common share.~~

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3.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.

~~The following table presents net income (loss) for each reporting segment, as well as the Corporate category.~~Net Income (Loss)


	Three Months Ended March 31,						Three Months Ended March 31,
Net Income (Loss)	2016			2015			2017			2016
Commercial Lines	$	228		$	240
Personal Lines	20			76
Commercial Lines [1]							$	231		$	225
Personal Lines [1]							33			23
Property & Casualty Other Operations	17			23			24			17
Group Benefits	50			52			45			50
Mutual Funds	20			22			23			20
Talcott Resolution	17			111			68			17
Corporate	(29		)	(57		)	(46		)	(29		)
Net income	$	323		$	467		$	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.

13Revenues

~~Table of Contents~~



	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

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~3. Segment Information (continued)~~


[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 endedMarch 31, 2017 and 2016, AARP members accounted for earned premiums of $800 and $807, respectively.

~~The following table presents revenues by product line for each reporting segment, as well as the Corporate category.~~

Three Months Ended March 31,
Revenues 2016 2015
Earned premiums and fee income
Commercial Lines
Workers’ compensation $ 755
$ 744
Property 159
156
Automobile 157
148
Package business 303
292
Liability 143
135
Bond 53
53
Professional liability 53
55
Total Commercial Lines 1,623
1,583
Personal Lines
Automobile 678
655
Homeowners 297
297
Total Personal Lines [1] 975
952
Group Benefits
Group disability 369
371
Group life 375
365
Other 51
44
Total Group Benefits 795
780
Mutual Funds
Mutual Fund 142
149
Talcott 25
30
Total Mutual Funds 167
179
Talcott Resolution 269
285
Corporate 1
2
Total earned premiums and fee income 3,830
3,781
Net investment income 696
809
Net realized capital gains (losses) (155 ) 5
Other revenues 20
22
Total revenues $ 4,391
$ 4,617

~~[1] For the three months ended March 31, 2016 and 2015, AARP members accounted for earned premiums of $807 and $766, respectively.~~

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements

The Company carries certain financial assets and liabilities at estimated fair value. Fair value ~~is determined based on the "exit price" notion which~~ 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 ~~for the asset or liability~~ in an orderly transaction between market participants. ~~Financial instruments carried at~~Our fair value in the Company's Condensed Consolidated Financial Statements include fixed maturity and equity securities, available-for-sale ("AFS"); fixed maturities and equity securities at fair value using the fair value option ("FVO"); short-term investments; freestanding and embedded derivatives; certain limited partnerships and other alternative investments; separate account assets and certain other liabilities.

~~The Company's estimates of fair value for financial assets and financial liabilities are based on the~~ framework ~~established in the fair value accounting guidance. The framework is based on the inputs used in valuation,~~includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, ~~and requires that~~followed by the use of market observable inputs, ~~be used in~~followed by the ~~valuations when available. The Company categorizes its assets and liabilities measured at estimated fair value based on whether the significant inputs into the valuation are observable.~~use of unobservable inputs. The fair value hierarchy ~~categorizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).~~levels are as follows:


Level 1	~~Unadjusted~~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	~~Observable~~Fair values primarily based on observable inputs, other than quoted prices included in Level 1, ~~for the asset~~ or ~~liability, or~~based on prices for similar assets and liabilities.

Level 3

~~Valuations that are~~Fair values derived ~~from techniques in which~~when one or more of the significant inputs are unobservable (including assumptions about risk). ~~Because Level 3 fair values, by their nature, contain one or more significant unobservable inputs, as there is~~With little or no observable market, ~~for these assets and liabilities,~~the determination of fair values uses considerable judgment ~~is used to determine the Level 3 fair values. Level 3 fair values represent~~and represents the Company’s best estimate of an amount that could be realized in a ~~current~~ market exchange ~~absent actual market exchanges.~~for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.

~~In many situations, inputs used to measure~~The Company will classify the ~~fair value of an~~financial asset or liability ~~position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the~~by level ~~in which the fair value falls~~ 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) ~~inputs~~ are used ~~in the determination of~~to determine fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such because these securities are primarily within illiquid markets and/or priced by independent brokers.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements (continued)

The following tables present assets and (liabilities) carried at fair value by hierarchy level. Upon implementation of the new disclosure guidance effective in 2016 certain NAV-based fair values are no longer included in the fair value level disclosures; however, these amounts are included in the total fair value disclosed. As a result, prior period values for limited partnerships and other alternative investments and separate account assets have been removed from Level 2 and Level 3.


	March 31, 2016
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of March 31, 2017												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)			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")	$	2,665		$	—	$	2,633		$	32		$	2,265		$	—	$	2,140		$	125
Collateralized debt obligations ("CDOs")	3,107			—		2,565			542			2,311			—		1,992			319
Commercial mortgage-backed securities ("CMBS")	5,224			—		5,090			134			5,099			—		4,982			117
Corporate	27,297			—		26,463			834			25,730			—		24,652			1,078
Foreign government/government agencies	1,189			—		1,113			76			1,187			—		1,121			66
Municipal	12,303			—		12,253			50
Bonds of municipalities and political subdivisions ("municipal bonds")												11,780			—		11,663			117
Residential mortgage-backed securities ("RMBS")	4,338			—		2,452			1,886			3,921			—		1,873			2,048
U.S. Treasuries	4,570			67		4,503			—			4,033			688		3,345			—
Total fixed maturities	60,693			67		57,072			3,554			56,326			688		51,768			3,870
Fixed maturities, FVO	486			—		472			14			160			—		160			—
Equity securities, trading [1]	11			11		—			—			11			11		—			—
Equity securities, AFS	798			548		158			92			1,223			936		188			99
Derivative assets
Credit derivatives	16			—		16			—			2			—		2			—
Equity derivatives	2			—		—			2			4			—		—			4
Foreign exchange derivatives	5			—		5			—			3			—		3			—
Interest rate derivatives	(138		)	—		(138		)	—			48			—		43			5
Guaranteed minimum withdrawal benefit ("GMWB") hedging instruments	146			—		61			85
GMWB hedging instruments												80			—		36			44
Macro hedge program	64			—		—			64			113			—		9			104
Other derivative contracts	5			—		—			5
Total derivative assets [2]	100			—		(56		)	156			250			—		93			157
Short-term investments	1,918			447		1,471			—			4,595			2,077		2,518			—
Limited partnerships and other alternative investments [3]	394			—		—			—
Reinsurance recoverable for GMWB	99			—		—			99			60			—		—			60
Modified coinsurance reinsurance contracts	57			—		57			—			66			—		66			—
Separate account assets [4]	115,959			74,486		40,156			155
Separate account assets [3]												113,585			73,539		38,882			277
Total assets accounted for at fair value on a recurring basis	$	180,515		$	75,559	$	99,330		$	4,070		$	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	$	(361	)	$	—	$	—		$	(361	)
GMWB embedded derivative												$	(157	)	$	—	$	—		$	(157	)
Equity linked notes	(25		)	—		—			(25		)	(36		)	—		—			(36		)
Total other policyholder funds and benefits payable	(386		)	—		—			(386		)	(193		)	—		—			(193		)
Derivative liabilities
Credit derivatives	(39		)	—		(39		)	—			(2		)	—		(2		)	—
Equity derivatives	28			—		25			3			37			—		37			—
Foreign exchange derivatives	(338		)	—		(338		)	—			(262		)	—		(262		)	—
Interest rate derivatives	(665		)	—		(637		)	(28		)	(517		)	—		(488		)	(29		)
GMWB hedging instruments	46			—		(13		)	59			3			—		1			2
Macro hedge program	81			—		—			81			58			—		3			55
Total derivative liabilities [5]	(887		)	—		(1,002		)	115
Total derivative liabilities [4]												(683		)	—		(711		)	28
Contingent consideration [5]												(26		)	—		—			(26		)
Total liabilities accounted for at fair value on a recurring basis	$	(1,273	)	$	—	$	(1,002	)	$	(271	)	$	(902	)	$	—	$	(711	)	$	(191	)

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements (continued)

December 31, 2015
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 $ 2,499
$ —
$ 2,462
$ 37
CDOs 3,038
—
2,497
541
CMBS 4,717
—
4,567
150
Corporate 26,802
—
25,948
854
Foreign government/government agencies 1,308
—
1,248
60
Municipal 12,121
—
12,072
49
RMBS 4,046
—
2,424
1,622
U.S. Treasuries 4,665
740
3,925
—
Total fixed maturities 59,196
740
55,143
3,313
Fixed maturities, FVO 503
2
485
16
Equity securities, trading [1] 11
11

Equity securities, AFS 1,121
874
154
93
Derivative assets
Credit derivatives 21
—
21
—
Foreign exchange derivatives 15
—
15
—
Interest rate derivatives (227 ) —
(227 ) —
GMWB hedging instruments 111
—
27
84
Macro hedge program 74
—
—
74
Other derivative contracts 7
—
—
7
Total derivative assets [2] 1
—
(164 ) 165
Short-term investments 1,843
333
1,510
—
Limited partnerships and other alternative investments [3] 622
—
—
—
Reinsurance recoverable for GMWB 83
—
—
83
Modified coinsurance reinsurance contracts 79
—
79
—
Separate account assets [4] 118,174
78,110
38,700
140
Total assets accounted for at fair value on a recurring basis $ 181,633
$ 80,070
$ 95,907
$ 3,810
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB $ (262 ) $ —
$ —
$ (262 )
Equity linked notes (26 ) —
—
(26 )
Total other policyholder funds and benefits payable (288 ) —
—
(288 )
Derivative liabilities
Credit derivatives (16 ) —
(16 ) —
Equity derivatives 41
—
41
—
Foreign exchange derivatives (374 ) —
(374 ) —
Interest rate derivatives (569 ) —
(547 ) (22 )
GMWB hedging instruments 47
—
(4 ) 51
Macro hedge program 73
—
—
73
Total derivative liabilities [5] (798 ) —
(900 ) 102
Total liabilities accounted for at fair value on a recurring basis $ (1,086 ) $ —
$ (900 ) $ (186 )

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. 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 ~~over-the-counter ("OTC")~~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 ~~the following~~ footnote 54 to this table for derivative liabilities.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)


[3]	Represents hedge funds where investment company accounting has been applied to a wholly-owned fund of funds measured at fair value. The fair value is estimated using the net asset value per unit as a practical expedient Approximately $3.0 billion and ~~is excluded from the disclosure requirement to classify amounts in the fair value hierarchy.~~

~~[4]~~

~~Approximately $2.4~~$4.0 billion ~~and $1.8 billion~~ of investment sales receivable, as of March 31, ~~2016,~~2017, and December 31, ~~2015,~~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 ~~$1.2~~$887 and $1.0 billion of investments, as of March 31, ~~2016~~2017 and December 31, ~~2015,~~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.


[5]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. In


[5]	For additional information see the ~~following Level 3 roll-forward table in this Note 4, the derivative assets and liabilities are referred to as “freestanding derivatives” and are presented on a net basis.~~Contingent Consideration section below.

~~Valuation Techniques, Procedures and Controls~~

The Company determines the fair values of certain financial assets and liabilities based on quoted market prices where available, and where prices represent a reasonable estimate of fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s default spreads, liquidity, and where appropriate, risk margins on unobservable parameters.

The fair value process is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company that meets at least quarterly. The Valuation Committee is co-chaired by the Heads of Investment Operations and Accounting, and has representation from various investment sector professionals, accounting, operations, legal, compliance, and risk management. The purpose of the committee is to oversee the pricing policy and procedures by ensuring objective and reliable valuation practices and pricing of financial instruments as well as addressing valuation issues and approving changes to valuation methodologies and pricing sources. 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"), which include various investment, operations, accounting and risk management professionals that meet monthly to review market data trends, pricing and trading statistics and results, and any proposed pricing methodology changes.

The Company also has an enterprise-wide Operational Risk Management function, led by the Chief Operational Risk Officer, which is responsible for establishing, maintaining and communicating the framework, principles and guidelines of the Company's operational risk management program. This includes model risk management which provides an independent review of the suitability, characteristics and reliability of model inputs as well as an analysis of significant changes to current models.

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

Valuation Techniques

The Company generally determines fair ~~value~~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 ~~fixed maturities, equity securities, and short-term investments in an active and orderly~~future cash flows that are converted into a single discounted amount using current market ~~(e.g., not distressed or forced liquidation) are determined by management using~~expectations. The Company uses a "waterfall" approach ~~after considering~~comprised of the following pricing ~~sources: quoted~~sources and techniques, which are listed in priority order:

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

Prices from third-party pricing services, independent broker quotations, or internal matrix pricing processes. Typical inputs used by these pricing sources include, but are not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and/or estimated cash flows, prepayment speeds, and default rates. Most fixed maturities do not trade daily. Based on the typical trading volumes and the lackwhich primarily utilize a combination of quoted market prices for fixed maturities, third-party pricing services utilize matrix pricing to derive security prices. Matrix pricing relies on securities' relationships to other benchmark quoted securities, which trade more frequently. Pricingtechniques. These services utilize recently reported trades of identical, similar, or ~~similar~~benchmark securities making adjustments for market observable inputs available through the reporting ~~date based on the preceding outlined available market observable information.~~date. If there are no recently reported trades, ~~the third-party pricing services~~they may use a discounted cash flow technique to develop a ~~security~~ price using expected ~~future~~ cash flows based upon ~~collateral~~the anticipated future performance ~~and~~of the underlying collateral discounted at an estimated market rate. Both ~~matrix pricing and discounted cash flow~~ techniques develop prices ~~by factoring in~~that consider the time value ~~for~~of future cash flows and provide a margin for risk, including liquidity and ~~credit.~~

~~Prices from~~credit risk. Most prices provided by third-party pricing services ~~may be unavailable for~~are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are ~~rarely traded~~less liquid or trade less actively are ~~traded only~~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 ~~privately negotiated transactions. As a result, certain securities~~the marketplace and are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding.thus classified as Level 3.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

~~The Company utilizes an internally developed~~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. ~~The Company's process is similar~~Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to ~~the third-party pricing services.~~contractual cash flows to develop a price. The Company develops credit spreads ~~each month~~ 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 ~~spreads determined through this survey approach are based upon~~spread considers the issuer’s financial strength and term to maturity, ~~utilizing~~ using an

independent public security index and trade information, ~~and adjusting for~~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. ~~Credit spreads combined with risk-free rates are applied~~Due to ~~contractual cash flows~~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 ~~price.~~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 ~~performs ongoing analyses of the~~reviews prices ~~and credit spreads~~ received from third parties to ensure that the prices represent a reasonable estimate of the fair value. ~~This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. As a part of these analyses, the Company~~The group considers trading volume, new

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, and if so, whether transactions may not be orderly considering the weight of available evidence. If the available evidence indicates that pricing is based upon transactions that are stale or not orderly, the Company places little, if any, weight on the transaction price and will estimate fair value utilizing an internal pricing model. In addition, the Company ensures that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models utilizing spreads, and when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly and approved by the Valuation Committee.

The Company conducts other specific monitoring controls around pricing. Daily analyses identify price changes over 3% for fixed maturities and 5% for equity securities and trade prices for both debt and equity securities that differ over 3% to the current day's price. Weekly analyses identify prices that differ more than 5% from published bond prices of a corporate bond index. Monthly analyses identify price changes over 3%, prices that have not changed, and missing prices. Also on a monthly basis, a second source validation is performed on most sectors. Analyses are conducted by amarket. A dedicated pricing unit ~~that~~ follows up with trading and investment sector professionals and challenges prices ~~with vendors~~of third-party pricing services when the estimated assumptions used differ from what the ~~Company feels~~unit believes a market participant would use. ~~Examples of other procedures performed include, but are not limited to, initial and on-going review of third-party~~If the available evidence indicates that pricing ~~services’ methodologies, review of pricing statistics and trends, and back testing recent trades.~~

The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided byfrom third-party pricing services ~~are classified into Level 2 because the inputs used in pricing the securities are observable. Due to the lack of transparency in the process that brokers use to develop prices, most valuations~~or broker quotes is based upon transactions that are ~~based~~stale or not from trades made in an orderly market, the Company places little, if any, weight on ~~brokers’ prices are classified~~the third party service’s transaction price and will estimate fair value using an internal process, such as ~~Level 3. Some valuations may be classified as Level 2 if the price can be corroborated with observable market data.~~

~~Derivative Instruments, including Embedded Derivatives within Investments~~

~~Derivative instruments are fair valued using~~a pricing valuation models for OTC derivatives that utilize independent market data inputs, quoted market prices for exchange-traded and OTC-cleared derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of March 31, 2016 and December 31, 2015, 96% and 96%, respectively, of derivatives, based upon notional values, were priced by valuation models, including discounted cash flow models and option-pricing models that utilize present value techniques, or quoted market prices. The remaining derivatives were priced by broker quotations.matrix.

The Derivatives Working Group ~~performs ongoing analyses of~~reviews the ~~valuations,~~inputs, assumptions and methodologies used to ensure that the prices represent a reasonable estimate of the fair value. ~~The Company performs various controls on derivative valuations which include both quantitative and qualitative analyses. Analyses are conducted by a~~A dedicated ~~derivative~~ pricing team ~~that~~ works directly with investment sector professionals to ~~analyze~~investigate the impacts of changes in the market environment on prices or valuations of derivatives. New models and ~~investigate variances. On a daily basis, market valuations~~any changes to current models are ~~compared~~required to counterparty valuations for OTC derivatives. There are monthly analyses to identify market value changes greater than pre-defined thresholds, stale prices, missing prices, and zero prices. Also on a monthly basis, a second source validation, typically to broker quotations, is performed for certain of the more complex derivatives and all new deals during the month. A model validation review is performed on any new models, which typically includeshave detailed documentation and ~~validation~~are validated to a second source. The model validation documentation and results of validation are presented to the Valuation Committee for approval. ~~There is a monthly control to review changes in pricing sources to ensure that new models are not moved to production until formally approved.~~

The Company ~~utilizes derivative instruments to manage the risk associated with certain assets~~conducts other monitoring controls around securities and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated assets and liabilities. Therefore, the realized and unrealized gains and losses on derivatives ~~reported in the Level 3 rollforward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.~~

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

~~Limited Partnerships and Other Alternative Investments~~

The portion of limited partnerships and other alternative investments recorded at fair value includes hedge funds for which investment company accounting has been applied to a wholly-owned fund of funds measured at fair value. The hedge funds are comprised of approximately half credit and equity related funds and approximately half global macro with a market neutral focus. Fair value is determined for these funds using the NAV, as a practical expedient, calculated on a monthly basis, and is the amount at which a unit or shareholder may redeem their investment, if redemption is allowed. Certain impediments to redemption include,pricing including, but ~~are~~ not limited to, the following: ~~1) redemption notice periods vary~~

Review of daily price changes over specific thresholds and ~~may be as long as 90 days, 2) redemption may be restricted (e.g. only be allowed on~~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 ~~quarter-end), 3) a holding period referred to as a lock-up may be imposed whereby an investor must hold their investment for a specified period~~corporate bond index.

Monthly reviews of ~~time before they can make a notice for redemption, 4) gating provisions may limit all redemptions in a given period~~price changes over thresholds, stale prices, missing prices, and zero prices.

Monthly validation of prices to a ~~percentage~~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 ~~entities' equity interests, or may only allow~~suitability and reliability of model inputs, as well as an ~~investor~~analysis of significant changes to redeem a portion of their investment at one time, 5) early redemption penalties may be imposed that are expressed as a percentage of the amount redeemed and 6) redemptions not allowed. The Company regularly assesses impediments to redemption and current market conditions that will restrict the redemption at the end of the notice period. Funds that were subject to significant liquidity restrictions due to lock-up or gating provisions consisted of 8% and 9%, respectively, of the value of the investments as of March 31, 2016 and December 31, 2015. The remaining restriction period for these investments is approximately one year as of both March 31, 2016 and December 31, 2015. Funds where redemptions are not allowed consisted of 4% and 3%, respectively, of the value of the investments as of March 31, 2016 and December 31, 2015.models.

Valuation Inputs

Quoted prices for ~~Investments~~

~~For~~identical assets in active markets are considered Level 1 ~~investments, which are comprised~~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, valuations are based on quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.~~contracts.

For the Company’s Level 2 and 3 debt securities, typical inputs used by pricing techniques include, but are not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and/or estimated cash flows, prepayment speeds, and default rates. Derivative instruments are valued using mid-market inputs that are predominantly observable in the market.

~~A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is included in the following discussion:~~


~~Level 2~~	The fair values of most of the Company’s Level 2 investments are determined by management after considering prices received from third party pricing services. These investments include most fixed maturities and preferred stocks, including those reported in separate account assets ~~as well as certain derivative instruments.~~

~~ABS, CDOs, CMBS and RMBS~~ – Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, and credit default swap indices. ABS and RMBS prices also include estimates of the rate of future principal prepayments over the remaining life of the securities. These estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral.

~~Corporates, including investment grade private placements~~ ~~– Primary inputs also include observations of credit default swap curves related to the issuer.~~

~~Foreign government/government agencies~~ ~~— Primary inputs also include observations of credit default swap curves related to the issuer and political events in emerging market economies.~~

~~Municipals~~ ~~– Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event notices, and issuer financial statements.~~

~~Short-term investments~~ ~~– Primary inputs also include material event notices and new issue money market rates.~~

~~Credit derivatives –~~ ~~Primary inputs include the swap yield curve and credit default swap curves.~~

~~Equity derivatives~~ ~~– Primary inputs include equity index levels.~~

~~Foreign exchange derivatives –~~ ~~Primary inputs include the swap yield curve, currency spot and forward rates, and cross currency basis curves.~~

~~Interest rate derivatives –~~ ~~Primary input is the swap yield curve.~~

2019

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. 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)
	~~Most~~ • 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 ~~Company's securities classified as Level 3 include~~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 ~~such as lower quality ABS, CMBS, commercial real estate ("CRE") CDOs~~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 ~~RMBS primarily backed by sub-prime loans. Also included in Level 3 are~~spreads • Reported trades, bids, offers of the same or similar securities ~~valued based on broker prices or broker~~ • Issuer spreads ~~without adjustments. Primary~~and credit default swap curves Other inputs for ~~non-broker priced investments, including structured~~investment grade privately placed securities ~~are consistent with the typical inputs used in the preceding noted Level 2 measurements, but are Level 3 due to their less liquid markets. Additionally, certain long-dated~~that utilize internal matrix pricing : • Credit spreads for public securities ~~are priced based on third party pricing services, including certain municipal securities, foreign government/government agency securities,~~of similar quality, maturity, and ~~bank loans, which are included with corporate fixed maturities. Primary~~sector, adjusted for non-public nature		• Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for ~~these long-dated~~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 ~~consistent with the typical inputs used in the preceding noted Level 1 and Level 2 measurements, but include benchmark interest rate~~not active		• For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or ~~credit spread~~other cash flow assumptions that are not ~~observable in the marketplace. Significant inputs for Level 3 derivative contracts primarily include the typical inputs used in the preceding noted Level 1~~observable; or they may be held at cost
Short Term Investments
	• Benchmark yields and ~~Level 2 measurements; but also include equity~~spreads • Reported trades, bids, offers • Issuer spreads and ~~interest rate volatility~~credit default swap curves • Material event notices and new issue money market rates		Not applicable
Derivatives
Credit derivatives
	• Swap yield curve • Credit default swap ~~yield~~curves		• Independent broker quotes • Yield curves beyond observable ~~limits.~~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

~~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 $741 and $106, for the three months ended March 31, 2016 and 2015, respectively, which represented previously on-the-run U.S. Treasury securities that are now off-the-run. For the three months ended March 31, 2016 and 2015, there were no transfers from Level 2 to Level 1. See the fair value roll-forward tables for the three months ended March 31, 2016 and 2015, for the transfers into and out of Level 3.

~~Significant Unobservable Inputs for Level 3 Assets Measured at Fair Value~~

The following tables present information about significant unobservable inputs used in Level 3 assets measured at fair value. The tables exclude ABS, CRE CDOs, index options and certain corporate securities and CMBS for which fair values are based on broker quotations.

Securities Unobservable Inputs

As of March 31, 2016
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]
CMBS [3] $ 115
Discounted cash flows Spread (encompasses prepayment, default risk and loss severity) 31 bps 1,035 bps 409 bps Decrease
Corporate [3] 320
Discounted cash flows Spread 62 bps 725 bps 298 bps Decrease
Municipal [3] 32
Discounted cash flows Spread 219 bps 219 bps 219 bps Decrease
RMBS 1,886
Discounted cash flows Spread 34 bps 1,281 bps 217 bps Decrease
Constant prepayment rate —% 20% 3% Decrease [4]
Constant default rate 1% 10% 6% Decrease
Loss severity 40% 100% 80% Decrease
As of December 31, 2015
CMBS [3] $ 122
Discounted cash flows Spread (encompasses prepayment, default risk and loss severity) 31 bps 1,505 bps 266 bps Decrease
Corporate [3] 339
Discounted cash flows Spread 63 bps 800 bps 306 bps Decrease
Municipal [3] 31
Discounted cash flows Spread 193 bps 193 bps 193 bps Decrease
RMBS 1,622
Discounted cash flows Spread 30 bps 1,696 bps 178 bps Decrease
Constant prepayment rate —% 20% 2% Decrease [4]
Constant default rate 1% 10% 6% Decrease
Loss severity —% 100% 78% Decrease

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. 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]	~~Level 3 CMBS, corporate and municipal~~Excludes securities ~~excludes those~~for which the Company based fair value on broker quotations.


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


[4]5]	Decrease for above market rate coupons and increase for below market rate coupons.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements (continued)


Freestanding Derivatives	Unobservable Inputs
Significant Unobservable Inputs for Level 3 - Freestanding Derivatives											Significant Unobservable Inputs for Level 3 - Freestanding Derivatives
	As of March 31, 2016										Fair Value			Predominant Valuation Technique	Significant Unobservable Input	Minimum		Maximum		Impact of Increase in Input on Fair Value [1]
	Fair Value			Predominant Valuation Technique	Significant Unobservable Input	Minimum		Maximum		Impact of Increase in Input on Fair Value [1]
Interest rate derivative
As of March 31, 2017											As of March 31, 2017
Interest rate derivatives
Interest rate swaps	$	(32	)	Discounted cash flows	Swap curve beyond 30 years	2	%	2	%	Decrease	$	(29	)	Discounted cash flows	Swap curve beyond 30 years	3	%	3	%	Decrease
Interest rate swaptions [2]	4			Option model	Interest rate volatility	2	%	2	%	Increase	5			Option model	Interest rate volatility	2	%	2	%	Increase
GMWB hedging instruments
Equity variance swaps	(34		)	Option model	Equity volatility	22	%	24	%	Increase	(39		)	Option model	Equity volatility	16	%	20	%	Increase
Equity options	28			Option model	Equity volatility	26	%	29	%	Increase	9			Option model	Equity volatility	26	%	28	%	Increase
Customized swaps	150			Discounted cash flows	Equity volatility	12	%	30	%	Increase	76			Discounted cash flows	Equity volatility	9	%	30	%	Increase
Macro hedge program [3]
Equity options	178			Option model	Equity volatility	12	%	27	%	Increase	164			Option model	Equity volatility	15	%	32	%	Increase
	As of December 31, 2015
Interest rate derivative
As of December 31, 2016											As of December 31, 2016
Interest rate derivatives
Interest rate swaps	$	(30	)	Discounted cash flows	Swap curve beyond 30 years	3	%	3	%	Decrease	$	(29	)	Discounted cash flows	Swap curve beyond 30 years	3	%	3	%	Decrease
Interest rate swaptions [2]	8			Option model	Interest rate volatility	1	%	2	%	Increase	8			Option model	Interest rate volatility	2	%	2	%	Increase
GMWB hedging instruments
Equity variance swaps	(31		)	Option model	Equity volatility	19	%	21	%	Increase	(36		)	Option model	Equity volatility	20	%	23	%	Increase
Equity options	35			Option model	Equity volatility	27	%	29	%	Increase	17			Option model	Equity volatility	27	%	30	%	Increase
Customized swaps	131			Discounted cash flows	Equity volatility	10	%	40	%	Increase	100			Discounted cash flows	Equity volatility	12	%	30	%	Increase
Macro hedge program [3]
Equity options	179			Option model	Equity volatility	14	%	28	%	Increase	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]	~~Level 3 macro hedge~~Excludes derivatives ~~excludes those~~ for which the Company bases fair value on broker ~~quotations as noted in the following discussion.~~quotations.

~~Securities~~

The tables above exclude the portion of ABS, CRE CDOs, index options and ~~derivatives~~certain corporate securities for which ~~the Company bases~~ fair ~~value~~values are predominately based on independent broker ~~quotations include ABS, CDOs, CMBS, corporate, and index options. Due to the lack of transparency in the process brokers use to develop prices for these investments,~~quotes. While the Company does not have access to the significant unobservable inputs ~~brokers use to price these securities and derivatives. The Company believes however, the types of inputs~~that independent brokers may use ~~would~~in their pricing process, the Company believes brokers likely beuse inputs similar to those used ~~to price securities and derivatives for which inputs are available to~~by the Company and ~~therefore may include but not be limited~~third-party pricing services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, ~~constant~~ prepayment rates, constant default rates and credit spreads. Therefore, similar to ~~non broker~~non-broker priced securities, ~~and derivatives, generally,~~ increases in these inputs would generally cause fair values to decrease. For the three months ended March 31, ~~2016,~~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.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements (continued)

~~Product~~GMWB Embedded, Customized and Reinsurance Derivatives

The Company formerly offered certain variable annuity products with GMWB riders. The GMWB provides 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 the 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. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. GMWB payments that are not life-contingent represent



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 variable annuity contract. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative is carried at fair value ~~with changes in fair value reported in net realized capital gains~~hierarchy and losses. The Company’s GMWB liability, excluding life-contingent payments, is carried at fair value and reported in other policyholder funds and benefits payable in the Condensed Consolidated Balance Sheets. The notional value of the embedded derivative is the GRB.

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 “Attributed Fees”) as determined at contract issuance. All changes in the fair value of the embedded derivative are recorded in net realized capital gains and losses.~~claims. The excess of fees collected from the contract holder in the current period over the ~~Attributed Fees~~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.

