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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________ 
FORM 10-Q
 ____________________________________
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172019
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 001-13958
____________________________________ 
staglogoa03a01a02.jpg
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3317783
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Hartford Plaza, Hartford, Connecticut06155
(Address of principal executive offices) (Zip Code)
(860)547-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareHIGThe New York Stock Exchange
6.10% Notes due October 1, 2041HIG 41The New York Stock Exchange
7.875% Fixed-to-Floating Rate Junior Subordinated Debentures due 2042HGHThe New York Stock Exchange
Depositary Shares, Each Representing a 1/1,000th Interest in a Share of 6.000% Non-Cumulative Preferred Stock, Series G, par value $0.01 per shareHIG PR GThe New York Stock Exchange



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.ýYes☒No☐
 ¨
    
•     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).ýYes☒No☐
 ¨
    
•     whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.   
Large accelerated filerx
☒
Accelerated filer¨
☐
Non-accelerated filer¨
☐
Smaller reporting company¨
☐
Emerging growth company¨☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
•     whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Act).¨Yes☐ýNo☒
As of October 24, 2017November 1, 2019, there were outstanding 356,718,683360,421,232 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 SEPTEMBER 30, 20172019
TABLE OF CONTENTS
ItemDescriptionPageDescriptionPage
Part I
 
Part I
 
1. FINANCIAL STATEMENTS FINANCIAL STATEMENTS 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
7
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
7
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
8
CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
8
CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
9
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
9
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
10
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
10
CONDENSED CONOLIDATED STATEMENTS OF CASH FLOWS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
54
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
131
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK[a]
4. CONTROLS AND PROCEDURES
132
CONTROLS AND PROCEDURES
106
PART II. OTHER INFORMATION
 
PART II. OTHER INFORMATION
 
1. LEGAL PROCEEDINGS
133
LEGAL PROCEEDINGS
107
1A. RISK FACTORS
134
RISK FACTORS
108
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
135
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
109
6. EXHIBITS
136
EXHIBITS
110
 EXHIBITS INDEX
111
SIGNATURE
137
SIGNATURE
112
EXHIBITS INDEX
138

[a]The information required by this item is set forth in the Enterprise Risk Management section of Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.




Forward-Looking



Forward-looking Statements
Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.
Forward-looking statements are based on management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company" or "The Hartford"). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statementsstatements; or in Part II, Item 1A of The Hartford’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, Part I, Item 1A, Risk Factors in The Hartford’s 20162018 Form 10-K Annual Report,Report; and those identified from time to time in our other filings with the Securities and Exchange Commission ("SEC").
Risks RelatedRelating to Economic, Political and Global Market Conditions:
◦challenges related to the Company’s current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns, changes in trade regulation including tariffs and other barriers or other potentially adverse macroeconomic developments on the demand for our products and returns in our investment portfolios and the hedging costs associated with our run-off annuity block;
◦financial risk related to the continued reinvestment of our investment portfolios and performance of our hedge program for our run-off annuity block;portfolios;
◦market risks associated with our business, including changes in credit spreads, equity prices, interest rates, inflation rate, and market volatility and foreign exchange rates;volatility;
◦the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;
◦the impacts of changing climate and weather patterns on our businesses, operations and investment portfolio including on claims, demand and pricing of our products, the availability and cost of reinsurance, our modeling data used to evaluate and manage risks of catastrophes and severe weather events, the value of our investment portfolios and credit risk with reinsurers and other counterparties;
◦the risks associated with the change in or replacement of the London Inter-Bank Offered Rate ("LIBOR") on the securities we hold or may have issued, other financial instruments and any other assets and liabilities whose value is tied to LIBOR;
◦the impacts associated with the withdrawal of the United Kingdom (“U.K.”) from the European Union (“E.U.”) on our international operations in the U.K. and E.U.
Insurance Industry and Product-Related Risks:
◦the possibility of unfavorable loss development, including with respect to long-tailed exposures;
◦the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims;
◦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 severityintensity and frequency of storms, hail, wildfires, flooding, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns;
◦the possible occurrence of terrorist attacks and the Company’s inability to contain its exposure as a result of, among other factors, the inability to exclude coverage for terrorist attacks from workers' compensation policies and limitations on reinsurance coverage from the federal government under applicable laws;
◦the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;
◦actions by competitors that may be larger or have greater financial resources than we do;
◦technologytechnological changes, such as usage-based methods of determining premiums, advancementadvancements 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’sCompany's ability to market, distribute and provide insurance products and investment advisory services through current and future distribution channels and advisory firms;
◦the uncertain effects of emerging claim and coverage issues;
◦volatility in our statutory and United States ("U.S.") Generally Accepted Accounting Principles ("GAAP") earnings and potential material changes to our results resulting from our risk management program to emphasize protection of economic value;
Financial Strength, Credit and Counterparty Risks:
◦risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments;


◦the impact on our statutory capital of variousrequirements which are subject to many factors, including many that are outside the Company’s control, such as NAIC risk based capital formulas, Funds at Lloyd's and Solvency Capital Requirement, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;
◦
losses due to nonperformance or defaults by others, including sourcing partners, derivativecredit risk with counterparties associated with investments, derivatives, premiums receivable, reinsurance recoverables and otherindemnifications provided by third parties;parties in connection with previous dispositions;


◦the potential for losses due to our reinsurers’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;
◦state and international regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends;
Risks Relating to Estimates, Assumptions and Valuations;Valuations:
◦risk associated with the use of analytical models in making decisions in key areas such as underwriting, pricing, capital management, hedging, reserving, investments, reinsurance and catastrophe risk management;
◦the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the Company’s fair value estimates for its investments and the evaluation of other-than-temporary impairments on available-for-sale securities;
◦the potential for further acceleration of deferred policy acquisition cost amortization and an increase in reserve for certain guaranteed benefits in our variable annuities;
◦the potential for further impairments of our goodwill or the potential for changes in valuation allowances against deferred tax assets;
◦the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims;
Strategic and Operational Risks:
◦risks associated with the run off of our Talcott Resolution business;
◦the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;
◦the potential for difficulties arising from outsourcing and similar third-party relationships;
◦the risks, challenges and uncertainties associated with our capital management plan,plans, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;
◦risks associated with acquisitions and divestitures, including the potential for difficulties arisingchallenges of integrating acquired companies or businesses or separating from outsourcingour divested businesses, which may result in our inability to achieve the anticipated benefits and similar third-party relationships;synergies and may result in unintended consequences;
◦difficulty in attracting and retaining talented and qualified personnel, including key employees, such as executives, managers and employees with strong technological, analytical and other specialized skills;
◦the Company’s ability to protect its intellectual property and defend against claims of infringement;
Regulatory and Legal Risks:
◦the cost and other potential effects of increased federal, state and international regulatory and legislative developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels;
◦unfavorable judicial or legislative developments;
◦the impact of changes in federal or state tax laws;
◦regulatory requirements that could delay, deter or prevent a takeover attempt that shareholdersstockholders might consider in their best interests; and
◦the impact of potential changes in accounting principles and related financial reporting requirements.
Any forward-looking statement made by the Company in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

4






Part I - Item 1. Financial Statements




Item 1. Financial Statements
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
The Hartford Financial Services Group, Inc.
Hartford, Connecticut


Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the "Company") as of September 30, 2017, and2019, the related condensed consolidated statements of operations, and comprehensive income (loss), and changes in stockholders' equity for the three-month and nine-month periods ended September 30, 20172019 and 2016,2018, and statementsthe condensed consolidated statement of changes in stockholders' equity and cash flows for the nine-month periods ended September 30, 20172019 and 2016. These2018, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements areinformation for it to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company's management.America.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2019, 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, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. 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),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2016, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Hartford, Connecticut
October 26, 2017November 4, 2019




5
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Operations


Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except for per share data)20172016 20172016
(in millions, except for per share data)20192018 20192018
(Unaudited)(Unaudited)
Revenues      
Earned premiums$3,474
$3,484
 $10,437
$10,332
$4,394
$3,987
 $12,500
$11,872
Fee income460
452
 1,381
1,338
330
344
 970
994
Net investment income729
772
 2,172
2,203
490
444
 1,448
1,323
Net realized capital gains (losses):
     
Total other-than-temporary impairment ("OTTI") losses(5)(15) (24)(50)(1)(4) (5)(6)
OTTI losses recognized in other comprehensive income (“OCI”)3
1
 7
6
—
3
 2
5
Net OTTI losses recognized in earnings(2)(14) (17)(44)(1)(1) (3)(1)
Other net realized capital gains (losses)(1)(3) 69
(75)
Total net realized capital gains (losses)(3)(17) 52
(119)
Other net realized capital gains90
39
 335
61
Total net realized capital gains89
38
 332
60
Other revenues24
24
 66
67
44
29
 129
73
Total revenues4,684
4,715
 14,108
13,821
5,347
4,842
 15,379
14,322
Benefits, losses and expenses
     
Benefits, losses and loss adjustment expenses2,994
2,780
 8,518
8,563
2,914
2,786
 8,533
8,219
Amortization of deferred policy acquisition costs ("DAC")357
403
 1,088
1,145
437
348
 1,184
1,034
Insurance operating costs and other expenses995
918
 3,652
2,777
1,167
1,091
 3,356
3,195
Loss on extinguishment of debt90
—
 90
6
Loss on reinsurance transaction—
—
 91
—
Interest expense82
86
 246
257
67
69
 194
228
Amortization of other intangible assets19
18
 47
54
Total benefits, losses and expenses4,428
4,187
 13,504
12,742
4,694
4,312
 13,495
12,736
Income before income taxes256
528
 604
1,079
Income from continuing operations, before tax653
530
 1,884
1,586
Income tax expense22
90
 32
102
118
103
 347
297
Income from continuing operations, net of tax535
427
 1,537
1,289
Income from discontinued operations, net of tax—
5
 —
322
Net income$234
$438
 $572
$977
535
432
 1,537
1,611
Net income per common share


  
Preferred stock dividends11
—
 16
—
Net income available to common stockholders$524
$432
 $1,521
$1,611
   
Income from continuing operations, net of tax, available to common stockholders per common share
  
Basic$0.65
$1.14
 $1.56
$2.50
$1.45
$1.19
 $4.21
$3.60
Diluted$0.64
$1.12
 $1.54
$2.45
$1.43
$1.17
 $4.17
$3.54
Cash dividends declared per common share$0.23
$0.21
 $0.69
$0.63
Net income available to common stockholders per common share


  
Basic$1.45
$1.20
 $4.21
$4.50
Diluted$1.43
$1.19
 $4.17
$4.42
See Notes to Condensed Consolidated Financial Statements.

6
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)


Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
(In millions)20172016 20172016
(in millions)20192018 20192018
(Unaudited)(Unaudited)
Net income (loss)$234
$438
 $572
$977
Net income$535
$432
 $1,537
$1,611
Other comprehensive income (loss):      
Changes in net unrealized gain on securities85
22
 564
1,180
401
(171) 1,744
(2,164)
Changes in OTTI losses recognized in other comprehensive income(1)5
 (1)2
—
(1) 1
(1)
Changes in net gain on cash flow hedging instruments(14)(28) (33)42
6
(5) 22
(37)
Changes in foreign currency translation adjustments14
78
 21
65
(4)1
 —
(4)
Changes in pension and other postretirement plan adjustments7
10
 371
27
9
10
 26
29
OCI, net of tax91
87
 922
1,316
412
(166) 1,793
(2,177)
Comprehensive income$325
$525
 $1,494
$2,293
Comprehensive income (loss)$947
$266
 $3,330
$(566)
See Notes to Condensed Consolidated Financial Statements.

7
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Balance Sheets


(In millions, except for share and per share data)September 30,
2017		December 31, 2016
(in millions, except for share and per share data)September 30,
2019		December 31, 2018
(Unaudited)(Unaudited) 
Assets 
Investments: 
Fixed maturities, available-for-sale, at fair value (amortized cost of $54,478 and $53,805)$57,669
$56,003
Fixed maturities, available-for-sale, at fair value (amortized cost of $40,174 and $35,603)$42,389
$35,652
Fixed maturities, at fair value using the fair value option82
293
39
22
Equity securities, available-for-sale, at fair value (cost of $1,010 and $1,020)1,112
1,097
Mortgage loans (net of allowances for loan losses of $1 and $19)6,058
5,697
Policy loans, at outstanding balance1,418
1,444
Equity securities, at fair value1,414
1,214
Mortgage loans (net of allowances for loan losses of $0 and $1)3,736
3,704
Limited partnerships and other alternative investments2,533
2,456
1,770
1,723
Other investments365
403
302
192
Short-term investments3,756
3,244
2,927
4,283
Total investments72,993
70,637
52,577
46,790
Cash (includes variable interest entity assets, at fair value, of $0 and $5)333
882
Cash207
112
Restricted cash83
9
Premiums receivable and agents’ balances, net3,804
3,731
4,580
3,995
Reinsurance recoverables, net23,323
23,311
5,333
4,357
Deferred policy acquisition costs1,635
1,711
772
670
Deferred income taxes, net2,766
3,281
376
1,248
Goodwill567
567
1,913
1,290
Property and equipment, net962
991
1,194
1,006
Other intangible assets, net1,126
657
Other assets2,202
1,786
2,095
2,173
Assets held for sale—
870
Separate account assets115,626
115,665
Total assets$224,211
$223,432
$70,256
$62,307
Liabilities

Unpaid losses and loss adjustment expenses$28,232
$27,605
$36,188
$33,029
Reserve for future policy benefits14,247
13,929
645
642
Other policyholder funds and benefits payable30,151
31,176
764
767
Unearned premiums5,528
5,499
6,820
5,282
Short-term debt320
416
500
413
Long-term debt4,818
4,636
4,346
4,265
Other liabilities (includes variable interest entity liabilities of $0 and $5)8,056
6,992
Liabilities held for sale—
611
Separate account liabilities115,626
115,665
Other liabilities4,915
4,808
Total liabilities$206,978
$206,529
54,178
49,206
Commitments and Contingencies (Note 12) 
Commitments and Contingencies Note (12)
Stockholders’ Equity 
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 402,923,222 and 402,923,222 shares issued$4
$4
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at September 30, 2019 and December 31, 2018, aggregate liquidation preference of $345334
334
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 384,923,222 shares issued at September 30, 2019 and December 31, 20184
4
Additional paid-in capital5,191
5,247
4,302
4,378
Retained earnings13,434
13,114
12,251
11,055
Treasury stock, at cost — 45,382,811 and 28,974,069 shares(1,981)(1,125)
Accumulated other comprehensive income ("AOCI"), net of tax585
(337)
Treasury stock, at cost — 23,940,696 and 25,772,238 shares(1,027)(1,091)
Accumulated other comprehensive income (loss), net of tax214
(1,579)
Total stockholders’ equity$17,233
$16,903
16,078
13,101
Total liabilities and stockholders’ equity$224,211
$223,432
$70,256
$62,307
See Notes to Condensed Consolidated Financial Statements.

8
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity


 Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except for share data)20192018 20192018
 (Unaudited)
Preferred Stock$334
$—
 $334
$—
Common Stock4
4
 4
4
Additional Paid-in Capital     
Additional Paid-in Capital, beginning of period4,300
4,374
 4,378
4,379
Issuance of shares under incentive and stock compensation plans(17)(9) (91)(92)
Stock-based compensation plans expense19
22
 95
105
Issuance of shares for warrant exercise—
(2) (80)(7)
Additional Paid-in Capital, end of period4,302
4,385
 4,302
4,385
Retained Earnings     
Retained Earnings, beginning of period11,836
10,649
 11,055
9,642
Cumulative effect of accounting changes, net of tax—
—
 —
5
Adjusted balance, beginning of period11,836
10,649
 11,055
9,647
Net income535
432
 1,537
1,611
Dividends declared on preferred stock(11)—
 (16)—
Dividends declared on common stock(109)(108) (325)(285)
Retained Earnings, end of period12,251
10,973
 12,251
10,973
Treasury Stock, at cost     
Treasury Stock, at cost, beginning of period(984)(1,128) (1,091)(1,194)
Treasury stock acquired(63)—
 (90)—
Issuance of shares under incentive and stock compensation plans27
14
 112
109
Net shares acquired related to employee incentive and stock compensation plans(7)(2) (38)(36)
Issuance of shares for warrant exercise—
2
 80
7
Treasury Stock, at cost, end of period(1,027)(1,114) (1,027)(1,114)
Accumulated Other Comprehensive Income (Loss), net of tax     
Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period(198)(1,353) (1,579)663
Cumulative effect of accounting changes, net of tax—
—
 —
(5)
Adjusted balance, beginning of period(198)(1,353) (1,579)658
Total other comprehensive income (loss)412
(166) 1,793
(2,177)
Accumulated Other Comprehensive Income (Loss), net of tax, end of period214
(1,519) 214
(1,519)
Total Stockholders’ Equity$16,078
$12,729
 $16,078
$12,729
Preferred Shares Outstanding     
Preferred Shares Outstanding, beginning of period13,800
—
 13,800
—
Issuance of preferred shares—
—
 —
—
Preferred Shares Outstanding, end of period13,800
—
 13,800
—
Common Shares Outstanding     
Common Shares Outstanding, beginning of period (in thousands)361,605
358,359
 359,151
356,835
Treasury stock acquired(1,076)—
 (1,581)—
Issuance of shares under incentive and stock compensation plans588
331
 2,447
2,373
Return of shares under incentive and stock compensation plans to treasury stock(134)(57) (755)(694)
Issuance of shares for warrant exercise—
43
 1,721
162
Common Shares Outstanding, at end of period360,983
358,676
 360,983
358,676
Cash dividends declared per common share$0.30
$0.30
 $0.90
$0.80
Cash dividends declared per preferred share$750.00
$—
 $1,125.00
$—
 Nine Months Ended September 30,
(In millions, except for share data)20172016
 (Unaudited)
Common Stock$4
$5
Additional Paid-in Capital  
Additional Paid-in Capital, beginning of period5,247
8,973
Issuance of shares under incentive and stock compensation plans(68)(129)
Stock-based compensation plans expense77
58
Tax benefit on employee stock options and share-based awards—
2
Issuance of shares for warrant exercise(65)(11)
Additional Paid-in Capital, end of period5,191
8,893
Retained Earnings  
Retained Earnings, beginning of period13,114
12,550
Net income572
977
Dividends declared on common stock(252)(245)
Retained Earnings, end of period13,434
13,282
Treasury Stock, at cost  
Treasury Stock, at cost, beginning of period(1,125)(3,557)
Treasury stock acquired(975)(1,050)
Issuance of shares under incentive and stock compensation plans90
134
Net shares acquired related to employee incentive and stock compensation plans(36)(47)
Issuance of shares for warrant exercise65
11
Treasury Stock, at cost, end of period(1,981)(4,509)
Accumulated Other Comprehensive Income (Loss), net of tax  
Accumulated Other Comprehensive Loss, net of tax, beginning of period(337)(329)
Total other comprehensive income922
1,316
Accumulated Other Comprehensive Income, net of tax, end of period585
987
Total Stockholders’ Equity$17,233
$18,658
   
Common Shares Outstanding  
Common Shares Outstanding, beginning of period (in thousands)373,949
401,821
Treasury stock acquired(19,281)(24,652)
Issuance of shares under incentive and stock compensation plans2,078
3,297
Return of shares under incentive and stock compensation plans to treasury stock(718)(1,091)
Issuance of shares for warrant exercise1,512
273
Common Shares Outstanding, at end of period357,540
379,648
See Notes to Condensed Consolidated Financial Statements.

9
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Cash Flows


 Nine Months Ended September 30,
(in millions)20192018
Operating Activities(Unaudited)
Net income$1,537
$1,611
Adjustments to reconcile net income to net cash provided by operating activities:  
Net realized capital gains(332)(7)
Amortization of deferred policy acquisition costs1,184
1,092
Additions to deferred policy acquisition costs(1,222)(1,057)
Depreciation and amortization333
359
Loss on extinguishment of debt90
6
Gain on sale—
(202)
Other operating activities, net75
346
Change in assets and liabilities:  
Decrease in reinsurance recoverables115
111
Decrease (increase) in accrued and deferred income taxes784
(74)
Increase (decrease) in insurance liabilities630
(119)
Net change in other assets and other liabilities(748)(224)
Net cash provided by operating activities2,446
1,842
Investing Activities  
Proceeds from the sale/maturity/prepayment of:  
Fixed maturities, available-for-sale14,335
20,069
Fixed maturities, fair value option7
21
Equity securities, at fair value1,260
1,171
Mortgage loans491
314
Partnerships201
377
Payments for the purchase of:  
Fixed maturities, available-for-sale(15,592)(18,679)
Equity securities, at fair value(847)(1,084)
Mortgage loans(515)(667)
Partnerships(218)(408)
Net proceeds from (payments for) derivatives60
(228)
Net additions of property and equipment(75)(70)
Net proceeds from (payments for) short-term investments1,480
(2,689)
Other investing activities, net(6)(4)
Proceeds from business sold, net of cash transferred—
1,115
Amount paid for business acquired, net of cash acquired(1,901)—
Net cash used for investing activities(1,320)(762)
Financing Activities  
Deposits and other additions to investment and universal life-type contracts107
1,814
Withdrawals and other deductions from investment and universal life-type contracts(101)(9,210)
Net transfers from separate accounts related to investment and universal life-type contracts—
6,949
Repayments at maturity or settlement of consumer notes—
(2)
Net decrease in securities loaned or sold under agreements to repurchase(291)(646)
Repayment of debt(1,583)(826)
Proceeds from the issuance of debt1,376
490
Net issuance (return) of shares under incentive and stock compensation plans(18)10
Treasury stock acquired(90)—
Dividends paid on preferred stock(16)—
Dividends paid on common stock(327)(270)
Net cash used for financing activities(943)(1,691)
Foreign exchange rate effect on cash(14)(4)
Net increase (decrease) in cash, including cash classified as assets held for sale169
(615)
 Less: Net increase (decrease) in cash classified as assets held for sale—
(537)
Net increase (decrease) in cash and restricted cash169
(78)
Cash and restricted cash – beginning of period121
180
Cash and restricted cash– end of period$290
$102
Supplemental Disclosure of Cash Flow Information  
Income tax received (paid)$420
$(1)
Interest paid$210
$197
 Nine Months Ended September 30,
(In millions)20172016
Operating Activities(Unaudited)
Net income$572
$977
Adjustments to reconcile net income to net cash provided by operating activities:  
Net realized capital (gains) losses(52)119
Amortization of deferred policy acquisition costs1,088
1,145
Additions to deferred policy acquisition costs(1,039)(1,052)
Depreciation and amortization300
296
Pension settlement747
—
Other operating activities, net328
119
Change in assets and liabilities:  
Decrease in reinsurance recoverables43
349
Increase (decrease) in deferred and accrued income taxes64
(51)
Increase in unpaid losses and loss adjustment expenses, reserve for future policy benefits, and unearned premiums845
403
Net change in other assets and other liabilities(1,372)(900)
Net cash provided by operating activities1,524
1,405
Investing Activities  
Proceeds from the sale/maturity/prepayment of:  
Fixed maturities, available-for-sale21,371
17,007
Fixed maturities, fair value option140
163
Equity securities, available-for-sale599
562
Mortgage loans558
325
Partnerships190
656
Payments for the purchase of:  
Fixed maturities, available-for-sale(22,021)(16,141)
Fixed maturities, fair value option—
(94)
Equity securities, available-for-sale(517)(384)
Mortgage loans(943)(305)
Partnerships(344)(298)
Net (payments for) proceeds from derivatives(98)154
Net increase in policy loans27
14
Net additions to property and equipment(129)(183)
Net payments for short-term investments(523)(388)
Other investing activities, net(17)32
Proceeds from business sold, net of cash transferred222
—
Acquisitions, net of cash acquired—
(175)
Net cash provided (used) by investing activities(1,485)945
Financing Activities  
Deposits and other additions to investment and universal life-type contracts3,628
3,381
Withdrawals and other deductions from investment and universal life-type contracts(10,623)(11,737)
Net transfers from separate accounts related to investment and universal life-type contracts6,080
7,734
Repayments at maturity or settlement of consumer notes(12)(14)
Net increase (decrease) in securities loaned or sold under agreements to repurchase1,434
(38)
Repayment of debt(416)—
Proceeds from the issuance of debt500
—
Net (return) issuance of shares under incentive and stock compensation plans(16)10
Treasury stock acquired(975)(1,050)
Dividends paid on common stock(258)(253)
Net cash used for financing activities(658)(1,967)
Foreign exchange rate effect on cash70
(21)
Net (decrease) increase in cash(549)362
Cash – beginning of period882
448
Cash – end of period$333
$810
Supplemental Disclosure of Cash Flow Information  
Income tax received (paid)$3
$(131)
Interest paid$205
$239
See Notes to Condensed Consolidated Financial Statements

10
Table of ContentsStatements.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
1. Basis of Presentation and Significant Accounting Policies(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 run off life and annuity products previously sold.
On May 10, 2017,23, 2019, the Company completed the salepreviously announced acquisition of its United KingdomThe Navigators Group, Inc. ("U.K."Navigators Group") property and casualty run-off subsidiaries., a global specialty underwriter, for $70 a share, or $2.137 billion in cash, including transaction expenses. For further discussion of this transaction, see Note 2 - Business Acquisition of Notes to Condensed Consolidated Financial Statements.
On May 31, 2018, Hartford Holdings, Inc., a wholly owned subsidiary of the Company, completed the sale of the issued and outstanding equity of Hartford Life, Inc. (“HLI”), a holding company, for its life and annuity operating subsidiaries. For further discussion of this transaction, see Note 17 - Business Disposition and Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 20162018 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 20162018 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 that are not held for sale have been eliminated.
Discontinued Operations
The results of operations of a component of the Company are reported in discontinued operations when certain criteria are met as of the date of disposal, or earlier if classified as held-for-sale. When a component is identified for discontinued operations reporting, amounts for prior periods are retrospectively reclassified as discontinued operations. Components are identified as discontinued operations if they are a major part of an entity's operations and financial results such as a separate major line of business or a separate major geographical area of operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining property and casualty and group long-term disability (LTD) insurance product reserves, net of reinsurance; estimated gross profits used in the valuation and amortization of assets and
liabilities associated with variable annuity and other universal life-type contracts; living benefits required to be fair valued; evaluation of goodwill for impairment; valuation of investments and derivative instruments, including evaluation of other-than-temporary impairments on available-for-sale securities;instruments; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to prior year financial information to conform to the current year presentation. In particular, billing installment feesrestricted cash has been reclassified out of cash to a separate line on the Condensed Consolidated Balance Sheets. Restrictions on cash primarily relate to funds that were previously reflected as an offsetare held to insurance operating costssupport regulatory and other expenses are now classified as revenues.contractual obligations.
Adoption of New Accounting Standards
Stock Compensation
On January 1, 2017 the Company adopted new stock compensation guidance issued by the Financial Accounting Standards Board ("FASB") on a prospective basis. The updated guidance requires the excess tax benefit or tax deficiency on vesting or settlement of stock-based awards to be recognized in earnings as an income tax benefit or expense, respectively, instead of as an adjustment to additional paid-in capital. The new guidance also requires the related cash flows to be presented in operating activities instead of in financing activities. The amount of excess tax benefit or tax deficiency realized on vesting or settlement of awards depends upon the difference between the market value of awards at vesting or settlement and the grant date fair value recognized through compensation expense. The excess tax benefit or tax deficiency is a discrete item in the reporting period in which it occurs and is not considered in determining the annual estimated effective tax rate for interim reporting. The excess tax benefit recognized in earnings for the three and nine months ended September 30, 2017 was $4 and $12, respectively, and the excess tax benefit recognized in additional paid-in capital for the nine months ended September 30, 2016 was $2.
Future Adoption of New Accounting Standards
Hedging Activities
In August 2017,On January 1, 2019, the FASB issuedCompany adopted the Financial Accounting Standards Board's ("FASB") updated guidance for hedge accounting through a cumulative effect adjustment of less than $1 to reclassify cumulative ineffectiveness on hedge accounting.cash flow hedges from retained earnings to accumulated other comprehensive income ("AOCI"). The updates allow hedge accounting for new types of interest rate hedges of financial instruments and simplify documentation requirements to qualify for hedge accounting. In addition, any gain or loss from hedge
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

ineffectiveness will beis reported in the same income statement line with the effective hedge results and the hedged transaction. For cash flow hedges, the ineffectiveness will beis recognized in earnings only when the hedged transaction affects earnings; otherwise, the

11
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Significant Accounting Policies (continued)

ineffectiveness gains or losses will remain in accumulated other comprehensive income (AOCI).AOCI. Under currentprevious accounting, total hedge ineffectiveness iswas reported separately in realized capital gains and losses apart from the hedged transaction. The updated guidance is effectiveadoption did not affect the Company’s financial position or cash flows or have a material effect on net income.
Leases
On January 1, 2019, throughthe Company adopted the FASB’s updated lease guidance. Under the updated guidance, lessees with operating leases are required to recognize a cumulative effect adjustmentliability for the present value of future minimum lease payments with a corresponding asset for the right of use of the property. Prior to the new guidance, future minimum lease payments on operating leases were commitments that will reclassify cumulative ineffectivenesswere not recognized as liabilities on open cash flow hedges from retained earningsthe balance sheet. Leases are classified as financing or operating leases. Where the lease is economically similar to AOCI. Earlya purchase because The Hartford obtains control of the underlying asset, the lease is classified as a financing lease and the Company recognizes 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 is an operating lease and the lease cost is recognized as rental expense over the lease term on a straight-line basis. Leases with a term of one year or less are also expensed over the lease term but not recognized on the balance sheet. On adoption, The Hartford recorded a lease payment obligation of $160 for outstanding leases and a right of use asset of $150, which is net of $10 in lease incentives received, with no change to comparative periods. As permitted by the new guidance, as of the beginning
implementation date, the Company did not reassess whether expired or existing contracts are leases or contain leases, did not change the classification of a year.expired or existing operating leases, and did not reassess initial direct costs for existing leases to determine if deferred costs should be written-off or recorded on adoption. The Company hasadoption did not yet determined the timing for adoptionimpact net income or estimated the effect on the Company’s financial statements.cash flows.
Revenue RecognitionFuture Adoption of New Accounting Standards
In May 2014, theFinancial Instruments - Credit Losses
The FASB issued updated guidance for recognizing revenue. The guidance excludes insurance contractsrecognition and measurement of credit losses on financial instruments. Revenue isSee Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to be recognized when, or as, goods or services are transferred to customersConsolidated Financial Statements included in an amount that reflects the consideration that an entity is expected to be entitled in exchangeCompany's 2018 Form 10-K Annual Report for those goods or services, and this accounting guidance is similar to current accounting for many transactions. This guidance is effective retrospectivelymore information on January 1, 2018, with a choice of restating prior periods or recognizing a cumulative effect for contracts in place asthe future adoption of the adoption.new financial instruments credit losses accounting standard. The Company will adopt onthe updated guidance January 1, 2018,2020, as required, although earlier adoption is permitted.  While the ultimate impact of the adoption will depend on the size and has not determined its method for adoption.  Based on current evaluations,composition of the Company will likely present fee income withinfinancial instruments and market conditions at the Mutual Funds segment gross of related distribution costs that are currently netted against revenues.  Fee income has been reported net of distribution costs of $139 and$184 foradoption date, the nine months ended September 30, 2017, and the year ended December 31, 2016, respectively. The adoption is not expected to have a material effect on the Company’s financial position, cash flows or net income.  The Company’s implementation activities are ongoing and include review and validation of methodologies, data and assumptions used to estimate expected credit losses on financial instruments carried at other than fair value as well as testing updates to our investment accounting system to establish and adjust valuation allowances for fixed maturities, available for sale (“AFS”), subject to a fair value floor.