~~GMWB Reinsurance Derivative~~Valuation Controls

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 and carried at fair value in reinsurance recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses.

The fair value of the GMWB reinsurance derivative is calculated as an aggregation of the components described in the following Living Benefits Required to be Fair Valued discussion and is modeled using significant unobservable policyholder behavior inputs, identical to those used in calculating the underlying liability, such as lapses, fund selection, resets and withdrawal utilization and risk margins.

~~Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)~~

Fair values for GMWBs classified as embedded derivatives are calculated using the income approach based upon internally developed models because active, observable markets do not exist for those items. The fair value of these GMWBs and the related reinsurance and customized freestanding derivatives are calculated as an aggregation of the following components: Best Estimate Claim Payments; Credit Standing Adjustment; and Margins. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer to or receive from market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. The fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. In the absence of any transfer of the guaranteed benefit liability to a third party, the release of risk margins is likely to be reflected as realized gains in future periods’ net income. Each component described in the following discussion is unobservable in the marketplace and requires subjectivity by the Company in determining its value. Oversight of the Company's valuation policies and processes for ~~product~~GMWB embedded, reinsurance, and ~~GMWB reinsurance~~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 such as lapses, fund selection, resets and withdrawal utilization. For the customized derivatives, policyholder behavior is prescribed in the derivative contract. Because of the dynamic and complex nature of these cash flows, best estimatebehavior. These assumptions ~~and~~are input into a ~~Monte Carlo~~ stochastic ~~process are used in valuation. The Monte Carlo stochastic process involves the generation of thousands of scenarios that assume~~ risk neutral ~~returns consistent with swap rates~~scenario process that is used to determine the valuation and ~~a blend of observable implied index volatility levels. Estimating these cash flows~~ involves numerous estimates and subjective judgments regarding a number of variables. These variables include expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and assumptions about policyholder behavior which emerge over time.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

~~At each valuation date, the Company assumes expected returns based on:~~

~~risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates;~~

~~market implied volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data;~~

~~correlations of historical returns across underlying well known market indices based on actual observed returns over the ten years preceding the valuation date; and~~

~~three years of history for fund indexes compared to separate account fund regression.~~

~~The Company updates capital market assumptions used in the GMWB liability model such as interest rates, equity indices and the blend of implied equity index volatilities on a daily basis.~~ 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 asshould 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 ~~appropriate, in conjunction with the completion~~part of the Company’s annual fourth-quarter comprehensive study to refine its estimate of future gross ~~profits with~~profits. In addition, the ~~study performed in~~Company recognizes non-market-based updates driven by the ~~fourth quarter~~relative outperformance (underperformance) of ~~each year.~~the underlying actively managed funds as compared to their respective indices.

Credit Standing Adjustment

~~This assumption makes~~The credit standing adjustment is an ~~adjustment~~estimate of the additional amount that market participants would ~~make,~~require in determining fair value to reflect the risk that ~~guaranteed~~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. The credit standing adjustment assumption, net of reinsurance, resulted in pre-tax realized gains of $2 and $0, for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016 and December 31, 2015 the credit standing adjustment was $2 and $0, respectively.

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.

There were no policyholder assumption updates related to the behavior risk margin for the three months ended March 31, 2016 and 2015. As of March 31, 2016 and December 31, 2015 the behavior risk margin was $45.

In addition to the non-market-based update described in the preceding discussion, the Company recognized non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in pre-tax realized gains (losses) of approximately $(4) and $10, for the three months ended March 31, 2016 and 2015, respectively.

2423

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements (continued)

~~The following table provides quantitative information about the significant unobservable inputs and is applicable to all of the GMWB embedded derivative and the GMWB reinsurance derivative.~~



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				Significant Unobservable Inputs for Level 3 GMWB Embedded Customized and Reinsurance Derivatives
	As of March 31, 2016			As of March 31, 2017
Significant Unobservable Input	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]
Withdrawal Utilization [2]	20%	100%	Increase	15%	100%	Increase
Withdrawal Rates [3]	—%	8%	Increase	—%	8%	Increase
Lapse Rates [4]	—%	75%	Decrease	—%	40%	Decrease
Reset Elections [5]	20%	75%	Increase	20%	75%	Increase
Equity Volatility [6]	12%	30%	Increase	9%	30%	Increase
	As of December 31, 2015			As of December 31, 2016
Significant Unobservable Input	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]	Unobservable Inputs (Minimum)	Unobservable Inputs (Maximum)	Impact of Increase in Input on Fair Value Measurement [1]
Withdrawal Utilization [2]	20%	100%	Increase	15%	100%	Increase
Withdrawal Rates [3]	—%	8%	Increase	—%	8%	Increase
Lapse Rates [4]	—%	75%	Decrease	—%	40%	Decrease
Reset Elections [5]	20%	75%	Increase	20%	75%	Increase
Equity Volatility [6]	10%	40%	Increase	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.

Generally, a change in withdrawal utilization assumptions would be accompanied by a directionally opposite change in lapse rate assumptions, as the behavior of policyholders that utilize GMWB riders is typically different from policyholders that do not utilize these riders.

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, ~~29%~~42% and ~~28%~~39% were subject to significant liquidation restrictions ~~due to lock-up or gating provisions~~ as of March 31, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. ~~Limited~~Total limited partnerships ~~where redemptions are~~that do not ~~allowed consisted~~allow any form of 5%redemption were 12% and 4%11% as of March 31, ~~2016~~2017 and December 31, ~~2015,~~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)

4.5. Fair Value Measurements (continued)

~~Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)~~

~~The following tables provide fair value roll-forwards for the three months ended March 31, 2016 and 2015, for the financial instruments classified as Level 3.~~

~~For the three months ended March 31, 2016~~

Fixed Maturities, AFS
Assets ABS CDOs CMBS Corporate
Foreign
Govt./Govt.
Agencies
Municipal RMBS
Total Fixed
Maturities,
AFS
Fixed
Maturities,
FVO
Fair value as of January 1, 2016 $ 37
$ 541
$ 150
$ 854
$ 60
$ 49
$ 1,622
$ 3,313
$ 16
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] —
—
(1 ) (13 ) —
—
—
(14 ) (2 )
Included in OCI [3] —
—
(8 ) (7 ) 5
1
(14 ) (23 ) —
Purchases —
—
40
30
14
—
333
417
5
Settlements (3 ) 1
(9 ) (5 ) (1 ) —
(57 ) (74 ) (1 )
Sales —
—
—
(25 ) (2 ) —
—
(27 ) —
Transfers into Level 3 [4] 5
—
—
58
—
—
2
65
—
Transfers out of Level 3 [4] (7 ) —
(38 ) (58 ) —
—
—
(103 ) (4 )
Fair value as of March 31, 2016 $ 32
$ 542
$ 134
$ 834
$ 76
$ 50
$ 1,886
$ 3,554
$ 14
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2016 [2] [7] $ —
$ —
$ (1 ) $ (13 ) $ —
$ —
$ —
$ (14 ) $ (1 )

Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Equity
Interest
Rate
GMWB
Hedging
Macro
Hedge
Program
Other
Contracts
Total Free-
Standing
Derivatives [5]
Fair value as of January 1, 2016 $ 93
$ —
$ (22 ) $ 135
$ 147
$ 7
$ 267
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] (1 ) (11 ) (6 ) 9
—
(2 ) (10 )
Included in OCI [3] 2
—
—
—
—
—
—
Purchases —
16
—
—
—
—
16
Settlements —
—
—
—
(2 ) —
(2 )
Sales (2 ) —
—
—
—
—
—
Transfers into Level 3 [4] —
—
—
—
—
—
—
Transfers out of Level 3 [4] —
—
—
—
—
—
—
Fair value as of March 31, 2016 $ 92
$ 5
$ (28 ) $ 144
$ 145
$ 5
$ 271
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2016 [2] [7] $ (1 ) $ (11 ) $ (6 ) $ 9
$ (1 ) $ (2 ) $ (11 )

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

Assets Reinsurance Recoverable for GMWB Separate Accounts
Fair value as of January 1, 2016 $ 83
$ 139
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] 12
—
Included in OCI [3] —
4
Purchases —
38
Settlements 4
(5 )
Sales —
(10 )
Transfers into Level 3 [4] —
3
Transfers out of Level 3 [4] —
(15 )
Fair value as of March 31, 2016 $ 99
$ 154
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2016 [2] [7] $ 12
$ —

Other Policyholder Funds and Benefits Payable
Liabilities Guaranteed Withdrawal Benefits Equity Linked Notes Total Other Policyholder Funds and Benefits Payable
Fair value as of January 1, 2016 $ (262 ) $ (26 ) $ (288 )
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] (82 ) 1
(81 )
Settlements (17 ) —
(17 )
Fair value as of March 31, 2016 $ (361 ) $ (25 ) $ (386 )
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2016 [2] [7] $ (82 ) $ 1
$ (81 )

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

~~For the three months ended March 31, 2015~~

Fixed Maturities, AFS
Assets ABS CDOs CMBS Corporate Foreign Govt./Govt. Agencies Municipal RMBS Total Fixed Maturities, AFS Fixed Maturities, FVO
Fair value as of January 1, 2015 $ 122
$ 623
$ 284
$ 1,040
$ 59
$ 66
$ 1,281
$ 3,475
$ 92
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] —
(2 ) (1 ) (4 ) —
—
(1 ) (8 ) (5 )
Included in OCI [3] —
19
(3 ) (28 ) 1
(2 ) (1 ) (14 ) —
Purchases 43
—
21
5
5
—
310
384
12
Settlements (1 ) (9 ) (13 ) 1
(1 ) —
(46 ) (69 ) —
Sales —
—
—
(7 ) (16 ) —
(31 ) (54 ) (4 )
Transfers into Level 3 [4] 1
—
5
139
—
—
4
149
—
Transfers out of Level 3 [4] (4 ) (47 ) (25 ) (34 ) —
—
(53 ) (163 ) (10 )
Fair value as of March 31, 2015 $ 161
$ 584
$ 268
$ 1,112
$ 48
$ 64
$ 1,463
$ 3,700
$ 85
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2015 [2] [7] $ —
$ (1 ) $ (1 ) $ (2 ) $ —
$ —
$ (1 ) $ (5 ) $ (1 )

Freestanding Derivatives [5]
Assets (Liabilities) Equity Securities, AFS Credit Equity Interest Rate GMWB Hedging Macro Hedge Program Other Contracts Total Free-Standing Derivatives [5]
Fair value as of January 1, 2015 $ 98
$ (9 ) $ 6
$ (7 ) $ 170
$ 141
$ 12
$ 313
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] 1
5
17
(11 ) 9
(1 ) (1 ) 18
Included in OCI [3] (3 ) —
—
—
—
—
—
—
Purchases 8
(7 ) —
—
—
47
—
40
Settlements —
—
(15 ) —
(20 ) —
—
(35 )
Sales (2 ) —
—
—
—
—
—
—
Transfers into Level 3 [4] —
—
—
—
—
—
—
—
Transfers out of Level 3 [4] —
—
—
—
—
—
—
—
Fair value as of March 31, 2015 $ 102
$ (11 ) $ 8
$ (18 ) $ 159
$ 187
$ 11
$ 336
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2015 [2] [7] $ 1
$ 5
$ 3
$ (19 ) $ 16
$ 3
$ (1 ) $ 7

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~4. Fair Value Measurements (continued)~~

Assets Reinsurance Recoverable for GMWB Separate Accounts
Fair value as of January 1, 2015 $ 56
$ 112
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] 4
1
Purchases —
38
Settlements 5
(5 )
Sales —
(6 )
Transfers into Level 3 [4] —
1
Transfers out of Level 3 [4] —
(4 )
Fair value as of March 31, 2015 $ 65
$ 137
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2015 [2] [7] $ 4
$ 1

Other Policyholder Funds and Benefits Payable
Liabilities Guaranteed Withdrawal Benefits Equity Linked Notes Total Other Policyholder Funds and Benefits Payable Consumer Notes
Fair value as of January 1, 2015 $ (139 ) $ (26 ) $ (165 ) $ (3 )
Total realized/unrealized gains (losses)
Included in net income [1] [2] [6] (19 ) —
(19 ) —
Settlements (18 ) —
(18 ) —
Fair value as of March 31, 2015 $ (176 ) $ (26 ) $ (202 ) $ (3 )
Changes in unrealized gains (losses) included in net income related to financial instruments still held at March 31, 2015 [2] [7] $ (19 ) $ —
$ (19 ) $ —



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]	~~All amounts~~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]	~~Amounts presented are~~ 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 ~~Level 3 only and therefore may not agree to other disclosures included herein.~~additional discussion.

2926

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. 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

~~FVO investments include~~The Company has elected the fair value option for certain securities that contain embedded credit derivatives with underlying credit risk primarily related to residential ~~and commercial~~ real estate, ~~for which~~and these securities are included within Fixed Maturities, FVO on the ~~company has elected the fair value option.~~Condensed Consolidated Balance Sheets. The Company ~~also classifies~~previously classified the underlying fixed maturities held in certain consolidated investment funds within ~~the~~ Fixed Maturities, ~~FVO line on the Condensed Consolidated Balance Sheets.~~FVO. The Company ~~reports~~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 investment funds hold fixed income securities in multiple sectors and the Company has management and control of the funds as well as a significant ownership interest.~~

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. ~~As of March 31, 2016, the Company no longer has any of these investments.~~ 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.

The following table presents the changes in fair value of those assets and liabilities accounted for using the fair value option reported in net realized capital gains and losses in the Company’s Condensed Consolidated Statements of Operations.

Three Months Ended March 31,
2016 2015
Assets
Fixed maturities, FVO
CDOs $ —
$ 1
Foreign government (1 ) —
RMBS 1
1
Total fixed maturities, FVO $ —
$ 2
Equity, FVO (34 ) 2
Total realized capital gains (losses) $ (34 ) $ 4

~~The following table presents the fair value of assets and liabilities accounted for using the fair value option included in the Company’s Condensed Consolidated Balance Sheets.~~

March 31, 2016 December 31, 2015
Assets
Fixed maturities, FVO
ABS $ 9
$ 13
CDOs 4
6
CMBS 16
24
Corporate 62
87
Foreign government 8
2
U.S government 3
3
RMBS 384
368
Total fixed maturities, FVO $ 486
$ 503
Equity, FVO [1] $ —
$ 282


~~[1]~~	~~Included in equity securities, AFS on the Condensed Consolidated Balance Sheets. The Company did not hold any equity securities, FVO as of March 31, 2016.~~

3027

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.5. Fair Value Measurements (continued)

~~Financial Instruments Not Carried at Fair Value~~



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	)

~~The following table presents carrying amounts and fair values of the Company’s financial instruments not carried at fair value.~~

March 31, 2016 December 31, 2015
Fair Value Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value
Assets
Policy loans Level 3 $ 1,444
$ 1,444
$ 1,447
$ 1,447
Mortgage loans Level 3 5,637
5,900
5,624
5,736
Liabilities
Other policyholder funds and benefits payable [1] Level 3 $ 6,636
$ 6,888
$ 6,706
$ 6,898
Senior notes [2] Level 2 4,240
4,836
4,259
4,811
Junior subordinated debentures [2] Level 2 1,083
1,283
1,100
1,304
Consumer notes [3] Level 3 33
33
38
38
Assumed investment contracts [3] Level 3 668
730
619
682



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.

3129

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.6. Investments ~~and Derivative Instruments~~

~~Net Realized Capital Gains (Losses)~~



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	)

Three Months Ended March 31,
(Before tax) 2016 2015
Gross gains on sales $ 90
$ 197
Gross losses on sales (108 ) (148 )
Net OTTI losses recognized in earnings (23 ) (12 )
Valuation allowances on mortgage loans —
(3 )
Periodic net coupon settlements on credit derivatives —
1
Results of variable annuity hedge program

GMWB derivatives, net (17 ) 1
Macro hedge program (14 ) (4 )
Total results of variable annuity hedge program (31 ) (3 )
Other, net [1] (83 ) (27 )
Net realized capital gains (losses) $ (155 ) $ 5

[1]

~~Primarily consists of changes in the value of~~

Includes non-qualifying derivatives, ~~transactional~~excluding variable annuity hedge program and foreign currency ~~revaluation gains (losses) on yen denominated fixed payout annuity liabilities~~derivatives, of $10 and ~~gains (losses) on non-qualifying derivatives used to hedge~~$(37), respectively for the ~~foreign currency exposure of the liabilities. For the~~ three months endedMarch 31, ~~2016~~2017 and 2015, gains (losses) from transactional foreign currency revaluation of $(50) and $0, respectively, were primarily related to the yen denominated fixed payout annuity liabilities. For the three months ended March 31, 2016 ~~and 2015, gains (losses) on instruments used to hedge the foreign currency exposure on the fixed payout annuities were $36 and $(14), respectively.~~.

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~~(and losses) on sales and impairments previously reported as unrealized gains (or losses) in AOCI were~~$41~~ $36 and ~~$37~~ $41 for the three months endedMarch 31, ~~2016~~2017 and ~~2015,~~2016, respectively. Proceeds from sales of AFS securities totaled $6.7 billion and $4.9 billion ~~and $6.2 billion~~ for the three months ended March 31, 2017 and 2016, ~~and 2015,~~ respectively.

Recognition and Presentation of Other-Than-Temporary Impairments

The Company ~~deems bonds~~will record an other-than-temporary impairment (“OTTI”) for fixed maturities and certain equity securities with debt-like characteristics (collectively “debt securities”) ~~to be other-than-temporarily impaired (“impaired”)~~ if ~~a security meets the following conditions: a)~~ 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, or b) the Company does not expect to recover the entire amortized cost basis of the security. 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, avalue. 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. ~~For~~

The Company will also record an OTTI for those ~~impaired~~ debt securities ~~which do not meet the first condition and~~ for which the Company does not expect to recover the entire amortized cost ~~basis,~~basis. For these securities, the ~~difference between~~excess of the ~~security’s~~ amortized cost basis ~~and the~~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 ~~impairment,~~amount, which is recorded in OCI. ~~Generally,~~The credit OTTI amount is the ~~Company determines a security’s credit impairment as the difference between~~excess of its amortized cost basis and its best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment. The remaining non-credit impairment is the difference between the security’s fair value andover the Company’s best estimate of discounted expected future cash ~~flows~~flows. The non-credit amount is the excess of the best estimate of the discounted at the security’s effective yield prior to the impairment, which typically includes current market liquidity and risk premiums. The previous amortized cost basis less the impairment recognized in net realized capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to the estimatedexpected 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 by prospectively adjusting the security’s yield, if necessary.~~security.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

The Company’s evaluation of whether a credit impairment exists for debt securities includes but is not limited to, the following factors: (a) changes in the financial condition of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the security and (e) the payment structure of the security. The Company’s best estimate of expected future cash flows ~~used to determine the credit loss amount~~ is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions ~~and judgments~~ regarding the future ~~performance of the security.~~performance. The ~~Company’s best estimate of future cash flows involves assumptions including,~~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 ~~underlying~~and the issuer’s ability to restructure and execute asset ~~valuations and~~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, ~~and~~ loan-to-value ("LTV") ~~ratios. In addition, for structured securities, the Company considers factors including, but not limited to,~~ratios, average cumulative collateral loss rates that vary by vintage year, ~~commercial~~prepayment speeds, and ~~residential~~ property value ~~declines that vary by property type and location and commercial real estate delinquency levels.~~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. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral such as changes in the projections of the underlying property value estimates.

~~For~~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~~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 ~~security’s~~ new cost basis. The ~~Company asserts its intent~~Company’s evaluation and ~~ability~~assumptions used to retain those equity securities deemed to be temporarily impaired until the price recovers. Once identified, these securities are systematically restricted from trading unless approved by investment and accounting professionals.

~~The primary factors considered in evaluating whether an impairment exists for~~determine an equity ~~security may~~OTTI include, but ~~are~~is not limited ~~to:~~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.

~~The following table presents~~ For the ~~Company's impairments by impairment type.~~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

Three Months Ended March 31,
2016 2015
Credit impairments $ 18
$ 3
Intent-to-sell impairments 2
9
Impairments on equity securities 3
—
Total impairments $ 23
$ 12

~~The following table presents a roll-forward of the Company’s cumulative credit impairments on fixed maturities held.~~

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)

Three Months Ended March 31,
(Before tax) 2016 2015
Balance as of beginning of period $ (324 ) $ (424 )
Additions for credit impairments recognized on [1]:

Securities not previously impaired (17 ) (3 )
Securities previously impaired (1 ) —
Reductions for credit impairments previously recognized on:

Securities that matured or were sold during the period 1
4
Securities the Company made the decision to sell or more likely than not will be required to sell —
2
Securities due to an increase in expected cash flows 5
9
Balance as of end of period $ (336 ) $ (412 )



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.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

Available-for-Sale Securities

~~The following table presents the Company’s AFS securities by type.~~


AFS Securities by Type																									AFS Securities by Type
	March 31, 2016												December 31, 2015												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]			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	$	2,683	$	29	$	(47	)	$	2,665	$	—		$	2,520	$	24	$	(45	)	$	2,499	$	—		$	2,267	$	20	$	(22	)	$	2,265	$	—		$	2,396	$	17	$	(31	)	$	2,382	$	—
CDOs [2]	3,075		68		(37		)	3,107		—			2,989		75		(23		)	3,038		—			2,243		71		(3		)	2,311		—			1,853		67		(4		)	1,916		—
CMBS	5,132		155		(63		)	5,224		(8		)	4,668		105		(56		)	4,717		(8		)	5,055		102		(58		)	5,099		(7		)	4,907		97		(68		)	4,936		(6		)
Corporate	25,723		1,818		(244		)	27,297		(17		)	25,876		1,342		(416		)	26,802		(3		)	24,371		1,548		(189		)	25,730		—			24,380		1,510		(224		)	25,666		—
Foreign govt./govt. agencies	1,146		57		(14		)	1,189		—			1,321		34		(47		)	1,308		—			1,151		48		(12		)	1,187		—			1,164		33		(26		)	1,171		—
Municipal	11,186		1,124		(7		)	12,303		—			11,124		1,008		(11		)	12,121		—			11,076		759		(55		)	11,780		—			10,825		732		(71		)	11,486		—
RMBS	4,263		103		(28		)	4,338		—			3,986		82		(22		)	4,046		—			3,866		69		(14		)	3,921		—			4,738		66		(37		)	4,767		—
U.S. Treasuries	4,170		403		(3		)	4,570		—			4,481		222		(38		)	4,665		—			3,879		189		(35		)	4,033		—			3,542		182		(45		)	3,679		—
Total fixed maturities, AFS	$	57,378	$	3,757	$	(443	)	$	60,693	$	(25	)	$	56,965	$	2,892	$	(658	)	$	59,196	$	(11	)	$	53,908	$	2,806	$	(388	)	$	56,326	$	(7	)	$	53,805	$	2,704	$	(506	)	$	56,003	$	(6	)
Equity securities, AFS [3]	767		56		(25		)	798		—			842		38		(41		)	839		—			1,011		107		(18		)	1,100		—			1,020		96		(19		)	1,097		—
Total AFS securities	$	58,145	$	3,813	$	(468	)	$	61,491	$	(25	)	$	57,807	$	2,930	$	(699	)	$	60,035	$	(11	)	$	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, ~~2016,~~2017, and December 31, ~~2015.~~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]	~~Excluded~~ Excludes equity securities, FVO, with a cost and fair value of ~~$293~~$124 and ~~$282~~$123 as of ~~December~~March 31, ~~2015.~~2017. The Company held no equity securities, FVO as of ~~March~~December 31, ~~2016.~~2016.

~~The following table presents the Company’s fixed maturities, AFS, by contractual maturity year.~~

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)


Fixed maturities, AFS, by Contractual Maturity Year									Fixed maturities, AFS, by Contractual Maturity Year
	March 31, 2016				December 31, 2015				March 31, 2017				December 31, 2016
Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
									Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	2,509	$	2,527	$	2,373	$	2,405	$	1,693	$	1,709	$	1,896	$	1,912
Over one year through five years	10,591		10,986		10,929		11,200		9,145		9,422		9,015		9,289
Over five years through ten years	8,816		9,242		9,322		9,497		9,079		9,325		9,038		9,245
Over ten years	20,309		22,604		20,178		21,794		20,560		22,274		19,962		21,556
Subtotal	42,225		45,359		42,802		44,896		40,477		42,730		39,911		42,002
Mortgage-backed and asset-backed securities	15,153		15,334		14,163		14,300		13,431		13,596		13,894		14,001
Total fixed maturities, AFS	$	57,378	$	60,693	$	56,965	$	59,196	$	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, ~~2016~~2017~~, or~~ and December 31, ~~2015.~~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	)

3432

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.6. Investments ~~and Derivative Instruments~~ (continued)

~~Unrealized Losses on AFS Securities~~

~~The following tables present the Company’s unrealized loss aging for AFS securities by type and length of time the security was in a continuous unrealized loss position.~~

March 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 $ 1,121
$ 1,112
$ (9 ) $ 368
$ 330
$ (38 ) $ 1,489
$ 1,442
$ (47 )
CDOs [1] 1,543
1,523
(21 ) 1,108
1,092
(16 ) 2,651
2,615
(37 )
CMBS 1,370
1,322
(48 ) 250
235
(15 ) 1,620
1,557
(63 )
Corporate 3,810
3,662
(148 ) 890
794
(96 ) 4,700
4,456
(244 )
Foreign govt./govt. agencies 217
210
(7 ) 78
71
(7 ) 295
281
(14 )
Municipal 272
267
(5 ) 33
31
(2 ) 305
298
(7 )
RMBS 919
909
(10 ) 743
725
(18 ) 1,662
1,634
(28 )
U.S. Treasuries 248
246
(2 ) 25
24
(1 ) 273
270
(3 )
Total fixed maturities, AFS $ 9,500
$ 9,251
$ (250 ) $ 3,495
$ 3,302
$ (193 ) $ 12,995
$ 12,553
$ (443 )
Equity securities, AFS [2] 276
257
(19 ) 56
50
(6 ) 332
307
(25 )
Total securities in an unrealized loss position $ 9,776
$ 9,508
$ (269 ) $ 3,551
$ 3,352
$ (199 ) $ 13,327
$ 12,860
$ (468 )


	December 31, 2015
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of December 31, 2016																						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							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			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	1,619	$	1,609	$	(10	)	$	357	$	322	$	(35	)	$	1,976	$	1,931	$	(45	)	$	582	$	579	$	(3	)	$	368	$	340	$	(28	)	$	950	$	919	$	(31	)
CDOs [1]	1,164		1,154		(10		)	1,243		1,227		(13		)	2,407		2,381		(23		)	641		640		(1		)	370		367		(3		)	1,011		1,007		(4		)
CMBS	1,726		1,681		(45		)	189		178		(11		)	1,915		1,859		(56		)	2,076		2,027		(49		)	293		274		(19		)	2,369		2,301		(68		)
Corporate	9,206		8,866		(340		)	656		580		(76		)	9,862		9,446		(416		)	5,418		5,248		(170		)	835		781		(54		)	6,253		6,029		(224		)
Foreign govt./govt. agencies	679		646		(33		)	124		110		(14		)	803		756		(47		)	573		550		(23		)	27		24		(3		)	600		574		(26		)
Municipal	440		430		(10		)	18		17		(1		)	458		447		(11		)	1,567		1,498		(69		)	43		41		(2		)	1,610		1,539		(71		)
RMBS	1,349		1,340		(9		)	415		402		(13		)	1,764		1,742		(22		)	1,655		1,624		(31		)	591		585		(6		)	2,246		2,209		(37		)
U.S. Treasuries	2,432		2,394		(38		)	8		8		—			2,440		2,402		(38		)	1,432		1,387		(45		)	—		—		—			1,432		1,387		(45		)
Total fixed maturities, AFS	$	18,615	$	18,120	$	(495	)	$	3,010	$	2,844	$	(163	)	$	21,625	$	20,964	$	(658	)	$	13,944	$	13,553	$	(391	)	$	2,527	$	2,412	$	(115	)	$	16,471	$	15,965	$	(506	)
Equity securities, AFS [2]	480		449		(31		)	62		52		(10		)	542		501		(41		)	330		315		(15		)	38		34		(4		)	368		349		(19		)
Total securities in an unrealized loss position	$	19,095	$	18,569	$	(526	)	$	3,072	$	2,896	$	(173	)	$	22,167	$	21,465	$	(699	)	$	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, ~~2016, and December 31, 2015,~~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, ~~2016,~~2017, AFS securities in an unrealized loss position consisted of ~~3,531~~3,528 securities, primarily in the corporate sector, which were depressed primarily due to ~~widening of credit spreads and/or~~ an increase in interest rates and/or widening of credit spreads since the securities were purchased. As of March 31, ~~2016, 92%~~2017, 94% of these securities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during ~~the~~ first quarter ~~of 2016~~2017 was primarily attributable to a decline in long-term interest ~~rates.~~

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

rates as well as tighter credit spreads across most sectors.

Most of the securities depressed for twelve months or more relate to corporate securities ~~concentrated~~primarily in the financial services and ~~energy~~energy-related sectors, student loan ABS and structured securities with exposure to commercial ~~and residential~~ 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 ~~were~~are in an unrealized loss position primarily ~~depressed~~ due to ~~a decline in~~depressed oil ~~and gas~~ prices. For certain commercial ~~and residential~~ real estate securities, current ~~market~~ 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

~~The Company’s security monitoring process reviews mortgage loans on a quarterly basis to identify potential credit losses.~~ 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. ~~Criteria used~~The Company reviews mortgage loans on a quarterly basis to ~~determine if an impairment exists include, but are not limited to:~~identify potential credit losses. Among other factors, management reviews current and projected macroeconomic ~~factors,~~

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 ~~historic,~~historical, current and projected delinquency rates and property values. ~~These assumptions~~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, ~~projections of expected future~~ cash ~~flows~~flow projections may change based upon new information ~~regarding~~about the ~~performance~~borrower's ability to pay and/or the value of ~~the borrower and/or~~ underlying collateral such as changes in ~~the projections of the underlying~~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 or, most frequently, (c) the fair value of the collateral.~~price. A valuation allowance ~~has been established~~may be recorded for ~~either~~an individual loan or for a group of loans ~~or as a projected loss contingency for loans with~~that have an LTV ratio of 90% or greater, ~~and after consideration of~~a low DSCR or have other lower credit quality ~~factors, including DSCR.~~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 ~~loans~~borrowers continue to ~~perform~~make payments under the original or restructured loan terms. ~~Interest~~The Company stops accruing interest income ~~ceases to accrue for~~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. ~~Loans may resume accrual status~~The Company resumes accruing interest income when it ~~is determined~~determines that sufficient collateral exists to satisfy the full amount of the loan principal and interest payments ~~as well as~~and when it is probable cash will be received in the foreseeable future. Interest income on defaulted loans is recognized when received.