12
2. BUSINESS ACQUISITION
Table
Navigators Group
On May 23, 2019, The Hartford acquired 100% of Contentsthe outstanding shares of Navigators Group for $70 a share, or $2.121 billion in cash, comprised of cash of $2.098 billion and a liability for cash awards to replace share-based awards of $23. The acquisition of the specialty underwriter expands product offerings and geographic reach, and adds underwriting and industry talent to strengthen the Company’s value proposition to agents and customers.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Business Disposition


Sale of U.K. business
On May 10, 2017, the Company completed the sale of 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 $272, 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. Prior to sale, revenues and earnings for 2017 and 2016 were not material to the Company's consolidated results of operations.
The sale resulted in an after-tax capital loss from the transaction of $5 in 2016.
Major ClassesFair Value of Assets Acquired and Liabilities Transferred byAssumed at the Company to the BuyerAcquisition Date
 As of May 23, 2019
Assets 
Cash and invested assets$3,848
Premiums receivable492
Reinsurance recoverables1,100
Prepaid reinsurance premiums238
Other intangible assets580
Property and equipment83
Other assets99
Total Assets Acquired6,440
Liabilities 
Unpaid losses and loss adjustment expenses2,823
Unearned premiums1,219
Long-term debt284
Deferred income taxes, net48
Other liabilities568
Total Liabilities Assumed4,942
Net identifiable assets acquired1,498
Goodwill [1]623
Net Assets Acquired$2,121
[1] Non-deductible for income tax purposes.
Intangible Assets Recorded in Connection with the SaleAcquisition
AssetAmountWeighted Average Expected Life
Value of in-force contracts - Property and Casualty ("P&C")$180
1
Distribution relationships302
15
Trade name17
10
Total finite life intangibles499
10
Capacity of Lloyd's Syndicate66

Licenses15

Total indefinite life intangibles81
 
Total other intangible assets$580
 

The value of in-force contracts represents the estimated profits relating to the unexpired contracts in force net of related prepaid reinsurance at the acquisition date through expiry of the contracts. The value of distribution relationships was estimated using net cash flows expected to come from the renewals of in-force contracts and new business sold through existing distribution partners less costs to service the related policies. The value of the trade name was estimated using an assumed cost of a market-based royalty fee applied to net cash flows expected to come from business marketed as Navigators, a brand of The Hartford. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. Corporate members accept underwriting risks through the
syndicates that they form. The Company accepts risks as the sole corporate member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"). The value of the capacity of Lloyd’s Syndicate was estimated using net cash flows attributable to Navigators Group's right to underwrite business up to an approved level of premium in the Lloyd’s market. The values for in-force contracts, the distribution relationships, trade name and the capacity of the Lloyd's Syndicate were estimated using a discounted cash flow method. Significant inputs to the valuation models include estimates of expected new business, premium retention rates, investment returns, claim costs, expenses and discount rates based on a weighted average cost of capital. The value of licenses to write insurance in over 50 U.S. jurisdictions was estimated based on recent transactions for shell companies.
Expected Pre-tax Amortization Expense [1] for Acquired Intangibles as of September 30, 2019
 Carrying Value as of
 ClosingDecember 31, 2016 [2]
Assets  
Cash and investments$669$657
Reinsurance recoverables and other [1]268213
 $937$870
Liabilities
 
Reserve for future policy benefits and unpaid losses and loss adjustment expenses$653$600
Other liabilities1211
 $665$611

Value of In-force ContractsOther Intangible Assets
2019 (three months)$38
$5
2020$47
$22
2021$21
$22
2022$9
$22
2023$—
$22
[1]
Includes intercompany reinsurance recoverables of $71 settled in cash at closing.
[2]Classified as assets and liabilities held for sale.

[1] In the Condensed Consolidated Statements of Operations, the amortization of value of in-force contracts is reported in amortization of deferred policy acquisition costs and the amortization of other intangible assets is reported in amortization of other intangible assets.
Property and equipment includes real estate owned and right of use assets under leases that were valued based on current values and market rental rates, software that was valued based on estimated replacement cost and furniture and equipment. These will be amortized over periods consistent with the Company’s policy.
The fair value of unpaid losses and loss adjustment expenses net of related reinsurance recoverables was estimated based on the present value of expected future net unpaid loss and loss adjustment expense payments discounted using a risk-free interest rate as of the acquisition date plus a risk margin. The discount and risk margin amounts substantially offset.
Debt assumed in the transaction was valued based on the principal and interest payments discounted at the current market yield. This debt was paid off in August 2019. For further discussion of this transaction, see Note 10 - Debt of Notes to Condensed Consolidated Financial Statements.
The $623 of goodwill recognized is largely attributable to the acquired employee workforce and underwriting talent, leverageable operating platform, improved investment yield and economies of scale. Goodwill is allocated to the Company's Commercial Lines reporting segment.
Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse reserve development (“Navigators ADC”) from National Indemnity Company ("NICO") on behalf of Navigators Insurance Company and certain of its affiliates (collectively, the “Navigators Insurers”). Under the Navigators ADC, the Navigators Insurers paid NICO a

13
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Earnings Per Common Share



Computation of Basic and Diluted Earnings per Common Share
 Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except for per share data)20172016 20172016
Earnings     
Net income$234
$438
 $572
$977
Shares     
Weighted average common shares outstanding, basic360.2
383.8
 365.9
391.4
Dilutive effect of stock compensation plans4.5
3.2
 4.1
3.5
Dilutive effect of warrants2.3
3.5
 2.6
3.6
Weighted average common shares outstanding and dilutive potential common shares367.0
390.5
 372.6
398.5
Net income per common share     
Basic$0.65
$1.14
 $1.56
$2.50
Diluted$0.64
$1.12
 $1.54
$2.45


reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018. In addition to recognizing a $91 before tax charge to earnings in the second quarter of 2019 for the Navigators ADC reinsurance premium, the Company recognized a charge against earnings of $97 before tax in the second quarter of 2019 as a result of a review of Navigators Insurers’ net acquired reserves upon acquisition of the business. Navigators Insurers had previously recognized $52 before tax of adverse reserve development in the first quarter of 2019, including $32 of adverse development subject to the Navigators ADC. As such, reserve development of $97 before tax in the second quarter of 2019 included $68 remaining of the $100 Navigators ADC retention for 2018 and prior accident years and $29 of adverse reserve development related to the 2019 accident year which is not covered by the ADC. The $68 of reserve development for the 2018 and prior accident years recorded in the second quarter of 2019 was net of a $91 reinsurance recoverable recognized under the Navigators ADC with the Company having ceded $91 of the $300 available limit, leaving $209 of remaining limit. There was no additional net adverse development subject to the Navigators ADC in the third quarter as reserve increases in commercial auto were offset by decreases in general liability, marine, commercial property and professional liability. The Navigators ADC will be accounted for as retroactive reinsurance and future adverse reserve development, if any, would result in recognizing a deferred gain.

Since the acquisition date of May 23, 2019, the revenues and net losses of the business acquired have been included in the Company's Consolidated Statements of Operations in the

14Commercial Lines reporting segment and were $616 and $140, respectively, during the period from the acquisition date to September 30, 2019, including the $91 before tax ($72 net of tax) of premium paid for the Navigators ADC and the charge of $97 before tax ($77 net of tax) for the increase in acquired reserves following the acquisition.
The Company recognized $16 of acquisition related costs for the nine months ended September 30, 2019. These costs are included in insurance operating costs and other expenses in the Condensed Consolidated Statement of Operations.
The acquisition date fair values of assets and liabilities, including insurance reserves and intangible assets, as well as the related estimated useful lives of intangibles, are provisional and are subject to revision within one year of the acquisition date.
The following table presents supplemental unaudited pro forma amounts of revenue and net income for the nine months ended September 30, 2019 and 2018 for the Company as though the business was acquired on January 1, 2018. Pro forma adjustments include the revenue and earnings of Navigators Group for each period as well as amortization of identifiable intangible assets acquired.
Pro Forma Results for the Nine Months Ended September 30

RevenueEarnings
2019 Supplemental (unaudited) combined pro forma$16,055
$1,532
2018 Supplemental (unaudited) combined pro forma$15,404
$1,669

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. EARNINGS PER COMMON SHARE
Computation of Basic and Diluted Earnings per Common Share
 Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except for per share data)20192018 20192018
Earnings     
Income from continuing operations, net of tax$535
$427
 $1,537
$1,289
Less: Preferred stock dividends11
—
 16
—
Income from continuing operations, net of tax, available to common stockholders524
427
 $1,521
$1,289
Income from discontinued operations, net of tax, available to common stockholders—
5
 —
322
Net income available to common stockholders$524
$432
 $1,521
$1,611
Shares     
Weighted average common shares outstanding, basic361.4
358.6
 361.0
358.1
Dilutive effect of stock-based awards under compensation plans4.0
3.6
 3.4
4.0
Dilutive effect of warrants [1]—
1.9
 0.7
2.0
Weighted average common shares outstanding and dilutive potential common shares365.4
364.1
 365.1
364.1
Earnings per common share     
Basic     
Income from continuing operations, net of tax, available to common stockholders$1.45
$1.19
 $4.21
$3.60
Income from discontinued operations, net of tax, available to common stockholders—
0.01
 —
0.90
Net income available to common stockholders$1.45
$1.20
 $4.21
$4.50
Diluted     
Income from continuing operations, net of tax, available to common stockholders$1.43
$1.17
 $4.17
$3.54
Income from discontinued operations, net of tax, available to common stockholders—
0.02
 —
0.88
Net income available to common stockholders$1.43
$1.19
 $4.17
$4.42
[1] On June 26, 2019, the Capital Purchase Program warrants issued in 2009 expired.
4. Segment Information

SEGMENT INFORMATION
The Company currently conducts business principally in six5 reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits Mutualand Hartford Funds, and Talcott Resolution, as well as a Corporate category. The Company includes in the Corporate category discontinued operations related to the life and annuity business sold in May 2018, reserves for run-off structured settlement and terminal funding agreement liabilities, capital raising activities (including debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, certain purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets
 
of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). Talcott Resolution is the new holding company of the life and annuity business the Company sold in May 2018. In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the sold life and annuity business. For further discussion of continued involvement in the life and annuity business sold in May 2018, see Note 17 - Business Disposition and Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
The Company's revenues are generated primarily in the United States ("U.S."). Any foreign sourced revenue is immaterial. as well as in the United Kingdom, continental Europe and other international locations.
Net Income (Loss)
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016 20172016
Commercial Lines [1]$90
$268
 $579
$730
Personal Lines [1]8
33
 65
6
Property & Casualty Other Operations18
31
 62
(106)
Group Benefits71
62
 185
167
Mutual Funds26
21
 73
61
Talcott Resolution80
78
 253
199
Corporate(59)(55) (645)(80)
Net income$234
$438
 $572
$977
[1]
For the three and nine months endedSeptember 30, 2016 there was a segment change which resulted in a movement from Commercial Lines to Personal Lines of $4 and $10, respectively, of net servicing income associated with our participation in the National Flood Insurance Program.

15
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Segment Information (continued)



RevenuesNet Income
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Commercial Lines$336
$289
 $890
$959
Personal Lines94
51
 252
146
Property & Casualty Other Operations18
9
 52
31
Group Benefits146
77
 377
227
Hartford Funds40
41
 108
112
Corporate(99)(35) (142)136
Net income535
432
 1,537
1,611
Preferred stock dividends11
—
 16
—
Net income available to common stockholders$524
$432
 $1,521
$1,611
 Three Months Ended September 30, Nine Months Ended September 30,

20172016 20172016
Earned premiums and fee income     
Commercial Lines     
Workers’ compensation$828
$775
 $2,461
$2,309
Liability150
156
 450
447
Package business325
318
 965
940
Automobile155
162
 477
474
Professional liability63
58
 183
166
Bond59
56
 172
163
Property152
162
 451
480
Total Commercial Lines [1]1,732
1,687
 5,159
4,979
Personal Lines



   
Automobile653
693
 1,975
2,065
Homeowners279
297
 843
895
Total Personal Lines [1] [2]932
990
 2,818
2,960
Group Benefits     
Group disability386
378
 1,146
1,128
Group life383
383
 1,176
1,134
Other53
51
 159
153
Total Group Benefits822
812
 2,481
2,415
Mutual Funds     
Mutual Fund179
153
 522
442
Talcott24
25
 73
75
Total Mutual Funds203
178
 595
517
Talcott Resolution245
268
 763
796
Corporate—
1
 2
3
Total earned premiums and fee income3,934
3,936
 11,818
11,670
Net investment income729
772
 2,172
2,203
Net realized capital gains (losses)(3)(17) 52
(119)
Other revenues24
24
 66
67
Total revenues$4,684
$4,715
 $14,108
$13,821
[1]
Commercial Lines includes installment fees of $9 and $28, respectively, for the three and nine months endedSeptember 30, 2017 and $10 and $29, respectively, for the three and nine months endedSeptember 30, 2016. Personal Lines includes installment fees of $11 and $33, respectively, for the three and nine months endedSeptember 30, 2017 and $10 and $29, respectively, for the three and nine months endedSeptember 30, 2016.
[2]
For the three months endedSeptember 30, 2017 and 2016, AARP members accounted for earned premiums of $801 and $825, respectively. For the nine months endedSeptember 30, 2017 and 2016, AARP members accounted for earned premiums of $2.4 billion and $2.4 billion, respectively.


16
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements


Revenues
 Three Months Ended September 30, Nine Months Ended September 30,

20192018 20192018
Earned premiums and fee income:

 

Commercial Lines

 

Workers’ compensation$825
$845
 $2,480
$2,495
Liability330
170
 731
480
Marine59
—
 86
—
Package business376
343
 1,092
1,013
Property198
154
 529
456
Professional liability137
65
 304
190
Bond67
60
 192
179
Assumed reinsurance75
—
 104
—
Automobile191
157
 522
454
Total Commercial Lines2,258
1,794
 6,040
5,267
Personal Lines



 



Automobile564
598
 1,690
1,809
Homeowners248
261
 741
785
Total Personal Lines [1]812
859
 2,431
2,594
Group Benefits



 



Group disability697
684
 2,124
2,051
Group life621
652
 1,902
1,968
Other64
60
 187
179
Total Group Benefits1,382
1,396
 4,213
4,198
Hartford Funds



 



Mutual fund and Exchange-Traded Products ("ETP")231
242
 674
710
Talcott Resolution life and annuity separate accounts [2]23
25
 69
76
Total Hartford Funds254
267
 743
786
Corporate18
15
 43
21
Total earned premiums and fee income4,724
4,331
 13,470
12,866
Net investment income490
444
 1,448
1,323
Net realized capital gains89
38
 332
60
Other revenues44
29
 129
73
Total revenues$5,347
$4,842
 $15,379
$14,322

[1]
For the three months endedSeptember 30, 2019 and 2018, AARP members accounted for earned premiums of $729 and $758, respectively. For the nine months endedSeptember 30, 2019 and 2018, AARP members accounted for earned premiums of $2.2 billion and $2.3 billion, respectively.
[2]Represents revenues earned for investment advisory services on the life and annuity separate account AUM sold in May 2018 that is still managed by the Company's Hartford Funds segment.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Revenue from Non-Insurance Contracts with Customers
  Three months ended September 30, Nine months ended September 30,
 Revenue Line Item20192018 20192018
Commercial Lines    



Installment billing feesFee income$8
$9
 $26
$26
Personal Lines 



 



Installment billing feesFee income9
10
 28
30
Insurance servicing revenuesOther revenues23
24
 65
66
Group Benefits 



 



Administrative servicesFee income45
43
 135
131
Hartford Funds 



 



Advisor, distribution and other management feesFee income232
245
 677
722
Other feesFee income22
21
 65
63
Corporate 



 



Investment management and other feesFee income14
15
 38
21
Transition service revenuesOther revenues6
6
 18
8
Total non-insurance revenues with customers $359
$373
 $1,052
$1,067

5. FAIR VALUE MEASUREMENTS
The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. The fair value hierarchy levels are as follows:
Level 1Fair 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 2Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.
 