March 31, 2016 December 31, 2015
Amortized Cost [1] Valuation Allowance Carrying Value Amortized Cost [1] Valuation Allowance Carrying Value
Total commercial mortgage loans $ 5,659
$ (22 ) $ 5,637
$ 5,647
$ (23 ) $ 5,624


~~[1]~~	~~Amortized cost represents carrying value prior to valuation allowances, if any.~~

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Investments (continued)

As of March 31, ~~2016,~~2017 and December 31, ~~2015,~~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 ~~associated with the~~that had a valuation allowance was ~~$34~~$57 and ~~$82,~~$31, respectively. There were no mortgage loans held-for-sale as of March 31, ~~2016,~~2017 or December 31, ~~2015.~~2016. As of March 31, ~~2016,~~2017, the Company had an immaterial amount of mortgage loans ~~within the Company’s mortgage loan portfolio~~ that have had extensions or restructurings other than what is allowable under the original terms of the ~~contract are immaterial.~~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.

2016 2015
Balance, as of January 1 $ (23 ) $ (18 )
(Additions)/Reversals —
(3 )
Deductions 1
—
Balance, as of March 31 $ (22 ) $ (21 )

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~



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 ~~55%~~51% as of March 31, ~~2016,~~2017, while the weighted-average LTV ratio at origination of these loans was ~~63%~~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 ~~property level~~ reviews of the ~~portfolio.~~underlying properties. Factors considered in ~~the~~estimating property ~~valuation~~values include, ~~but are not limited to,~~among other things, actual and expected property cash flows, geographic market data and ~~capitalization rates.~~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~~Company's commercial mortgage loan portfolio was ~~2.64x~~2.67x as of March 31, ~~2016.~~2017. As of March 31, ~~2016, and December 31, 2015,~~2017, the Company held two delinquent commercial mortgage ~~loans~~loan past due by 90 days or more. The loans had a total carrying value and valuation allowance of ~~$17~~$27 and ~~$20,~~$18, respectively, and ~~were~~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.

~~The following table presents the carrying value of the Company’s commercial mortgage loans by LTV and DSCR.~~



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

Commercial Mortgage Loans Credit Quality
March 31, 2016 December 31, 2015
Loan-to-value Carrying Value Avg. Debt-Service Coverage Ratio Carrying Value Avg. Debt-Service Coverage Ratio
Greater than 80% $ 17
0.77x $ 24
0.81x
65% - 80% 753
1.94x 623
1.82x
Less than 65% 4,867
2.78x 4,977
2.75x
Total commercial mortgage loans $ 5,637
2.64x $ 5,624
2.63x



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	%

~~The following tables present the carrying value of the Company’s mortgage loans by region and property type.~~

Mortgage Loans by Region
March 31, 2016 December 31, 2015
Carrying Value Percent of Total Carrying Value Percent of Total
East North Central $ 315
5.6 % $ 289
5.1 %
East South Central 14
0.2 % 14
0.2 %
Middle Atlantic 383
6.8 % 384
6.8 %
Mountain 35
0.6 % 32
0.6 %
New England 445
7.9 % 446
7.9 %
Pacific 1,636
29.1 % 1,669
29.7 %
South Atlantic 1,175
20.8 % 1,174
20.9 %
West North Central 29
0.5 % 29
0.5 %
West South Central 339
6.0 % 318
5.7 %
Other [1] 1,266
22.5 % 1,269
22.6 %
Total mortgage loans $ 5,637
100.0 % $ 5,624
100.0 %


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

Mortgage Loans by Property Type
March 31, 2016 December 31, 2015
Carrying Value Percent of Total Carrying
Value Percent of Total
Commercial
Agricultural $ 19
0.3 % $ 26
0.5 %
Industrial 1,444
25.6 % 1,422
25.3 %
Lodging 25
0.4 % 26
0.5 %
Multifamily 1,397
24.8 % 1,345
23.9 %
Office 1,509
26.8 % 1,547
27.5 %
Retail 1,093
19.4 % 1,109
19.7 %
Other 150
2.7 % 149
2.6 %
Total mortgage loans $ 5,637
100.0 % $ 5,624
100.0 %

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~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~



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 ~~fees~~fee income over the period that services are ~~performed in fee income.~~performed. As of March 31, ~~2016,~~2017, under this program, the Company serviced commercial mortgage loans ~~under this program~~ with a total outstanding principal of ~~$455,~~$983, of which ~~$158~~$266 was serviced on behalf of third parties and ~~$297~~$717 was retained and reported on the Company’s Condensed Consolidated Balance Sheets, including ~~$79~~$143 in separate account assets. As of December 31, ~~2015,~~2016, the Company serviced commercial mortgage loans ~~under this program~~ with a total outstanding principal balance of ~~$359,~~$901, of which ~~$129~~$251 was serviced on behalf of third parties and ~~$230~~$650 was retained and reported as assets on the Company’s Condensed Consolidated Balance Sheets, including ~~$54~~$124 in separate account assets. Servicing rights are carried at the lower of cost or fair value and were zero as of March 31, ~~2016~~2017 and December 31, ~~2015,~~2016, because servicing fees were ~~market-level~~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 ~~to administer~~for servicing the ~~servicing.~~loans.

Variable Interest Entities

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

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its collateral or investment management services and original investment.

March 31, 2016 December 31, 2015
Total Assets Total Liabilities [1] Maximum Exposure to Loss [2] Total Assets Total Liabilities [1] Maximum Exposure to Loss [2]
CDO [3] $ 5
$ 5
$ —
$ 5
$ 5
$ —
Investment funds [4] —
—
—
159
7
151
Limited partnerships and other alternative investments [5] 458
—
458
2
—
2
Total $ 463
$ 5
$ 458
$ 166
$ 12
$ 153


~~[1]~~	~~Included in other liabilities on the Company’s Condensed Consolidated Balance Sheets.~~


~~[2]~~	The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.


~~[3]~~	~~Total assets included in cash on the Company’s Condensed Consolidated Balance Sheets.~~


~~[4]~~	~~Total assets included in fixed maturities, FVO, short-term investments, equity, AFS, and cash on the Company’s Condensed Consolidated Balance Sheets.~~


~~[5]~~	~~Total assets included in limited partnerships and other alternative investments, short-term investments, and other assets on the Company’s Condensed Consolidated Balance Sheets.~~

Effective January 1, 2016, the Company adopted new consolidation guidance which resulted in a hedge fund of funds that is part of limited partnerships and other alternative investments and which was previously consolidated as a voting interest entity, to be consolidated instead as a VIE. Accordingly, this investment in this hedge fund of funds has been included in the above table beginning with the March 31, 2016 reporting. This hedge fund of funds limited partnership is considered a VIE under the updated guidance and the Company has determined it is the primary beneficiary and will continue to consolidate the VIE. As of March 31, ~~2016, this limited partnership has outstanding commitments totaling $55, which may be called by the underlying partnerships during the commitment period to fund the purchase of new investments.For further information on the adoption, see Note 1 - Basis of Presentation~~2017 and ~~Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.~~

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~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

~~Also as a result of the adoption,~~December 31, 2016, the Company ~~determined that two investment funds, that were previously identified as consolidated VIEs and~~held one CDO for which it is the ~~Company has management and control of the investments, are voting interest entities under the new consolidation guidance.~~primarily beneficiary. The Company still owns a majority interest in the investment funds and the funds are still consolidated on the Company's Condensed Consolidated Financial Statements; however, as of March 31, 2016, these investment funds are not included as VIEs in the table above. CDO represents a structured investment vehicle for which the Company has a controlling financial ~~interest as it provides collateral management services, earns a fee for those services~~interest. As of March 31, 2017 and ~~also holds investments~~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 ~~security issued by~~Company's Condensed Consolidated Balance Sheets. The Company does not have any additional exposure to loss associated with this ~~vehicle.~~investment.

Non-Consolidated VIEs

The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. ~~Upon the adoption of the new consolidation guidance, discussed above, these investments are now considered VIEs.~~ 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, ~~2016~~2017 and December 31, ~~2015,~~2016 is limited to the total carrying value of ~~$1.6~~$1.7 billion ~~and $1.5 billion, respectively,~~ which are included in limited partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of March 31, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company has outstanding commitments totaling ~~$736~~$1.1 billion and ~~$692,~~$1.2 billion, respectively, ~~which~~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 ~~and Derivatives~~ of Notes to Consolidated Financial Statements included in the Company’s ~~2015~~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.

~~The~~As of December 31, 2016, the Company ~~holds~~held a significant variable interest in a VIE for which it is not the primary ~~beneficiary and, therefore, was not consolidated on the Company’s Condensed Consolidated Balance Sheets.~~beneficiary. This VIE ~~represents~~represented a ~~contingent capital~~ facility ~~("facility")~~ that ~~has been~~was held by the Company since February ~~2007 and for which the Company has no implied or unfunded commitments.~~2007. Assets and liabilities recorded for the contingent capital facility were $5$1 and ~~$6, respectively, as of March 31, 2016, and $7 and $8,~~$3, respectively, as of December 31, ~~2015. Additionally, the Company has~~2016. as well as a maximum exposure to loss of ~~$3 and $3, respectively, as of March 31, 2016, and December 31, 2015, which represents the issuance costs that were incurred to establish the facility.~~$3. The Company ~~does~~did not have a controlling financial interest and as ~~it does~~such, did not manage the assets of the facility nor does it have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the facility, as the asset manager has significantconsolidate its variable interest in the ~~vehicle. The Company’s financial or other support provided to~~facility. As of March 31, 2017, after having exercised its put option under the facility ~~is limited~~ to ~~providing ongoing support to cover~~issue debt, the ~~facility’s operating expenses.~~Company no longer held a significant interest in the facility. For further information on the facility, see Note 1110 - Debt of Notes to Condensed Consolidated Financial ~~Statements included in The Hartford’s 2015 Form 10-K Annual Report.~~Statements.

Securities Lending, Repurchase Agreements ~~and Similar Transactions~~ and Other Collateral Transactions

The Company ~~participates in~~enters into securities financing transactions as a way to earn additional income or manage liquidity, primarily through securities lending ~~programs to generate additional income. Through these programs,~~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 ~~are loaned from the Company’s portfolio~~ to qualifying third-party borrowers in return for collateral in the form of cash or securities. ~~Borrowers of these~~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 for domestic and non-domestic securities, respectively. The borrower~~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 ~~consolidated balance sheets. The fair value of the loaned securities is monitored and additional~~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 ~~transferred.~~loaned. If cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities and is reported as an asset on the consolidated balance sheets. Income associated with securities lending transactions is reported as a component of net investment income on the Company’s consolidated statements of operations. As of March 31, 2016, the fair value of securities on loan and the associated liability for cash collateral received was $96 and $98, respectively. As of December 31, 2015, the fair value of securities on loan and the associated liability for cash collateral received was $67 and $68, respectively.

3935

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.6. Investments ~~and Derivative Instruments~~ (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 ~~and similar transactions~~ to manage liquidity or to earn incremental ~~spread~~ 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. ~~A dollar roll is a type of repurchase agreement where a mortgage backed security is sold with an agreement to repurchase substantially the same security at a specified time in the future. Repurchase~~These transactions generally have a contractual maturity of ninety days or less.

~~As part of~~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 ~~contain contractual provisions that~~ 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.~~maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. Repurchase agreements include master netting provisions that provide ~~the~~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 ~~Balance~~Balances Sheets financial collateral pledged relating to repurchase agreements of ~~$458.~~$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 ~~$452~~$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 ~~December~~March 31, ~~2015,~~2017, the Company reported financial collateral pledged relating to repurchase agreements $440 in fixed maturities, AFS and $5 in cash. The Company reported a corresponding obligation to repurchase the pledged securities of $445 in other liabilities$96 within short-term investments on the Condensed Consolidated Balance ~~Sheets.~~Sheets representing a receivable for the amount of cash transferred to purchase the securities. The Company ~~had no outstanding dollar roll transactions~~did not hold any reverse repurchase agreements as of ~~March 31, 2016 or~~ December 31, ~~2015.~~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, ~~2016,~~2017 and December 31, ~~2015,~~2016, the fair value of securities on deposit was approximately ~~$2.6 billion and~~ $2.5 ~~billion, respectively.~~billion.

As of March 31, ~~2016,~~2017 and December 31, ~~2015,~~2016, the Company has pledged as collateral $17104 and ~~$35,~~$102, respectively, of U.S. government securities and government agency securities or cash ~~for~~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 ~~this note.~~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, commodity~~ 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 ~~may contain features that are deemed to be~~as embedded derivative instruments, such as ~~the~~ GMWB ~~rider~~riders included with certain variable annuity products.

Strategies ~~That~~that Qualify for Hedge Accounting

~~Certain~~Some of the Company's derivatives ~~that the Company enters into~~ 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 ~~2015~~2016 Form 10-K Annual Report. Typically, these ~~hedge relationships~~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.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

Fair Value Hedges

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

~~Non-Qualifying~~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, ~~2016,~~2017, and December 31, ~~2015,~~2016, the notional amount of interest rate swaps in offsetting relationships was ~~$12.8~~$10.2 billion and ~~$12.9~~$10.6 billion, respectively.

Foreign Currency Swaps and Forwards

The Company enters into foreign currency swaps ~~and forwards~~ to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars. ~~During 2015,~~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, which matured in January 2016. Foreign currency forwards are also used to hedge currency impacts on changes in equity of a P&C runoff entity in the United Kingdom.~~securities.

Fixed Payout Annuity Hedge

The Company ~~reinsures~~has obligations for certain yen denominated fixed payout ~~annuities.~~annuities under an assumed reinsurance contract. The Company invests in U.S. dollar denominated assets to support the assumed reinsurance liability. The Company ~~entered into~~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. During 2015, the Company entered into a total return swap to hedge equity risk of specific common stock investments which were accounted for using the fair value option in order to align the accounting treatment within net realized capital gains (losses). The swap matured in January 2016 and the specific common stock investments were sold at that time. In addition, the Company formerly offered certain equity indexed products that remain in force, a portion of which contain embedded derivatives that require ~~bifurcation.~~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.

~~Commodity Contracts~~

During 2015, the Company purchased for $11 put option contracts on West Texas Intermediate oil futures with a strike of $35 dollars per barrel in order to partially offset potential losses related to certain fixed maturity securities that could arise if oil prices decline substantially. The Company has since reduced its exposure to the targeted fixed maturity securities and, therefore, these options were terminated at the end of 2015.

GMWB Derivatives, ~~Net~~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 ~~amount.~~

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~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

reinsured.

The Company utilizes derivatives (“GMWB hedging instruments”) as part of ~~an actively managed~~a dynamic hedging program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB ~~riders due to~~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 ~~following table presents notional~~Company retains the risk for differences between assumed and ~~fair value for GMWB hedging instruments.~~actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.


GMWB Hedging Instruments										GMWB Hedging Instruments
	Notional Amount				Fair Value					Notional Amount				Fair Value
	March 31, 2016		December 31, 2015		March 31, 2016			December 31, 2015		Mar. 31, 2017		Dec. 31, 2016		Mar. 31, 2017			Dec. 31, 2016
Customized swaps	$	5,622	$	5,877	$	150		$	131	$	5,213	$	5,191	$	76		$	100
Equity swaps, options, and futures	1,392		1,362		(6		)	2		1,374		1,362		(35		)	(27		)
Interest rate swaps and futures	3,773		3,740		48			25		3,350		3,703		42			21
Total	$	10,787	$	10,979	$	192		$	158	$	9,937	$	10,256	$	83		$	94

Macro Hedge Program

The Company utilizes equity swaps, options, and ~~futures~~forwards to ~~partially hedge~~provide partial protection against ~~a decline in~~ the ~~equity markets and the resulting~~ statutory ~~surplus and capital impact primarily~~tail scenario risk arising from ~~the~~GMWB and guaranteed minimum death benefit ("GMDB") ~~and GMWB obligations. The following table presents notional and fair value for~~liabilities on the ~~macro hedge~~Company's statutory surplus. These derivatives cover some of the residual risks not otherwise covered by the dynamic hedging program.

Notional Amount Fair Value
March 31,
2016 December 31, 2015 March 31,
2016 December 31, 2015
Equity swaps, options, and futures $ 4,605
$ 4,548
$ 145
$ 147
Total $ 4,605
$ 4,548
$ 145
$ 147

Contingent Capital Facility Put Option

The Company previously entered into a put option agreement that ~~provides~~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 ~~will pay~~had been paying premiums on a periodic basis and ~~will~~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, ~~2016~~2017, and December 31, ~~2015~~2016, the Company had ~~approximately $905 and $895, respectively,~~$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 ~~due~~of investments subject to interest rate and credit ~~risks of these assets.~~risk. The notional amount of the embedded derivative reinsurance contracts are the invested assets ~~that~~which are carried at fair value ~~supporting~~and support the reinsured reserves.

Derivative Balance Sheet Classification

~~The following table summarizes the balance sheet classification of the Company’s derivative related net fair value amounts as well as the gross asset and liability fair value amounts.~~ For reporting purposes, the Company has elected to offset within ~~total~~ assets or ~~total~~ 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 ~~total~~ assets or ~~total~~ liabilities ~~based upon the net of the fair value amounts, income accruals and related cash collateral receivables and payables of~~ 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 ~~$1.3 billion~~$877 and ~~$1.1 billion, respectively,~~$963 as of March 31, ~~2016,~~2017, and December 31, ~~2015~~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 45 - Fair Value ~~Measurements of Notes to Condensed Consolidated Financial Statements.~~

4238

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~5. Investments and~~7. Derivative Instruments (continued)

Measurements of Notes to the Condensed Consolidated Financial Statements.

Net Derivatives Asset Derivatives Liability Derivatives
Notional Amount Fair Value Fair Value Fair Value
Hedge Designation/ Derivative Type Mar. 31, 2016 Dec. 31, 2015 Mar. 31, 2016 Dec. 31, 2015 Mar. 31, 2016 Dec. 31, 2015 Mar. 31, 2016 Dec. 31, 2015
Cash flow hedges
Interest rate swaps $ 3,478
$ 3,527
$ 89
$ 17
$ 94
$ 50
$ (5 ) $ (33 )
Foreign currency swaps 143
143
(18 ) (19 ) 6
7
(24 ) (26 )
Total cash flow hedges 3,621
3,670
71
(2 ) 100
57
(29 ) (59 )
Fair value hedges
Interest rate swaps 23
23
—
—
—
—
—
—
Total fair value hedges 23
23
—
—
—
—
—
—
Non-qualifying strategies
Interest rate contracts
Interest rate swaps, swaptions, and futures 14,545
14,290
(892 ) (814 ) 475
297
(1,367 ) (1,111 )
Foreign exchange contracts
Foreign currency swaps and forwards 317
653
6
17
6
17
—
—
Fixed payout annuity hedge 1,063
1,063
(321 ) (357 ) —
—
(321 ) (357 )
Credit contracts
Credit derivatives that purchase credit protection 494
423
(11 ) 18
2
22
(13 ) (4 )
Credit derivatives that assume credit risk [1] 1,397
2,458
(9 ) (13 ) 8
9
(17 ) (22 )
Credit derivatives in offsetting positions 4,034
4,059
(2 ) (2 ) 43
40
(45 ) (42 )
Equity contracts
Equity index swaps and options 1,429
419
5
15
34
41
(29 ) (26 )
Variable annuity hedge program
GMWB product derivatives [2] 14,597
15,099
(361 ) (262 ) —
—
(361 ) (262 )
GMWB reinsurance contracts 3,005
3,106
99
83
99
83
—
—
GMWB hedging instruments 10,787
10,979
192
158
338
264
(146 ) (106 )
Macro hedge program 4,605
4,548
145
147
178
179
(33 ) (32 )
Other
Contingent capital facility put option 500
500
5
7
5
7
—
—
Modified coinsurance reinsurance contracts 905
895
57
79
57
79
—
—
Total non-qualifying strategies 57,678
58,492
(1,087 ) (924 ) 1,245
1,038
(2,332 ) (1,962 )
Total cash flow hedges, fair value hedges, and non-qualifying strategies $ 61,322
$ 62,185
$ (1,016 ) $ (926 ) $ 1,345
$ 1,095
$ (2,361 ) $ (2,021 )
Balance Sheet Location
Fixed maturities, available-for-sale $ 426
$ 425
$ 1
$ (3 ) $ 1
$ —
$ —
$ (3 )
Other investments 23,359
23,253
100
1
566
409
(466 ) (408 )
Other liabilities 18,980
19,358
(887 ) (798 ) 622
524
(1,509 ) (1,322 )
Reinsurance recoverables 3,910
4,000
156
162
156
162
—
—
Other policyholder funds and benefits payable 14,647
15,149
(386 ) (288 ) —
—
(386 ) (288 )
Total derivatives $ 61,322
$ 62,185
$ (1,016 ) $ (926 ) $ 1,345
$ 1,095
$ (2,361 ) $ (2,021 )



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.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

~~Change in Notional Amount~~

~~The net decrease in notional amount of derivatives since~~ ~~December 31, 2015, was primarily due to the following:~~

The decline in notional amount related to credit derivatives that assume credit risk was primarily due to the termination of replication transactions that had been used to earn credit spread while re-balancing within certain fixed maturity sectors.

The decline in notional amount related to currency derivatives was primarily driven by the expiration of yen currency forwards which were used to hedge Japanese yen-denominated cash and equity securities.

The decline in the combined notional amount associated with the GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by policyholder lapses and partial withdrawals.

The increase in notional amount related to equity derivatives primarily resulted from purchases of equity index options which are hedging the impact of a decline in the equity market on the investment portfolio.

~~Change in Fair Value~~

~~The net decline in the total fair value of derivative instruments since~~ ~~December 31, 2015, was primarily related to the following:~~

The decrease in fair value related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by a decrease in the value of equity derivatives and liability model fund regression updates.

~~The decline in fair value of credit default swaps that purchase credit protection was primarily due to terminations.~~

The decrease in the fair value associated with modified coinsurance reinsurance contracts, which are accounted for as embedded derivatives and transfer to the reinsurer the investment experience related to the assets supporting the reinsured policies, was primarily driven by a decline in interest rates.

The increase in fair value associated with the fixed payout annuity hedges was primarily driven by an appreciation of the Japanese yen in comparison to the U.S. dollar, partially offset by an decline in U.S. interest rates.

The increase in fair value associated with qualifying cash flow interest rate swaps and the decrease in fair value related to non-qualifying interest rate swaps were primarily due to market changes in the quarter.

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

4439

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~5. Investments and~~7. Derivative Instruments (continued)

offset upon an event of ~~March 31, 2016~~

(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 Gross Amounts Offset in the Statement of Financial Position Derivative Assets [1] Accrued Interest and Cash Collateral Received [2] Financial Collateral Received [4] Net Amount
Description
Other investments $ 1,188
$ 998
$ 100
$ 90
$ 111
$ 79

Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Derivative Liabilities [3] Accrued Interest and Cash Collateral Pledged [3] Financial Collateral Pledged [4] Net Amount
Description
Other liabilities $ (1,975 ) $ (961 ) $ (887 ) $ (127 ) $ (950 ) $ (64 )
default, although are disallowed for offsetting under U.S. GAAP.

~~As of December 31, 2015~~


Offsetting Derivative Assets and Liabilities																			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 Liabilities			Gross Amounts Offset in the Statement of Financial Position			Derivative Liabilities [3]			Accrued Interest and Cash Collateral Pledged [3]			Financial Collateral Pledged [4]			Net Amount			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
Description
As of March 31, 2017
Other investments																			$	1,217		$	1,101		$	250		$	(134	)		$	73		$	43
Other liabilities	$	(1,730	)	$	(818	)	$	(798	)	$	(114	)	$	(889	)	$	(23	)	$	(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 ~~invested assets~~investments in the Company's Condensed Consolidated Balance Sheets.


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


[3]	Included in other ~~liabilities~~investments in the Company's Condensed Consolidated Balance Sheets and ~~amount presented~~ is limited to the net derivative ~~payable~~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

4540

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~5. Investments and~~7. Derivative Instruments (continued)

~~The following tables present~~

During the ~~components of~~three months ended March 31, 2017, and March 31, 2016, the ~~gain or loss on derivatives that qualify as cash flow hedges:~~

~~Derivatives~~Company had no ineffectiveness recognized in ~~Cash Flow Hedging Relationships~~

Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Net Realized Capital Gains(Losses) Recognized in Income on Derivative (Ineffective Portion)
Three Months Ended March 31, Three Months Ended March 31,
2016 2015 2016 2015
Interest rate swaps $ 106
$ 56
$ —
$ —
Foreign currency swaps 1
(7 ) —
—
Total $ 107
$ 49
$ —
$ —

Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
Three Months Ended March 31,
Location 2016 2015
Interest rate swaps Net realized capital gains (losses) $ 5
$ 1
Interest rate swaps Net investment income 15
16
Foreign currency swaps Net realized capital gains (losses) 4
(10 )
Total $ 24
$ 7
income within net realized capital gains (losses).

As of March 31, ~~2016~~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 $5646. 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, ~~2016~~,2017, and March 31, ~~2015~~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 a fair value ~~hedge,~~hedges, the gain or loss on the ~~derivative~~derivatives as well as the

offsetting loss or gain on the hedged ~~item~~items attributable to the hedged risk are recognized in current ~~period~~ 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, ~~and 2015,~~ the Company recognized in income ~~losses of less than $1, respectively, representing~~immaterial gains and (losses) for the ineffective portion of fair value hedges ~~for~~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). ~~The following table presents the gain or loss recognized in income on non-qualifying strategies:~~

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

~~Derivatives Used in Non-Qualifying Strategies~~

~~Gain or (Loss) Recognized within Net Realized Capital Gains and Losses~~


Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)							Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
	Three Months Ended March 31,						Three Months Ended March 31,
	2016			2015			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	$	(24	)	$	(12	)	7			(24		)
Foreign exchange contracts
Foreign currency swaps and forwards	3			7
Fixed payout annuity hedge [1]	36			(14		)
Credit contracts
Credit derivatives that purchase credit protection	(5		)	(2		)	(11		)	(5		)
Credit derivatives that assume credit risk	(2		)	9			17			(2		)
Equity contracts
Equity index swaps and options	18			(3		)	—			18
Commodity contracts
Commodity options	—			(5		)
Variable annuity hedge program
GMWB product derivatives	(79		)	(19		)
GMWB reinsurance contracts	12			7
GMWB hedging instruments	50			13
Macro hedge program	(14		)	(4		)
Other
Contingent capital facility put option	(2		)	(2		)	(1		)	(2		)
Modified coinsurance reinsurance contracts	(22		)	(11		)	(2		)	(22		)
Total [2]	$	(29	)	$	(36	)
Total other non-qualifying derivatives							10			(37		)
Total [1]							$	(47	)	$	(29	)


[1]	~~Not included in this amount is the associated liability adjustment for changes in foreign exchange spot rates through realized capital gains (losses) of~~ ~~$(44)~~ ~~and~~ $0 ~~for the three months ended March 31, 2016 and 2015, respectively.~~


~~[2]~~	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 45 - Fair Value ~~Measurements.~~Measurements.

~~For the three months ended~~ ~~March 31, 2016, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:~~

~~The net loss related to interest rate swaps was driven by market changes in the quarter.~~

~~The net gain on the fixed payout annuity hedge primarily resulted from an appreciation of the Japanese yen in comparison to the U.S. dollar, partially offset by a decline in U.S. interest rates.~~

The net gain associated with equity index swaps and options was primarily driven by a total return swap used to hedge equity securities where the value of the swap increased due to a decline in the Japanese equity markets. An offsetting change in value was recorded on the equity securities since the Company elected the fair value option in order to align the accounting with the derivative, resulting in changes in value on both the equity securities and the derivative recorded in net realized capital gains and losses. For further discussion, see the Fair Value Option section in Note 4 - Fair Value Measurements. The loss on equity index options was due to time decay and an increase in the equity market since the inception of the trade.

The net loss related to the combined GMWB hedging program which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by a decrease in the value of equity derivatives and liability model fund regression updates.

~~The net loss on the macro hedge program was primarily driven by a decrease in the value of equity derivatives and time decay of options, partially offset by a gain due to a decline in interest rates.~~

The loss associated with modified coinsurance reinsurance contracts, which are accounted for as embedded derivatives and transfer to the reinsurer the investment experience related to the assets supporting the reinsured policies, was primarily driven by a decline in interest rates. The assets remain on the Company's books and the Company recorded an offsetting gain in OCI as a result of the increase in market value of the bonds.

4741

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~5. Investments and~~7. Derivative Instruments (continued)

~~For the three months ended March 31, 2015, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:~~

~~The net loss related to interest derivatives was primarily due to a decline in U.S. interest rates.~~

~~The net loss related to the fixed payout annuity hedge was driven by a decline in U.S. interest rates.~~

The loss on the GMWB product derivatives was largely driven by a decline in interest rates and changes in volatility levels, offset by an increase in equity markets. These losses were offset by gains on the GMWB reinsurance contracts and GMWB hedging instruments.

The loss associated with modified coinsurance reinsurance contracts, which are accounted for as embedded derivatives and transfer to the reinsurer the investment experience related to the assets supporting the reinsured policies, was primarily driven by a decline in long-term interest rates during the period. The assets remain on the Company's books and the Company recorded an offsetting gain in OCI as a result of the increase in market value of the bonds.

~~For additional disclosures regarding contingent credit related features in derivative agreements, see Note 8 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.~~

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 ~~would be~~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.