Level 3Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.
The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

17
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of September 30, 2019
 TotalQuoted 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")$1,337
$—
$1,337
$—
Collateralized loan obligations ("CLOs")2,158
—
1,862
296
Commercial mortgage-backed securities ("CMBS")4,254
—
4,234
20
Corporate17,801
—
17,078
723
Foreign government/government agencies1,117
—
1,114
3
Municipal9,895
—
9,895
—
Residential mortgage-backed securities ("RMBS")4,732
—
4,118
614
U.S. Treasuries1,095
7
1,088
—
Total fixed maturities42,389
7
40,726
1,656
Fixed maturities, FVO39
—
39
—
Equity securities, at fair value1,414
1,196
148
70
Derivative assets    
Credit derivatives9
—
9
—
Foreign exchange derivatives4
—
4
—
Interest rate derivatives(1)—
(1)—
Total derivative assets [1]12
—
12
—
Short-term investments2,927
1,211
1,716
—
Total assets accounted for at fair value on a recurring basis$46,781
$2,414
$42,641
$1,726
Liabilities accounted for at fair value on a recurring basis    
Derivative liabilities    
Credit derivatives(1)—
(1)—
Equity derivatives(5)—
—
(5)
Foreign exchange derivatives4
—
4
—
Interest rate derivatives(69)—
(69)—
Total derivative liabilities [2](71)—
(66)(5)
Contingent consideration [3](21)—
—
(21)
Total liabilities accounted for at fair value on a recurring basis$(92)$—
$(66)$(26)
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)



Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2018
 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")$1,276
$—
$1,266
$10
Collateralized loan obligations ("CLOs")1,437
—
1,337
100
Commercial mortgage-backed securities ("CMBS")3,552
—
3,540
12
Corporate13,398
—
12,878
520
Foreign government/government agencies847
—
844
3
Municipal10,346
—
10,346
—
Residential mortgage-backed securities ("RMBS")3,279
—
2,359
920
U.S. Treasuries1,517
330
1,187
—
Total fixed maturities35,652
330
33,757
1,565
Fixed maturities, FVO22
—
22
—
Equity securities, at fair value1,214
1,093
44
77
Derivative assets    
Credit derivatives5
—
5
—
Equity derivatives3
—
—
3
Foreign exchange derivatives(2)—
(2)—
Interest rate derivatives1
—
1
—
Total derivative assets [1]7
—
4
3
Short-term investments4,283
1,039
3,244
—
Total assets accounted for at fair value on a recurring basis$41,178
$2,462
$37,071
$1,645
Liabilities accounted for at fair value on a recurring basis    
Derivative liabilities    
Credit derivatives(2)—
(2)—
Equity derivatives1
—
1
—
Foreign exchange derivatives(5)—
(5)—
Interest rate derivatives(62)—
(63)1
Total derivative liabilities [2](68)—
(69)1
Contingent consideration [3](35)—
—
(35)
Total liabilities accounted for at fair value on a recurring basis$(103)$—
$(69)$(34)
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of September 30, 2017
 TotalQuoted 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")$2,305
$—
$2,249
$56
Collateralized debt obligations ("CDOs")2,395
—
2,207
188
Commercial mortgage-backed securities ("CMBS")5,120
—
5,027
93
Corporate25,746
—
24,707
1,039
Foreign government/government agencies1,365
—
1,332
33
Bonds of municipalities and political subdivisions ("municipal bonds")12,435
—
12,349
86
Residential mortgage-backed securities ("RMBS")4,205
—
2,255
1,950
U.S. Treasuries4,098
338
3,760
—
Total fixed maturities57,669
338
53,886
3,445
Fixed maturities, FVO82
—
82
—
Equity securities, trading [1]11
11
—
—
Equity securities, AFS1,112
840
155
117
Derivative assets    
Credit derivatives8
—
8
—
Foreign exchange derivatives(4)—
(4)—
Interest rate derivatives2
—
2
—
Guaranteed minimum withdrawal benefit ("GMWB") hedging instruments39
—
(1)40
Macro hedge program158
—
—
158
Total derivative assets [2]203
—
5
198
Short-term investments3,756
1,922
1,834
—
Reinsurance recoverable for GMWB51
—
—
51
Modified coinsurance reinsurance contracts57
—
57
—
Separate account assets [3]113,197
74,053
38,019
226
Total assets accounted for at fair value on a recurring basis$176,138
$77,164
$94,038
$4,037
Liabilities accounted for at fair value on a recurring basis    
Other policyholder funds and benefits payable
(GMWB embedded derivative)
$(93)$—
$—
$(93)
Derivative liabilities    
Credit derivatives(3)—
(3)—
Equity derivatives2
—
—
2
Foreign exchange derivatives(270)—
(270)—
Interest rate derivatives(479)—
(452)(27)
GMWB hedging instruments26
—
42
(16)
Macro hedge program8
—
(17)25
Total derivative liabilities [4](716)—
(700)(16)
Contingent consideration [5](28)—
—
(28)
Total liabilities accounted for at fair value on a recurring basis$(837)$—
$(700)$(137)

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2016
 Total
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis    
Fixed maturities, AFS    
ABS$2,382
$—
$2,300
$82
CDOs1,916
—
1,502
414
CMBS4,936
—
4,856
80
Corporate25,666
—
24,586
1,080
Foreign government/government agencies1,171
—
1,107
64
Municipal bonds11,486
—
11,368
118
RMBS4,767
—
2,795
1,972
U.S. Treasuries3,679
620
3,059
—
Total fixed maturities56,003
620
51,573
3,810
Fixed maturities, FVO293
1
281
11
Equity securities, trading [1]11
11
—
—
Equity securities, AFS1,097
821
177
99
Derivative assets    
Credit derivatives17
—
17
—
Foreign exchange derivatives27
—
27
—
Interest rate derivatives(427)—
(427)—
GMWB hedging instruments74
—
14
60
Macro hedge program128
—
8
120
Other derivative contracts1
—
—
1
Total derivative assets [2](180)—
(361)181
Short-term investments3,244
878
2,366
—
Reinsurance recoverable for GMWB73
—
—
73
Modified coinsurance reinsurance contracts68
—
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)$—
$—
$(241)
Equity linked notes(33)—
—
(33)
Total other policyholder funds and benefits payable(274)—
—
(274)
Derivative liabilities    
Credit derivatives(13)—
(13)—
Equity derivatives33
—
33
—
Foreign exchange derivatives(237)—
(237)—
Interest rate derivatives(542)—
(521)(21)
GMWB hedging instruments20
—
(1)21
Macro hedge program50
—
3
47
Total derivative liabilities [4](689)—
(736)47
Contingent consideration [5](25)—
—
(25)
Total liabilities accounted for at fair value on a recurring basis$(988)$—
$(736)$(252)

[1]Included in other investments on the Condensed Consolidated Balance Sheets.
[2]Includes OTC and OTC-cleared derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements clearing house rules and applicable law. See footnote 42 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]
Approximately $2.4 billion and $4.0 billion of investment sales receivable, as of September 30, 2017, and December 31, 2016, respectively, are excluded from this disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value. Included in the total fair value amount are $899 and $1.0 billion of investments, as of September 30, 2017 and December 31, 2016, respectively, for which the fair value is estimated using the net asset value per unit as a practical expedient which are excluded from the disclosure requirement to classify amounts in the fair value hierarchy.
[4]2]Includes OTC and OTC-cleared derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements clearing house rules and applicable law.
[5]3]For additional information see the Contingent Consideration section below.
In connection with the acquisition of Navigators Group, the Company has overseas deposits in Other Invested Assets of $55 as of September 30, 2019, which are measured at fair value using the net asset value as a practical expedient. There were 0 overseas deposits held as of December 31, 2018.
Fixed Maturities, Equity Securities, Short-term Investments, and Free-standing Derivatives
Valuation Techniques
The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information
evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order:
Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1.
Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, including certainsuch as municipal securities, foreign government/government agency securities and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3.
Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an
independent public security index and trade information, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the inputs are observable or can be corroborated with observable data.
Independent broker quotes, which are typically non-binding, and use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3.
The fair value of free-standing derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporateincorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and OTC-clearedover-the-counter ("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 to approve changes to valuation methodologies and pricing sources. Controls and procedures used to assess third-party pricing services are reviewed by the
Valuation Committee, including the results of annual due-diligence reviews.
There are also two working groups under the Valuation Committee: a Securities Fair Value Working Group (“Securities Working Group”) and a Derivatives Fair Value Working Group ("Derivatives Working Group"). The working groups, which include various investment, operations, accounting and risk management professionals, meet monthly to review market data trends, pricing and trading statistics and results, and any proposed pricing methodology changes.
The Securities Working Group reviews prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The group considers trading volume, new

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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. A dedicated pricing unit follows up with trading and investment sector professionals and challenges prices of third-party pricing services when the estimated assumptions used differ from what the unit believes a market participant would use. If the available evidence indicates that pricing from third-party pricing services or broker quotes is based upon transactions that are stale or not from trades made in an orderly market, the Company places little, if any, weight on the third party service’s transaction price and will estimate fair value using an internal process, such as a pricing matrix.
The Derivatives Working Group reviews the inputs, assumptions and methodologies used to ensure that the prices represent a reasonable estimate of the fair value. A dedicated pricing team works directly with investment sector professionals to investigate the impacts of changes in the market environment on prices or valuations of derivatives. New models and any changes to current models are required to have detailed documentation and are validated to a second source. The model validation documentation and results of validation are presented to the Valuation Committee for approval.
The Company conducts other monitoring controls around securities and derivatives pricing including, but not limited to, the following:
Review of daily price changes over specific thresholds and new trade comparison to third-party pricing services.
Daily comparison of OTC derivative market valuations to counterparty valuations.
Review of weekly price changes compared to published bond prices of a corporate bond index.
Monthly reviews of price changes over thresholds, stale prices, missing prices, and zero prices.
Monthly validation of prices to a second source for securities in most sectors and for certain derivatives.
In addition, the Company’s enterprise-wide Operational Risk Management function, led by the Chief Risk Officer, is responsible for model risk management and provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

21
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Freestanding Derivatives
Level 2
Primary Observable Inputs
Level 3
Primary Unobservable Inputs
Fixed Maturity Investments
Structured securities (includes ABS, CDOs,CLOs, CMBS and RMBS)
 
• Benchmark yields and spreads
• Monthly payment information
• Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions
• Credit default swap indices


Other inputs for ABS and RMBS:
• Estimate of future principal prepayments, derived from the characteristics of the underlying structure
• Prepayment speeds previously experienced at the interest rate levels projected for the collateral
 
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve


Other inputs for less liquid securities or those that trade less actively, including subprime RMBS:
• Estimated cash flows
• Credit spreads, which include illiquidity premium
• Constant prepayment rates
• Constant default rates
• Loss severity
Corporates
 
• Benchmark yields and spreads
• Reported trades, bids, offers of the same or similar securities
• Issuer spreads and credit default swap curves


Other inputs for investment grade privately placed securities that utilize internal matrix pricing:
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
 
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve


Other inputs for below investment grade privately placed securities:
• Independent broker quotes
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
U.SU.S. Treasuries, Municipals, and Foreign government/government agencies
 
• Benchmark yields and spreads
• Issuer credit default swap curves
• Political events in emerging market economies
• Municipal Securities Rulemaking Board reported trades and material event notices
• Issuer financial statements
 
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve
Equity Securities
 • Quoted prices in markets that are not active • For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable; or they may be held at costobservable
Short TermShort-term Investments
 
• Benchmark yields and spreads
• Reported trades, bids, offers
• Issuer spreads and credit default swap curves
• Material event notices and new issue money market rates
 Not applicable
Derivatives
Credit derivatives
 
• Swap yield curve
• Credit default swap curves
 
• Independent broker quotes
• Yield curves beyond observable limits
Not applicable
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 quotesNot applicable
Interest rate derivatives
 • Swap yield curve 
• Independent broker quotes
• Interest rate volatility

22
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)



Significant Unobservable Inputs for Level 3 - Securities
Assets accounted for at fair value on a recurring basisFair
Value		Predominant
Valuation
Technique
Significant
Unobservable Input
MinimumMaximumWeighted Average [1]Impact of
Increase in Input
on Fair Value [2]		Fair
Value		Predominant
Valuation
Technique
Significant
Unobservable Input
MinimumMaximumWeighted Average [1]Impact of
Increase in Input
on Fair Value [2]
As of September 30, 2017
As of September 30, 2019As of September 30, 2019
CLOs [3]$225
Discounted cash flowsSpread235 bps244 bps240 bpsDecrease
CMBS [3]$49
Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)9 bps1,816 bps352 bpsDecrease$11
Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)9 bps1,832 bps197 bpsDecrease
Corporate [4]$496
Discounted cash flowsSpread102 bps940 bps270 bpsDecrease$508
Discounted cash flowsSpread126 bps668 bps223 bpsDecrease
Municipal [3]$70
Discounted cash flowsSpread184 bps239 bps201 bpsDecrease
RMBS [3]$1,950
Discounted cash flowsSpread26 bps501 bps76 bpsDecrease$614
Discounted cash flowsSpread [6]15 bps231 bps73 bpsDecrease
  Constant prepayment rate—%13%5% Decrease [5]  Constant prepayment rate [6]1%11%6% Decrease [5]
  Constant default rate2%9%4%Decrease  Constant default rate [6]1%5%3%Decrease
  Loss severity—%100%68%Decrease  Loss severity [6]—%100%72%Decrease
As of December 31, 2016
As of December 31, 2018As of December 31, 2018
CMBS [3]$52
Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)10 bps1,273 bps366 bpsDecrease$2
Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)9 bps1,040 bps182 bpsDecrease
Corporate [4]$510
Discounted cash flowsSpread122 bps1,302 bps359 bpsDecrease$274
Discounted cash flowsSpread145 bps1,175 bps263 bpsDecrease
Municipal [3]$101
Discounted cash flowsSpread135 bps286 bps221 bpsDecrease
RMBS [3]$1,963
Discounted cash flowsSpread16 bps1,830 bps192 bpsDecrease$815
Discounted cash flowsSpread [6]12 bps215 bps86 bpsDecrease
  Constant prepayment rate—%20%4%Decrease [5]  Constant prepayment rate [6]1%15%6%Decrease [5]
  Constant default rate—%11%5%Decrease  Constant default rate [6]1%8%3%Decrease
  Loss severity—%100%75%Decrease  Loss severity [6]—%100%61%Decrease
[1]The weighted average is determined based on the fair value of the securities.
[2]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
[3]Excludes securities for which the Company basedbases fair value on broker quotations.
[4]Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value.
[5]Decrease for above market rate coupons and increase for below market rate coupons.

23
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


[6]Generally, a change in the assumption used for the constant default rate would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rate and would have resulted in wider spreads.
Significant Unobservable Inputs for Level 3 - Freestanding Derivatives
 Fair
Value		Predominant
Valuation 
Technique		Significant Unobservable InputMinimumMaximumImpact of 
Increase in Input on 
Fair Value [1]
As of September 30, 2017
Interest rate derivatives      
Interest rate swaps$(29)Discounted cash flowsSwap curve beyond 30 years2%3%Decrease
Interest rate swaptions [2]$2
Option modelInterest rate volatility2%3%Increase
GMWB hedging instruments      
Equity variance swaps$(40)Option modelEquity volatility12%19%Increase
Equity options$2
Option modelEquity volatility27%27%Increase
Customized swaps$62
Discounted cash flowsEquity volatility7%30%Increase
Macro hedge program [3]      
Equity options$190
Option modelEquity volatility15%30%Increase
As of December 31, 2016
Interest rate derivatives      
Interest rate swaps$(29)Discounted cash flowsSwap curve beyond 30 years3%3%Decrease
Interest rate swaptions [2]$8
Option modelInterest rate volatility2%2%Increase
GMWB hedging instruments      
Equity variance swaps$(36)Option modelEquity volatility20%23%Increase
Equity options$17
Option modelEquity volatility27%30%Increase
Customized swaps$100
Discounted cash flowsEquity volatility12%30%Increase
Macro hedge program [3]      
Equity options$188
Option modelEquity volatility17%28%Increase
Significant Unobservable Inputs for Level 3 - Derivatives
 Fair
Value		Predominant
Valuation 
Technique		Significant Unobservable InputMinimumMaximumWeighted Average [1]Impact of 
Increase in Input on 
Fair Value [2]
As of September 30, 2019
Equity options$(5)Option modelEquity volatility11%25%15%Increase
As of December 31, 2018
Interest rate swaptions [3]$1
Option modelInterest rate volatility3%3%3%Increase
Equity options$3
Option modelEquity volatility19%21%20%Increase
[1]The weighted average is determined based on the fair value of the derivatives.
[2]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]3]The swaptions presented are purchased options that have the right to enter into a pay-fixed swap.
[3]Excludes derivatives for which the Company bases fair value on broker quotations.
The tables above exclude the portion of ABS, index options and certain corporate securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing
services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. For the three and nine months ended September 30, 2017, no significant adjustments were made by the Company to broker prices received.As of
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 $463 and $1.8 billion for the three and nine months ended September 30, 2017 and $508 and $1.3 billion for three and nine months ended September 30, 2016, respectively, which represented previously on-the-run U.S. Treasury securities that are now off-the-run. For the three and nine months ended September 30, 2017 and 2016, there were no transfers from Level 2 to Level 1. See the fair value roll-forward tables for the three and nine months ended September 30, 2017 and 2016, for the transfers into and out of Level 3.

24
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


GMWB Embedded, Customized and Reinsurance Derivatives
GMWB Embedded DerivativesThe 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 DerivativesThe 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 DerivativeThe Company has reinsurance arrangements in place to transfer a portion of its risk of loss due to GMWB. These arrangements are recognized as derivatives carried at fair value and reported in reinsurance recoverables in the Condensed Consolidated Balance Sheets. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses.