The following tables present the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type and average credit ratings, and offsetting notional amounts and fair value for credit derivatives in which the Company is assuming credit risk as of March 31, 2016, and December 31, 2015.

~~As of March 31, 2016~~

Underlying Referenced Credit
Obligation(s) [1]

Credit Derivative Type by Derivative Risk Exposure
Notional
Amount
[2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair
Value [3]
Single name credit default swaps
Investment grade risk exposure $ 102
$ —
2 years Corporate Credit/
Foreign Gov. A- $ 88
$ —
Below investment grade risk exposure 153
(1 ) 1 year Corporate Credit BB- 153
—
Basket credit default swaps [4]
Investment grade risk exposure 2,046
18
3 years Corporate Credit BBB+ 1,417
(12 )
Investment grade risk exposure 610
(18 ) 5 years CMBS Credit AA+ 206
2
Below investment grade risk exposure 153
(30 ) 1 year CMBS Credit CCC 153
29
Embedded credit derivatives
Investment grade risk exposure 350
351
1 year Corporate Credit A+ —
—
Total [5] $ 3,414
$ 320
$ 2,017
$ 19

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~5. Investments and Derivative Instruments (continued)~~

~~As of December 31, 2015~~


Credit Derivatives by Type														Credit Derivatives by Type
							Underlying Referenced Credit Obligation(s) [1]													Underlying Referenced Credit Obligation(s) [1]
Credit Derivative Type by Derivative Risk Exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
														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														As of March 31, 2017
Single name credit default swaps
Investment grade risk exposure	$	190	$	(1	)	1 year	Corporate Credit/ Foreign Gov.	BBB+	$	176	$	(1	)	$	229	$	2		4 years	Corporate Credit/ Foreign Gov.	A-	$	40	$	—
Below investment grade risk exposure	77		(2		)	2 years	Corporate Credit	B	77		1			52		—			1 year	Corporate Credit	B-	52		(1		)
Basket credit default swaps [4]
Investment grade risk exposure	3,036		22			4 years	Corporate Credit	BBB+	1,411		(13		)	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	681		(19		)	6 years	CMBS Credit	AA+	212		1			246		(4		)	4 years	CMBS Credit	AA	116		1
Below investment grade risk exposure	153		(25		)	1 year	CMBS Credit	CCC	153		25			102		(19		)	less than 1 year	CMBS Credit	CCC	103		19
Embedded credit derivatives
Investment grade risk exposure	350		346			1 year	Corporate Credit	A+	—		—			200		200			less than 1 year	Corporate Credit	A+	—		—
Total [5]	$	4,487	$	321					$	2,029	$	13		$	3,468	$	191					$	1,564	$	12
As of December 31, 2016														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 ~~applicable~~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.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments (continued)


[4]	Includes ~~$2.8~~$3.0 billion and ~~$3.9~~$2.5 billion as of March 31, ~~2016,~~2017, and December 31, ~~2015,~~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 45 - Fair Value ~~Measurements.~~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, ~~2016,~~2017, and December 31, ~~2015,~~2016, the Company pledged cash collateral associated with derivative instruments with a fair value of ~~$447~~$26 and ~~$488,~~$623, respectively, for which the collateral receivable has been primarily included within other ~~assets~~investments on the Company's Condensed Consolidated Balance Sheets. ~~The~~As of March 31, 2017, and December 31, 2016, the Company also pledged securities collateral associated with derivative instruments with a fair value of ~~$1.3 billion~~$862 and $1.1 billion, respectively, ~~as of March 31, 2016, and December 31, 2015,~~ 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, ~~2016,~~2017, and December 31, ~~2015,~~2016, the Company accepted cash collateral associated with derivative instruments of ~~$419~~$386 and ~~$369,~~$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, ~~2016,~~2017, and December 31, ~~2015,~~2016, with a fair value of ~~$116~~$77 and ~~$100,~~$109, respectively, of which the Company has the ability to sell or repledge ~~$116~~$27 and ~~$100,~~$81, respectively. As of March 31, ~~2016~~,2017, and December 31, ~~2015~~,2016, the Company had no repledged securities and did not sell any securities. In addition, as of March 31, ~~2016~~,2017, and December 31, ~~2015~~,2016, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.

4943

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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 reservesin 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 reservesrelated 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 thethree months endedMarch 31, 2016

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

Table of Contents

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 reservesincreased 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 reservesincreased 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 reservesincreased 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 reservesdecreased 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

Table of Contents

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.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~6. Separate Accounts, Death~~9. Reserve for Future Policy Benefits and ~~Other Insurance Benefit Features~~Separate Account Liabilities

~~Changes in the gross U.S. GMDB/GMWB and universal life secondary guarantee benefits are as follows:~~



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

GMDB/GMWB [1] Universal Life Secondary Guarantees
Liability balance as of January 1, 2016 $ 863
$ 2,313
Incurred [2] 28
69
Paid (38 ) —
Liability balance as of March 31, 2016 $ 853
$ 2,382
Reinsurance recoverable asset, as of January 1, 2016 $ 523
$ 2,313
Incurred [2] 25
69
Paid (29 ) —
Reinsurance recoverable asset, as of March 31, 2016 $ 519
$ 2,382

GMDB/GMWB [1] Universal Life Secondary Guarantees
Liability balance as of January 1, 2015 $ 812
$ 2,041
Incurred [2] 17
63
Paid (29 ) —
Liability balance as of March 31, 2015 $ 800
$ 2,104
Reinsurance recoverable asset, as of January 1, 2015 $ 481
$ 2,041
Incurred [2] 18
63
Paid (22 ) —
Reinsurance recoverable asset, as of March 31, 2015 $ 477
$ 2,104



	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 toa shortfall between the ~~return of~~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.

~~The following table provides details concerning GMDB/GMWB exposure as of March 31, 2016:~~

Account Value by GMDB/GMWB Type
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 $ 13,980
$ 2,783
$ 490
71
With 5% rollup [2] 1,216
232
79
71
With Earnings Protection Benefit Rider (“EPB”) [3] 3,562
471
75
70
With 5% rollup & EPB 472
104
23
72
Total MAV 19,230
3,590
667

Asset Protection Benefit (“APB”) [4] 11,162
546
363
69
Lifetime Income Benefit (“LIB”) — Death Benefit [5] 495
9
9
69
Reset [6] (5-7 years) 2,487
42
41
70
Return of Premium (“ROP”) [7]/Other 9,126
75
69
68
Subtotal Variable Annuity with GMDB/GMWB [10] 42,500
4,262
1,149
69
Less: General Account Value with GMDB/GMWB 3,796

Subtotal Separate Account Liabilities with GMDB 38,704

Separate Account Liabilities without GMDB 79,657

Total Separate Account Liabilities $ 118,361

5047

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~6. Separate Accounts, Death~~9. Reserve for Future Policy Benefits and ~~Other Insurance Benefit Features~~ 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 $6.8~~

[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 total account value and weighted average attained age of 71 years. There is no NAR or retained NAR related to these contracts.~~

~~Account balances~~ of contracts ~~with guarantees were invested in variable separate accounts as follows:~~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

Asset type As of March 31, 2016 As of December 31, 2015
Equity securities (including mutual funds) $ 35,398
$ 36,970
Cash and cash equivalents 3,306
3,453
Total $ 38,704
$ 40,423

As of March 31, ~~2016~~2017 and December 31, ~~2015~~2016, approximately ~~17%~~15% and 16%, respectively, of the equity securities (including mutual funds), in the preceding table were funds invested in fixed income securities and approximately ~~83%~~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 45 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

5148

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7.10. 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%.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Income Taxes

~~A reconciliation~~



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 ~~provision at~~asset valuation allowance on the ~~U.S. federal statutory rate~~capital loss carryover due to taxable gains on sales of investments during the ~~provision (benefit) for income taxes is as follows:~~

period.

Three Months Ended March 31,
2016 2015
Tax provision at U.S. federal statutory rate $ 133
$ 219
Tax-exempt interest (32 ) (34 )
Dividends-received deduction ("DRD") (22 ) (23 )
Decrease in valuation allowance [1] (25 ) (1 )
Other 4
(3 )
Provision for income taxes $ 58
$ 158


~~[1]~~	Income tax benefit from partial reduction of capital loss carryover valuation allowance in the three months ended March 31, 2016 is due to taxable gains on the termination of certain derivatives 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.

~~A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:~~


Roll-forward of Unrecognized Tax Benefits					Roll-forward of Unrecognized Tax Benefits
	Three Months Ended March 31,				Three Months Ended March 31,
	2016		2015		2017		2016
Balance, beginning of period	$	12	$	48	$	12	$	12
Gross increases - tax positions in prior period	—		—		—		—
Gross decreases - tax positions in prior period	—		—		—		—
Balance, end of period	$	12	$	48	$	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 ~~is expected~~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 ~~be completed in 2016.~~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 as follows:~~carryover.


Future Tax Benefits														Future Tax Benefits
	As of													As of
	March 31, 2016				December 31, 2015				Expiration					March 31, 2017				December 31, 2016				Expiration
	Carryover amount		Expected tax benefit, gross		Carryover amount		Expected tax benefit, gross		Dates			Amount		Carryover amount		Expected tax benefit, gross		Carryover amount		Expected tax benefit, gross		Dates			Amount
Net operating loss carryover - U.S.	$	5,097	$	1,784	$	5,182	$	1,814	2016	-	2020	$	4	$	5,165	$	1,808	$	5,412	$	1,894	2020			$	1
									2023	-	2033	$	5,093									2023	-	2036	$	5,164
Net operating loss carryover - foreign	$	88	$	17	$	89	$	17	No expiration			$	88
Net operating loss carryover - foreign [1]														$	51	$	10	$	48	$	9	No expiration			$	51
Foreign tax credit carryover	$	146	$	146	$	154	$	154	2019	-	2024	$	146	$	49	$	49	$	56	$	56	2021	-	2024	$	49
Capital loss carryover	$	151	$	53	$	222	$	78	2019			$	151	$	—	$	—	$	—	$	—	0			$	—
Alternative minimum tax credit carryover	$	639	$	639	$	639	$	639	No expiration			$	639	$	650	$	650	$	640	$	640	No expiration			$	650
General business credit carryover														$	90	$	90	$	99	$	99	2031	-	2036	$	90

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

Due to limitations on the use of certain losses, a valuation allowance of $1 has been established as of March 31, 2016 and $1 as of December 31, 2015, respectively, in order to recognize only the portion of net operating losses that will more likely than not be realized.

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~7. Income Taxes (continued)~~

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 ~~runoff~~run off of the U.S. fixed and variable annuity business, the exposure to taxable losses from the

Table of Contents

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 net of the recorded valuation allowance.~~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 ~~Credit and Foreign Tax Credit Carryover~~

Credits-These ~~credits~~credit carryovers are available to offset regular federal income taxes from future taxable income and ~~although~~have no expiration date. Since the Company believes there will be sufficient ~~future~~ regular federal taxable income ~~there can~~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 ~~certainty that~~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 ~~events will not affect the ability to utilize the credits. Additionally, the~~taxable income. The use of ~~the foreign tax~~these credits ~~generally~~prior to expiration depends on the generation of sufficient taxable income to first utilize all U.S. net operating loss ~~carryover.~~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 on either the~~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 carryover or foreign tax credit carryover.~~

~~Capital Loss Carryover~~

~~Utilization of the capital loss carryover requires~~tax; thus, the Company ~~to realize sufficient taxable capital gains. The Company concluded that~~believes it is more likely than not ~~that~~ the ~~remaining capital loss carryover~~credits will ~~not~~ be ~~utilized. Accordingly, the associated deferred tax asset~~fully utilized and, accordingly, no valuation allowance ~~was $53 and $78 as of March 31, 2016 and December 31, 2015, respectively.~~has been provided.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.12. 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. ~~HIFSCO moved to dismiss and, in September 2011,~~During the ~~motion was granted in part and denied in part, with leave to amend~~course of the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of The Hartford Global Health Fund, The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisors Fund, and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudicelitigation, the claims regarding distribution fees ~~and denied~~were dismissed without prejudice, the ~~motion with respect to the advisory fees claims. In March 2014,~~lineup of funds as plaintiffs changed several times, and the plaintiffs ~~filed a new complaint that, among other things,~~ added ~~as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund and named~~ as a defendant Hartford Funds Management Company ~~LLC~~ (“HFMC”), an indirect subsidiary of the Company ~~which~~that assumed the role asof 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 ~~The Hartford Capital Appreciation Fund.~~one fund. In March 2016, the court ~~in large part,~~ denied the plaintiff's motion, and granted summary judgment for ~~all parties. The court granted judgment for~~HIFSCO and HFMC ~~and HIFSCO~~ with respect to ~~all claims made by~~one fund, leaving six funds as plaintiffs: The Hartford ~~Small Company~~Balanced Fund, ~~and certain claims made by~~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 iswould be the difference, if any, between the actual advisory fees paid through trial and ~~those that could have been paid~~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– As discussed in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Property and Casualty Insurance Product Reserves, Net of Reinsurance - Property & Casualty Other Operations Claims, The ~~Hartford~~Company continues to receive asbestos and environmental claims. Asbestos claims ~~that involve significant uncertainty regarding policy coverage issues. Regarding~~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 ~~Hartford continually reviews its overall reserve levels and reinsurance coverages, as well as the methodologies it uses to estimate its exposures. Because~~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 ~~that~~ limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related ~~expenses, particularly those related to asbestos, the~~expenses. The ultimate liabilities, ~~may~~thus, could exceed the currently recorded ~~reserves. Any~~reserves, and any such additional liability, ~~cannot be~~while not reasonably ~~estimated~~estimable now, ~~but~~ 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,

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.12. 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, ~~2016~~2017 iswas $~~1.4 billion~~826. OfFor this $~~1.4 billion~~826, the legal entities have posted collateral of $~~1.6 billion~~866 in the normal course of business. In addition, the Company has posted collateral of $3331 associated with a customized GMWB derivative. Based on derivative market values as of March 31, ~~2016~~2017 a downgrade of one ~~or two levels~~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, ifwhen required, ~~would be~~is primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. Equity

Capital Purchase Program ("CPP") Warrants

As of March 31, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, the Company has ~~4.3~~3.0 million and ~~4.4~~4.0 million of CPP warrants outstanding and exercisable. CPP warrant exercises were ~~approximately~~1.0 million and 0.2 million ~~and 0.6 million during~~for the three months ended March 31, ~~2016~~2017 and ~~2015,~~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, ~~2016~~2017 resulted in an adjustment to the

CPP warrant exercise price. The CPP warrant exercise price was ~~$9.230~~$9.093 as of March 31, ~~2016~~2017 and ~~$9.264~~$9.126 as of December 31, ~~2015.~~2016.

Equity Repurchase Program

The Company's ~~total~~ authorization for equity repurchases is ~~$4.375~~$1.3 billion for the period ~~January 1, 2014~~October 31, 2016 through December 31, ~~2016~~2017 with ~~$980~~$975 remaining as of March 31, ~~2016.~~2017.

During the three months ended March 31, ~~2016~~2017, the Company repurchased ~~8.4 million common shares for $350. During the period April 1, 2016 to April 27, 2015, the Company repurchased~~ ~~2.3~~6.7 million common shares for $~~105~~325.During the period April 1, 2017 through April 25, 2017, the Company repurchased approximately 1.9 million common shares for $92.

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~10.~~14. Changes In and Reclassifications From Accumulated Other Comprehensive Income

~~Changes in AOCI, net of tax, by component consist of the following:~~

~~Three months ended March 31, 2016~~

~~Reclassifications from AOCI consist of the following:~~

Amount Reclassified from AOCI
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
$ 27
Net income
OTTI Losses in OCI
Other than temporary impairments $ (1 ) Net realized capital gains (losses)
(1 ) Total before tax
—
Income tax expense
$ (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
$ 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
$ (8 ) Net income
Total amounts reclassified from AOCI $ 34
Net 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	)

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~10. Changes In and Reclassifications From Accumulated Other Comprehensive Income (continued)~~15. Employee Benefit Plans

~~Changes in AOCI, net of tax, by component consist of the following:~~

~~Three months ended March 31,2015~~

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 $ 2,370
$ (5 ) $ 150
$ (8 ) $ (1,579 ) $ 928
OCI before reclassifications 232
(4 ) 32
(20 ) 19
259
Amounts reclassified from AOCI (24 ) 1
(5 ) —
(9 ) (37 )
OCI, net of tax 208
(3 ) 27
(20 ) 10
222
Ending balance $ 2,578
$ (8 ) $ 177
$ (28 ) $ (1,569 ) $ 1,150

~~Reclassifications from AOCI consist of the following:~~

Amount Reclassified from AOCI
AOCI Three Months Ended March 31, 2015
Affected Line Item in the Condensed
Consolidated Statement of Operations
Net Unrealized Gain on Securities
Available-for-sale securities $ 37
Net realized capital gains (losses)
37
Total before tax
13
Income tax expense
$ 24
Net income
OTTI Losses in OCI
Other than temporary impairments $ (1 ) Net realized capital gains (losses)
(1 ) Total before tax
—
Income tax expense
$ (1 ) Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps $ 1
Net realized capital gains (losses)
Interest rate swaps 16
Net investment income
Foreign currency swaps (10 ) Net realized capital gains (losses)
7
Total before tax
2
Income tax expense
$ 5
Net income
Pension and Other Postretirement Plan Adjustments
Amortization of prior service credit $ (2 ) Insurance operating costs and other expenses
Amortization of actuarial loss 16
Insurance operating costs and other expenses
14
Total before tax
5
Income tax expense
$ 9
Net income
Total amounts reclassified from AOCI $ 37
Net income

~~Table of Contents~~

~~THE HARTFORD FINANCIAL SERVICES GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

11~~. Employee Benefit Plans~~

The Company’s employee benefit plans are described in Note 1618 - Employee Benefit Plans of Notes to Consolidated Financial Statements included in The Hartford’s ~~2015~~2016 Annual Report on Form 10-K.

~~Components~~Beginning with the first quarter of ~~Net Periodic Cost (Benefit)~~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 ~~(benefit) included~~in the ~~following components:~~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.

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 ~~each~~the following discussion and in Part I, Item 1A, Risk Factors in The Hartford’s ~~2015~~2016 Form 10-K Annual ~~Report.~~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	6062
Consolidated Results of Operations	6265
Investment Results	6366
Critical Accounting Estimates	66
~~Key Performance Measures and Ratios~~	7668
Commercial Lines	8077
Personal Lines	8281
Property & Casualty Other Operations	85
Group Benefits	86
Mutual Funds	88
Talcott Resolution	8990
Corporate	9192
Enterprise Risk Management	9293
Capital Resources and Liquidity	~~109~~105
Impact of New Accounting Standards	~~116~~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.

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, ~~and~~ mutual fund and ETP assets, ~~and~~ 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.~~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 ~~customers.~~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.~~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 ~~deferred acquisition costs.~~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 ~~2015~~2016 Form 10-K Annual Report.

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


[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.

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 compared to the three months ended March 31, ~~2016.~~2016

~~Book value per diluted common share (excluding AOCI)~~Net income increased ~~to $44.27 as of March 31, 2106 from $43.76 as of December 31, 2015~~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 premiumsincreased by 2% or $69, before tax, reflecting growth of 4% in Commercial Lines, including the effect of ~~net~~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 ~~less dividends and~~increased reflecting a 14% increase in Mutual Funds, partially offset by a 7% decline in Talcott Resolution. For a discussion of the ~~effect~~Company's operating results by segment, see MD&A - Results of ~~share repurchases in the three months ended March 31, 2016.~~Operations by segment.

Net investment income ~~decreased 14% to $696 compared to the prior year period~~increased primarily due to ~~a decrease in~~higher income from limited partnerships and other alternative ~~investments.~~

~~Net realized capital losses increased by $160 compared with the prior year period largely~~investments due to ~~a change from net gains to net losses on sales~~an increase in valuations of ~~securities~~private equity funds as well as losses on ~~the~~hedge funds in first quarter 2016. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).

Net realized capital lossesdecreased 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 ~~and other derivatives due to changes in equity markets and interest rates in the three months ended March 31, 2016.~~

Annualized investment yield of 4.0%, before tax, decreased from 4.5%, before tax, in the comparable prior year period, primarily due to lower income from limited partnerships. Average reinvestment rate of 3.8% increased from 3.1%, in the comparable prior year period, primarily due to wider credit spreads and changes in the mix of purchased securities.

~~Net unrealized gains, after-tax, in the investment portfolio increased by $522 in the three months ended March 31, 2016 due to wider credit spreads, partially offset by lower interest rates.~~

~~Property & Casualty written premiums increased 1% over the comparable prior year period.~~

~~Property & Casualty combined ratio, before catastrophes and prior year development, decreased 1.8 points to 89.9 from 91.7 in the comparable prior year period.~~

~~Commercial Lines current accident year underwriting results before catastrophes increased due to lower non-catastrophe property and improved workers' compensation results.~~

Personal Lines current accident year underwriting results before catastrophes increased though improvement in non-catastrophe homeowners was largely offset by increased auto liability frequency and severity.

~~Catastrophe losses of $91, before tax, increased from catastrophe losses of $83, before tax, in the comparable prior year period.~~

Unfavorable prior accident year reserve development, primarily due to increased reserves in personal lines auto liability, totaled $33, before tax, compared with favorable prior accident year development of $2 before tax, in the comparable prior year period.

~~Group Benefits core earnings margin decreased to 5.5% in the three months ended March 31, 2016, from 5.9% in the comparable prior year period.~~

Talcott Resolution after-tax income from continuing operations was $17 in the three months ended March 31, 2016, compared with $111 in the comparable prior year period primarily due to higher net realized capital losses.

~~CONSOLIDATED RESULTS OF OPERATIONS~~

Operating Summary Three Months Ended March 31,
2016 2015 Change
Earned premiums $ 3,404
$ 3,322
2 %
Fee income 426
459
(7 %)
Net investment income 696
809
(14 %)
Net realized capital gains (losses) (155 ) 5
NM
Other revenues 20
22
(9 %)
Total revenues 4,391
4,617
(5 %)
Benefits, losses and loss adjustment expenses 2,641
2,563
3 %
Amortization of deferred policy acquisition costs 374
387
(3 %)
Insurance operating costs and other expenses 909
948
(4 %)
Interest expense 86
94
(9 %)
Total benefits, losses and expenses 4,010
3,992
— %
Income before income taxes 381
625
(39 %)
Income tax expense 58
158
(63 %)
Net income $ 323
$ 467
(31 %)

~~Three months ended March 31, 2016 compared to the three months ended~~ ~~March 31, 2015~~

~~Net income, compared to the prior year period, decreased for the three months ended March 31, 2016 primarily due to the net effect of the following items:~~

Net realized capital losses increased by $160 to $155, before tax, for the three months ended March 31, 2016, compared to net realized capital gains of $5, before tax, for the prior year period largely due to a change from net gains to net losses on sales of securities as well as losses in the on the variable annuity hedge program and other derivatives primarily due to changes in equity markets and interest rates in the three months ended March 31, 2016. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).

~~Net investment income~~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 ~~$696,~~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 endedMarch 31, ~~2016,~~2017, compared to ~~$809,~~$91, before tax, for the prior year period. ~~The decrease~~Catastrophe losses in ~~net investment income was~~2017 were primarily due to ~~a decrease in income from limited partnerships~~multiple wind and ~~alternative investments. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).~~

~~A $51, before tax, increase in current accident year underwriting results before catastrophes in Property & Casualty,~~hail events across various U.S. geographic regions, primarily ~~resulting from a 1.5 point decrease~~ in the ~~loss~~Midwest, Texas and loss adjustment expense ratio before catastrophes and prior accident year development. Earned premiums increased 2% or $63, before tax, reflecting earned premium growth of 3% in Commercial Lines and 2% in Personal Lines. For a discussion of the ~~Company's operating results by segment, see the segment sections of MD&A.~~

Unfavorable prior accident year reserve development in Property and Casualty of $33, before tax, for the three months ended March 31, 2016, compared to favorable reserve development of $2, before tax, for the prior year period. Prior accident year reserve development in 2016 was primarily due to unfavorable development in personal lines auto 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.

~~Current accident year catastrophe losses of $91, before tax, for the three months ended March 31, 2016, compared to $83, before tax, for the prior year period.~~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. ~~Catastrophe losses in 2015 were primarily due to winter storm events across various U.S. geographic regions.~~ 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.

~~Fee income~~

Unfavorable prior accident year reserve development in Property & Casualty of ~~$426,~~$12, before tax, for the three months endedMarch 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 costsdecreased 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 expenseincreased for the three months ended March 31, 2017 by $51 from $58 for the three months ended March 31, 2016 ~~compared to $459, before tax, for the prior year period. The decrease in fee income was~~ primarily due to the ~~continued runoff~~$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 ~~Talcott Resolution variable annuity block.~~

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, ~~and~~ the dividends received ~~deduction. Income tax expense for the three months ended March 31, 2016 decreased by $100 from $158~~deduction and changes in the prior year period, primarily due to the $244 decrease in income before income taxes and the effect of permanent items, including a federal income tax benefit of $25 related to the partial reduction of the deferred tax valuation allowance recorded on capital loss ~~carryovers due to taxable gains on the termination of certain derivatives during the period.~~carryovers. For further discussion of income taxes, see Note 711 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

~~Investment Results~~

Includes equity securities at fair value using the FVO of ~~$282~~$123 as of ~~December~~March 31, ~~2015.~~2017. The Company did not hold any equity securities, FVO as of ~~March~~December 31, ~~2016.~~2016.

~~The increase in total investments since~~

March 31, 2017 compared to December, 31, ~~2015, was~~2016

Total investmentsincreased primarily due to an increase in short-term investments and fixed maturities, ~~AFS, partially offset by a decline~~AFS.

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

securities ~~AFS~~lending agreements as well as ~~a decline in limited partnerships and other alternative investments. The increase in fixed~~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 ~~was~~ increased primarily due to an increase in valuations as a result of a decline in longer dated interest ~~rates. The decline in equity securities, AFS was primarily due to sales. The decline in limited partnerships~~rates and ~~other alternative investments was primarily due to redemptions in hedge fund investments which were reinvested in other asset classes.~~tighter credit spreads across most sectors.

~~Net Investment Income (Loss)~~

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

Three months ended March 31, ~~2016,~~2017, compared to the three months ended March 31, ~~2015~~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, ~~2016, decreased as compared to the three months ended March 31, 2015, primarily due to a decrease in income~~2017, down from limited partnerships and other alternative investments. The decline in partnership income is primarily due to higher income received in the prior period from the sales of underlying real estate funds. In addition, current quarter income included losses on hedge funds resulting from a decline in global equity markets as well as credit and foreign currency losses. Excluding limited partnerships and other alternative investments, net investment income declined due to lower income received from make-whole payments on fixed maturities and prepayment premiums on mortgage loans as well as the effect of reinvesting at lower interest rates and a decrease in invested asset levels as a result of the run-off of Talcott Resolution, partially offset by higher yields associated with slightly longer portfolio duration.

~~The annualized net investment income yield, excluding limited partnerships and other alternative investments, was~~ 4.1% for the three months ended March 31, 2016, consistent with the same period in 2015. Excluding income received from make-whole payments on fixed maturities and prepayment premiums on mortgage loans, the annualized investment income yield, excluding limited partnerships and other alternative investments, was 4.1%, for the three months ended March 31, 2016, up from 4.0% for the same period in 2015,primarily due to reinvesting ~~available liquidity into slightly longer duration assets, partially offset by the impact of reinvesting~~ at lower rates.

~~The average reinvestment rate,~~

New money yield excluding certain U.S. Treasury securities and cash equivalent securities for the three months ended March 31, ~~2016,~~2017, was approximately ~~3.8%,~~3.7% which iswas below the average yield of sales and maturities of ~~4.3%~~3.9% for the same period ~~due to lower interest rates. The average reinvestment rate~~in 2016. For the three months ended March 31, 2017, the new money yield of 3.7% decreased slightly from 3.8% for the ~~first quarter of~~three months ended March 31, 2016, ~~was higher than the rate for the prior year period of 3.1%, largely~~ due to ~~wider~~tighter credit ~~spreads on average as well as changes in the mix of securities purchased.~~spreads.

~~Going forward, if interest rates continue to stay at current levels, we~~We expect the annualized net investment income yield in 2017, excluding limited partnerships and other alternative investments, to ~~decline~~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 ~~current net investment income~~average yield ~~due to lower reinvestment rates.~~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.

~~Net Realized Capital Gains (Losses)~~

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

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

Primarily consists of changes in value of non-qualifying derivatives, including credit derivatives, interest rate derivatives used to manage duration, and ~~the fixed payout annuity hedge.~~

~~Details on the Company’s net realized capital gains and losses are as follows:~~

~~Gross Gains and Losses on Sales~~

Three months ended March 31, ~~2016, were primarily due to~~2017

Gross gains ~~on the sale of U.S. Treasury securities, corporate securities~~ and ~~bonds of municipalities and political subdivisions ("municipal bonds"). Gross~~ losses on sales ~~for the three months ended March 31, 2016,~~ 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 lossesincluded 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, netgains primarily related to $14 of interest rate derivatives used to manage duration.

Three months ended March 31, 2016

Gross gains and losses on saleswere primarily due to the sale of U.S. treasury securities, corporate ~~securities.~~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.

~~Gross gains on sales for the three months ended March 31, 2015 were primarily due to gains on the sale of industrial corporate and U.S. Treasury securities. Gross~~Variable annuity hedge program losses ~~on sales for the three months ended March 31, 2015 were primarily the result of~~included losses on the sale of corporate and foreign government and government agency securities, which included sales resulting from a reduction in our exposure to certain emerging market and energy sector securities as well as other portfolio management activities. 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.

~~Net OTTI Losses~~

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

~~Variable Annuity Hedge Program~~

~~For the three months ended March 31, 2016, the net losses related to the~~ combined GMWB ~~hedging program which includes the GMWB product, reinsurance, and hedging~~ derivatives, ~~were~~net, primarily ~~due to~~driven by losses of $9 ~~driven by~~due to a decline in the value of equity derivatives and losses of $7 driven by liability model fund regression updates.

~~For the three months ended March 31, 2016, the loss~~ Losses on the macro hedge program ~~was~~were primarily due to losses of $16 driven by a decline in ~~the~~ 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~~

Other, netloss ~~for the three months ended March 31, 2016,~~ was primarily due to losses of $23 on equity derivatives ~~entered into during the first quarter~~ 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 ~~in the quarter,~~ 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.

Other, net loss for the three months ended March 31, 2015, was primarily due to losses of $14 related to the fixed payout annuity hedge primarily driven by a decline in U.S. interest rates, losses of $10 on interest rate derivatives due to a decline in interest rates, and losses of $11 associated with modified coinsurance reinsurance contracts primarily driven by a decline in long term 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 ~~accounting principles generally accepted in the United States of America (“~~U.S. ~~GAAP”),~~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;

~~evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;~~

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;~~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 ~~2015~~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, ~~2016~~.2017.

Property & Casualty Insurance Product Reserves, Net of Reinsurance

~~Reserve Roll Forwards~~P&C Loss and ~~Development~~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.

~~A roll-forward~~

Part I - Item 2. Management's Discussion and Analysis of ~~property~~Financial Condition and ~~casualty insurance product liabilities~~Results of Operations

Roll-forward of Property and Casualty Insurance Product Liabilities for ~~unpaid losses~~Unpaid Losses and ~~loss adjustment expenses follows:~~

Loss Adjustment Expenses for the Three Months EndedMarch 31, 2017


Three Months Ended March 31, 2016
	Commercial Lines			Personal Lines		Property & Casualty Other Operations		Total Property & Casualty Insurance		Commercial Lines		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	$	17,238	$	2,094		$	2,501	$	21,833
Reinsurance and other recoverables	2,293			19		570		2,882		2,325		25			426		2,776
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,266			1,826		2,851		18,943		14,913		2,069			2,075		19,057
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	913			632		—		1,545		968		644			—		1,612
Current accident year catastrophes [3]	44			47		—		91
Prior accident year development	(20		)	52		1		33
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	937			731		1		1,669		1,054		719			1		1,774
Less: payments	854			707		63		1,624		863		710			79		1,652
Ending liabilities for unpaid losses and loss adjustment expenses, net	14,349			1,850		2,789		18,988		15,104		2,078			1,997		19,179
Reinsurance and other recoverables	2,251			19		565		2,835		2,336		25			411		2,772
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	16,600		$	1,869	$	3,354	$	21,823	$	17,440	$	2,103		$	2,408	$	21,951
Earned premiums	$	1,623		$	975					$	1,698	$	945
Loss and loss expense paid ratio [1]	52.6			72.5						50.8		75.1
Loss and loss expense incurred ratio	57.7			75.0						62.4		77.0
Prior accident year development (pts) [2]	(1.2		)	5.3						0.9		(0.4		)

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

Three Months Ended March 31, 2016
Category Commercial Lines Personal Lines Total Property & Casualty Insurance
Wind and hail [1] $ 19
$ 41
$ 60
Winter storms [1] 25
6
31
Total $ 44
$ 47
$ 91

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

Prior ~~accident year development recorded in~~ ~~2016~~Accident Year Development of $12 for the Three Months Ended March 31, 2017

For discussion of prior accident year development ~~were the following increases (decreases) to reserves:~~

Three Months Ended March 31, 2016
Commercial Lines
Personal
Lines
Property & Casualty Other Operations Total Property & Casualty Insurance
Auto liability $ 9
$ 65
$ —
$ 74
Homeowners —
(6 ) —
(6 )
Professional liability (33 ) —
—
(33 )
Package business 45
—
—
45
General liability 32
—
—
32
Bond (6 ) —
—
(6 )
Commercial property (2 ) —
—
(2 )
Workers’ compensation (79 ) —
—
(79 )
Workers’ compensation discount accretion 7
—
—
7
Catastrophes (2 ) (5 ) —
(7 )
Other reserve re-estimates, net 9
(2 ) 1
8
Total prior accident year development $ (20 ) $ 52
$ 1
$ 33

~~During~~for the three months ended March 31, ~~2016,~~2017, refer to the ~~Company’s re-estimates~~Property and Casualty Insurance Products section of ~~prior accident year reserves included the following significant reserve changes:~~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

Three Months Ended March 31, 2015
Category Commercial Lines Personal Lines Total Property & Casualty Insurance
Winter storms [1] 49
17
$ 66
Tornadoes 7
5
12
Wind and hail [1] $ 2
$ 3
$ 5
Total $ 58
$ 25
$ 83

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

~~Included within~~

For discussion of prior accident year development ~~were the following increases (decreases) to reserves:~~

Three Months Ended March 31, 2015
Commercial Lines
Personal
Lines
Property & Casualty Other Operations Total Property & Casualty Insurance
Auto liability $ 25
$ —
$ —
$ 25
Homeowners —
1
—
1
Professional liability (17 ) —
—
(17 )
Package business 1
—
—
1
General liability (13 ) —
—
(13 )
Commercial property (7 ) —
—
(7 )
Net environmental reserves —
—
3
3
Workers’ compensation discount accretion 8
—
—
8
Catastrophes (6 ) (12 ) —
(18 )
Other reserve re-estimates, net 7
7
1
15
Total prior accident year development $ (2 ) $ (4 ) $ 4
$ (2 )

~~During~~for the three months ended March 31, ~~2015,~~2016, refer to the ~~Company’s re-estimates~~Property and Casualty Insurance Products section of ~~prior accident year reserves included the following significant reserve changes:~~

~~Increased reserves in commercial auto liability primarily~~Note 8 - Reserve for ~~accident years 2010 through 2013 due to increased frequency of large claims.~~

Decreased reserves in professional liability for accident years 2009 through 2011 primarily for large accounts. Claim costs for these accident years have emerged favorably as these years have matured and management has placed more weight on the emerged experience.

~~Decreased reserves in general liability primarily for accident years 2012 and 2013 due to lower frequency in late emerging claims.~~

~~Decreased catastrophe reserves primarily for accident year 2014 as fourth quarter 2014 catastrophes have developed favorably.~~

~~Property & Casualty Other Operations Claims~~

~~Reserve Activity~~

Reserves and reserve activity in Property & Casualty Other Operations are categorized and reported as asbestos, environmental, or “all other”. The “all other” category of reserves covers a wide range of insurance and assumed reinsurance coverages, including, but not limited to, potential liability for construction defects, lead paint, silica, pharmaceutical products, molestation and other long-tail liabilities.

The following tables present reserve activity, inclusive of estimates for both reported and incurred but not reported claims, net of reinsurance, for Property & Casualty Other Operations, categorized by asbestos, environmental and all other claims.

~~Property & Casualty Other Operations~~Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

Three Months Ended March 31, 2016 Asbestos Environmental All Other [1] Total
Beginning liability—net [2][3] $ 1,712
$ 247
$ 892
$ 2,851
Losses and loss adjustment expenses incurred —
—
1
$ 1
Less: Losses and loss adjustment expenses paid 34
9
20
$ 63
Ending liability – net [2][3] $ 1,678
[4] $ 238
$ 873
$ 2,789

Three Months Ended March 31, 2015 Asbestos Environmental All Other Total
Beginning liability—net [1][2] $ 1,710
$ 241
$ 952
$ 2,903
Losses and loss adjustment expenses incurred —
3
1
4
Less : losses and loss adjustment expenses paid 43
16
34
93
Ending liability – net [1][2] $ 1,667
[3] $ 228
$ 919
$ 2,814

Excludes amounts reported in Commercial Lines and Personal Lines reporting segments (collectively “Ongoing Operations”) for asbestos and environmental net liabilities of $16 and $6, respectively, as of December 31, 2014 and $16 and $6, respectively, as of March 31, 2015. Total net losses and loss adjustment expenses incurred for the three months endedMarch 31, 2015 includes $2 related to asbestos and environmental claims. Total net losses and loss adjustment expenses paid for the three months ended March 31, 2015 includes $3 related to asbestos and environmental claims.

Part I - Item 2. Management's Discussion and ~~incurred losses~~Analysis of Financial Condition and ~~loss adjustment expenses~~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~~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~~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 business~~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. ~~Of the three categories of claims (Direct, Assumed Reinsurance and London Market), direct policies tend to have the greatest factual development from which to estimate the Company’s exposures.~~

Assumed insurance exposures are less predictable than direct insurance exposures because the Company does not generally receive notice of a reinsurance 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 exposures are the most uncertain of the three categories of claims. As a participant in the London Market (comprised of both ~~Lloyd's~~Lloyd’s of London and London Market companies), certain subsidiaries of the Company wrote business on a subscription basis, with those ~~subsidiaries'~~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 ~~following table sets forth paid~~net survival ratios shown below are calculated for the one and ~~incurred loss activity by~~three year periods ended March 31, 2017 and are calculated excluding the ~~three categories~~effect of ~~claims~~net carried reserves for asbestos and ~~environmental.~~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 ~~Loss Adjustment Expenses (“LAE”)~~LAE Development ~~– Asbestos and Environmental~~for the Three Months Ended March 31, 2017


	Asbestos [1]					Environmental [1]					Asbestos					Environmental
Three Months Ended March 31, 2016	Paid Losses & LAE			Incurred Losses & LAE		Paid Losses & LAE			Incurred Losses & LAE
											Paid Losses & LAE			Incurred Losses & LAE		Paid Losses & LAE			Incurred Losses & LAE
Gross
Direct	$	24		$	—	$	7		$	—	$	41		$	—	$	33		$	—
Assumed Reinsurance	11			—		1			—		15			—		1			—
London Market	1			—		2			—		6			—		1			—
Total	36			—		10			—		62			—		35			—
Ceded	(2		)	—		(1		)	—		(18		)	—		(7		)	—
Net	$	34		$	—	$	9		$	—	$	44		$	—	$	28		$	—

~~[1]~~

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

~~Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross losses and LAE incurred in Ongoing Operations for the three months endedMarch 31, 2016 includes $6 related to asbestos and environmental claims. Total gross losses and LAE paid in Ongoing Operations for the three months endedMarch 31, 2016 includes $4 related to asbestos and environmental claims.~~

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. ~~While this variability is reflected in part in the size~~

Excluding net asbestos and environmental reserves of the ~~range of reserves developed by the Company,~~Company's U.K. property and casualty subsidiaries that ~~range may still not be indicative of the potential variance between the ultimate outcome and the recorded reserves. The recorded net reserves~~are included in liabilities held for sale, as of March 31, ~~2016~~2017 , the Company reported $1.3 billion of ~~approximately $1.9 billion ($1.7 billion~~net asbestos reserves and ~~$0.2 billion for~~$264 million of net environmental reserves. The Company believes that its current asbestos and environmental ~~respectively)~~reserves are ~~within an estimated range, unadjusted for covariance,~~appropriate. However, analyses of ~~$1.5 billion~~future developments could cause The Hartford to ~~$2.3 billion.~~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 ~~2015~~2016 Form 10-K Annual Report. The Company believes that its current asbestos and environmental reserves are appropriate. However, analyses of future developments could cause the Company to change its estimates and ranges of its asbestos and environmental reserves, and the effect of these changes could be material to the Company's consolidated operating results and liquidity.

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. ~~In 2016, the Company will complete the annual ground-up asbestos and environmental reserve studies during the second quarter.~~ 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 ~~2015~~2016 Form 10-K Annual Report.

In May 2016, the Company expects to pay its funding obligation arising from its participation in a 2002 settlement of asbestos liabilities of PPG Industries ("PPG"), following the consummation of the Pittsburgh Corning plan of reorganization stemming from its Chapter 11 bankruptcy. The Company agreed to contribute to an asbestos trust established in the Pittsburgh Corning bankruptcy by virtue of several years of unaggregated coverage issued in the 1970s to PPG, which owned 50% of Pittsburgh Corning. The PPG settlement agreement allows the Company to pay approximately $367 in installments over time or to pre-pay its funding obligation at a discount. The Company expects to pre-pay its funding obligation in the amount of approximately $316 as permitted under the settlement, which approximates the amount that has been reserved for this exposure.

Estimated Gross Profits ~~Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity and Other Universal Life-Type Contracts~~

Estimated gross profits ~~("EGPs"~~(“EGPs”) are used in the valuation and amortization of ~~the deferred policy acquisition costs ("DAC") asset~~assets, including DAC and ~~sales inducement assets (“SIA”).~~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.

~~The most significant EGP based balances are as follows:~~



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

Talcott Resolution
As of March 31, 2016 As of December 31, 2015
DAC $ 1,051
$ 1,180
SIA $ 54
$ 56
Death and Other Insurance Benefit Reserves, net of reinsurance [1] $ 334
$ 340


[1]	For additional information on death and other insurance benefit reserves, see Note 69 - ~~Separate Accounts, Death~~Reserve for Future Policy Benefits and ~~Other Insurance Benefit Features~~Separate Account Liabilities of Notes to Condensed Consolidated Financial Statements.

~~Unlocks~~

~~The benefit to income net of tax as a result of the Unlocks is as follow:~~


	Talcott Resolution
Talcott Resolution Benefit (Charge) to Income, Net of Tax, as a Result of Unlock					Talcott Resolution Benefit (Charge) to Income, Net of Tax, as a Result of Unlock
	Three Months Ended March 31,				Three Months Ended March 31,
	2016		2015		2017		2016
DAC	$	1	$	10	$	12	$	1
SIA	1		1		1		1
Death and Other Insurance Benefit Reserves	11		18		5		11
Total (before tax)	$	13	$	29	$	18	$	13
Income tax effect	4		10		6		4
Total (after-tax)	$	9	$	19	$	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 ~~returns~~return as well as toby 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 ~~Unlock benefit, after-tax, for~~projection of future account values requires the ~~three months ended March 31, 2015 was primarily due to~~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, ~~being above our aggregated estimated~~the Company will unlock, or adjust, projected returns ~~during~~over a future period so that the ~~period.~~account value returns to the long-term expected rate of return, providing that those projected returns do not exceed certain caps.

AnMarket 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. ~~Modifications~~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 ~~Company’s hedging programs may impact EGPs,~~date the Company adopted the RTM estimation technique to project future separate account returns. Based on the expected trend of policy lapses and ~~correspondingly impact DAC recoverability.~~ 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 ~~40%~~42% as of March 31, ~~2016~~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, ~~2016,~~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 ~~not~~ 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 ~~deferred tax asset~~Company had no valuation ~~allowance was $54 relating primarily to U.S. capital loss carryovers.~~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.

~~KEY PERFORMANCE MEASURES AND RATIOS~~

~~Definitions of Non-GAAP and other Measures and Ratios~~

~~Account Value~~

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

Assets under management (“AUM”) include account values and mutual fund 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.

~~Catastrophe Ratio~~

The 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 combined ratio is 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.

~~Combined Ratio before Catastrophes and Prior Accident Year Development~~

The combined ratio before catastrophes and prior accident year development, a non-GAAP financial measure, represents the combined ratio for the current accident year, excluding the impact of catastrophes. Combined ratio is the most directly comparable U.S. GAAP measure. A reconciliation of combined ratio to combined ratio before prior accident year development is set forth in MD&A - Commercial Lines and Personal Lines.

~~Core Earnings~~

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 performance of the Company’s ongoing 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 DAC, 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.

~~A reconciliation of net income to core earnings is set forth in the following table:~~

Three Months Ended March 31,
2016 2015
Net income $ 323
$ 467
Less: Unlock benefit, after-tax 9
19
Less: Net realized capital gains (losses), after-tax and DAC, excluded from core earnings (96 ) 2
Less: Restructuring and other costs, after-tax —
(6 )
Less: Income tax benefit from reduction in valuation allowance 25
—
Core earnings $ 385
$ 452

~~Core Earnings Margin~~

Core earnings margin is 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 Margin section within MD&A - Group Benefits.

~~Current Accident Year Loss and Loss Adjustment Expense Ratio before Catastrophes~~

The current accident year loss and loss adjustment expense ratio before catastrophes is 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.

~~Expense Ratio~~

The expense ratio for the underwriting segments of Commercial Lines and Personal Lines is the ratio of underwriting expenses to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs and insurance operating costs and expenses, including certain centralized services and bad debt expense. Deferred policy acquisition costs include commissions, taxes, licenses and fees and other underwriting expenses and are amortized over the policy term.

~~Fee Income~~

Fee income is largely driven from amounts collected as a result of contractually defined percentages of assets under management. These fees are generally collected 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.

~~Full Surrender Rates~~

Full surrender rates are 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~~

The loss and loss adjustment expense ratio is 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.

~~Loss Ratio, excluding Buyouts~~

The loss ratio is 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 Assets~~

Mutual fund assets are owned by the shareholders of those funds and not by the Company and therefore are not reflected in the Company’s consolidated financial statements. Mutual fund assets are 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.

~~New Business Written Premium~~

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~~

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~~

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 policyholder dividend ratio is the ratio of policyholder dividends to earned premium.~~

~~Prior Accident Year Loss and Loss Adjustment Expense Ratio~~

The 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~~

~~Reinstatement premium 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 months for certain Personal Lines auto 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)~~

Renewal written price increase (decrease) represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure since the prior year. The rate component represents the change in rate filings 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 auto, 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 on rate achieved, and modifications made to better reflect ultimate pricing achieved.

~~Return on Assets (“ROA”), Core Earnings~~

ROA, core earnings, is 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 two-point average AUM.

~~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.

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

Underwriting Summary

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,
Underwriting Ratios 2016 2015 Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes 56.3
58.6
2.3
Current accident year catastrophes 2.7
3.7
1.0
Prior accident year development (1.2 ) (0.1 ) 1.1
Total loss and loss adjustment expense ratio 57.7
62.2
4.5
Expense ratio 33.1
33.4
0.3
Policyholder dividend ratio 0.2
0.3
0.1
Combined ratio 91.1
95.9
4.8
Current accident year catastrophes and prior year development 1.5
3.6
2.1
Combined ratio before catastrophes and prior year development 89.6
92.4
2.8

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

Net Income

Three months endedMarch 31, ~~2016~~2017 compared to ~~the~~ ~~three months endedMarch 31, 2015~~

~~Overview~~

~~Net income for~~ the three months ended March 31, 2016

~~, as compared to the prior year period, decreased~~Net income increased primarily due to ~~lower net investment income and~~ a change to net realized capital ~~losses~~gains in ~~the current year period~~first quarter 2017 from net realized capital ~~gains~~losses in ~~the prior year period,~~first quarter 2016, as well as higher net investment income, partially offset by a ~~higher~~lower underwriting gain. ~~The increase in underwriting~~

Underwriting Gain

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

Underwriting gain ~~was primarily~~decreased due to ~~lower~~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 - ~~Earned~~Item 2. Management's Discussion and ~~Written~~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.

~~Earned premiums for~~Three months ended March 31, 2017 compared to the three months ended March 31, 2016

~~, as compared to the prior year period,~~Earned premiums increased reflecting written premium growth over the preceding twelve months.

Written premiums ~~as compared to the prior year period,~~ increased ~~slightly~~ for the three months ended March 31, ~~2016~~ as2017 primarily due to growth in small commercial, ~~was largely offset by a decrease in~~ middle ~~market. The written premium increase in small commercial~~market' and specialty commercial.

Small Commercial growth was primarily due to higher renewal premium ~~including the effect of low single-digit~~driven by slightly higher policy retention and renewal written ~~pricing~~price increases, as well as ~~modest~~growth from the acquisition of Maxum, partially offset by lower new business premium, ~~growth.~~ 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 endedMarch 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

~~renewal written pricing increases averaged 2% in standard commercial, which includes 3% for small commercial~~Loss and ~~2% for middle market. The decrease in middle market written premium was primarily due to lower new business premium in workers’ compensation~~LAE ratio before catastrophes and ~~property.~~

~~Losses and Loss Adjustment Expenses~~

~~Losses and loss adjustment expenses for the three months ended~~ ~~March 31, 2016, as compared to the prior year period, decreased reflecting favorable~~ prior accident year ~~reserve~~ development ~~lower current accident year losses and loss adjustment expenses before catastrophes and lower current accident year catastrophes.~~

~~The decrease in the current accident year loss and loss adjustment expense ratios before catastrophes~~increased for the three months ended March 31, ~~2016, as compared to the prior year period, was primarily~~2017 principally due to ~~lower~~a higher loss and loss adjustment expense ratio in ~~workers' compensation due~~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 ~~declining frequency, partially offset by modestly higher severity, as well as due to lower non-catastrophe property losses. Accordingly,~~ the ~~current accident year loss and loss adjustment expense ratio before catastrophes decreased by 2.3 points to 56.3 in~~three months ended March 31, 2016 ~~from 58.6 in 2015.~~

Current accident year catastrophe losses totaled ~~$44, before tax, for the three months ended~~ ~~March 31, 2016, compared to $58~~$71, before tax, for the three months ended March 31, ~~2015.~~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. ~~Catastrophe losses~~

Prior accident year development of $15, before tax, was unfavorable for ~~2015 were primarily due~~the three months ended March 31, 2017, compared to ~~winter storms across various U.S. geographic regions. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.~~

~~Favorable~~favorable prior accident year ~~reserve~~ development of $20, before tax, for the three months ended March 31, ~~2016, compared to favorable~~2016. Net reserve ~~development of $2, before tax,~~increases for the three months ended March 31, ~~2015~~.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. ~~Net reserve releases for the three months ended~~ ~~March 31, 2015~~ were primarily due to a release of professional and general liability reserves, partially offset by reserve strengthening in commercial auto liability. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll-forwards and Development.

~~Underwriting Ratios~~

The combined ratio, before catastrophes and prior year development, decreased 2.8 points to 89.6 for the three months ended March 31, 2016 from 92.4 for the three months ended March 31, 2015. The decrease was primarily due to a decrease in the current accident year loss and loss adjustment expense ratio before catastrophes.

~~Investment Results~~

Investment income decreased for the three months ended March 31, 2016, as compared to the prior year period. For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

~~Income Taxes~~

The effective tax rates in 2016 and 2015 differ from the U.S. federal statutory rate of 35% primarily due to permanent differences related to investments in tax exempt securities. For discussion of income taxes, see Note 7 - 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

PERSONAL LINES

Results of Operations

Underwriting Summary


	Three Months Ended March 31,								Three Months Ended March 31,
Underwriting Summary	2016			2015			Change		2017			2016			Change
Written premiums	$	953		$	939		1	%	$	889		$	953		(7	%)
Change in unearned premium reserve	(22		)	(13		)	(69	%)	(45		)	(22		)	(105	%)
Earned premiums	975			952			2	%	934			975			(4	%)
Fee income									11			9			22	%
Losses and loss adjustment expenses
Current accident year before catastrophes	632			618			2	%	644			632			2	%
Current accident year catastrophes	47			25			88	%	79			47			68	%
Prior accident year development	52			(4		)	NM		(4		)	52			(108	%)
Total losses and loss adjustment expenses	731			639			14	%	719			731			(2	%)
Amortization of DAC	89			90			(1	%)	81			89			(9	%)
Underwriting expenses	154			148			4	%	138			163			(15	%)
Underwriting gain	1			75			(99	%)	7			1			NM
Net servicing income	—			1			(100	%)
Net investment income	31			35			(11	%)
Net realized capital gains (losses)	(5		)	1			NM
Other expenses	—			(1		)	100	%
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	27			111			(76	)%	47			31			52	%
Income tax expense	7			35			(80	%)
Income tax expense [3]									14			8			75	%
Net income	$	20		$	76		(74	)%	$	33		$	23		43	%

Includes servicing revenues of $19 and $20 for the three months endedMarch 31, 2017 and 2016, respectively.

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

Product Combined Ratios

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

Net Income

Three months ended March 31, ~~2016~~2017 compared to the three months ended March 31, ~~2015~~2016

~~Overview~~

Net income ~~for~~ 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 ~~as compared to the prior year period, decreased primarily due to a lower underwriting~~

Underwriting gain ~~driven by an increase in current accident year catastrophe losses and unfavorable prior accident year development.~~

~~Revenues - Earned and Written Premiums~~

~~Earned and written premiums for the three months ended March 31, 2016, as compared to the prior year period,~~ increased primarily due to ~~stable premium retention~~the effect of net unfavorable reserve development in first quarter 2016 and ~~automobile new business premium growth,~~a decrease in underwriting expenses, partially offset by lower premium in the independent agency channel. Policy count retention for homeowners was lower for the three months ended March 31, 2016, as compared to the prior year period, driven in part by renewal written pricing increases.

~~Losses and Loss Adjustment Expenses~~

~~Losses and loss adjustment expenses for the three months ended March 31, 2016, as compared to the prior year period, increased primarily due to~~ higher ~~current accident year~~ catastrophes, ~~losses and unfavorable prior accident year development.~~

~~Current accident year losses and loss adjustment expenses before catastrophes increased for the three months ended March 31, 2016, compared to the prior year period, as~~ a ~~result of the effect of an increase in earned premiums,~~ higher ~~severity trends in both auto liability and physical damage and higher auto liability frequency, partially offset by lower homeowners fire and non-catastrophe weather-related claims. The~~ current accident year loss and loss adjustment expense ratio before catastrophes and the effect of ~~64.8~~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 retentionfor 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 ~~0.1 points from 64.9 in 2015.~~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 ~~compared~~ due to ~~$25~~ more severe wind and hail events. Catastrophe losses for the ~~prior year period.~~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. ~~Catastrophe losses in 2015 were primarily due~~

Prior accident year development of $4, before tax, was favorable for the three months ended March 31, 2017, compared to ~~winter storms across various U.S. geographic regions.~~

~~Unfavorable~~unfavorable prior accident year development of $52, before tax, for the three months ended March 31, 2016 ~~compared to favorable prior accident year development of $4, before tax,~~ . Net reserves decreased for the ~~prior year period. The net reserve increase for~~ 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 ~~was largely related~~ primarily due to increased reserves in ~~auto~~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. The net reserve decrease for the three months ended March 31, 2015 was largely related to a decrease in reserves for 2014 catastrophes offset by unfavorable development on accident year 2014 auto physical damage claims. For additional information, see MD&A

Part I - ~~Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net~~Item 2. Management's Discussion and Analysis of ~~Reinsurance.~~Financial Condition and Results of Operations

Results of Operations

Underwriting ~~Ratios~~Summary

The combined ratio, before current accident year catastrophes and prior year development, decreased 0.2 points to 89.7 for the three months ended March 31, 2016 reflecting a decrease in the current accident year before catastrophes loss and loss adjustment expense ratio of 0.1 points and a decrease in the expense ratio of 0.1 points.

~~The effective tax rates in 2016 and 2015 differ from the U.S. federal statutory rate of 35% primarily due to permanent differences related to investments in tax exempt securities.~~[2] For discussion of income taxes, see Note 711 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Net Income

~~PROPERTY & CASUALTY OTHER OPERATIONS~~

~~Results of Operations~~

Three Months Ended March 31,
Underwriting Summary 2016 2015 Change
Losses and loss adjustment expenses

Prior accident year development $ 1
$ 4
(75 %)
Total losses and loss adjustment expenses 1
4
(75 %)
Underwriting expenses 7
6
17 %
Underwriting loss (8 ) (10 ) 20 %
Net investment income 32
35
(9 %)
Net realized capital gains (losses) (3 ) 4
(175 %)
Other income 2
1
100 %
Income before income taxes 23
30
(23 %)
Income tax expense 6
7
(14 %)
Net income $ 17
$ 23
(26 %)

Three months endedMarch 31, ~~2016~~2017 compared to the three months ended March 31, ~~2015~~2016

Net income for the three months ended March 31, ~~2016,~~2017, as compared to the prior year period, ~~decreased~~increased primarily due to ~~lower net investment income and~~ a change to net realized capital ~~losses~~gains in the current year period from net realized capital ~~gains~~losses in the prior year ~~period, partially offset by lower prior accident year development.~~period.

~~The annual reviews of asbestos~~Asbestos and environmental ~~liabilities~~ reservereviews will

occur in the ~~second~~fourth quarter of the ~~year.~~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.

~~GROUP BENEFITS~~

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

Three Months Ended March 31,
Operating Summary 2016 2015 Change
Premiums and other considerations $ 795
$ 780
2 %
Net investment income 88
97
(9 )%
Net realized capital gains (losses) 2
(1 ) NM
Total revenues 885
876
1 %
Benefits, losses and loss adjustment expenses 618
598
3 %
Amortization of deferred policy acquisition costs 8
8
— %
Insurance operating costs and other expenses 194
200
(3 )%
Total benefits, losses and expenses 820
806
2 %
Income before income taxes 65
70
(7 )%
Income tax expense 15
18
(17 )%
Net income $ 50
$ 52
(4 )%

GROUP BENEFITS

Three Months Ended March 31,
Premiums and other considerations 2016 2015 Change
Fully insured – ongoing premiums $ 772
$ 763
1 %
Buyout premiums 6
—
NM
Other 17
17
— %
Total premiums and other considerations $ 795
$ 780
2 %
Fully insured ongoing sales, excluding buyouts $ 266
$ 300
(11 )%
Results of Operations

Three Months Ended March 31,
Ratios, excluding buyouts 2016 2015 Change
Group disability loss ratio 82.4 % 81.8 % (0.6)
Group life loss ratio 73.8 % 73.2 % (0.6)
Total loss ratio 77.6 % 76.7 % (0.9)
Expense ratio 25.6 % 26.7 % 1.1



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	)%

Three Months Ended March 31,
Margin 2016 2015 Change
Net income margin 5.7 % 5.9 % (0.2 )
Effect of net capital realized gains (losses), net of tax on after-tax margin 0.2 % — % 0.2
Core earnings margin 5.5 % 5.9 % (0.4 )



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 endedMarch 31, 2017 compared to the three months endedMarch 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 endedMarch 31, 2017 compared to the three months endedMarch 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, ~~2016~~2017 compared to the three months ended March 31, ~~2015~~2016

~~Net income decreased for the three months ended March 31, 2016, as compared~~Total loss ratio increased 0.1 points to the prior year period, due to higher benefits, losses and loss adjustment expenses and lower net investment income, partially offset by higher premiums and other considerations, lower insurance operating costs and higher net realized capital gains.