Valuation Techniques
Fair values for GMWB embedded derivatives, free-standing customized derivatives and reinsurance derivatives are classified as Level 3 in the fair value hierarchy and are calculated using internally developed models that utilizeSeptember 30, 2019, 0 significant unobservable inputs because active, observable markets do not exist for these items. In valuing the GMWB embedded derivative, the Company attributes to the derivative a portion of the expected fees to be collected over the expected life of the contract from the contract holder equal to the present value of future GMWB claims. The excess of fees collected from the contract holder in the current period over the portion of fees attributed to the embedded derivative in the current period are associated with the host variable annuity contract and reported in fee income.
Valuation Controls
Oversight of the Company's valuation policies and processes for GMWB embedded, reinsurance, and customized derivatives is performed by a multidisciplinary group comprised of finance, actuarial and risk management professionals. This multidisciplinary group reviews and approves changes and enhancements to the Company's valuation model as well as associated controls.
Valuation Inputs
The fair value for each of the non-life contingent GMWBs, the free-standing customized derivatives and the GMWB reinsurance derivative is calculated as an aggregation of the following components: Best Estimate Claim Payments; Credit Standing Adjustment; and Margins. The Company believes the aggregation of these components results in an amount that a market participant in an active liquid market would require, if such a market existed, to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. Each component described in the following discussion is unobservable in the marketplace and requires subjectivityadjustments were made by the Company in determining its value.
Best Estimate Claim Payments
The Best Estimate Claim Payments are calculated based on actuarial and capital market assumptions related to projected cash flows, including the present value of benefits and related contract charges, over the lives of the contracts, incorporating unobservable inputs including expectations concerning policyholder behavior. These assumptions are input into a stochastic risk neutral scenario process that is used to determine the valuation and involves numerous estimates and subjective judgments regarding a number of variables.broker prices received.
The Company monitors various aspects of policyholder behavior and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if credible emerging data indicates that changes are warranted. In addition, the Company will continue to evaluate policyholder behavior assumptions should we implement initiatives to reduce the size of the variable annuity business. At a minimum, all policyholder behavior assumptions are reviewed and updated at least annually as part of the Company’s annual fourth-quarter comprehensive study to refine its estimate of future gross profits. In addition, the Company recognizes non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices.
Credit Standing Adjustment
The credit standing adjustment is an estimate of the additional amount that market participants would require in determining fair value to reflect the risk that GMWB benefit obligations or the GMWB reinsurance recoverables will not be fulfilled. The Company incorporates a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability.
Margins
The behavior risk margin adds a margin that market participants would require, in determining fair value, for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions.

25
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


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

Assumptions about policyholder behavior, including:
• Withdrawal utilization
• Withdrawal rates
• Lapse rates
• Reset elections
Significant Unobservable Inputs for Level 3 GMWB Embedded Customized and Reinsurance Derivatives
As of September 30, 2017
Significant Unobservable InputUnobservable Inputs (Minimum)Unobservable Inputs (Maximum)Impact of Increase in Input
on Fair Value Measurement [1]
Withdrawal Utilization [2]15%100%Increase
Withdrawal Rates [3]—%8%Increase
Lapse Rates [4]—%40%Decrease
Reset Elections [5]20%75%Increase
Equity Volatility [6]7%30%Increase
As of December 31, 2016
Significant Unobservable InputUnobservable Inputs (Minimum)Unobservable Inputs (Maximum)Impact of Increase in Input
on Fair Value Measurement [1]
Withdrawal Utilization [2]15%100%Increase
Withdrawal Rates [3]—%8%Increase
Lapse Rates [4]—%40%Decrease
Reset Elections [5]20%75%Increase
Equity Volatility [6]12%30%Increase
[1]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
[2]Range represents assumed cumulative percentages of policyholders taking withdrawals.
[3]Range represents assumed cumulative annual amount withdrawn by policyholders.
[4]Range represents assumed annual percentages of full surrender of the underlying variable annuity contracts across all policy durations for in force business.
[5]Range represents assumed cumulative percentages of policyholders that would elect to reset their guaranteed benefit base.
[6]Range represents implied market volatilities for equity indices based on multiple pricing sources.
Separate Account Assets
Separate account assets are primarily invested in mutual funds. Other separate account assets include fixed maturities, limited partnerships, equity securities, short-term investments and derivatives that are valued in the same manner, and using the same pricing sources and inputs, as those investments held by the Company. For limited partnerships in which fair value represents the separate account's share of the NAV, 45% and 39% were subject to significant liquidation restrictions as of September 30, 2017 and December 31, 2016, respectively. Total limited partnerships that do not allow any form of redemption were 16% and 11% as of September 30, 2017 and December 31, 2016, respectively. Separate account assets classified as Level 3 primarily include subprime RMBS and commercial mortgage loans.
Contingent Consideration
The acquisition of Lattice Strategies LLC ("Lattice") inon July 29, 2016 requires the Company to make payments to former owners of Lattice of up to $60 contingent upon growth in exchange-traded products ("ETP") AUMassets under management ("AUM") over a four-year period of four years 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%11.4%. The risk-adjusted discount rate is an internally generated and significant unobservable input to fair value.
The contingency period for ETP AUM growth ends July 29, 2020 and management adjusts the fair value of the contingent consideration when it revises its projection of ETP AUM for the acquired business. Before discounting to fair value, the Company estimates a total contingent consideration payout of $43, of which $20 was paid in the first nine months of 2019 with ETP AUM of $2.6 billion as of September 30, 2019. Accordingly, as of

26
TableSeptember 30, 2019, the fair value of Contents$21 reflects remaining consideration payable of $23, assuming ETP AUM for the acquired business grows to approximately $4.1 billion over the contingency period.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)


Level 3 Assets and Liabilities Measured at Fair Value on a 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-forwardrollforward 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 September 30, 2017
 Total realized/unrealized gains (losses)      
  Fair value as of June 30, 2017Included in net income [1] [2] [6]Included in OCI [3]PurchasesSettlementsSalesTransfers into Level 3 [4]Transfers out of Level 3 [4]Fair value as of September 30, 2017
Assets         
Fixed Maturities, AFS         
 ABS$96
$—
$—
$—
$(6)$(6)$7
$(35)$56
 CDOs339
—
(1)29
—
—
—
(179)188
 CMBS98
(1)—
—
(4)—
—
—
93
 Corporate1,136
(1)8
42
1
(40)19
(126)1,039
 Foreign Govt./Govt. Agencies29
—
1
9
—
—
—
(6)33
 Municipal86
—
—
—
—
—
—
—
86
 RMBS2,011
—
27
40
(119)—
—
(9)1,950
Total Fixed Maturities, AFS3,795
(2)35
120
(128)(46)26
(355)3,445
Equity Securities, AFS98
—
(4)23
—
—
—
—
117
Freestanding Derivatives, net [5]         
 Equity2
—
—
—
—
—
—
—
2
 Interest rate(26)(1)—
—
—
—
—
—
(27)
 GMWB hedging instruments40
(16)—
—
—
—
—
—
24
 Macro hedge program160
14
—
9
—
—
—
—
183
Total Freestanding Derivatives, net [5]176
(3)—
9
—
—
—
—
182
Reinsurance Recoverable for GMWB57
(9)—
—
3
—
—
—
51
Separate Accounts192
—
3
37
(1)(2)—
(3)226
Total Assets$4,318
$(14)$34
$189
$(126)$(48)$26
$(358)$4,021
Liabilities         
Other Policyholder Funds and Benefits Payable         
 Guaranteed Withdrawal Benefits$(134)$58
$—
$—
$(17)$—
$—
$—
$(93)
 Equity Linked Notes(37)—
—
—
37
—
—
—
—
Total Other Policyholder Funds and Benefits Payable(171)58
—
—
20
—
—
—
(93)
Contingent Consideration [7](27)(1)—
—
—
—
—
—
(28)
Total Liabilities$(198)$57
$—
$—
$20
$—
$—
$—
$(121)

27
Table of Contents
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2019
 Total realized/unrealized gains (losses)      
  Fair value as of June 30, 2019Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of September 30, 2019
Assets         
Fixed Maturities, AFS         
 ABS$5
$—
$—
$—
$—
$—
$—
$(5)$—
 CLOs286
—
—
92
(8)—
—
(74)296
 CMBS35
—
—
10
(1)—
—
(24)20
 Corporate568
(3)—
166
(7)(4)15
(12)723
 Foreign Govt./Govt. Agencies3
—
—
—
—
—
—
—
3
 RMBS758
—
(3)—
(51)—
—
(90)614
Total Fixed Maturities, AFS1,655
(3)(3)268
(67)(4)15
(205)1,656
Equity Securities, at fair value72
(2)—
—
—
—
—
—
70
Total Assets$1,727
$(5)$(3)$268
$(67)$(4)$15
$(205)$1,726
Liabilities         
Contingent Consideration(21)—
—
—
—
—
—
—
(21)
Derivatives, net [4]         
 Equity(3)(2)—
—
—
—
—
—
(5)
Total Derivatives, net [4](3)(2)—
—
—
—
—
—
(5)
Total Liabilities$(24)$(2)$—
$—
$—
$—
$—
$—
$(26)
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)



Fair Value Roll-forwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2017
 Total realized/unrealized gains (losses)      
  Fair value as of January 1, 2017Included in net income [1] [2] [6]Included in OCI [3]PurchasesSettlementsSalesTransfers into Level 3 [4]Transfers out of Level 3 [4]Fair value as of September 30, 2017
Assets         
Fixed Maturities, AFS         
 ABS$82
$—
$—
$70
$(12)$(6)$33
$(111)$56
 CDOs414
—
(2)329
(208)—
—
(345)188
 CMBS80
(2)1
75
(10)—
—
(51)93
 Corporate1,080
(7)38
257
(39)(230)111
(171)1,039
 Foreign Govt./Govt. Agencies64
—
4
15
(2)(2)—
(46)33
 Municipal118
4
4
—
—
(40)—
—
86
 RMBS1,972
—
60
263
(329)(7)—
(9)1,950
Total Fixed Maturities, AFS3,810
(5)105
1,009
(600)(285)144
(733)3,445
Fixed Maturities, FVO11
—
—
4
(2)(13)—
—
—
Equity Securities, AFS99
—
(9)27
—
—
—
—
117
Freestanding Derivatives, net [5]         
 Equity—
(3)—
5
—
—
—
—
2
 Interest rate(21)(6)—
—
—
—
—
—
(27)
 GMWB hedging instruments81
(57)—
—
—
—
—
—
24
 Macro hedge program167
7
—
9
—
—
—
—
183
 Other contracts1
(1)—
—
—
—
—
—
—
Total Freestanding Derivatives, net [5]228
(60)—
14
—
—
—
—
182
Reinsurance Recoverable for GMWB73
(33)—
—
11
—
—
—
51
Separate Accounts201
3
5
148
(7)(45)10
(89)226
Total Assets$4,422
$(95)$101
$1,202
$(598)$(343)$154
$(822)$4,021
Liabilities         
Other Policyholder Funds and Benefits Payable         
 Guaranteed Withdrawal Benefits$(241)$197
$—
$—
$(49)$—
$—
$—
$(93)
 Equity Linked Notes(33)(4)—
—
37
—
—
—
—
Total Other Policyholder Funds and Benefits Payable(274)193
—
—
(12)—
—
—
(93)
Contingent Consideration [7](25)(3)—
—
—
—
—
—
(28)
Total Liabilities$(299)$190
$—
$—
$(12)$—
$—
$—
$(121)

28
Table of Contents
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2019
 Total realized/unrealized gains (losses)      
  Fair value as of January 1, 2019Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of September 30, 2019
Assets         
Fixed Maturities, AFS         
 ABS$10
$—
$—
$5
$(1)$—
$—
$(14)$—
 CLOs100
—
—
329
(18)(6)—
(109)296
 CMBS12
—
1
34
(3)—
—
(24)20
 Corporate520
(4)9
261
(13)(68)61
(43)723
 Foreign Govt./Govt. Agencies3
—
—
—
—
—
—
—
3
 RMBS920
1
(5)134
(163)(35)—
(238)614
Total Fixed Maturities, AFS1,565
(3)5
763
(198)(109)61
(428)1,656
Equity Securities, at fair value77
(3)—
9
—
(13)—
—
70
Derivatives, net [4]         
 Interest rate1
(1)—
—
—
—
—
—
—
Total Derivatives, net [4]1
(1)—
—
—
—
—
—
—
Total Assets$1,643
$(7)$5
$772
$(198)$(122)$61
$(428)$1,726
Liabilities         
Contingent Consideration(35)(6)—
—
20
—
—
—
(21)
Derivatives, net [4]         
 Equity3
(8)—
—
—
—
—
—
(5)
Total Derivatives, net [4]3
(8)—
—
—
—
—
—
(5)
Total Liabilities$(32)$(14)$—
$—
$20
$—
$—
$—
$(26)
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)




Fair Value Roll-forwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2016
 Total realized/unrealized gains (losses)      
  Fair value as of June 30, 2016Included in net income [1] [2] [6]Included in OCI [3]PurchasesSettlementsSalesTransfers into Level 3 [4]Transfers out of Level 3 [4]Fair value as of September 30, 2016
Assets         
Fixed Maturities, AFS         
 ABS$41
$—
$—
$18
$—
$(2)$—
$(26)$31
 CDOs478
—
(3)1
(7)—
—
—
469
 CMBS79
(1)—
15
(6)—
—
(10)77
 Corporate1,136
(12)27
69
3
(52)115
(192)1,094
 Foreign Govt./Govt. Agencies72
—
2
9
(1)(8)—
—
74
 Municipal90
—
2
34
—
—
—
—
126
 RMBS1,873
—
15
253
(78)(8)—
—
2,055
Total Fixed Maturities, AFS3,769
(13)43
399
(89)(70)115
(228)3,926
Fixed Maturities, FVO6
—
—
5
(1)(1)—
—
9
Equity Securities, AFS97
(1)—
4
—
—
—
—
100
Freestanding Derivatives, net [5]         
 Equity1
(1)—
—
—
—
—
—
—
 Interest rate(32)—
—
—
—
—
—
—
(32)
 GMWB hedging instruments165
(34)—
—
—
—
—
—
131
 Macro hedge program141
(32)—
63
(4)—
—
—
168
 Other contracts4
(2)—
—
—
—
—
—
2
Total Freestanding Derivatives, net [5]279
(69)—
63
(4)—
—
—
269
Reinsurance Recoverable for GMWB106
(12)—
—
4
—
—
—
98
Separate Accounts171
1
(1)165
(3)(11)10
(7)325
Total Assets$4,428
$(94)$42
$636
$(93)$(82)$125
$(235)$4,727
Liabilities         
Other Policyholder Funds and Benefits Payable         
 Guaranteed Withdrawal Benefits$(412)$81
$—
$—
$(17)$—
$—
$—
$(348)
 Equity Linked Notes(28)(3)—
—
—
—
—
—
(31)
Total Other Policyholder Funds and Benefits Payable(440)78
—
—
(17)—
—
—
(379)
Contingent Consideration [7]—
23
—
—
—
—
—
—
23
Total Liabilities$(440)$101
$—
$—
$(17)$—
$—
$—
$(356)


29
Table of Contents
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2018
 Total realized/unrealized gains (losses)      
  Fair value as of June 30, 2018Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of September 30, 2018
Assets         
Fixed Maturities, AFS         
 ABS$57
$—
$—
$39
$(2)$—
$9
$(49)$54
 CLOs159
—
—
211
—
—
—
(74)296
 CMBS28
(1)1
—
(1)—
—
(5)22
 Corporate559
—
(2)12
(2)(12)—
(4)551
 Foreign Govt./Govt. Agencies3
—
—
—
—
—
—
—
3
 Municipal9
—
—
—
—
—
—
—
9
 RMBS1,137
—
(3)—
(77)(26)—
(97)934
Total Fixed Maturities, AFS1,952
(1)(4)262
(82)(38)9
(229)1,869
Equity Securities, at fair value66
—
—
12
—
—
—
—
78
Derivatives, net [4]         
 Equity1
—
—
—
—
—
—
—
1
 Interest rate2
—
—
—
—
—
—
—
2
Total Derivatives, net [4]3
—
—
—
—
—
—
—
3
Total Assets$2,021
$(1)$(4)$274
$(82)$(38)$9
$(229)$1,950
Liabilities         
Contingent Consideration(31)(1)—
—
—
—
—
—
(32)
Total Liabilities$(31)$(1)$—
$—
$—
$—
$—
$—
$(32)
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)



Fair Value Roll-forwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2016
 Total realized/unrealized gains (losses)      
  Fair value as of January 1, 2016Included in net income [1] [2] [6]Included in OCI [3]PurchasesSettlementsSalesTransfers into Level 3 [4]Transfers out of Level 3 [4]Fair value as of September 30, 2016
Assets         
Fixed Maturities, AFS         
 ABS$37
$—
$—
$18
$(7)$(2)$18
$(33)$31
 CDOs541
(1)(5)1
(67)—
—
—
469
 CMBS150
(2)(3)65
(24)(3)1
(107)77
 Corporate854
(26)39
136
(52)(143)628
(342)1,094
 Foreign Govt./Govt. Agencies60
1
11
24
(3)(19)—
—
74
 Municipal49
—
7
54
—
—
16
—
126
 RMBS1,622
—
11
683
(236)(8)5
(22)2,055
Total Fixed Maturities, AFS3,313
(28)60
981
(389)(175)668
(504)3,926
Fixed Maturities, FVO16
(1)—
11
(3)(4)—
(10)9
Equity Securities, AFS93
(1)7
6
—
(5)—
—
100
Freestanding Derivatives, net [5]         
 Equity—
(16)—
16
—
—
—
—
—
 Interest rate(22)(10)—
—
—
—
—
—
(32)
 GMWB hedging instruments135
(10)—
—
—
—
—
6
131
 Macro hedge program147
(36)—
63
(6)—
—
—
168
 Other contracts7
(5)—
—
—
—
—
—
2
Total Freestanding Derivatives, net [5]267
(77)—
79
(6)—
—
6
269
Reinsurance Recoverable for GMWB83
4
—
—
11
—
—
—
98
Separate Accounts139
1
5
226
(12)(27)16
(23)325
Total Assets$3,911
$(102)$72
$1,303
$(399)$(211)$684
$(531)$4,727
Liabilities         
Other Policyholder Funds and Benefits Payable         
 Guaranteed Withdrawal Benefits$(262)$(36)$—
$—
$(50)$—
$—
$—
$(348)
 Equity Linked Notes(26)(5)—
—
—
—
—
—
(31)
Total Other Policyholder Funds and Benefits Payable(288)(41)—
—
(50)—
—
—
(379)
Contingent Consideration [7]—
23
—
—
—
—
—
—
23
Total Liabilities$(288)$(18)$—
$—
$(50)$—
$—
$—
$(356)
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2018
 Total realized/unrealized gains (losses)      
  Fair value as of January 1, 2018Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of September 30, 2018
Assets         
Fixed Maturities, AFS         
 ABS$19
$—
$—
$89
$(5)$—
$12
$(61)$54
 CLOs95
—
—
309
—
(4)—
(104)296
 CMBS69
(1)—
25
(4)(8)—
(59)22
 Corporate520
1
(10)143
(34)(43)15
(41)551
 Foreign Govt./Govt. Agencies2
—
—
1
—
—
—
—
3
 Municipal17
—
(1)—
—
—
—
(7)9
 RMBS1,230
—
(10)170
(251)(27)—
(178)934
Total Fixed Maturities, AFS1,952
—
(21)737
(294)(82)27
(450)1,869
Equity Securities, at fair value76
28
1
13
—
(40)—
—
78
Derivatives, net [4]         
 Equity1
1
—
1
—
(2)—
—
1
 Interest rate1
1
—
—
—
—
—
—
2
Total Derivatives, net [4]2
2
—
1
—
(2)—
—
3
Total Assets$2,030
$30
$(20)$751
$(294)$(124)$27
$(450)$1,950
Liabilities         
Contingent Consideration(29)(3)—
—
—
—
—
—
(32)
Total Liabilities$(29)$(3)$—
$—
$—
$—
$—
$—
$(32)
[1]The Company classifies realized and unrealized gains (losses) on GMWB reinsurance derivatives and GMWB embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]Amounts in these rowscolumns 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.taxes.
[2]All amounts are before income taxes.
[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]4]Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Condensed Consolidated Balance Sheets in other investments and other liabilities.
[6]Includes both market and non-market impacts in deriving realized and unrealized gains (losses).
[7]
For additional information, see the Contingent Consideration section of this Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.


30
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)



Changes in Unrealized Gains (Losses) Included in Net Income for Financial Instruments Classified as Level 3 Still Held at End of Period
  Three months ended September 30,Nine months ended September 30,
  2017 [1] [2]2016 [1] [2]2017 [1] [2]2016 [1] [2]
Assets    
Fixed Maturities, AFS    
 CMBS$—
$—
$(1)$(1)
 Corporate(1)(13)(13)(14)
Total Fixed Maturities, AFS(1)(13)(14)(15)
Fixed Maturities, FVO—
—
—
—
Equity Securities, AFS—
(1)—
(1)
Freestanding Derivatives, net    
 Equity—
—
(2)—
 Interest rate(1)—
(6)(10)
 GMWB hedging instruments(16)(34)(57)(2)
 Macro hedge program14
(34)8
(31)
 Other Contracts—
(2)—
(5)
Total Freestanding Derivatives, net(3)(70)(57)(48)
Reinsurance Recoverable for GMWB(9)(12)(33)4
Separate Accounts—
—
1
—
Total Assets$(13)$(96)$(103)$(60)
Liabilities    
Other Policyholder Funds and Benefits Payable    
 Guaranteed Withdrawal Benefits$58
$81
$197
$(36)
 Equity Linked Notes—
(3)(4)(5)
Total Other Policyholder Funds and Benefits Payable58
78
193
(41)
Contingent Consideration [3](1)—
(3)—
Total Liabilities$57
$78
$190
$(41)
 
Changes in Unrealized Gains (Losses) for Financial Instruments Classified as
Level 3 Still Held at End of Period
  Three months ended September 30, Nine months ended September 30,
  2019201820192018 2019201820192018
  Changes in Unrealized Gain/(Loss) included in Net Income [1] [2]Changes in Unrealized Gain/(Loss) included in OCI [3] Changes in Unrealized Gain/(Loss) included in Net Income [1] [2]Changes in Unrealized Gain/(Loss) included in OCI [3]
Assets         
Fixed Maturities, AFS         
 CLOs$—
$—
$—
$—
 $—
$—
$1
$—
 CMBS—
—
—
1
 —
—
—
1
 Corporate(2)—
—
(2) (3)—
8
(11)
 Foreign Govt./Govt. Agencies—
—
—
—
 —
—
1
—
 RMBS—
—
(3)(3) —
—
(4)(10)
Total Fixed Maturities, AFS(2)—
(3)(4) (3)—
6
(20)
Equity Securities, at fair value(2)—
—
—
 (2)—
—
—
Derivatives, net         
 Equity—
(1)—
—
 —
(1)—
—
 Interest rate—
—
—
—
 (1)—
—
—
Total Derivatives, net—
(1)—
—
 (1)(1)—
—
Total Assets$(4)$(1)$(3)$(4) $(6)$(1)$6
$(20)
Liabilities         
Contingent Consideration—
(1)—
—
 (6)(3)—
—
Derivatives, net         
 Equity(2)—
—
—
 (8)—
—
—
Total Derivatives, net(2)—
—
—
 (8)—
—
—
Total Liabilities$(2)$(1)$—
$—
 $(14)$(3)$—
$—
[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.taxes.
[2]Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.
[3]
For additional information, seeChanges in unrealized gain (loss) on fixed maturities, AFS are reported in changes in net unrealized gain on securities in the Contingent Consideration section of this Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.
Statements of Comprehensive Income. Changes in interest rate derivatives are reported in changes in net gain on cash flow hedging instruments in the Condensed Consolidated Statements of Comprehensive Income.
Fair Value Option
The Company has elected the fair value option for certain securitiesRMBS that contain embedded credit derivatives with underlying credit risk primarily related to residential real estate, and theserisk. These securities are included within Fixed Maturities, FVO on the Condensed Consolidated Balance Sheets. The Company previously classified the underlying fixed maturities held in certain consolidated investment funds within Fixed Maturities, FVO. The Company reported the underlying fixed maturities of these consolidated investment companies at fair value withSheets and changes in the fair value of these securities recognizedare reported in net realized capital gains and losses, which is consistent with accounting requirements for investment companies.losses.
The Company also previously elected








As of September 30, 2019 and December 31, 2018, the fair value of assets and liabilities using the fair value option for certain equity securities in order to alignwas $39 and $22, respectively, within the accounting with total return swap contracts that hedgedresidential real estate sector.
For the risk associated with the investments. The swaps did not qualify for hedge accountingthree and the change in value of both the equity securitiesnine months ended September 30, 2019 and the total return swaps2018 there were recorded in net0 realized capital gains and
losses. These equity securities were classified within equity securities, AFS on(losses) related to the Condensed Consolidated Balance Sheets. Income earned from FVO securities was recorded in net investment income and changes in fair value were recorded in net realized capital gains and losses. The Company did not hold any of these equity securities as of September 30, 2017 or December 31, 2016.assets using the fair value option.








31
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
Financial Instruments Not Carried at Fair Value Measurements (continued)
Financial Assets and Liabilities Not Carried at Fair Value
 September 30, 2019 December 31, 2018
 Fair Value Hierarchy LevelCarrying AmountFair Value Fair Value Hierarchy LevelCarrying AmountFair Value
Assets       
Mortgage loansLevel 3$3,736
$3,900
 Level 3$3,704
$3,746
Liabilities       
Other policyholder funds and benefits payableLevel 3$772
$774
 Level 3$774
$775
Senior notes [1]Level 2$3,757
$4,416
 Level 2$3,589
$3,887
Junior subordinated debentures [1]Level 2$1,089
$1,122
 Level 2$1,089
$1,052



Changes in Fair Value of Assets using Fair Value Option
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016 20172016
Assets     
Fixed maturities, FVO     
Corporate$—
$1
 $(1)$1
Foreign government—
—
 —
(1)
RMBS(1)3
 —
8
Total fixed maturities, FVO(1)4
 (1)8
Equity, FVO—
—
 2
(34)
Total realized capital gains (losses)$(1)$4
 $1
$(26)
Fair Value of Assets and Liabilities using the Fair Value Option
 September 30, 2017December 31, 2016
Assets  
Fixed maturities, FVO  
ABS$—
$7
CDOs—
3
CMBS—
8
Corporate—
40
U.S government—
7
RMBS82
228
Total fixed maturities, FVO$82
$293

Financial Assets and Liabilities Not Carried at Fair Value
 Fair Value Hierarchy LevelCarrying AmountFair Value
September 30, 2017
Assets   
Policy loansLevel 3$1,418
$1,418
Mortgage loansLevel 3$6,058
$6,215
Liabilities   
Other policyholder funds and benefits payable [1]Level 3$6,285
$6,484
Senior notes [2]Level 2$3,556
$4,218
Junior subordinated debentures [2]Level 2$1,582
$1,724
Consumer notes [3] [4]Level 3$9
$9
Assumed investment contracts [3]Level 3$517
$540
December 31, 2016
Assets   
Policy loansLevel 3$1,444
$1,444
Mortgage loansLevel 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.

32
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.


33
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments

INVESTMENTS
Net Realized Capital Gains (Losses)
Net Realized Capital GainsNet Realized Capital Gains
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
(Before tax)201720162017201620192018 20192018
Gross gains on sales$80
$114
$332
$328
$77
$26
 $190
$91
Gross losses on sales(26)(24)(132)(157)(4)(41) (44)(129)
Equity securities [1]19
46
 181
88
Net OTTI losses recognized in earnings(2)(14)(17)(44)(1)(1) (3)(1)
Valuation allowances on mortgage loans—
—
2
—
—
—
 1
—
Results of variable annuity hedge program 
 

GMWB derivatives, net15
6
53
(8)
Macro hedge program(65)(64)(189)(98)
Total results of variable annuity hedge program(50)(58)(136)(106)
Transactional foreign currency revaluation2
(13)2
(144)—
—
 —
1
Non-qualifying foreign currency derivatives(3)17
(9)138
2
1
 2
2
Other, net [1](4)(39)10
(134)
Net realized capital gains (losses)$(3)$(17)$52
$(119)
Other, net [2](4)7
 5
8
Net realized capital gains$89
$38
 $332
$60

[1]
Includes all changes in fair value and trading gains and losses for equity securities. The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2019, were $17 and $100 for the three and nine months ended September 30, 2019, respectively. The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2018, were $41 and $50 for the three and nine months ended September 30, 2018, respectively.
[2]
Includes gains (losses) on non-qualifying derivatives, excluding variable annuity hedge program and foreign currency derivatives, of $(5)(7) and $68, respectively, for the three months ended September 30, 20172019 and 20162018. For the nine months ended September 30, 20172019 and 20162018, the non-qualifying derivatives, excluding variable annuity hedge program and foreign currency derivatives, were $01 and $(50),6 respectively.
Net realized capital gains and losses(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)(losses) on sales and impairments previously reported as unrealized gains (or losses) in(losses) in AOCI were $52$72 and $183$143 for the three and nine months ended
September 30, 2019, respectively, and $(15) and $(59) for the three and nine months ended September 30, 2017, and $77 and $128 for the three and nine months ended September 30, 2016.2018, respectively. Proceeds from the sales of AFS securities totaled $4.3$2.6 billion and $17.3$11.5 billion for the three and nine months ended September 30, 2017,2019 , respectively, and $4.3$4.6 billion and $13.3$13.1 billion, for the three and nine months ended September 30, 2016.2018, respectively.
Recognition and Presentation of Other-Than-Temporary Impairments
The Company will record an other-than-temporary impairment (“OTTI”) for fixed maturities and certain equity securities with debt-like characteristics (collectively “debt securities”) if the Company intends to sell or it is more likely than not that the Company will be required to sell the security before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value and amortized cost basis of the security.
The Company will also record an OTTI for those debt securitiesfixed maturities for which the Company does not expect to recover the entire amortized cost basis. For these securities, the excess of the amortized cost basis over its fair value is separated into the
portion representing a credit OTTI, which is recorded in net realized capital losses, and the remaining non-credit amount, which is recorded in OCI. The credit OTTI amount is the excess of its amortized cost basis over the Company’s best estimate of discounted expected future cash flows. The non-credit amount is the excess of the best estimate of the discounted expected future cash flows over the fair value. The Company’s best estimate of discounted expected future cash flows becomes the new cost basis and accretes prospectively into net investment income over the estimated remaining life of the security.
TheDeveloping the Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company's considerations include, but are 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)
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security.
For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, security-specific developments, industry earnings multiples and the issuer’s ability to restructure and execute asset sales.
For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ("LTV") ratios, average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value.
The Company will also record an OTTI for equity securities where the decline in the fair value is deemed to be other-than-temporary. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The previous cost basis less the impairment becomes the new cost basis. The Company’s evaluation and assumptions used to determine an equity OTTI include, but are not limited to, (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on preferred stock dividends and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery. For the remaining equity securities which are determined to be temporarily impaired, the Company asserts its intent and ability to retain those equity securities until the price recovers.
Impairments in Earnings by Type
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Credit impairments$1
$1
 $3
$1
Total impairments$1
$1
 $3
$1


34
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


Impairments in Earnings by Type
 Three Months Ended September 30,Nine Months Ended September 30,
 2017201620172016
Credit impairments$1
$13
$15
$36
Intent-to-sell impairments—
—
—
3
Impairments on equity securities1
1
2
5
Total impairments$2
$14
$17
$44
Cumulative Credit Impairments
 Three Months Ended September 30, Nine Months Ended September 30,
(Before tax)20192018 20192018
Balance as of beginning of period$(18)$(20) $(19)$(25)
Additions for credit impairments recognized on [1]:     
Securities not previously impaired(1)—
 (3)—
Securities previously impaired—
(1) —
(1)
Reductions for credit impairments previously recognized on:     
Securities that matured or were sold during the period—
1
 3
6
Balance as of end of period$(19)$(20) $(19)$(20)
Cumulative Credit Impairments
 Three Months Ended September 30,Nine Months Ended September 30,
(Before tax)2017201620172016
Balance as of beginning of period$(236)$(293)$(280)$(324)
Additions for credit impairments recognized on [1]:    
Securities not previously impaired—
(4)(1)(25)
Securities previously impaired(1)(9)(14)(11)
Reductions for credit impairments previously recognized on:    
Securities that matured or were sold during the period2
14
43
50
Securities due to an increase in expected cash flows6
5
23
23
Balance as of end of period$(229)$(287)$(229)$(287)
[1]These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.