Premiums and other considerations for the three months ended March 31, 2016, increased 2% compared to the prior year period. Fully insured ongoing premiums increased 1% for the three months ended March 31, 2016, compared to the prior year period due to strong persistency and improved pricing. Insurance operating costs and other expenses decreased for the three months ended March 31, 2016, compared to the prior year period, due to lower administrative expenses and the impact of premium tax credits.

~~Fully insured ongoing sales, excluding buyouts, decreased by 11% for the three months ended March 31, 2016, as compared to the prior year period,~~77.7% due to a ~~decrease in the sale of large and mid-size case accounts.~~

~~The total loss ratio increased 0.9 points to 77.6% for the three months ended March 31, 2016, as compared to the prior year period, primarily due to a higher group life loss ratio and a~~slightly higher group disability loss ~~ratio. The~~ratio, partially offset by a slightly lower group life loss ~~ratio increased 0.6 points due to higher accidental death losses.~~ratio. The group disability loss ratio increased ~~0.6~~0.5 points due to an increase in expected long term disability claim severity, partially offset by continued improvements in incidence trends and pricing ~~and incidence trends.~~as well as continued strong long-term disability claim recoveries. The group life loss ratio decreased 0.7 points due to lower incidence.

~~The expense~~Expense ratio ~~improved 1.1~~ increased 2.1 points ~~for the three months ended March 31, 2016 as compared to the prior year period, reflecting premium growth and lower expenses.~~

Investment income for the three months ended March 31, 2016 decreased as compared to the prior year period. For discussion of consolidated investment results, see MD&A - Investment Results, Investment Income (Loss) and Net Realized Capital Gains (Losses).

~~The effective tax rates in 2016 and 2015 differ from the U.S. federal statutory rate of 35%~~ primarily due to ~~permanent differences~~state guaranty fund assessments related to ~~investments in tax exempt securities. For discussion~~the liquidation of ~~income taxes, see Note 7 - Income Taxes of Notes to Condensed Consolidated Financial Statements.~~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,
Operating Summary 2016 2015 Change
Fee income and other $ 167
$ 179
(7 )%
Total revenues 167
179
(7 )%
Amortization of DAC 5
5
— %
Insurance operating costs and other expenses 131
140
(6 )%
Total benefits, losses and expenses 136
145
(6 )%
Income before income taxes 31
34
(9 )%
Income tax expense 11
12
(8 )%
Net income $ 20
$ 22
(9 )%

Average Total Mutual Funds segment AUM $ 91,188
$ 94,778
(4 )%
Return on Assets
Net income 8.8
9.3
(5 )%
Core earnings 8.8
9.3
(5 )%

Mutual Funds segment AUM
Mutual Fund AUM - beginning of period $ 74,413
$ 73,035
2 %
Sales 4,699
4,710
— %
Redemptions (4,885 ) (4,181 ) (17 )%
Net Flows (186 ) 529
(135 )%
Change in market value and other (608 ) 2,132
(129 )%
Mutual Fund AUM - end of period $ 73,619
$ 75,696
(3 )%
Talcott AUM [1] $ 16,795
$ 20,240
(17 )%
Total Mutual Funds segment AUM $ 90,414
$ 95,936
(6 )%

Mutual Fund AUM by Asset Class
Equity $ 46,455
$ 47,131
(1 )%
Fixed Income 12,389
14,267
(13 )%
Multi-Strategy Investments [2] 14,775
14,298
3 %
Mutual Fund AUM $ 73,619
$ 75,696
(3 )%



	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]~~

~~Talcott AUM consists~~

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

~~Three months ended~~ ~~March 31, 2016~~ ~~compared to the~~ ~~three months endedMarch 31, 2015~~

Net income for the three months ended March 31, 2016, compared to the prior year period, decreased due to lower average AUM resulting in a decrease in investment management fee revenue, partially offset by a decrease in variable sub-advisory fees and distribution costs. Average total Mutual Funds segment AUM decreased to $91.2 billion for the three months ended March 31, 2016 from $94.8 billion for the three months ended March 31, 2015 primarily due to market depreciation coupled with the continued runoff of Talcott AUM.

~~TALCOTT RESOLUTION~~

~~Results of Operations~~

Three Months Ended March 31,
Operating Summary 2016 2015 Change
Earned premiums $ 28
$ 24
17 %
Fee income and other 241
261
(8 %)
Net investment income 325
382
(15 %)
Realized capital gains (losses):

Total other-than-temporary impairment (“OTTI”) losses (7 ) (5 ) (40 %)
Other net realized capital gains (losses) (105 ) (20 ) NM
Net realized capital gains (losses) (112 ) (25 ) NM
Total revenues 482
642
(25 %)
Benefits, losses and loss adjustment expenses 354
338
5 %
Amortization of DAC 30
50
(40 %)
Insurance operating costs and other expenses 105
121
(13 %)
Total benefits, losses and expenses 489
509
(4 %)
Income (loss) before income taxes (7 ) 133
(105 %)
Income tax (benefit) expense (24 ) 22
NM
Net income $ 17
$ 111
(85 %)
Assets Under Management (end of period)
Variable annuity account value $ 42,500
$ 51,500
(17 %)
Fixed market value adjusted and payout annuities 8,014
8,666
(8 %)
Institutional annuity account value 15,169
15,663
(3 %)
Other account value [1] 86,762
91,009
(5 %)
Total account value $ 152,445
$ 166,838
(9 %)
Variable Annuity Account Value
Account value, beginning of period $ 44,245
$ 52,861
(16 %)
Net outflows (1,466 ) (2,296 ) 36 %
Change in market value and other (279 ) 935
(130 %)
Account value, end of period $ 42,500
$ 51,500
(17 %)

~~[1]~~

Other account value included ~~$31.9~~$31.3 billion ~~$14.5~~, $14.8 billion, and ~~$40.4~~$41.1 billion as of March 31, ~~2016~~2017 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Other account value included ~~$36.0~~$31.9 billion ~~$15.0~~, $14.5 billion, and ~~$40.0~~40.4 billion at March 31, ~~2015~~2016 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Accountvalues a~~ssociated~~ 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 endedMarch 31, ~~2016~~2017 compared to the three months ended March 31, ~~2015~~2016

Net income ~~for the three months ended~~ ~~March 31, 2016, as compared to the prior year period, decreased~~ increased primarily due to ~~higher~~lower net realized capital losses ~~driven by GMWB derivative~~in 2017. Net realized capital losses ~~net trading losses and equity portfolio hedge losses~~were down due to ~~rising markets since~~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 ~~date the trades were initiated. In addition, lower fee income due~~modified coinsurance reinsurance contract related to the ~~continued runoff of~~individual life business reinsured with Prudential, partially offset by higher losses on the variable annuity ~~block~~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, ~~due to a decrease~~lower tax benefits recognized in ~~income from limited partnerships and alternative investments contributed to~~ the ~~decrease in net income. This was partially offset by lower DAC amortization~~current year period and lower ~~insurance operating costs and other expenses~~fee income due to the continued run off of the variable annuity block.Net investment income decreased due to therun off of the annuity business assets under management, partially offset by higher limited partnership investment income.

Total Account ~~values for Talcott Resolution~~ Value

March 31, 2017 compared to March 31, 2016

Account valuedecreased to approximately ~~$152~~$151 billion ~~at March 31, 2016 from approximately $167 billion at March 31, 2015 primarily~~ due to net outflows ~~and market value depreciation~~ in variable annuity account value, ~~and a reduction in Retirement Plans' account value. For the three months ended March 31, 2016, variable~~partially offset by market appreciation.

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

~~For~~Variable Annuity Annualized Full Surrender Rate

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

Variable annuity annualized full surrender rate ~~on variable annuities declined~~ increased to ~~6.7% compared~~7.8%. This increase was primarily because as market appreciation has increased account values, contract holders are more likely to ~~10.9% for~~surrender since the ~~three months ended~~ GMDB and GMWB market level guarantees do not have as much value.

Contract Counts (in thousands)

March 31, 2015. This decrease was primarily due to lower surrender activity and no in-force management initiatives in 2016. Lower surrender activity was due to market declines in the first two months of 2016 resulting in increased value of guarantees.

~~Contract counts decreased 10% for variable annuities at March 31, 2016~~2017 compared to March 31, ~~2015~~2016

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

The income tax benefit for the three months ended March 31, 2016, as compared to the prior year period, was primarily due to the $140 decrease in income before income taxes and the effect of permanent items. Income Taxes

The effective tax rates in ~~2016~~2017 and ~~2015~~2016 differ from the U.S. federal statutory rate of 35% primarily due to permanent differences related to ~~investments in~~ separate account DRD. For discussion of income taxes, see Note 711 - 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,								Three Months Ended March 31,
Operating Summary	2016			2015			Change		2017			2016			Change
Fee income [1]	$	1		$	2		(50	%)	$	1		$	1		—	%
Net investment income	11			3			NM		4			11			(64	%)
Net realized capital gains (losses)	(4		)	18			(122	%)	—			(4		)	100	%
Total revenues	8			23			(65	%)	5			8			(38	%)
Insurance operating costs and other expenses [1]	6			17			(65	%)	4			6			(33	%)
Interest expense	86			94			(9	%)	83			86			(3	%)
Total benefits, losses and expenses	92			111			(17	%)	87			92			(5	%)
Loss before income taxes	(84		)	(88		)	5	%	(82		)	(84		)	2	%
Income tax benefit	(55		)	(31		)	(77	%)	(36		)	(55		)	35	%
Net loss	$	(29	)	$	(57	)	49	%	$	(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, ~~2016~~2017 compared to the three months ended March 31, ~~2015~~2016

Net loss ~~decreased~~ for the three months ended March 31, ~~2016 compared to~~2017 increased from a net loss in the prior year period primarily due to ~~an increase~~a decrease in income tax benefits. First quarter 2016 included a federal income tax benefit of $25 in the 2016 period related to the ~~partial~~ 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 ~~taxable gains on the termination~~a decrease in outstanding debt due to debt maturities. Since March 31, 2016, $691 of ~~certain derivatives during the period.~~senior notes have matured. For a discussion of income taxes, see Note 711 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~~Company’s Board of Directors has ~~an enterprise~~ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management ~~function (“ERM”) that~~ is ~~charged~~tasked with ~~providing analysis~~the day-to-day management of the Company’s ~~risks on an individual and aggregated basis and with ensuring that the Company’s risks remain within its risk appetite and tolerances.~~ risks.

The Company ~~has established~~manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) ~~that includes~~oversees the ~~Company’s CEO, President, Chief Financial Officer (“CFO”), Chief Investment Officer (“CIO”), Chief Risk Officer, General Counsel~~risk profile and ~~others as deemed necessary by~~risk management practices of the ~~committee chair.~~ Company.

The ~~ERCC is responsible for managing the Company’s risks and overseeing the~~Company's enterprise risk management ~~program.~~("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 ~~follows:~~

insurance risk, operational risk and financial risk. Insurance ~~Risk~~

risk and financial risk are described in more detail below. Operational ~~Risk~~

~~Financial Risk~~

risk and s~~Refer to~~pecific risk tolerances for natural catastrophes, terrorism risk and pandemic risk are described in the ERM section of the MD&A in The Hartford’s ~~2015~~2016 Form 10-K Annual ~~Report for an explanation of the Company’s Operational Risk.~~Report.

Insurance Risk ~~Management~~

The Company categorizes its insurance risks across ~~both property-casualty~~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 ~~utilizes~~uses reinsurance to transfer ~~risk to affiliated and unaffiliated insurers. Reinsurance is used to manage aggregation of risk as well as to transfer~~ certain ~~risk~~risks to reinsurance companies based on specific geographic or risk concentrations. ~~Such~~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, ~~do not relieve~~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 ~~of its primary liability~~ to ~~policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company.~~

manage policy-specific risk exposures based on established underwriting guidelines. The ~~Company is a member of and~~Hartford also participates in ~~several~~governmentally administered reinsurance ~~pools~~facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program established under “TRIPRA” and ~~associations. The Company evaluates the financial condition~~other reinsurance programs relating to particular risks or specific lines of ~~its reinsurers and concentrations of credit risk. Reinsurance is placed with reinsurers that meet strict financial criteria established by the Company.~~business.

Reinsurance for ~~Catastrophes~~

Catastrophes- The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers' compensation losses aggregating from single catastrophe events. ~~The following table summarizes the primary catastrophe treaty reinsurance coverages that the Company has in place~~

Primary Catastrophe Treaty Reinsurance Coverages as of March 31, ~~2016:~~2017

Coverage Treaty Term % of Layer(s) Reinsurance Per Occurrence Limit Retention
Principal property catastrophe program covering property catastrophe losses from a single event [1] 1/1/2016 to 1/1/2017 90% $ 850
$ 350
Reinsurance with the FHCF covering Florida Personal Lines property catastrophe losses from a single event 6/1/2015 to 6/1/2016 90% $ 116
[2] $ 37
Workers compensation losses arising from a single catastrophe event [3] 7/1/2015 to 7/1/2016 80% $ 350
$ 100



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 ~~Florida Hurricane Catastrophe Fund (“FHCF”)~~FHCF treaty is ~~$116~~$109 for the 6/1/~~2015~~2016 to 6/1/~~2016~~2017 treaty year based on the Company's election to purchase the required coverage from ~~FHCF.~~the Florida Hurricane Catastrophe Fund ("FHCF"). Coverage is based on the best available information from FHCF, which was updated in January ~~2016.~~2017.


[3]4]	In addition to the ~~preceding~~ limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of ~~a $30~~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, ~~2014~~2017 to December 31, ~~2016,~~2017, the Company has ~~an aggregate loss~~a Property Aggregate treaty in place which provides one limit of ~~$200 over the three-year period~~

$200 of aggregate qualifying property catastrophe losses in excess of a net retention of ~~$860.~~$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

~~Reinsurance Security~~

~~To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management~~Property and operational quality of each potential reinsurer. Through this process, the Company maintains a centralized list of reinsurers approved for participation in reinsurance transactions. Only reinsurers approved through this process are eligible to participate in new reinsurance transactions. The Company's approval designations reflect the differing credit exposure associated with various classes of business. Participation eligibility is categorized based upon the nature of the risk reinsured, including the expected liability payout duration. In addition to defining participation eligibility, the Company regularly monitors credit risk exposure to each reinsurance counterparty and has established limits tiered by counterparty credit rating. For further discussion on how the Company manages and mitigates third party credit risk, see MD&A - Enterprise Risk Management, Credit Risk.

~~Property & Casualty Insurance Product Reinsurance Recoverables~~

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

~~The components of the gross and net reinsurance recoverables are summarized as follows:~~Property & Casualty Reinsurance Recoverables


Reinsurance Recoverables	As of March 31, 2016			As of December 31, 2015
							As of March 31, 2017			As of December 31, 2016
Paid loss and loss adjustment expenses	$	102		$	119		$	85		$	89
Unpaid loss and loss adjustment expenses	2,615			2,662			2,445			2,449
Gross reinsurance recoverables	$	2,717		$	2,781
Gross reinsurance recoverables [1]							$	2,530		$	2,538
Less: Allowance for uncollectible reinsurance	(266		)	(266		)	(187		)	(165		)
Net reinsurance recoverables	$	2,451		$	2,515		$	2,365		$	2,373

~~Life Insurance Product Reinsurance Recoverables~~[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.

~~Life~~

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.

~~The components of the gross~~Group Benefits and ~~net reinsurance recoverables are as follows:~~Life Insurance Reinsurance Recoverables


Reinsurance Recoverables	As of March 31, 2016		As of December 31, 2015		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	$	20,674	$	20,674	$	21,040	$	20,938
Gross reinsurance recoverables	$	20,674	$	20,674	$	21,040	$	20,938
Less: Allowance for uncollectible reinsurance [1]	—		—		—		—
Net reinsurance recoverables	$	20,674	$	20,674	$	21,040	$	20,938

[1] No allowance for uncollectible reinsurance is required as of March 31, ~~2016~~2017 and December 31, ~~2015.~~2016.

As of March 31, ~~2016~~,2017, the Company has reinsurance recoverables from MassMutual and Prudential of ~~$8.5~~$8.6 billion and ~~$10.9~~$11.2 billion, respectively. As of December 31, ~~2015,~~2016, the Company had reinsurance recoverables from MassMutual and Prudential of $8.6 billion and ~~$10.8~~$11.1 billion, respectively. The Company's obligations to its direct policyholders that have been reinsured to ~~Mass Mutual~~MassMutual and Prudential are secured by invested assets held in trust. Net of invested assets held in trust, as of March 31, ~~2016,~~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~~insurance risk management strategy, see MD&A Enterprise Risk Management Insurance ~~Risk~~RIsk Management in The Hartford's ~~2015~~2016 Form 10-K Annual Report.

Financial Risk ~~Management~~

~~The Company identifies the following categories of financial risk:~~

~~Liquidity Risk~~

~~Interest Rate Risk~~

~~Foreign Currency Exchange Risk~~

~~Equity Risk~~

~~Credit Risk~~

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

conditions or prices. ~~Financial risk also includes exposure to~~Some events ~~that~~ may cause correlated movement in multiple risk factors. The primary ~~source~~sources of financial risks are the ~~Company’s~~Company's general account assets and the liabilities ~~that those assets back, together with~~and the guarantees which the company has written over various liability products, particularly its ~~portfolio of~~fixed and variable annuities. The Company assesses its financial risk on a U.S. GAAP, statutory and economic basis. The Hartford has developed a disciplined approach to financial risk management that is well integrated into the Company’s underwriting, pricing, hedging, claims, asset and liability management, new product, and capital management processes.annuity guarantees. Consistent with its risk appetite, the Company establishes financial risk limits to control potential ~~loss.~~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: ~~to hedge~~hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; ~~to manage~~managing liquidity; ~~to control~~controlling transaction costs; or ~~to enter~~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~~Company's inability or perceived inability to meet its contractual ~~cash~~funding obligations ~~at the legal entity level when~~as they come due over given time horizons without incurring unacceptable costs and without relying on uncommitted funding sources. Liquidity risk includes the inability to manage unplanned increases or accelerations in cash outflows, decreases or changes in funding sources, and changes indue. Stressed market conditions ~~that affect~~may impact the ability to liquidate assets quickly to meet obligations with minimal loss in value. Components of liquidity risk include funding risk, company specific liquidity risk and market liquidity risk. Funding risk is the gap between sources and uses of cash under normal and stressed conditions taking into consideration structural, regulatory and legal entity constraints. Company specific liquidity risk represents changes in institution-specific conditions that affect the Company’s ability to sell assets or otherwise transact business ~~without incurring a significant loss~~and may result in ~~value. Market liquidity risk represents changes in general market conditions that affect the institution’s ability to sell assets or otherwise transact business without incurring~~ a significant loss in value.

~~The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions.~~ The Company measures and manages liquidity risk exposures and funding needs within prescribed limits ~~and~~ 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. ~~The Company’s CFO has primary responsibility for liquidity risk.~~

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.

An increase in interest rates from current levels is generally a favorable development for the Company. Interest rate increases are expected to provide additional net investment income, reduce the cost of the variable annuity hedging program, and limit the potential risk of margin erosion due to minimum guaranteed crediting rates in certain Talcott Resolution products. However, if long-term interest rates rise dramatically within a six to twelve month time period, certain Talcott Resolution businesses may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders will surrender their contracts in a rising interest rate environment requiring the Company to liquidate assets in an unrealized loss position. In conjunction with the interest rate risk measurement and management techniques, certain of Talcott Resolution's fixed income product offerings have market value adjustment provisions at contract surrender. An increase in interest rates may also impact the Company’s tax planning strategies and in particular its ability to utilize tax benefits of previously recognized realized capital losses.

A decline in interest rates results in certain mortgage-backed and municipal securities being more susceptible to paydowns and prepayments or calls. During such periods, the Company generally will not be able to reinvest the proceeds at comparable yields. Lower interest rates will also likely result in lower net investment income, increased hedging costs associated with variable annuities and, if declines are sustained for a long period of time, it may subject the Company to reinvestment risk and possibly reduced profit margins associated with guaranteed crediting rates on certain Talcott Resolution products. Conversely, the fair value of the investment portfolio will increase when interest rates decline and the Company’s interest expense will be lower on its variable rate debt obligations.

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 analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios. Key metrics that the Company uses to quantify its exposure to interest rate risk inherent in its invested assets and interest rate sensitive liabilities include duration, convexity and key rate duration. Duration is the price sensitivity of a financial instrument or series of cash flows to a parallel change in the underlying yield curve used to value the financial instrument or series of cash flows. For example, a duration of 5 means the price of the security will change by approximately 5% for a 100 basis point change in interest rates. Convexity is used to approximate how the duration of a security changes as interest rates change in a parallel manner. Key rate duration analysis measures the price sensitivity of a security or series of cash flows to each point along the yield curve and enables the Company to estimate the price change of a security assuming non-parallel interest rate movements.

To calculate duration, convexity, and key rate durations, projections of asset and liability cash flows are discounted to a present value using interest rate assumptions. These cash flows are then revalued at alternative interest rate levels to determine the percentage change in fair value due to an incremental change in the entire yield curve for duration and convexity, or a particular point on the yield curve for key rate duration. Cash flows from corporate obligations are assumed to be consistent with the contractual payment streams on a yield to worst basis. Yield to worst is a basis that represents the lowest potential yield that can be received without the issuer actually defaulting. The primary assumptions used in calculating cash flow projections include expected asset payment streams taking into account prepayment speeds, issuer call options and contract holder behavior. Mortgage-backed and asset-backed securities are modeled based on estimates of the rate of future prepayments of principal over the remaining life of the securities. These estimates are developed by incorporating collateral surveillance and anticipated future market dynamics. Actual prepayment experience may vary from these estimates.

The Company is also exposed to interest rate risk based upon the sensitivity of the present value of the Company’s pension and other postretirement benefit obligations to changes in liability discount rates. The discount rate assumption is based upon an interest rate yield curve that reflects high-quality fixed income investments consistent with the maturity profile of the expected liability cash flows. For further discussion of discounting pension and other postretirement benefit obligations, refer to Note 16- Employee Benefit Plans of Notes to Consolidated Financial Statements in The Hartford’s 2015 Form 10-K Annual Report. In addition, ~~management evaluates performance of~~ certain ~~Talcott Resolution products based on net investment spread which is, in part, influenced by changes in interest rates.~~

~~The investments and liabilities primarily associated with interest rate risk are included in the following discussion. 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.

~~Foreign Currency Exchange Risk~~

~~Foreign currency exchange risk~~ Management also evaluates performance of certain Talcott Resolution products based on net investment spread which is, ~~defined as the risk of financial loss due to~~in part, influenced by changes in interest rates.

Changes in interest rates from current levels can have both favorable and unfavorable effects for the ~~relative value between currencies.~~ Company.

The ~~Company’s foreign currency exchange~~Company manages its exposure to interest rate risk ~~is related to non-U.S. dollar denominated investments,~~by constructing investment portfolios that maintain asset allocation limits and asset/liability duration matching targets which primarily consist of fixed maturity investments, a yen denominated fixed payout annuity and changes in equity of a P&C runoff entity in the United Kingdom. In addition, Talcott Resolution formerly issued non-U.S. dollar denominated funding agreement liability contracts. A significant portion of the Company’s foreign currency exposure is mitigated throughmay include the use of derivatives.

~~Fixed Maturity Investments~~

The Company also utilizes a variety of derivative instruments to mitigate interest rate risk associated with ~~the non-U.S. dollar denominated fixed maturities relates~~its investment portfolio or to ~~potential decreases in value~~hedge liabilities. Interest rate caps, floors, swaps, swaptions, and ~~income resulting from unfavorable changes in foreign exchange rates. In order~~futures may be used to manage currency exposures, the Company enters into foreign currency swaps to hedge the variability in cash flows as the fair value associated with certain foreign denominated fixed maturities declines. These foreign currency swaps are structured to match the foreign currency cash flows of the hedged foreign denominated securities.

~~Liabilities~~

The Company has foreign currency exchange risk associated with yen denominated fixed payout annuities under a reinsurance contract. The Company has entered into pay U.S. dollar, receive yen swap contracts to hedge the currency exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments. In addition, during 2015, the Company entered into certain foreign currency forwards to hedge the currency impacts on changes in equity of a P&C runoff entity in the United Kingdom.

Talcott Resolution previously issued non-U.S. dollar denominated funding agreement liability contracts. The Company hedged the foreign currency risk associated with these liability contracts with currency rate swaps.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.~~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).

The Company's exposure to equity risk includes the potential for lower earnings associated with certain businesses such as mutual funds and variable annuities where fee income is earned based upon the value of the assets under management. For further discussion of equity risk, see the following Variable Product Guarantee Risks and Risk Management section. In addition, 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.~~decline and the Company has a dynamic and macro hedging program in place to hedge the exposure.

~~The Company is also subject to equity risk based upon~~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 ~~Product Guarantee Risks and Risk Management~~

The Company’s variable products are significantly influenced by the U.S. and other equity markets. Increases or declines in equity markets impact certain assets and liabilities related to the Company’s variable products and the Company’s earnings derived from those products. The Company’s variable products include variable annuity contracts and mutual funds.

~~Generally, declines in equity markets will:~~

~~reduce the value of assets under management and the amount of fee income generated from those assets;~~

~~increase the liability for GMWB benefits resulting in realized capital losses;~~

~~increase the value of derivative assets used to hedge product guarantees resulting in realized capital gains;~~

~~increase the costs~~Annuity Products-Most of the ~~hedging instruments we use in our hedging program;~~

~~increase the Company’s net amount at risk ("NAR") for GMDB and GMWB benefits;~~

~~increase the amount of required assets to be held backing variable annuity guarantees to maintain required regulatory reserve levels and targeted risk based capital ratios; and~~

decrease the Company’s estimated future gross profits, resulting in a DAC unlock charge. See Estimated Gross Profits Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity Contracts within the Critical Accounting Estimates section of the MD&A for further information.

Generally, increases in equity markets will have the inverse impact of those listed in the preceding discussion. For additional information, see Risk Hedging - Variable Annuity Hedging Program section.

~~Variable Annuity Guaranteed Benefits~~

~~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~~'at the ~~money’~~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”~~("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 ~~$42.5~~$40.9 billion and ~~$44.2~~$40.7 billion as of March 31, ~~2016~~2017 and December 31, ~~2015,~~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, 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]
Variable Annuity [1]
GMDB $ 42.5
$ 4.3
$ 1.1
56 % 9 %
GMWB $ 19.4
$ 0.3
$ 0.2
11 % 10 %



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, 2015
($ 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]
Variable Annuity [1]
GMDB $ 44.2
$ 4.2
$ 1.1
55 % 9 %
GMWB $ 20.2
$ 0.2
$ 0.2
11 % 9 %



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]	~~Policies~~ 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 ~~policy~~contract terminates due to death, any NAR related to GMWB is released. Similarly, when a ~~policy~~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 ~~benefit~~ on that measurement date. For additional information on the Company’s GMDB liability, see Note 6 - Separate Accounts, Death Benefits and Other Insurance Benefit Features of Notes to Condensed Consolidated Financial Statements.

The Company expects to incur GMDB payments in the future only if the policyholder has an “in the money” GMDB at their death. For ~~policies~~contracts with a GMWB rider, the ~~Company~~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 45 - 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.

~~Risk Hedging~~

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 ~~accounting results.~~capital.

Reinsurance

The Company uses reinsurance for a portion of contracts with GMWB riders issued prior to the ~~third quarter of 2003 and GMWB risks associated with a block of business sold between the third quarter of 2003 and the~~ second quarter of 2006. The Company also uses reinsurance for a majority of the GMDB ~~issued.~~

~~Capital Market Derivatives~~with NAR.

GMWB Hedge Program

~~The~~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 ~~living~~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, ~~2016~~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 As of March 31, 2016
(before tax and DAC) [1] GMWB Macro
Equity Market Return -20 % -10 % 10 % -20 % -10 % 10 %
Potential Net Fair Value Impact $ (27 ) $ (10 ) $ 4
$ 180
$ 82
$ (57 )
Interest Rates -50bps
-25bps
+25bps
-50bps
-25bps
+25bps
Potential Net Fair Value Impact $ 2
$ 2
$ (3 ) $ 12
$ 6
$ (6 )
Implied Volatilities 10 % 2 % -10 % 10 % 2 % -10 %
Potential Net Fair Value Impact $ (62 ) $ (12 ) $ 58
$ 89
$ 18
$ (84 )



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, ~~2016:~~2017: 1) S&P of ~~2,060;~~2,363; 2) 10yr US swap rate of ~~1.67%~~2.43%; and 3) S&P 10yr volatility of ~~26.76%~~25.39%.

The preceding sensitivity analysis is an estimate and should not be used to predict the future financial performance of the ~~Company’s~~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.

~~Financial Risk on Statutory Capital~~

Statutory surplus amounts and risk-based capital (“RBC”) ratios may increase or decrease in any period depending upon a variety of factors and may be compounded in extreme scenarios or if multiple factors occur at the same time. At times, the impact of changes in certain market factors or a combination of multiple factors on RBC ratios can be counterintuitive. Factors include:

In general, as equity market levels and interest rates decline, the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin for death and living benefit guarantees associated with variable annuity contracts can be materially negatively affected, sometimes at a greater than linear rate. Other market factors that can impact statutory surplus, reserve levels and capital margin include differences in performance of variable subaccounts relative to indices and/or realized equity and interest rate volatilities. In addition, as equity market levels increase, generally surplus levels will increase. RBC ratios will also tend to increase when equity markets increase. However, as a result of a number of factors and market conditions, including the level of hedging costs and other risk transfer activities, reserve requirements for death and living benefit guarantees and RBC requirements could increase with rising equity markets, resulting in lower RBC ratios. Non-market factors, which can also impact the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin, include actual and estimated policyholder behavior experience as it pertains to lapsation, partial withdrawals, and mortality.