35
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


Available-for-Sale Securities
AFS Securities by Type
September 30, 2017December 31, 2016September 30, 2019 December 31, 2018
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$2,300
$20
$(15)$2,305
$—
$2,396
$17
$(31)$2,382
$—
$1,315
$23
$(1)$1,337
$—
 $1,272
$5
$(1)$1,276
$—
CDOs2,364
33
(2)2,395
—
1,853
67
(4)1,916
—
CLOs2,162
4
(8)2,158
—
 1,455
2
(20)1,437
—
CMBS5,034
123
(37)5,120
(6)4,907
97
(68)4,936
(6)4,067
193
(6)4,254
(4) 3,581
35
(64)3,552
(5)
Corporate23,925
1,901
(80)25,746
—
24,380
1,510
(224)25,666
—
16,867
970
(36)17,801
—
 13,696
148
(446)13,398
—
Foreign govt./govt. agencies1,300
71
(6)1,365
—
1,164
33
(26)1,171
—
1,053
65
(1)1,117
—
 866
7
(26)847
—
Municipal11,585
869
(19)12,435
—
10,825
732
(71)11,486
—
9,095
801
(1)9,895
—
 9,972
421
(47)10,346
—
RMBS4,083
127
(5)4,205
—
4,738
66
(37)4,767
—
4,626
107
(1)4,732
—
 3,270
44
(35)3,279
—
U.S. Treasuries3,887
224
(13)4,098
—
3,542
182
(45)3,679
—
989
106
—
1,095
—
 1,491
41
(15)1,517
—
Total fixed maturities, AFS54,478
3,368
(177)57,669
(6)53,805
2,704
(506)56,003
(6)$40,174
$2,269
$(54)$42,389
$(4) $35,603
$703
$(654)$35,652
$(5)
Equity securities, AFS1,010
130
(28)1,112
—
1,020
96
(19)1,097
—
Total AFS securities$55,488
$3,498
$(205)$58,781
$(6)$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 September 30, 2017,2019 and December 31, 20162018.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed maturities, AFS, by Contractual Maturity Year
 September 30, 2017December 31, 2016

Amortized CostFair ValueAmortized CostFair Value
One year or less$2,289
$2,305
$1,896
$1,912
Over one year through five years8,896
9,168
9,015
9,289
Over five years through ten years8,975
9,352
9,038
9,245
Over ten years20,537
22,819
19,962
21,556
Subtotal40,697
43,644
39,911
42,002
Mortgage-backed and asset-backed securities13,781
14,025
13,894
14,001
Total fixed maturities, AFS$54,478
$57,669
$53,805
$56,003

Fixed maturities, AFS, by Contractual Maturity Year
 September 30, 2019 December 31, 2018

Amortized CostFair Value Amortized CostFair Value
One year or less$1,226
$1,233
 $999
$1,002
Over one year through five years7,144
7,333
 5,786
5,791
Over five years through ten years7,405
7,812
 6,611
6,495
Over ten years12,229
13,530
 12,629
12,820
Subtotal28,004
29,908
 26,025
26,108
Mortgage-backed and asset-backed securities12,170
12,481
 9,578
9,544
Total fixed maturities, AFS$40,174
$42,389
 $35,603
$35,652

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 no0 investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity as of September 30, 2019 or December 31, 2018 other than the U.S. government securities and certain U.S. government agencies as of September 30, 2017 and December 31, 2016.agencies.

Unrealized Losses on AFS Securities
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of September 30, 2019
 Less Than 12 Months 12 Months or More Total
 Amortized CostFair ValueUnrealized Losses Amortized CostFair ValueUnrealized Losses Amortized CostFair ValueUnrealized Losses
ABS$144
$143
$(1) $11
$11
$—
 $155
$154
$(1)
CLOs1,109
1,105
(4) 429
425
(4) 1,538
1,530
(8)
CMBS88
87
(1) 31
26
(5) 119
113
(6)
Corporate930
918
(12) 497
473
(24) 1,427
1,391
(36)
Foreign govt./govt. agencies58
58
—
 39
38
(1) 97
96
(1)
Municipal128
127
(1) —
—
—
 128
127
(1)
RMBS166
165
(1) 69
69
—
 235
234
(1)
U.S. Treasuries37
37
—
 119
119
—
 156
156
—
Total fixed maturities, AFS in an unrealized loss position$2,660
$2,640
$(20) $1,195
$1,161
$(34) $3,855
$3,801
$(54)
36
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of December 31, 2018
 Less Than 12 Months 12 Months or More Total
 Amortized CostFair ValueUnrealized Losses Amortized CostFair ValueUnrealized Losses Amortized CostFair ValueUnrealized Losses
ABS$566
$566
$—
 $113
$112
$(1) $679
$678
$(1)
CLOs1,358
1,338
(20) 7
7
—
 1,365
1,345
(20)
CMBS896
882
(14) 1,129
1,079
(50) 2,025
1,961
(64)
Corporate7,174
6,903
(271) 2,541
2,366
(175) 9,715
9,269
(446)
Foreign govt./govt. agencies407
391
(16) 203
193
(10) 610
584
(26)
Municipal1,643
1,613
(30) 292
275
(17) 1,935
1,888
(47)
RMBS1,344
1,329
(15) 648
628
(20) 1,992
1,957
(35)
U.S. Treasuries497
492
(5) 339
329
(10) 836
821
(15)
Total fixed maturities, AFS in an unrealized loss position$13,885
$13,514
$(371) $5,272
$4,989
$(283) $19,157
$18,503
$(654)
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


Unrealized Losses on AFS Securities
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of September 30, 2017
 Less Than 12 Months12 Months or MoreTotal
 Amortized CostFair ValueUnrealized LossesAmortized CostFair ValueUnrealized LossesAmortized CostFair ValueUnrealized Losses
ABS$523
$522
$(1)$230
$216
$(14)$753
$738
$(15)
CDOs1,138
1,136
(2)145
145
—
1,283
1,281
(2)
CMBS1,490
1,472
(18)288
269
(19)1,778
1,741
(37)
Corporate2,317
2,289
(28)1,447
1,395
(52)3,764
3,684
(80)
Foreign govt./govt. agencies170
167
(3)59
56
(3)229
223
(6)
Municipal783
774
(9)156
146
(10)939
920
(19)
RMBS363
359
(4)60
59
(1)423
418
(5)
U.S. Treasuries1,716
1,705
(11)30
28
(2)1,746
1,733
(13)
Total fixed maturities, AFS8,500
8,424
(76)2,415
2,314
(101)10,915
10,738
(177)
Equity securities, AFS195
170
(25)29
26
(3)224
196
(28)
Total securities in an unrealized loss position$8,695
$8,594
$(101)$2,444
$2,340
$(104)$11,139
$10,934
$(205)
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of December 31, 2016
 Less Than 12 Months12 Months or MoreTotal
 Amortized CostFair ValueUnrealized LossesAmortized CostFair ValueUnrealized LossesAmortized CostFair ValueUnrealized Losses
ABS$582
$579
$(3)$368
$340
$(28)$950
$919
$(31)
CDOs641
640
(1)370
367
(3)1,011
1,007
(4)
CMBS2,076
2,027
(49)293
274
(19)2,369
2,301
(68)
Corporate5,418
5,248
(170)835
781
(54)6,253
6,029
(224)
Foreign govt./govt. agencies573
550
(23)27
24
(3)600
574
(26)
Municipal1,567
1,498
(69)43
41
(2)1,610
1,539
(71)
RMBS1,655
1,624
(31)591
585
(6)2,246
2,209
(37)
U.S. Treasuries1,432
1,387
(45)—
—
—
1,432
1,387
(45)
Total fixed maturities, AFS13,944
13,553
(391)2,527
2,412
(115)16,471
15,965
(506)
Equity securities, AFS330
315
(15)38
34
(4)368
349
(19)
Total securities in an unrealized loss position$14,274
$13,868
$(406)$2,565
$2,446
$(119)$16,839
$16,314
$(525)

As of September 30, 2017,2019, AFS securities in an unrealized loss position consisted of 2,491781 securities, primarily in the corporate sector, which were depressed primarily due to an increase in interest rates and/or widening of credit spreads since the securities were purchased. As of September 30, 2017, 92%2019, 95% of these securities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during the nine months ended September 30, 20172019 was primarily attributable to lower interest rates and tighter credit spreads and a decrease in long-term interest rates.spreads.
Most of the securities depressed for twelve months or more relate to corporate securities student loan ABS and structured securities with exposure to commercial real estate. Corporate financial services securities and student loan ABSwhich were primarily
depressed because the securities have floating-rate coupons and long-dated maturities, and current creditmarket spreads are wider than when these securities were purchased. For certain other corporate securities and commercial real estate securities, current spreads are wider than market spreads at the securities' respective purchase dates. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined in the preceding discussion.
Mortgage Loans
Mortgage Loan Valuation Allowances
Commercial mortgageMortgage loans are considered to be impaired when management estimates that, based upon current information and

37
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


events, it is probable that the Company will be unable to collect amounts due according to the contractual terms of the loan agreement. The Company reviews mortgage loans on a quarterly basis to identify potential credit losses. Among other factors, management reviews current and projected macroeconomic trends, such as unemployment rates and property-specific factors such as rental rates, occupancy levels, LTV ratios and debt service coverage ratios (“DSCR”). In addition, the Company considers historical, current and projected delinquency rates and property values. Estimates of collectibility require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates.
For mortgage loans that are deemed impaired, a valuation allowance is established for the difference between the carrying amount and estimated fair value. The mortgage loan's estimated fair value is most frequently the Company's share of the fair value of the collateral but may also be the Company’s share of either (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate or (b) the loan’s observable market price. A valuation allowance may be recorded for an individual loan or for a group of loans that have an LTV ratio of 90% or greater, a low DSCR or have other lower credit quality characteristics. Changes in valuation allowances are recorded in net realized capital gains and losses. Interest income on impaired loans is accrued to the extent it is deemed collectible and the borrowers continue to make payments under the original or restructured loan terms. The Company stops accruing interest income on loans when it is probable that the Company will not receive interest and principal payments according to the contractual terms of the loan agreement. The Company resumes accruing interest income when it determines that sufficient collateral exists to satisfy the full amount of the loan principal and interest payments and when it is probable cash will be received in the foreseeable future. Interest income on defaulted loans is recognized when received.
As of September 30, 2017, commercial2019, mortgage loans had an amortized cost of $6.1$3.7 billion and carrying value of $3.7 billion, with 0 valuation allowance. As of December 31, 2018, mortgage loans had an
amortized cost of $3.7 billion and carrying value of $3.7 billion, with a valuation allowance of $1 and a carrying value of $6.1 billion. As of December 31, 2016, commercial mortgage loans had an amortized cost of $5.7 billion, with a valuation allowance of $19 and a carrying value of $5.7 billion.$1.
As of September 30, 2017 and2019, there were 0 mortgage loans that had a valuation allowance. As of December 31, 2016,2018, the carrying value of mortgage loans that had a valuation allowance was $43 and $31, respectively.$23. There were no0 mortgage loans held-for-sale as of September 30, 20172019 or December 31, 2016.2018. As of September 30, 2017,2019, the Company had an immaterial amount of0 mortgage loans that have had extensions or restructurings other than what is allowable under the original terms of the contract.
The following table presents the activity within the Company’s valuation allowance for mortgage loans. These loans have been evaluated both individually and collectively for impairment. Loans evaluated collectively for impairment are immaterial.
Valuation Allowance Activity
 20192018
Balance, as of January 1$(1)$(1)
Reversals1
—
Deductions—
—
Balance, as of September 30$—
$(1)

Valuation Allowance Activity
 20172016
Balance, as of January 1$(19)$(23)
(Additions)/Reversals(2)—
Deductions20
4
Balance, as of September 30$(1)$(19)
The weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 50%52% as of September 30, 2017,2019, while the weighted-average LTV ratio at origination of these loans was 62%61%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan collateral values are updated no less than annually through reviews of the underlying properties. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments. As of September 30, 2017,2019 and December 31, 2018, the Company held no0 delinquent commercial mortgage loans past due by 90 days or more. As of December 31, 2016, the Company held one delinquent commercial mortgage loan 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. Following the conclusion of the loan's foreclosure process, the property transferred at its carrying value, net of the valuation allowance, to a real-estate owned investment during 2017.
Commercial Mortgage Loans Credit Quality
 September 30, 2017December 31, 2016
Loan-to-valueCarrying ValueAvg. Debt-Service Coverage RatioCarrying ValueAvg. Debt-Service Coverage Ratio
Greater than 80%$5
1.36x$20
0.59x
65% - 80%371
2.07x568
2.17x
Less than 65%5,682
2.71x5,109
2.78x
Total commercial mortgage loans$6,058
2.67x$5,697
2.70x

38
Mortgage Loans Credit Quality
 September 30, 2019 December 31, 2018
Loan-to-valueCarrying ValueAvg. Debt-Service Coverage Ratio Carrying ValueAvg. Debt-Service Coverage Ratio
65% - 80%481
1.53x 386
1.60x
Less than 65%3,255
2.52x 3,318
2.59x
Total mortgage loans$3,736
2.39x $3,704
2.49x

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)



Mortgage Loans by Region
September 30, 2017December 31, 2016September 30, 2019 December 31, 2018
Carrying ValuePercent of TotalCarrying ValuePercent of TotalCarrying ValuePercent of Total Carrying ValuePercent of Total
East North Central$305
5.0%$293
5.1%$274
7.3% $250
6.8%
East South Central14
0.2%14
0.2%
Middle Atlantic592
9.8%534
9.4%306
8.2% 270
7.3%
Mountain85
1.4%61
1.1%63
1.7% 30
0.8%
New England386
6.4%345
6.1%345
9.2% 330
8.9%
Pacific1,604
26.5%1,609
28.3%835
22.4% 917
24.8%
South Atlantic1,296
21.4%1,198
21.0%743
19.9% 712
19.2%
West North Central149
2.5%40
0.7%121
3.2% 148
4.0%
West South Central474
7.8%338
5.9%406
10.9% 420
11.3%
Other [1]1,153
19.0%1,265
22.2%643
17.2% 627
16.9%
Total mortgage loans$6,058
100.0%$5,697
100.0%$3,736
100.0% $3,704
100.0%
[1]Primarily represents loans collateralized by multiple properties in various regions.
Mortgage Loans by Property Type
 September 30, 2019 December 31, 2018
 Carrying ValuePercent of Total Carrying
Value		Percent of Total
Commercial     
Industrial$1,156
30.9% $1,108
29.9%
Multifamily1,156
30.9% 1,138
30.7%
Office719
19.3% 708
19.1%
Retail430
11.5% 392
10.6%
Single Family135
3.6% 82
2.2%
Other140
3.8% 276
7.5%
Total mortgage loans$3,736
100.0% $3,704
100.0%
Mortgage Loans by Property Type
 September 30, 2017December 31, 2016
 Carrying ValuePercent of TotalCarrying
Value		Percent of Total
Commercial    
Industrial$1,495
24.7%$1,468
25.7%
Lodging25
0.4%25
0.4%
Multifamily1,699
28.0%1,365
24.0%
Office1,436
23.7%1,361
23.9%
Retail967
16.0%1,036
18.2%
Other436
7.2%442
7.8%
Total mortgage loans$6,058
100.0%$5,697
100.0%

Mortgage Servicing
The Company originates, sells and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of September 30, 2017,2019, under this program, the Company serviced commercial mortgage loans with a total outstanding principal of $1.3$6.6 billion, of which $379$4.1 billion was serviced on behalf of third parties and $879$2.5 billion was retained and reported in total investments on the Company’sCompany's Condensed Consolidated Balance Sheets including $140 in separate account assets.. As of December 31, 2016,2018, the Company serviced commercial mortgage loans with a total outstanding principal balance of $901,$6.0 billion, of which $251$3.6 billion was serviced on behalf of third parties and $650$2.4 billion was retained and reported as assetsin total investments on the Company’sCompany's Condensed Consolidated Balance Sheets, including $124 in separate account assets.Sheets. Servicing rights are carried at the lower of cost or fair value and were zero0 as of September 30, 20172019 and December 31, 2016,2018, because servicing fees were market-level fees at origination and remain adequate to
compensate the Company for servicing the loans.
Variable Interest Entities
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an
investor through normal investment activities but also as an investment manager and previously as a means of accessing capital through a contingent capital facility ("facility").manager.
A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.
Consolidated VIEs
As of September 30, 2017,2019 and December 31, 2018, the Company did not hold any securities for which it is the primary beneficiary. As of December 31, 2016, the Company held one CDO for which it was the primary beneficiary. The CDO represented a structured investment vehicle for which the Company had a controlling financial interest. As of December 31, 2016 the Company held total CDO assets of $5 included in cash with an associated liability of $5 included in other liabilities on the Company's Condensed Consolidated Balance Sheets. The Company did not have any additional exposure to loss associated with this investment.
Non-ConsolidatedNon-consolidated VIEs
The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of September 30, 20172019 and December 31, 20162018 was limited to the total carrying value of $1.8$1.1 billion and $1.7$1.0 billion, respectively, which are included in limited partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of September 30, 20172019 and December 31, 2016,2018, the Company has outstanding commitments totaling $1.0 billion$808 and $1.2 billion,$718, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. For further discussion of these investments, see Equity Method Investments within Note 6 - Investments of Notes to