~~As the value of certain fixed-income and equity securities in our investment portfolio decreases, due in part to credit spread widening, statutory surplus and RBC ratios may decrease.~~

~~As the value of certain derivative instruments that do not get hedge accounting decreases, statutory surplus and RBC ratios may decrease.~~

Our statutory surplus is also impacted by widening credit spreads as a result of the accounting for the assets and liabilities in our fixed market value adjusted "MVA" annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates. In many capital market scenarios, current crediting rates are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment asset may increase sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value losses. As actual credit spreads are not fully reflected in the current crediting rates the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in reductions in statutory surplus. This has resulted and may continue to result in the need to devote significant additional capital to support the product.

~~With respect to our fixed annuity business, sustained low interest rates may result in a reduction in statutory surplus and an increase in NAIC required capital.~~

Most of these factors are outside of the Company’s control. The Company’s financial strength and credit ratings are significantly influenced by the statutory surplus amounts and RBC ratios of our insurance company subsidiaries. In addition, rating agencies may implement changes to their internal models that have the effect of increasing or decreasing the amount of statutory capital we must hold in order to maintain our current ratings.

~~The Company has reinsured approximately~~ Foreign Currency Exchange Risk~~34%~~

Foreign currency exchange risk is the risk of ~~its risk associated with GMWB and~~ ~~73%~~ ~~of its risk associated with the aggregate GMDB exposure. These reinsurance agreements serve to reduce the Company’s exposure~~financial loss due to changes in the ~~statutory reserves~~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 ~~the related capital and RBC ratios associated with~~ changes in the capital markets. The Company also continues to explore other solutions for mitigating the capital market risk effect on surplus, such as internal and external reinsurance solutions, modifications to our hedging program, changes in product design and expense management.

~~Credit Risk~~

Credit risk is defined as 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 is also present in reinsurance and insurance portfolios. Credit risk is comprised of three major factors: the risk of change in credit quality, or credit migration risk; the risk of default; and the riskequity of a change in value due to changes in credit spread. A decline in creditworthiness is typically associated with an increase in an investment’s credit spread, potentially resulting in an increase in other-than-temporary impairments and an increased probability of a realized loss upon sale.

The objective of the Company’s enterprise credit risk management strategy is to identify, quantify, and manage credit risk on an aggregate portfolio basis and to limit potential losses in accordance with an established credit risk management policy. The Company manages to its credit risk appetite by primarily 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.

The Company manages credit risk exposure from its inception to its maturity or sale. Both the investment and reinsurance areas have formulated procedures for counterparty approvals and authorizations. Although approval processes may vary by area and type of credit risk, approval processes establish minimum levels of creditworthiness and financial stability. Credits considered for investment are subjected to underwriting reviews. Within the investment portfolio, private securities are subject to committee review for approval.

Credit risks are managed on an on-going basis through the use of various processes and analyses. At the investment, reinsurance, and insurance product levels, fundamental credit analyses are performed at the issuer/counterparty level on a regular basis. To provide a holistic review within the investment portfolio, fundamental analyses are supported by credit ratings, assigned by nationally recognized rating agencies or internally assigned, and by quantitative credit analyses. The Company utilizes various risk tools, such as credit value at risk ("VaR") to measure spread, migration, and default risk on a monthly basis. Issuer and security level risk measures are also utilized. In the event of deterioration in credit quality, the Company maintains watch lists of problem counterparties within the investment and reinsurance portfolios. The watch lists are updated based on regular credit examinations and management reviews. The Company also performs quarterly assessments of probable expected lossesP&C run-off entity in the ~~investment portfolio. The process is conducted on a sector basis and is intended to promptly assess and identify potential problems in the portfolio and to recognize necessary impairments.~~

Credit risk policies at the enterprise and operation level ensure comprehensive and consistent approaches to quantifying, evaluating, and managing credit risk under expected and stressed conditions. These policies define the scope of the risk, authorities, accountabilities, terms, and limits, and are regularly reviewed and approved by senior management. Aggregate counterparty credit quality and exposure is monitored on a daily basis utilizing an enterprise-wide credit exposure information system that contains data on issuers, ratings, exposures, and credit limits. Exposures are tracked on a current and potential basis. Credit exposures are reported regularly to the Company's Asset Liability Committee ("ALCO") and the ERCC. Exposures are aggregated by ultimate parent across investments, reinsurance receivables, insurance products with credit risk, and derivative counterparties.

The Company exercises various methods to mitigate its credit risk exposure within its investment and reinsurance portfolios. Some of the reasons for mitigating credit risk include financial instability or poor credit, avoidance of arbitration or litigation, future uncertainty of the counterparty, and exposure in excess of risk tolerances. Credit risk within the investment portfolio is most commonly mitigated through asset sales or the use of derivative instruments. Counterparty credit risk is mitigated through the practice of entering into contracts only with strong creditworthy institutions and through the practice of holding and posting of collateral. In addition, transactions cleared through a central clearing house reduce risk due to their ability to require daily variation margin, monitor the Company's ability to request additional collateral in the event of a counterparty downgrade, and be an independent valuation source. Systemic credit risk is mitigated through the construction of high-quality, diverse portfolios that are subject to regular underwriting of credit risks. For further discussion of the Company’s investment and derivative instruments, see the Portfolio Risks and Risk Management section and Note 5 - ~~Investments and Derivative Instruments~~ of Notes to Condensed Consolidated Financial Statements. For further discussion on managing and mitigating credit risk from the use of reinsurance via an enterprise security review process, see MD&A - Enterprise Risk Management, Insurance Risk Management, Reinsurance as a Risk Management Strategy.

~~As of~~ ~~March 31, 2016~~, 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 MD&A - Enterprise Risk Management, Insurance Risk Management, Reinsurance as a Risk Management Strategy and the Concentration of Credit Risk section in Note 5 - Investments and Derivative Instruments of Notes to Condensed Consolidated Financial Statements.

~~Derivative Instruments~~

The Company utilizes a variety of over-the-counter ("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, commodity 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. For further information on the Company’s use of derivatives, see Note 5 - Investments and Derivative Instruments of Notes to Condensed Consolidated Financial Statements.

~~Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management.~~United Kingdom. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The notional amounts of derivative contracts represent the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. Downgrades to the credit ratings of The Hartford’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 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.Company’s Talcott Resolution segment formerly issued non-U.S. dollar denominated funding agreement liability contracts.

The ~~Company uses various derivative counterparties in executing its derivative transactions. The use~~open foreign currency exposure of ~~counterparties creates credit risk that~~non-U.S. dollar denominated investments will most commonly be reduced through the ~~counterparty may not perform in accordance with the terms~~sale of the ~~derivative transaction. The Company has derivative counterparty exposure policies which limit~~assets or through hedges using currency futures/forwards/swaps. In order to manage the ~~Company’s exposure~~currency risk related to ~~credit risk. The Company’s policies with respect to derivative counterparty exposure establishes market-based credit limits, favors long-term financial stability and creditworthiness of~~any non-U.S. dollar denominated liability contracts, the counterparty and typically requires credit enhancement/credit risk reducing agreements. The Company minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties primarily rated A or better, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. The Company also generally requires that OTC derivative contracts be governed by an International Swaps and Derivatives Association ("ISDA") Master Agreement, which is structured by legal entity and by counterparty and permits right of offset.

The Company has developed credit exposure thresholds which are based upon counterparty ratings. Credit exposures are measured using the market value of the derivatives, resulting in amounts owed to the Company by its counterparties or potential payment obligations from the Company to its counterparties. The Company enters into credit support annexes in conjunction with the ISDA agreements, which require daily collateral settlement based upon agreed upon thresholds. For purposes of daily derivative collateral maintenance, credit exposures are generally quantified based on the prior business day’s market value and collateral is pledged to and held by,foreign currency swaps or on behalf of, the Company to the extent the current value of the derivatives exceed the contractual thresholds. In accordance with industry standard and the contractual agreements, collateral is typically settled on the next business day. The Company has exposure to credit risk for amounts below the exposure thresholds which are uncollateralized as well as for market fluctuations that may occur between contractual settlement periods of collateral movements.

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; therefore, the maximum combined threshold for a single counterparty across all legal entities that use derivatives is $50. 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, 2016, the maximum combined threshold for all counterparties under a single credit support provider across all legal entities that use derivatives was $100. 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 8 Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.

~~For the three months ended March 31, 2016, the Company has incurred no losses on derivative instruments due to counterparty default.~~

In addition to counterparty credit risk, the Company may also introduce credit risk through the use of credit default swaps that are entered into to manage credit exposure. Credit default swaps involve a transfer of credit risk of one or many referenced entities from one party to another in exchange for periodic payments. The party that purchases credit protection will make periodic payments based on an agreed upon rate and notional amount, and for certain transactions there will also be an upfront premium payment. The second party, who assumes credit risk, will typically only make a payment if there is a credit event as defined in the contract and such payment will be typically equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation. A credit event is generally defined as default on contractually obligated interest or principal payments or bankruptcy of the referenced entity.

The Company uses credit derivatives to purchase credit protection and to assume credit risk 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. 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 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.holds non-U.S. dollar denominated investments.

Investment Portfolio ~~Risks and~~ Risk ~~Management~~

~~Investment Portfolio Composition~~

The following table presents the Company’s fixed maturities, AFS, by credit quality. The ~~following average~~ credit ratings referenced throughout this section are based on availability and are generally the midpoint of the ~~applicable~~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, 2016						December 31, 2015						March 31, 2017						December 31, 2016
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
United States Government/Government agencies	$	7,793	$	8,316	13.7	%	$	7,911	$	8,179	13.8	%	$	7,089	$	7,281	12.9	%	$	7,474	$	7,626	13.6	%
AAA	7,472		7,771		12.8	%	6,980		7,195		12.2	%	6,770		7,032		12.5	%	6,733		6,969		12.5	%
AA	10,003		10,726		17.7	%	9,943		10,584		17.9	%	9,193		9,634		17.1	%	8,764		9,182		16.4	%
A	14,464		15,631		25.7	%	14,297		15,128		25.5	%	14,078		14,936		26.5	%	14,169		14,996		26.8	%
BBB	14,341		14,968		24.7	%	14,598		14,918		25.2	%	13,433		14,003		24.9	%	13,399		13,901		24.8	%
BB & below	3,305		3,281		5.4	%	3,236		3,192		5.4	%	3,345		3,440		6.1	%	3,266		3,329		5.9	%
Total fixed maturities, AFS	$	57,378	$	60,693	100	%	$	56,965	$	59,196	100	%	$	53,908	$	56,326	100	%	$	53,805	$	56,003	100	%

The fair value of securities ~~in the "AAA" category~~ increased, as compared to December 31, ~~2015,~~2016, primarily due to ~~purchases~~higher valuations as a result of ~~asset-backed securities ("ABS") as well as upgrades of municipal bonds~~a decline in longer dated interest rates and ~~collateralized loan obligations ("CLOs").~~tighter credit spreads across most sectors. Fixed maturities, FVO, are not

included in the preceding table. For further discussion on FVO securities, see Note 45 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

~~The following table presents the Company’s AFS securities by type as well as fixed maturities~~Part I - Item 2. Management's Discussion and ~~equity, FVO.~~Analysis of Financial Condition and Results of Operations

																																													Securities by Type
	March 31, 2016											December 31, 2015											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		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
ABS
Asset-backed securities ("ABS")
Consumer loans	$	2,277	$	11	$	(40	)	$	2,248	3.7	%	$	2,183	$	6	$	(40	)	$	2,149	3.6	%	$	1,896	$	13	$	(20	)	$	1,889	3.4	%	$	2,057	$	10	$	(30	)	$	2,037	3.6	%
Small business	122		12		(5		)	129		0.2	%	123		12		(4		)	131		0.2	%	85		4		(1		)	88		0.2	%	86		3		(1		)	88		0.2	%
Other	284		6		(2		)	288		0.5	%	214		6		(1		)	219		0.4	%	286		3		(1		)	288		0.5	%	253		4		—			257		0.5	%
Collateralized debt obligations ("CDOs")
CLOs	2,600		2		(35		)	2,567		4.2	%	2,514		4		(21		)	2,497		4.2	%
Collateralized loan obligations ("CLOs")																							1,988		7		(3		)	1,992		3.5	%	1,597		7		(4		)	1,600		2.9	%
Commercial real estate ("CREs")	90		37		(1		)	126		0.2	%	91		42		(1		)	132		0.2	%	16		35		—			51		0.1	%	18		30		—			48		0.1	%
Other [1]	385		29		(1		)	414		0.7	%	384		29		(1		)	409		0.7	%	239		29		—			268		0.5	%	238		30		—			268		0.5	%
Commercial mortgage-backed securities ("CMBS")
CMBS
Agency backed [2]	1,441		54		(18		)	1,477		2.4	%	1,224		34		(8		)	1,250		2.1	%	1,639		27		(19		)	1,647		2.9	%	1,439		24		(20		)	1,443		2.6	%
Bonds	2,917		90		(25		)	2,982		4.9	%	2,725		58		(29		)	2,754		4.7	%	2,647		60		(28		)	2,679		4.8	%	2,681		62		(33		)	2,710		4.7	%
Interest only (“IOs”)	774		11		(20		)	765		1.3	%	719		13		(19		)	713		1.2	%	769		15		(11		)	773		1.4	%	787		11		(15		)	783		1.4	%
Corporate
Basic industry	1,093		70		(18		)	1,145		1.9	%	1,161		55		(45		)	1,171		2.0	%	1,090		68		(5		)	1,153		2.0	%	1,071		61		(9		)	1,123		2.0	%
Capital goods	1,700		142		(4		)	1,838		3.0	%	1,781		110		(15		)	1,876		3.2	%	1,655		105		(13		)	1,747		3.1	%	1,522		110		(15		)	1,617		2.9	%
Consumer cyclical	1,842		111		(11		)	1,942		3.2	%	1,848		68		(24		)	1,892		3.2	%	1,437		77		(6		)	1,508		2.7	%	1,517		78		(10		)	1,585		2.8	%
Consumer non-cyclical	3,821		315		(6		)	4,130		6.8	%	3,735		196		(24		)	3,907		6.6	%	3,563		202		(36		)	3,729		6.5	%	3,792		206		(45		)	3,953		7.1	%
Energy	2,056		85		(59		)	2,082		3.4	%	2,276		84		(111		)	2,249		3.8	%	2,140		151		(14		)	2,277		4.0	%	2,098		142		(17		)	2,223		4.0	%
Financial services	5,994		300		(75		)	6,219		10.2	%	6,083		246		(63		)	6,266		10.6	%	4,740		278		(25		)	4,993		8.8	%	4,806		262		(32		)	5,036		9.0	%
Tech./comm.	3,516		331		(35		)	3,812		6.3	%	3,553		229		(62		)	3,720		6.3	%	3,512		274		(17		)	3,769		6.7	%	3,385		265		(20		)	3,630		6.5	%
Transportation	883		61		(5		)	939		1.5	%	869		43		(10		)	902		1.5	%	905		49		(6		)	948		1.7	%	896		46		(7		)	935		1.7	%
Utilities	4,592		390		(29		)	4,953		8.2	%	4,395		299		(60		)	4,634		7.8	%	5,018		330		(64		)	5,284		9.4	%	5,024		326		(65		)	5,285		9.3	%
Other	226		13		(2		)	237		0.4	%	175		12		(2		)	185		0.3	%	311		14		(3		)	322		0.6	%	269		14		(4		)	279		0.5	%
Foreign govt./govt. agencies	1,146		57		(14		)	1,189		2.0	%	1,321		34		(47		)	1,308		2.2	%	1,151		48		(12		)	1,187		2.1	%	1,164		33		(26		)	1,171		2.1	%
Municipal bonds
Taxable	1,347		145		(4		)	1,488		2.5	%	1,315		92		(9		)	1,398		2.4	%	1,459		111		(18		)	1,552		2.8	%	1,497		116		(20		)	1,593		2.8	%
Tax-exempt	9,839		979		(3		)	10,815		17.8	%	9,809		916		(2		)	10,723		18.1	%	9,617		648		(37		)	10,228		18.2	%	9,328		616		(51		)	9,893		17.7	%
RMBS
Agency	2,182		88		(1		)	2,269		3.7	%	2,206		64		(6		)	2,264		3.8	%	1,571		37		(7		)	1,601		2.8	%	2,493		39		(28		)	2,504		4.5	%
Non-agency	100		2		—			102		0.2	%	89		2		—			91		0.2	%	154		2		(1		)	155		0.3	%	178		3		(1		)	180		0.3	%
Alt-A	94		1		(1		)	94		0.2	%	68		1		—			69		0.1	%	122		4		—			126		0.2	%	117		2		—			119		0.2	%
Sub-prime	1,887		12		(26		)	1,873		3.1	%	1,623		15		(16		)	1,622		2.7	%	2,019		26		(6		)	2,039		3.6	%	1,950		22		(8		)	1,964		3.5	%
U.S. Treasuries	4,170		403		(3		)	4,570		7.5	%	4,481		222		(38		)	4,665		7.9	%	3,879		189		(35		)	4,033		7.2	%	3,542		182		(45		)	3,679		6.6	%
Fixed maturities, AFS	57,378		3,757		(443		)	60,693		100	%	56,965		2,892		(658		)	59,196		100	%	53,908		2,806		(388		)	56,326		100	%	53,805		2,704		(506		)	56,003		100	%
Equity securities
Financial services	145		2		(1		)	146		18.3	%	159		1		(2		)	158		18.8	%	177		20		—			197		17.9	%	203		15		(1		)	217		19.8	%
Other	622		54		(24		)	652		81.7	%	683		37		(39		)	681		81.2	%	834		87		(18		)	903		82.1	%	817		81		(18		)	880		80.2	%
Equity securities, AFS	767		56		(25		)	798		100	%	842		38		(41		)	839		100	%	1,011		107		(18		)	1,100		100	%	1,020		96		(19		)	1,097		100	%
Total AFS securities	$	58,145	$	3,813	$	(468	)	$	61,491			$	57,807	$	2,930	$	(699	)	$	60,035			$	54,919	$	2,913	$	(406	)	$	57,426			$	54,825	$	2,800	$	(525	)	$	57,100
Fixed maturities, FVO								$	486										$	503										$	160										$	293
Equity, FVO [3]								$	—										$	348										$	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 ~~March~~December 31, ~~2016.~~2016.

100

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

The ~~increase in the~~ fair value of AFS securities increased as compared to December 31, ~~2015, is primarily attributable~~2016 due to ~~a decline in interest rates as well as reinvestment from other asset classes. The CMBS and RMBS sectors also reflect an increase~~higher valuations as a result of ~~net purchases.~~

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														Financial Services by Credit Quality
	March 31, 2016							December 31, 2015						March 31, 2017						December 31, 2016
	Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)		Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)		Amortized Cost		Fair Value		Net Unrealized Gain/(Loss)
AAA	$	40	$	43	$	3		$	40	$	42	$	2	$	33	$	35	$	2	$	13	$	15	$	2
AA	780		806		26			747		763		16		526		548		22		583		602		19
A	2,696		2,843		147			2,922		3,025		103		2,204		2,346		142		2,219		2,354		135
BBB	2,222		2,280		58			2,133		2,188		55		1,885		1,966		81		1,856		1,934		78
BB & below	401		393		(8		)	400		406		6		269		295		26		338		348		10
Total [1]	$	6,139	$	6,365	$	226		$	6,242	$	6,424	$	182	$	4,917	$	5,190	$	273	$	5,009	$	5,253	$	244

~~[1]~~

~~Included equity, AFS securities with an amortized cost and fair value of $145 and $146,~~

[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 ~~and an amortized cost and fair value of $159 and $158, respectively, as of December 31, 2015~~ included ~~in the AFS by type table above.~~

~~The Company's investment~~ in the ~~financial services sector decreased, as compared to December 31, 2015, due to sales, partially offset~~Securities by ~~an increase in valuations as a result of a decline in interest rates.~~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.

~~CMBS – Bonds [1]~~


March 31, 2016
Exposure to CMBS Bonds as of March 31, 2017																									Exposure to CMBS Bonds as of March 31, 2017
	AAA				AA				A				BBB				BB and Below				Total				AAA				AA				A				BBB				BB and Below				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2005 & Prior	$	116	$	128	$	66	$	75	$	5	$	5	$	5	$	5	$	2	$	2	$	194	$	215
2006	103		105		102		103		124		125		61		61		22		22		412		416
2007	241		245		123		129		111		113		19		19		21		21		515		527
2008	36		38		—		—		—		—		—		—		—		—		36		38
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		—		—		11		11		—		—		—		—		—		—		11		11
2010	18		20		8		8		—		—		—		—		—		—		26		28		18		19		8		8		—		—		—		—		—		—		26		27
2011	55		61		—		—		5		5		20		19		—		—		80		85		55		59		—		—		15		15		—		—		—		—		70		74
2012	40		41		6		6		30		29		38		37		—		—		114		113		39		40		6		6		21		21		19		18		—		—		85		85
2013	16		16		95		99		100		102		15		16		1		1		227		234		16		16		95		98		102		106		4		4		—		—		217		224
2014	330		345		67		68		75		73		7		7		2		2		481		495		301		308		63		65		72		70		5		5		8		8		449		456
2015	201		206		169		169		199		194		82		76		—		—		651		645		165		165		200		198		208		208		109		110		11		10		693		691
2016	45		47		35		35		74		76		16		17		—		—		170		175		133		131		252		246		121		123		79		81		—		—		585		581
2017																									—		—		84		84		—		—		21		22		—		—		105		106
Total	$	1,212	$	1,263	$	671	$	692	$	723	$	722	$	263	$	257	$	48	$	48	$	2,917	$	2,982	$	907	$	931	$	852	$	854	$	601	$	605	$	246	$	249	$	41	$	40	$	2,647	$	2,679
Credit protection	33.2%				23.9%				18.2%				15.7%				25.0%				25.6%				31.8%				24.2%				16.9%				13.2%				21.7%				24.1%

101

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


December 31, 2015
Exposure to CMBS Bonds as of December 31, 2016																									Exposure to CMBS Bonds as of December 31, 2016
	AAA				AA				A				BBB				BB and Below				Total				AAA				AA				A				BBB				BB and Below				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2005 & Prior	$	110	$	119	$	77	$	83	$	5	$	5	$	5	$	5	$	2	$	2	$	199	$	214
2006	149		151		102		104		140		141		61		62		22		22		474		480
2007	202		206		170		178		81		83		20		20		51		52		524		539
2008	37		38		—		—		—		—		—		—		—		—		37		38
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		11		11		—		—		—		—		—		—		—		—		11		11
2010	18		19		8		8		—		—		—		—		—		—		26		27		18		19		8		8		—		—		—		—		—		—		26		27
2011	55		59		—		—		—		—		23		23		—		—		78		82		55		59		—		—		13		13		2		2		—		—		70		74
2012	40		40		6		6		26		26		33		32		—		—		105		104		40		41		6		6		30		30		20		18		—		—		96		95
2013	16		16		95		97		79		80		9		10		1		1		200		204		16		17		95		99		110		113		4		4		—		—		225		233
2014	329		335		58		58		69		68		6		6		2		2		464		469		301		309		64		65		72		70		1		1		—		—		438		445
2015	201		197		163		158		172		165		71		66		—		—		607		586		210		210		200		198		207		206		87		87		—		—		704		701
2016																									132		130		249		242		113		113		64		64		—		—		558		549
Total	$	1,168	$	1,191	$	679	$	692	$	572	$	568	$	228	$	224	$	78	$	79	$	2,725	$	2,754	$	1,061	$	1,090	$	759	$	761	$	647	$	647	$	192	$	190	$	22	$	22	$	2,681	$	2,710
Credit protection	32.9%				25.8%				18.4%				16.6%				18.7%				26.3%				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 $90$16 and $~~126~~,$51, respectively, as of March 31, ~~2016~~2017, and $91$18 and $~~132~~$48 respectively, as of December 31, ~~2015~~2016. These securities are comprised of ~~diversified~~ pools of commercial mortgage loans or equity positions of other CMBS securitizations. ~~We continue to monitor these investments as economic and market uncertainties regarding future performance impact market liquidity and security premiums.~~

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 ~~that~~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, followed by B-Note participations and then mezzanine loan participations. As of~~ ~~March 31, 2016, loans within the Company’s mortgage loan portfolio that have had extensions or restructurings, other than what is allowable under the original terms of the contract, are immaterial.~~priority.

~~Commercial Mortgage Loans~~


Commercial Mortgage Loans															Commercial Mortgage Loans
	March 31, 2016							December 31, 2015							March 31, 2017							December 31, 2016
	Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value
Agricultural	$	25	$	(6	)	$	19	$	33	$	(7	)	$	26
Whole loans	5,496		(16		)	5,480		5,458		(16		)	5,442		$	5,568	$	(19	)	$	5,549	$	5,580	$	(19	)	$	5,561
A-Note participations	138		—			138		139		—			139		136		—			136		136		—			136
B-Note participations	—		—			—		17		—			17
Total	$	5,659	$	(22	)	$	5,637	$	5,647	$	(23	)	$	5,624	$	5,704	$	(19	)	$	5,685	$	5,716	$	(19	)	$	5,697


~~[1]~~	~~Amortized cost represents carrying value prior to valuation allowances, if any.~~

[1] Amortized cost represents carrying value prior to valuation allowances, if any.

The Company funded ~~$98~~$151 of commercial whole loans with a weighted average loan-to-value (“LTV”) ratio of ~~69%~~62% and a weighted average yield of ~~3.95%~~4.02% during the three months ended March 31, ~~2016.~~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, ~~2016,~~2017, or December 31, ~~2015.~~

2016.

Municipal Bonds

The following table ~~summarizes~~presents the ~~amortized cost, fair value,~~Company's exposure to municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table.

102

Part I - Item 2. Management's Discussion and Analysis of ~~the Company's available-for-sale investments in municipal bonds.~~Financial Condition and Results of Operations


Available For Sale Investments in Municipal Bonds											Available For Sale Investments in Municipal Bonds
	March 31, 2016					December 31, 2015					March 31, 2017					December 31, 2016
	Amortized Cost		Fair Value		Weighted Average Credit Quality	Amortized Cost		Fair Value		Weighted Average Credit Quality	Amortized Cost		Fair Value		Weighted Average Credit Quality	Amortized Cost		Fair Value		Weighted Average Credit Quality
General Obligation	$	1,936	$	2,129	AA	$	2,069	$	2,243	AA	$	1,793	$	1,900	AA	$	1,809	$	1,907	AA
Pre-Refunded [1]	887		947		AAA	850		903		AAA
Pre-refunded [1]											1,650		1,765		AAA	1,590		1,693		AAA
Revenue
Transportation	1,612		1,820		A+	1,566		1,744		A+	1,626		1,759		A+	1,591		1,724		A+
Health Care	1,439		1,578		AA-	1,371		1,499		AA-	1,131		1,199		AA-	1,216		1,285		AA-
Water & Sewer	1,259		1,364		AA	1,228		1,324		AA	1,058		1,115		AA	1,019		1,066		AA
Education	1,148		1,255		AA+	1,109		1,205		AA	1,050		1,086		AA	988		1,023		AA
Sales Tax	693		784		AA-	692		779		AA-	579		632		AA	574		627		AA
Leasing [2]	761		850		AA-	728		803		AA-	786		847		AA-	681		734		AA-
Power	613		671		A+	658		709		A+	528		558		A+	571		605		A+
Housing	107		111		AA-	91		94		AA	113		120		A+	136		140		A
Other	731		794		AA-	762		818		AA-	762		799		AA-	650		682		AA-
Total Revenue	8,363		9,227		AA-	8,205		8,975		AA-	7,633		8,115		AA-	7,426		7,886		AA-
Total Municipal	$	11,186	$	12,303	AA-	$	11,124	$	12,121	AA-	$	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,~~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, ~~2016~~2017 and December 31, ~~2015,~~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. Hedge funds are comprised of approximately half credit and equity-related funds and approximately half global macro and market neutral focus~~ 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									Investments in Limited Partnerships and Other Alternative Investments
	March 31, 2016				December 31, 2015				March 31, 2017				December 31, 2016
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Hedge funds	$	800	30.1	%	$	1,034	36.0	%	$	152	6.3	%	$	155	6.3	%
Real estate funds	580		21.9	%	576		20.0	%	600		24.8	%	629		25.6	%
Private equity and other funds	1,274		48.0	%	1,264		44.0	%	1,280		52.9	%	1,291		52.6	%
Other alternative investments [1]									386		16.0	%	381		15.5	%
Total	$	2,654	100	%	$	2,874	100	%	$	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~~Available-for-sale Securities — Unrealized Loss Aging

~~Total~~The total gross unrealized losses were $~~468~~406 as of March 31, ~~2016~~2017 and have decreased $~~231~~119, or ~~33%~~23%, from December 31, ~~2015~~2016, primarily due to ~~lower~~a decline in longer term interest ~~rates.~~rates and tighter credit spreads across most sectors. As of March 31, ~~2016~~2017, $~~403~~385 of the gross unrealized losses were associated with securities depressed less than 20% of cost or amortized cost. The remaining

$6521 of gross unrealized losses were associated with securities depressed greater than 20%. The securities depressed more than 20% are primarily ~~corporate securities and~~ securities with exposure to commercial real estate and municipal securities which are depressed primarily due to ~~wider credit spreads and/or~~ higher ~~interest~~ rates since the securities were ~~purchased.~~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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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

~~The following tables present the Company’s unrealized loss aging for AFS securities by length of time the security was in a continuous unrealized loss position:~~


Unrealized Loss Aging for AFS Securities																	Unrealized Loss Aging for AFS Securities
	March 31, 2016								December 31, 2015								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]			Items	Cost or Amortized Cost		Fair Value		Unrealized Loss [1]			Items	Cost or Amortized Cost		Fair Value		Unrealized Loss [1]
Three months or less	939	$	2,898	$	2,865	$	(34	)	2,094	$	10,535	$	10,398	$	(137	)	1,120	$	4,529	$	4,495	$	(34	)	2,119	$	11,299	$	11,037	$	(262	)
Greater than three to six months	767	2,631		2,567		(64		)	819	2,837		2,735		(102		)	1,091	6,177		6,010		(167		)	1,109	2,039		1,934		(105		)
Greater than six to nine months	524	1,611		1,546		(65		)	933	4,421		4,194		(227		)	580	1,525		1,443		(82		)	151	484		456		(28		)
Greater than nine to eleven months	564	2,636		2,530		(106		)	329	1,302		1,242		(60		)	119	433		408		(25		)	151	452		441		(11		)
Twelve months or more	737	3,551		3,352		(199		)	675	3,072		2,896		(173		)	618	2,288		2,190		(98		)	657	2,565		2,446		(119		)
Total	3,531	$	13,327	$	12,860	$	(468	)	4,850	$	22,167	$	21,465	$	(699	)	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 ~~derivatives within~~derivative features of certain securities as changes in value are recorded in net realized capital gains (losses).

~~The following table presents the Company’s unrealized loss aging for AFS securities continuously depressed over 20% by length of time (included in the preceding table):~~



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

March 31, 2016 December 31, 2015
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 125
$ 63
$ 44
$ (19 ) 240
$ 288
$ 212
$ (76 )
Greater than three to six months 90
47
31
(16 ) 130
77
51
(26 )
Greater than six to nine months 12
49
34
(15 ) 5
3
2
(1 )
Greater than nine to eleven months 5
3
1
(2 ) 6
12
8
(4 )
Twelve months or more 46
37
24
(13 ) 50
28
18
(10 )
Total 278
$ 199
$ 134
$ (65 ) 431
$ 408
$ 291
$ (117 )


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

~~Other-Than-Temporary Impairments~~

~~The following table presents the Company’s impairments recognized in earnings by security type:~~

Three Months Ended March 31,
2016 2015
CRE CDOs $ —
$ 1
CMBS IOs 1
—
Corporate 19
5
Equity 3
1
RMBS
Sub-prime —
1
Foreign government —
4
Total $ 23
$ 12

Three months ended March 31, ~~2016~~2017

For the three months ended March 31, ~~2016,~~2017, impairments recognized in earnings were comprised of credit impairments of ~~$18,~~$1. These impairments ~~on equity securities of $3, and securities that the Company intends to sell ("intent-to-sell impairments") of $2.~~

~~Credit impairments for the three months ended March 31, 2016~~ were primarily related to ~~corporate securities in the energy sector~~interest-only CMBS and were identified through security specific ~~reviews and resulted from changes in~~review of the ~~financial condition and near term prospects of certain issuers.~~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. Impairments on equity securities were comprised of securities in an unrealized loss position that the Company does not expect to recover. Intent-to-sell impairments for the three months ended March 31, 2016 were primarily comprised of securities in the corporate sector.

Non-credit impairments recognized in other comprehensive income were $4$2 for the three months ended March 31, 2016. These non-credit impairments represent the difference between fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment, rather than at current market implied credit spreads.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. ~~Ultimate loss formation will be a function of macroeconomic factors and idiosyncratic security-specific performance.~~

Three months ended March 31, ~~2015~~2016

For the three months ended March 31, ~~2015,~~2016, impairments recognized in earnings were comprised of ~~securities the Company intends to sell of $9 and~~ credit impairments of ~~$3. Impairments for the the three months ended March 31, 2015~~$18 and intent-to-sell impairments of $2, both of which were primarily impairments on securities the Company has made the decision to sell. Credit impairments for the three months ended March 31, 2015 were primarily identified through security specific reviews and resulted from changesconcentrated in ~~the financial condition and near term prospects of certain issuers. There were no material non-credit~~corporate securities. Also, impairments recognized in ~~other comprehensive income for~~earnings included impairments on equity securities of $3 that were in an unrealized loss position and the ~~three months ended March 31, 2015.~~Company no longer believed the securities would recover in the foreseeable future.

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

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, ~~2016~~,2017, HFSG Holding Company held fixed maturities, short-term investments and cash of ~~$1.8 billion~~.$1.3 billion. Expected liquidity requirements of the HFSG Holding Company for the next twelve months include payments of ~~5.5%~~6.3% senior notes of ~~$275 at maturity in October 2016 and 5.375% senior notes of $416~~$320 at maturity in March ~~2017,~~2018 and interest payments on debt of approximately ~~$330~~$320 and common stockholder dividends, subject to the discretion of the Board of Directors, of approximately ~~$330.~~$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, ~~2016~~,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

~~In 2015,~~On March 15, 2017, the ~~Board~~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 ~~Directors authorized~~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 ~~extension of~~right, on one or more occasions, to defer interest payments due on the ~~existing debt capital management program through December 31, 2016. Under the program, the~~junior subordinated notes under specified circumstances.

The Company expects to use the ~~remaining authorization~~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 ~~other debt capital management actions. Any debt capital management actions are dependent~~the adverse development cover with NICO. The Note was repaid on ~~market conditions and other factors.~~March 29, 2017. The company has $2.0 billion available under the intercompany liquidity agreement as of March 31, 2017.

Equity

During the three months ended March 31, ~~2016,~~2017, the Company repurchased ~~8.4~~6.7 million common shares for ~~$350.~~$325. During the period April 1, ~~2016 to~~2017 through April ~~27, 2015,~~25, 2017, the Company repurchased ~~2.3~~approximately 1.9 million common shares for ~~$105.~~$92 under this authorization.

For further information about equity repurchases, see Part II. Other Information, Item 2.

Dividends

On February ~~25, 2016,~~23, 2017, The Hartford’s Board of Directors declared a quarterly dividend of ~~$0.21~~$0.23 per common share payable on April ~~1, 2016~~3, 2017 to common shareholders of record as of March ~~7, 2016.~~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, ~~2015.~~2016.

Pension Plans and Other Postretirement Benefits

While the Company has significant discretion in making voluntary contributions to the U. S. qualified defined benefit pension plan, the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, the Worker, Retiree, and Employer Recovery Act of 2008, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) and Internal Revenue Code regulations mandate minimum contributions in certain circumstances. The Company does not have a ~~2016~~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 ~~2016.~~2017. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during ~~2016~~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 ~~somewhat~~ 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 ~~2016,~~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 ~~$1.6~~$1.5 billion in dividends to HFSG Holding Company without prior approval from the applicable insurance commissioner. During the first ~~quarter~~three months of ~~2016,~~2017, HFSG Holding Company received approximately ~~$200~~$220 in dividends from its property and casualty insurance subsidiaries. ~~In 2016, HFSG Holding Company anticipates receiving additional net dividends of approximately $600~~Dividends received from its ~~property~~property-casualty subsidiaries included approximately $20 related to principal and ~~casualty insurance subsidiaries.~~interest payments on an intercompany note between Hartford Holdings, Inc. ("HHI") and Hartford Fire Insurance Company, resulting in a net dividend of $200.

In ~~2016,~~2017, Hartford Life and Accident Insurance Company ("HLA") is permitted to pay up to a maximum of ~~$165~~$207 in dividends without prior approval from the insurance commissioner. During the first ~~quarter~~three months of ~~2016,~~2017, HFSG Holding Company received approximately ~~$60~~$63 in dividends from HLA. ~~HFSG Holding Company anticipates receiving additional dividends of approximately $180 from HLA during 2016, subject to regulatory approval.~~

~~On January 29, 2016,~~In 2017, Hartford Life Insurance Company ("HLIC") ~~paid an extraordinary dividend~~is permitted to pay up to a maximum of ~~$500, based on~~$1 billion in dividends to HFSG Holding Company without prior approval ~~received~~ from the insurance commissioner. ~~As a result~~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 ~~this dividend,~~2017, HLIC ~~has no ordinary dividend capacity for~~paid dividends of $300.

Over the remainder of ~~2016. HFSG~~2017, HSFG Holding Company anticipates receiving an additional ~~$250~~net dividends of ~~extraordinary dividends~~approximately $650 from its property-casualty insurance subsidiaries, $300 from HLIC, ~~during 2016,~~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

~~On August 9, 2013,~~ The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ~~(the “SEC”~~("the SEC") ~~an automatic shelf registration statement (Registration No. 333-190506) for the potential offering~~on July 29, 2016 that permits it to offer and ~~sale of~~sell debt and equity ~~securities. The registration statement allows for the following types of~~ securities to be offered: debt securities, junior subordinated debt securities, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration statement during the three-year life of the registration statement.

~~Contingent Capital Facility~~

The Hartford is party to a put option agreement that provides The Hartford with the right to require the Glen Meadow ABC Trust, a Delaware statutory trust, at any time and from time to time, to purchase The Hartford’s junior subordinated notes in a maximum aggregate principal amount not to exceed $500. Under the Put Option Agreement, The Hartford pays the Glen Meadow ABC Trust premiums on a periodic basis, calculated with respect to the aggregate principal amount of notes that The Hartford had the right to put to the Glen Meadow ABC Trust for such period. The Hartford has agreed to reimburse the Glen Meadow ABC Trust for certain fees and ordinary expenses. The Company holds a variable interest in the Glen Meadow ABC Trust where the Company is not the primary beneficiary. As a result, the Company did not consolidate the Glen Meadow ABC Trust. As of ~~March 31, 2016, The Hartford has not exercised its right to require Glen Meadow ABC Trust to purchase the Notes. As a result, the Notes remain a source of capital for the HFSG Holding Company.~~

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, ~~2016~~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, ~~2016~~2017, no borrowings were outstanding under the Credit Facility. As of March 31, ~~2016~~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, ~~2016~~2017 iswas $~~1.4 billion~~826. OfFor this $~~1.4 billion~~826, the legal entities have posted collateral of $~~1.6 billion~~866 in the normal course of business. In addition, the Company has posted collateral of $3331 associated with a customized GMWB derivative. Based on derivative market values as of March 31, ~~2016~~2017, a downgrade of one ~~or two levels~~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, ~~2016,~~2017, the aggregate notional amount and fair value of derivative relationships that could be subject to immediate termination in the event of ~~rating agency downgrades~~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 ~~either BBB+ or Baa1 was $148 and $(14), respectively.~~the extent changes in contractual terms are negotiated.

Insurance Operations

~~Current and expected patterns of~~While subject to variability period to period, claim frequency and severity orpatterns and the level of policy surrenders ~~may change from period to period but~~ 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, including any obligations related to the Company’s restructuring activities.~~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

107

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 ~~2015~~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.

~~As of March 31, 2016 Property & Casualty Operations’ fixed maturities, short-term investments, and cash are summarized as follows:~~


Property & Casualty			Property & Casualty
			As of March 31, 2017
Fixed maturities	$	26,554	$	24,804
Short-term investments	494		1,606
Cash	152		84
Less: Derivative collateral	220		101
Total	$	26,980	$	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 ~~losses.~~capital gains (losses).

Life Operations

Life Operations’ total general account contractholder obligations are supported by ~~$41~~$40 billion of cash and total general account invested assets, which included athe following significant short-term investment position to meet liquidity needs.

~~As of~~ ~~March 31, 2016~~ ~~Life Operations’ fixed maturities, short-term investments, and cash are summarized as follows:~~


Life Operations			Life Operations
			As of March 31, 2017
Fixed maturities	$	33,106	$	31,153
Short-term investments	938		2,236
Cash	326		253
Less: Derivative collateral	1,456		1,148
Total	$	32,914	$	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 ~~are~~is dependent on the asset types pledged to secure the advances. The CTDOI will permit HLIC to pledge up to ~~$1.2~~$1.1 billion in qualifying assets to secure FHLBB advances for ~~2016.~~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, ~~2016,~~2017, HLIC had no advances outstanding under the FHLBB facility.


	As of
Contractholder Obligations	March 31, 2016		Contractholder Obligations
			As of March 31, 2017
Total Life contractholder obligations	$	169,938	$	167,246
Less: Separate account assets [1]	118,361		116,582
General account contractholder obligations	$	51,577	$	50,664
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]	$	25,106	$	24,629
U.S. Fixed MVA annuities [3]	5,478		5,037
Other [4]	20,993		20,998
General account contractholder obligations	$	51,577	$	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, or institutional notes, ~~or surrenders of~~ term life, group benefit contracts, or death and living benefit reserves, which cannot be surrendered for ~~which surrenders will have no current effect on Life Operations’ liquidity requirements.~~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.

108

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 ~~in 2013~~ 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~~off-

balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s ~~2015~~2016 Form 10-K Annual Report.

Capitalization

~~The capital structure of The Hartford consists of debt and stockholders’ equity, summarized as follows:~~


Capital Structure									Capital Structure
	March 31, 2016			December 31, 2015			Change		March 31, 2017			December 31, 2016			Change
Short-term debt (includes current maturities of long-term debt)	$	690		$	275		151	%	$	320		$	416		(23	)%
Long-term debt	4,633			5,084			(9	)%	4,817			4,636			4	%
Total debt [1]	5,323			5,359			(1	)%	5,137			5,052			2	%
Stockholders’ equity excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	17,858			17,971			(1	)%	17,216			17,240			—	%
AOCI, net of tax	254			(329		)	(177	)%	(207		)	(337		)	(39	)%
Total stockholders’ equity	$	18,112		$	17,642		3	%	$	17,009		$	16,903		1	%
Total capitalization including AOCI	$	23,435		$	23,001		2	%	$	22,146		$	21,955		1	%
Debt to stockholders’ equity	29		%	30		%			30		%	30		%
Debt to capitalization	23		%	23		%			23		%	23		%


[1]	Total debt of the Company excludes ~~$33~~$14 and ~~$38~~$20 of consumer notes as of March 31, ~~2016~~2017 and December 31, ~~2015~~2016, ~~respectively~~.respectively.

~~Total stockholders' equity increased in the first quarter of 2016 primarily due to an increase in net unrealized capital gains from securities within AOCI.~~

Total capitalization increased ~~$434,~~$191, or 2%1%, as of March 31, ~~2016~~2017 compared to December 31, ~~2015~~2016 primarily due to increases in AOCI.

For additional information on AOCI, net of tax, and unrealized capital gains from securities, see Note 1014 - Changes In and

Reclassifications From Accumulated Other Comprehensive Income, and Note 56 - Investments ~~and Derivative Instruments~~ of Notes to Condensed Consolidated Financial Statements.

Cash ~~Flows~~Flow


	Three Months Ended March 31,						Three Months Ended March 31,
	2016			2015			2017			2016
Net cash provided by operating activities	$	398		$	447		$	225		$	398
Net cash provided by investing activities	$	194		$	295
Net cash used for financing activities	$	(565	)	$	(619	)
Net cash provided (used) by investing activities							$	(1,208	)	$	194
Net cash provided (used) for financing activities							$	436		$	(565	)
Cash – end of period	$	479		$	500		$	337		$	479

Cash provided by operating activities decreased in ~~2016~~2017 as compared to the prior year period primarily due to a ~~decrease in~~$650 premium payment for an asbestos and environmental adverse development cover reinsurance ~~claim recoveries and investment income received, partially~~agreement, largely offset by ~~a decrease~~an increase in ~~claims paid.~~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 ~~by investing~~for financing activities in ~~2015~~2017 consists primarily ~~relates~~of net increase in securities loaned or sold

under agreements to ~~net proceeds from short-term investments~~repurchase of ~~$642, excluding proceeds reinvested in fixed maturities available-for-sale, partially offset by net payments for equity securities available-for-sale of $203.~~

$1,115. Cash used for financing activities in 2016 consists primarily of ~~acquisition~~acquisitions of treasury stock of $350 and net payments for deposits, transfers and withdrawals for investments and universal life products of $199. Cash used for financing activities in 2015 consists primarily of $298 related to net activity for investments and universal life products, repayment of debt of $289, and acquisition of treasury stock of $250, partially offset $323 in proceeds from securities sold under repurchase agreements.

Operating cash flows for the three months ended March 31, ~~2016~~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 ~~Enterprise~~Financial Risk ~~Management section of the~~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.

~~The following table summarizes The Hartford’s significant member companies’ financial ratings from the major independent rating organizations as of April 26, 2016.~~



Insurance Financial Strength ~~Ratings:~~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

~~The table below sets forth statutory capital for the Company’s insurance subsidiaries.~~

March 31, 2016 December 31, 2015
Life insurance subsidiaries $ 6,084
$ 6,591
Property & casualty insurance subsidiaries 8,772
8,563
Total $ 14,856
$ 15,154



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

~~Statutory capital for the life insurance subsidiaries decreased by $507 primarily due to dividends of $560.~~

Statutory capital for property and casualty increased by $209, primarily due to statutory net income of $345 and a decrease in non-admitted assets of $72, partially offset by dividends to HFSG Holding Company of $200.

Contingencies

Legal Proceedings – For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” in Note 812 - 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

~~Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)~~

Since it was enacted in 2010, the Dodd-Frank Act has resulted in significant changes to the regulation of the financial services industry, including changes to the rules governing derivatives, restrictions on proprietary trading by certain entities, the creation of a Federal Insurance Office within the U.S. Treasury, and enhancements to corporate governance rules, among other things. The Dodd-Frank Act requires significant rulemaking across numerous agencies within the federal government. Rulemaking, and implementation of newly-adopted rules, is ongoing and may affect our operations and governance in ways that could adversely affect our financial condition and results of operations.

Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act")

~~On March 23, 2010,~~The outcome of the ~~President signed~~new Administration’s stated intention to repeal and replace the Affordable Care ~~Act. While many~~Act may have an impact on various aspects of ~~the key provisions~~our business, including our insurance businesses. It is unclear what a replacement of the Affordable Care Act ~~have become effective,~~would entail, and to what extent there ~~remains uncertainty with its implementation. Federal agencies continue rulemaking~~may be a transition period for ~~certain provisions, along with being subject to legal and legislative challenges. In addition, certain provisions~~the phase out of the Affordable Care ~~Act have been amended or delayed, such as the employer mandate which will continue to be phased in during 2016.~~Act. The impact ~~of the Affordable Care Act~~ 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 do not issue any products that insure customers under the Affordable Care Act’s individual mandate. To date, there have been certain limited impacts to The Hartford's group benefits businesses including additional opportunities to market our group benefit products and services through private exchanges. While we have not observed any material impacts on the ~~Company's workers'~~Company’s workers’ compensation business or group benefits ~~business, we~~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.

~~Budget of the United States Government~~

On February 9, 2016, the Obama Administration released its “Fiscal Year 2017, Budget of the U.S. Government” (the “Budget”). The Budget includes proposals that if enacted, would affect the taxation of life insurance companies and certain life insurance products. In particular, the proposals would change the method used to determine the amount of dividend income received by a life insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity contracts, which are eligible for the DRD. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between the Company's actual tax expense and expected amount determined using the federal statutory tax rate of 35%. If this proposal were enacted, the Company's actual tax expense could increase, reducing earnings.

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

110

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 ~~could have an adverse impact~~ on our ~~current offerings of~~ mutual ~~funds, along with contracts in our run-off lines of~~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 ~~way we provide investment-related information~~compensation paid to the financial intermediaries who sell our mutual funds to their retirement clients and ~~support to financial advisors, plan sponsors, plan participants, plan beneficiaries~~could negatively impact our mutual funds business.

In 2016, several plaintiffs, including insurers and ~~Individual Retirement Account owners. We are currently analyzing~~industry groups such as the ~~potential effect~~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 ~~regulation~~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 ~~businesses.~~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 ~~2015~~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.

111

Part I - Item 3. Quantitative and Qualitative Disclosure About Market Risk


~~Item 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.

112

Part I - Item 4. Controls and Procedures


~~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, ~~2016.~~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.

113

Part ~~II. OTHER INFORMATION~~II - Item 1. Legal Proceedings


~~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 ~~following discussion under the caption “Asbestos and Environmental Claims,”~~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. ~~HIFSCO moved to dismiss and, in September 2011,~~During the ~~motion was granted in part and denied in part, with leave to amend~~course of the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of The Hartford Global Health Fund, The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisors Fund, and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudicelitigation, the claims regarding distribution fees ~~and denied~~were dismissed without prejudice, the ~~motion with respect to the advisory fees claims. In March 2014,~~lineup of funds as plaintiffs changed several times, and the plaintiffs ~~filed a new complaint that, among other things,~~ added ~~as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund and named~~ as a defendant Hartford Funds Management Company ~~LLC~~ (“HFMC”), an indirect subsidiary of the Company ~~which~~that assumed the role asof 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 ~~The Hartford Capital Appreciation Fund.~~one fund. In March 2016, the court ~~in large part,~~ denied the plaintiff's motion, and granted summary judgment for ~~all parties. The court granted judgment for~~HIFSCO and HFMC ~~and HIFSCO~~ with respect to ~~all claims made by~~one fund, leaving six funds as plaintiffs: The Hartford ~~Small Company~~Balanced Fund, ~~and certain claims made by~~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 iswould be the difference, if any, between the actual advisory fees paid through trial and ~~those that could have been paid~~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.

114

~~Asbestos and Environmental Claims~~ ~~– As discussed in~~Part I - Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Property and Casualty Insurance Product Reserves, Net of Reinsurance - Property & Casualty Other Operations Claims, The Hartford continues to receive asbestos and environmental claims that involve significant uncertainty regarding policy coverage issues. Regarding these claims, The Hartford continually reviews its overall reserve levels and reinsurance coverages, as well as the methodologies it uses to estimate its exposures. Because of the significant uncertainties that limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses, particularly those related to asbestos, the ultimate liabilities may exceed the currently recorded reserves. Any such additional liability cannot be reasonably estimated now but could be material to The Hartford’s consolidated operating results and liquidity.1A. Risk Factors


~~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~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2015,~~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~~

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 ~~total~~ authorization for equity repurchases is ~~$4.375~~$1.3 billion for the period ~~January 1, 2014~~commencing October 31, 2016 through December 31, ~~2016.~~2017.

~~The following table summarizes the Company’s repurchases of its common stock during the three months ended~~ ~~March 31, 2016~~:

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, 2016 - January 31, 2016 2,793,746
$ 39.94
2,793,746
$ 1,218
February 1, 2016 - February 29, 2016 2,897,641
$ 40.78
2,897,641
$ 1,100
March 1, 2016 - March 31, 2016 2,702,872
$ 44.55
2,072,872
$ 980
Total 8,394,259
$ 41.72
8,394,259



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 ~~1,066,033~~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 ~~$46~~$33 million in employee tax withholding obligations related to net share settlements in the three months ended March 31, ~~2016.~~2017.

116

Part II - Item 6. Exhibits

Item 6. EXHIBITS



See Exhibits Index on page	~~121~~119.

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 ~~28, 2016~~27, 2017	/s/ Scott R. Lewis
		Scott R. Lewis
		Senior Vice President and Controller
		(Chief accounting officer and duly authorized signatory)

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

FOR THE QUARTER ENDED MARCH 31, ~~2016~~2017

FORM 10-Q

EXHIBITS INDEX



~~Exhibit No.~~		~~Description~~


*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.~~



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.

~~121~~119



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



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


(In millions, except for share and per share data)	March 31, 2016			December 31, 2015			March 31, 2017			December 31, 2016
	(Unaudited)						(Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $57,378 and $56,965)	$	60,693		$	59,196
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets of $0 and $150)	486			503
Equity securities, available-for-sale, at fair value (cost of $767 and $1,135) (includes equity securities, at fair value using the fair value option, of $0 and $282, and variable interest entity assets of $0 and $1)	798			1,121
Mortgage loans (net of allowances for loan losses of $22 and $23)	5,637			5,624
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	1,444			1,447			1,442			1,444
Limited partnerships and other alternative investments (includes variable interest entity assets of $394 and $2)	2,654			2,874
Limited partnerships and other alternative investments							2,418			2,456
Other investments	280			120			340			403
Short-term investments (includes variable interest entity assets, at fair value, of $60 and $3)	1,918			1,843
Short-term investments							4,595			3,244
Total investments	73,910			72,728			72,189			70,637
Cash (includes variable interest entity assets, at fair value, of $5 and $10)	479			448
Cash (includes variable interest entity assets, at fair value, of $5 and $5)							337			882
Premiums receivable and agents’ balances, net	3,605			3,537			3,764			3,731
Reinsurance recoverables, net	23,125			23,189			23,405			23,311
Deferred policy acquisition costs	1,694			1,816			1,693			1,711
Deferred income taxes, net	2,868			3,206			3,105			3,281
Goodwill	498			498			567			567
Property and equipment, net	995			974			984			991
Other assets (includes variable interest entity assets of $4 and $0)	1,958			1,829
Other assets							1,839			1,786
Assets held for sale							923			870
Separate account assets	118,361			120,123			116,582			115,665
Total assets	$	227,493		$	228,348		$	225,388		$	223,432
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses	$	41,842		$	41,572
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	31,525			31,670			30,863			31,176
Unearned premiums	5,497			5,385			5,609			5,499
Short-term debt	690			275			320			416
Long-term debt	4,633			5,084			4,817			4,636
Other liabilities (includes variable interest entity liabilities of $5 and $12)	6,833			6,597
Other liabilities (includes variable interest entity liabilities of $5 and $5)							7,789			6,992
Liabilities held for sale							661			611
Separate account liabilities	118,361			120,123			116,582			115,665
Total liabilities	$	209,381		$	210,706		$	208,379		$	206,529
Commitments and Contingencies (Note 8)
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 490,923,222 and 490,923,222 shares issued	5			5
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	8,885			8,973			5,177			5,247
Retained earnings	12,789			12,550			13,406			13,114
Treasury stock, at cost — 95,319,786 and 89,102,038 shares	(3,821		)	(3,557		)
Treasury stock, at cost — 33,726,771 and 28,974,069 shares							(1,371		)	(1,125		)
Accumulated other comprehensive income ("AOCI"), net of tax	254			(329		)	(207		)	(337		)
Total stockholders’ equity	$	18,112		$	17,642		$	17,009		$	16,903
Total liabilities and stockholders’ equity	$	227,493		$	228,348		$	225,388		$	223,432


	Three Months Ended March 31,						Three Months Ended March 31,
(In millions, except for share data)	2016			2015			2017			2016
	(Unaudited)						(Unaudited)
Common Stock	$	5		$	5		$	4		$	5
Additional Paid-in Capital, beginning of period	8,973			9,123			5,247			8,973
Issuance of shares under incentive and stock compensation plans	(124		)	(150		)	(66		)	(124		)
Stock-based compensation plans expense	19			16			36			19
Tax benefit on employee stock options and share-based awards	24			26			—			24
Issuance of shares for warrant exercise	(7		)	(19		)	(40		)	(7		)
Additional Paid-in Capital, end of period	8,885			8,996			5,177			8,885
Retained Earnings, beginning of period	12,550			11,191			13,114			12,550
Net income	323			467			378			323
Dividends declared on common stock	(84		)	(75		)	(86		)	(84		)
Retained Earnings, end of period	12,789			11,583			13,406			12,789
Treasury Stock, at cost, beginning of period	(3,557		)	(2,527		)	(1,125		)	(3,557		)
Treasury stock acquired	(350		)	(250		)	(325		)	(350		)
Issuance of shares under incentive and stock compensation plans	125			154			72			125
Net shares acquired related to employee incentive and stock compensation plans	(46		)	(53		)	(33		)	(46		)
Issuance of shares for warrant exercise	7			19			40			7
Treasury Stock, at cost, end of period	(3,821		)	(2,657		)	(1,371		)	(3,821		)
Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period	(329		)	928			(337		)	(329		)
Total other comprehensive income (loss)	583			222			130			583
Accumulated Other Comprehensive Income (Loss), net of tax, end of period	254			1,150			(207		)	254
Total Stockholders’ Equity	$	18,112		$	19,077		$	17,009		$	18,112
Common Shares Outstanding, beginning of period (in thousands)	401,821			424,416			373,949			401,821
Treasury stock acquired	(8,394		)	(6,128		)	(6,709		)	(8,394		)
Issuance of shares under incentive and stock compensation plans	3,069			3,923			1,690			3,069
Return of shares under incentive and stock compensation plans to treasury stock	(1,066		)	(1,299		)	(674		)	(1,066		)
Issuance of shares for warrant exercise	173			477			940			173
Common Shares Outstanding, at end of period	395,603			421,389			369,196			395,603



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



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



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


Item	Description	Page	Description	Page
	Part I. FINANCIAL INFORMATION		Part I
1.	Financial Statements		FINANCIAL STATEMENTS
	Report of Independent Registered Public Accounting Firm	5	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	5
	Condensed Consolidated Statements of Operations — For the Three Months Ended March 31, 2016 and 2015	6	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	6
	Condensed Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2016 and 2015	7	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, 2016 and December 31, 2015	8	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, 2016 and 2015	9	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, 2016 and 2015	10	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016	10
	Notes to Condensed Consolidated Financial Statements	11	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	11
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	58
3.	Quantitative and Qualitative Disclosures About Market Risk	116	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	112
4.	Controls and Procedures	116	CONTROLS AND PROCEDURES	113
	Part II. OTHER INFORMATION		PART II. OTHER INFORMATION
1.	Legal Proceedings	117	LEGAL PROCEEDINGS	114
1A.	Risk Factors	119	RISK FACTORS	115
2.	Unregistered Sales of Equity Securities and Use of Proceeds	119	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	116

6.	Exhibits	119	EXHIBITS	117

	Signature	120	SIGNATURE	118
	Exhibits Index	121	EXHIBITS INDEX	119


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


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


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


◦	~~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 the valuation of the Company’s financial instruments that could result in changes to investment valuations;


◦	~~the subjective determinations that underlie the Company’s evaluation of other-than-temporary impairments on available-for-sale securities;~~


◦	~~unfavorable judicial~~credit ratings or ~~legislative developments;~~


◦	~~the potential for further acceleration of deferred policy acquisition cost amortization;~~


◦	~~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;~~


◦	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;


◦	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;


◦	~~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;


◦	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 ~~ability~~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 ~~uncertain effects~~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 ~~emerging claim and coverage issues;~~certain product lines;


◦	actions by ~~our~~ competitors ~~many of which are~~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 ~~Company’s ability to effectively price its property~~uncertain effects of emerging claim and ~~casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;~~coverage issues;


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


◦	~~regulatory limitations on the ability of the Company and certain of its subsidiaries~~negative rating actions or downgrades relating to ~~declare and pay dividends;~~our investments;


◦	the impact on our statutory capital of ~~changes~~various factors, including many that are outside the Company’s control, which can in ~~federal or state tax laws;~~turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;


◦	~~regulatory requirements that could delay, deter~~losses due to nonperformance or ~~prevent a takeover attempt that shareholders might consider~~defaults by others, including sourcing partners, derivative counterparties and other third parties;