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


Consolidated Financial Statements included in the Company’s 20162018 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.manager. These investments are included ininclude ABS, CDOs,CLOs, CMBS and RMBS and are reported in the Available-for-Sale Securities tablefixed maturities, available-for-sale, 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
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
As of December 31, 2016, the Company held a significant variable interest in a VIE for which it is not the primary beneficiary. This VIE represented a contingent capital facility that was held by the Company since February 2007. Assets and liabilities recorded were $1 and $3, respectively, as of December 31, 2016, as well as a maximum exposure to loss of $3. The Company did not have a controlling financial interest and as such, did not consolidate its variable interest in the facility. As of September 30, 2017, the Company no longer held an interest in the facility. For further information on the facility, see Note 10 - Debt of Notes to Condensed Consolidated Financial Statements.
Securities Lending, Repurchase Agreements, and Other Collateral Transactions and Restricted Investments
The Company enters into securities financing transactions as a way to earn additional income or manage liquidity, primarily through securities lending and repurchase agreements.
Payables for Collateral on Investments
 September 30, 2019December 31, 2018
 Fair ValueFair Value
Securities Lending Transactions:  
Gross amount of securities on loan$603
$820
Gross amount of associated liability for collateral received [1]$618
$840
   
Repurchase agreements:  
Gross amount of recognized liabilities for repurchase agreements$—
$72
Gross amount of collateral pledged related to repurchase agreements [2]$—
$73
Gross amount of recognized receivables for reverse repurchase agreements$52
$64
[1]
Cash collateral received is reinvested in fixed maturities, AFS and short-term investments which are included in the Condensed Consolidated Balance Sheets. Amount includes additional securities collateral received of $0 and $3 which are excluded from the Company's Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, respectively.
[2]Collateral pledged is included within fixed maturities, AFS and short-term investments in the Company's Condensed Consolidated Balance Sheets.
Securities Lending
Under a securities lending program, the Company lends certain fixed maturities within the corporate, foreign government/government agencies, and municipal sectors as well as equity securities to qualifying third-party borrowers in return for collateral in the form of cash or securities. For domestic and non-domestic loaned securities, respectively, borrowers provide collateral of 102% and 105% of the fair value of the securities lent at the time of the loan. Borrowers will return the securities to the Company for cash or securities collateral at maturity dates generally of 90 days or less. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, except in the event of default by the counterparty, and is not reflected on the Company’s Condensed Consolidated Balance Sheets. Additional collateral is obtained if the fair value of the collateral falls below 100% of the fair value of the loaned securities. The agreements are continuous and do not have stated maturity dates and provide the counterparty the right to sell or re-pledge the securities loaned. If
cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities 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.
Repurchase Agreements
From time to time, the Company enters into repurchase agreements to manage liquidity or to earn incremental income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. TheseThe maturity of these transactions is generally have a contractual maturity of ninety days or less. Repurchase agreements include master netting provisions that provide both counterparties the right to offset claims and apply securities held by them with respect to their obligations in the event of a default. Although the Company has the contractual right to offset claims, the Company's current positions do not meet the specific conditions for net presentation.
Under repurchase agreements, the Company transfers collateral of U.S. government and government agency securities and receives cash. For repurchase agreements, the Company obtains cash in an amount equal to at least 95% of the fair value of the securities transferred. The agreements require additional collateral to be transferred when necessary and provide the counterparty the right to sell or re-pledge the securities transferred. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. 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.
From time to time, the Company enters into reverse repurchase agreements where the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The maturity of these transactions is generally within one year. 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. The receivable for reverse repurchase agreements is included within short-term investments in the Company's Condensed Consolidated Balance Sheets.




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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments (continued)


Securities Lending and Repurchase Agreements
 September 30, 2017December 31, 2016
 Fair ValueFair Value
Securities Lending Transactions:  
Gross amount of securities on loan$1,584
$488
Gross amount of associated liability for collateral received [1]$1,623
$500
   
Repurchase agreements:  
Gross amount of recognized liabilities for repurchase agreements$520
$241
Gross amount of collateral pledged related to repurchase agreements [2]$524
$248
[1]
Cash collateral received is reinvested in fixed maturities, AFS and short term investments which are included in the Condensed Consolidated Balance Sheets. Amount includes additional securities collateral received of $10 and $39 million which are excluded from the Company's Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively.
[2]Collateral pledged is included within fixed maturities, AFS and short term investments in the Company's Condensed Consolidated Balance Sheets.
Other Collateral Transactions
The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of September 30, 2017 and December 31, 2016, the fair value of securities on deposit was $2.6 billion and $2.5 billion, respectively.
As of September 30, 20172019 and December 31, 2016,2018, the Company has pledged collateral of $102$37 and $102,$47, respectively, of U.S. government securities and government agencymunicipal securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement. These amounts also include collateral related to letters of credit.
For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section ofin Note 7 - Derivative InstrumentsDerivatives of Notes to Condensed Consolidated Financial Statements. For disclosure of collateral in support of credit facilities, refer to Note 10 - Debt of Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments



Other Restricted Investments
The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of September 30, 2019 and December 31, 2018, the fair value of securities on deposit was $2.4 billion and $2.2 billion, respectively.

In addition, as of September 30, 2019, the Company held fixed maturities and short-term investments of $548 and $0, respectively in trust for the benefit of syndicate policyholders and other investments of $55 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries.

7. DERIVATIVES
The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. The Company also may enter into and has previously issued financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or as embedded derivative instruments, such as GMWB riders included with certain variable annuity products.
Strategies that Qualify for Hedge Accounting
Some of the Company's derivatives satisfy the hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements, included in The Hartford’s 20162018 Form 10-K Annual Report. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or liability contracts.securities. 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. During 2017, theThe Company has also entered into interest rate swaps to convert the variable interest payments on the 3 month Libor + 2.125% junior subordinated debt to fixed interest payments. For further information, see the Junior Subordinated Debentures section within Note 1013 - Debt of Notes to the Condensed Consolidated Financial Statements.Statements, included in The Hartford's 2018 Form 10-K Annual Report.
Foreign currency swaps are used to convert non-U.S. denominated cash flows related to certain investment receipts to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.
The Company also enterspreviously entered 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 productgroup benefits liabilities.
Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.
Fair Value Hedges
The Company previously used interest rate swaps to hedge the changes in fair value of fixed maturity securities due to fluctuations in interest rates. These swaps were typically used to manage interest rate duration.
 
Non-qualifying Strategies
Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's variable annuity products as well as the hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities equities and liabilitiesequities 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 September 30, 2017 and December 31, 2016, the notional amount of interest rate swaps in offsetting relationships was $9.9 billion and $10.6 billion, respectively.
Foreign Currency Swaps and Forwards
The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars. The Company previously entered into foreign currency forwards to hedge currency impacts on changes in equity of the U.K. property and casualty run-off subsidiaries that were sold in May 2017. For further information on the disposition, see Note 2 - Business Acquisitions and Dispositions of Notes to Consolidated Financial Statements. The Company also previously entered into foreign currency forwards to hedge non-U.S. dollar denominated cash and equity securities.
Fixed Payout Annuity Hedge
The Company has obligations for certain yen denominated fixed payout annuities under an assumed reinsurance contract. The Company invests in U.S. dollar denominated assets to support the assumed reinsurance liability. The Company has in place pay U.S. dollar, receive yen swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.
Credit Contracts
Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. In addition, theThe Company also enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.
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 addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap going forward. As of September 30, 2019 and December 31, 2018, the notional amount of interest rate swaps in offsetting relationships was $7.6 billion and $7.1 billion, respectively.
Foreign Currency Swaps and Forwards
42
TableThe Company enters into foreign currency swaps to convert the foreign currency exposures of Contentscertain non-U.S. dollar denominated fixed maturity investments to U.S. dollars. The Company may at times enter into foreign currency forwards to hedge non-U.S. dollar denominated cash or equity securities.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)


Equity Index Swaps and Options
The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company previously enteredalso enters into total return swapscall options on equity securities to hedge equity risk of specific common stock investments which were accounted for using fair value option in order to align the accounting treatment within net realized capital gains (losses). In addition, the Company formerly offered certain equity indexed products that remain in force, a portion of which contain embedded derivatives that require changes in value to be bifurcated from the host contract. The Company uses equity index swaps to economically hedge the equity volatility risk associated with the equity indexed products.generate additional return.
GMWB Derivatives, netTHE HARTFORD FINANCIAL SERVICES GROUP, INC.
The Company formerly offered certain variable annuity products with GMWB riders. The GMWB product is a bifurcated embedded derivative (“GMWB product derivatives”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to GMWB. The reinsurance contracts covering GMWB (“GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB reinsured.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company utilizes derivatives (“GMWB hedging instruments”) as part of a dynamic hedging program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB riders. The GMWB hedging instruments hedge changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options and futures, on certain indices including the S&P 500 index, EAFE index and NASDAQ index. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.
GMWB Hedging Instruments
 Notional AmountFair Value
 Sep. 30, 2017Dec. 31, 2016Sep. 30, 2017Dec. 31, 2016
Customized swaps$5,035
$5,191
$62
$100
Equity swaps, options, and futures1,370
1,362
(41)(27)
Interest rate swaps and futures2,986
3,703
44
21
Total$9,391
$10,256
$65
$94
Macro Hedge Program
The Company utilizes equity swaps, options, forwards and futures to provide partial protection against the statutory tail scenario risk arising from GMWB and guaranteed minimum death benefit ("GMDB") liabilities on the Company's statutory surplus. These derivatives cover some of the residual risks not otherwise covered by the dynamic hedging program.
Contingent Capital Facility Put Option
The Company previously entered into a put option agreement that provided the Company the right to require a third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. On February 8, 2017, The Hartford exercised the put option resulting in the issuance of $500 in junior subordinated notes with proceeds received on February 15, 2017. Under the put option agreement, The Hartford had been paying premiums on a periodic basis and had 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 September 30, 2017, and December 31, 2016, the Company had $882 and $875, respectively, of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business, which was structured as a reinsurance transaction. The assets are primarily held in a trust established by the Company. The Company pays or receives cash quarterly to settle the operating results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value of investments subject to interest rate and credit risk. The notional amount of the embedded derivative reinsurance contracts are the invested assets which are carried at fair value and support the reinsured reserves.
Derivative Balance Sheet Classification
For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The 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 $809 and $963 as of September 30, 2017, and December 31, 2016, respectively. Derivatives in the Company’s separate accounts, where the associated gains and losses accrue directly to policyholders, are not included in the table below. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. The following tables exclude investments that contain an embedded credit derivative for which the Company has elected the fair value

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)


option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements of Notes to the Condensed Consolidated Financial Statements.
Derivative Balance Sheet Presentation
Net DerivativesAsset DerivativesLiability DerivativesNet Derivatives
Asset
Derivatives
Liability Derivatives
Notional AmountFair ValueNotional AmountFair Value
Hedge Designation/ Derivative TypeSep. 30, 2017Dec. 31, 2016Sep. 30, 2017Dec. 31, 2016Sep. 30, 2017Dec. 31, 2016Sep. 30, 2017Dec. 31, 2016Sep. 30, 2019Dec. 31, 2018Sep. 30, 2019Dec. 31, 2018Sep. 30, 2019Dec. 31, 2018Sep. 30, 2019Dec. 31, 2018
Cash flow hedges  
Interest rate swaps$3,855
$3,440
$(1)$(79)$79
$11
$(80)$(90)$2,040
$2,040
$—
$1
$—
$2
$—
$(1)
Foreign currency swaps299
239
(18)(15)6
11
(24)(26)242
153
7
(6)9
2
(2)(8)
Total cash flow hedges4,154
3,679
(19)(94)85
22
(104)(116)2,282
2,193
7
(5)9
4
(2)(9)
Non-qualifying strategies  
Interest rate contracts  
Interest rate swaps, swaptions, and futures11,228
11,743
(476)(890)634
264
(1,110)(1,154)
Interest rate swaps and futures8,844
8,451
(70)(62)2
8
(72)(70)
Foreign exchange contracts  
Foreign currency swaps and forwards165
1,064
(1)68
—
70
(1)(2)454
287
1
(1)1
—
—
(1)
Fixed payout annuity hedge804
804
(255)(263)—
—
(255)(263)
Credit contracts  
Credit derivatives that purchase credit protection144
209
(3)(4)—
—
(3)(4)353
6
(2)—
—
—
(2)—
Credit derivatives that assume credit risk [1]1,105
1,309
4
10
23
15
(19)(5)521
1,102
10
3
10
8
—
(5)
Credit derivatives in offsetting positions1,842
3,317
4
(1)25
39
(21)(40)32
41
—
—
5
6
(5)(6)
Equity contracts  
Equity index swaps and options167
105
2
—
2
33
—
(33)715
211
(5)4
8
5
(13)(1)
Variable annuity hedge program 
GMWB product derivatives [2]11,797
13,114
(93)(241)—
—
(93)(241)
GMWB reinsurance contracts2,450
2,709
51
73
51
73
—
—
GMWB hedging instruments9,391
10,256
65
94
130
190
(65)(96)
Macro hedge program8,157
6,532
166
178
192
201
(26)(23)
Other 
Contingent capital facility put option—
500
—
1
—
1
—
—
Modified coinsurance reinsurance contracts882
875
57
68
57
68
—
—
Total non-qualifying strategies48,132
52,537
(479)(907)1,114
954
(1,593)(1,861)10,919
10,098
(66)(56)26
27
(92)(83)
Total cash flow hedges and non-qualifying strategies$52,286
$56,216
$(498)$(1,001)$1,199
$976
$(1,697)$(1,977)$13,201
$12,291
$(59)$(61)$35
$31
$(94)$(92)
Balance Sheet Location  
Fixed maturities, available-for-sale$156
$322
$—
$1
$—
$1
$—
$—
$225
$153
$—
$—
$—
$—
$—
$—
Other investments12,797
23,620
203
(180)281
377
(78)(557)1,305
9,864
12
7
15
23
(3)(16)
Other liabilities24,203
15,526
(716)(689)810
457
(1,526)(1,146)11,671
2,274
(71)(68)20
8
(91)(76)
Reinsurance recoverables3,333
3,584
108
141
108
141
—
—
Other policyholder funds and benefits payable11,797
13,164
(93)(274)—
—
(93)(274)
Total derivatives$52,286
$56,216
$(498)$(1,001)$1,199
$976
$(1,697)$(1,977)$13,201
$12,291
$(59)$(61)$35
$31
$(94)$(92)
[1]The derivative instruments related to this strategy are held for other investment purposes.
[2]These derivatives are embedded within liabilities and are not held for risk management purposes.
Offsetting of Derivative Assets/Liabilities
The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance
Sheets. Amounts offset include fair value amounts, income
accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)


offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Offsetting Derivative Assets and Liabilities
 (i) (ii) (iii) = (i) - (ii)(iv) (v) = (iii) - (iv)
     Net Amounts Presented in the Statement of Financial Position Collateral Disallowed for Offset in the Statement of Financial Position  
 Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Statement of Financial Position Derivative Assets [1] (Liabilities) [2] Accrued Interest and Cash Collateral (Received) [3] Pledged [2] Financial Collateral (Received) Pledged [4] Net Amount
As of September 30, 2017           
Other investments$1,091
 $1,006
 $203
 $(118) $42
 $43
Other liabilities$(1,604) $(703) $(716) $(185) $(888) $(13)
As of December 31, 2016           
Other investments$834
 $670
 $(180) $344
 $103
 $61
Other liabilities$(1,703) $(884) $(689) $(130) $(763) $(56)

Offsetting Derivative Assets and Liabilities
 (i)(ii)(iii) = (i) - (ii)(iv)(v) = (iii) - (iv)
   Net Amounts Presented in the Statement of Financial PositionCollateral Disallowed for Offset in the Statement of Financial Position 
 Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in the Statement of Financial PositionDerivative Assets [1] (Liabilities) [2]Accrued Interest and Cash Collateral (Received) [3] Pledged [2]Financial Collateral (Received) Pledged [4]Net Amount
As of September 30, 2019      
Other investments$35
$32
$12
$(9)$1
$2
Other liabilities$(94)$(12)$(71)$(11)$(73)$(9)
As of December 31, 2018      
Other investments$31
$26
$7
$(2)$2
$3
Other liabilities$(92)$(20)$(68)$(4)$(65)$(7)

[1]Included in other investments in the Company's Condensed Consolidated Balance Sheets.
[2]Included in other liabilities in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.
[3]Included in other investments in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.
[4]Excludes collateral associated with exchange-traded derivative instruments.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Gain (Loss) Recognized in OCI
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Interest rate swaps$—
$—
 $20
$(16)
Foreign currency swaps10
—
 14
1
Total$10
$—
 $34
$(15)

45
Gain (Loss) Reclassified from AOCI into Income 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 Net Realized Capital Gain/(Loss)Net Investment IncomeInterest Expense Net Realized Capital Gain/(Loss)Net Investment IncomeInterest Expense Net Realized Capital Gain/(Loss)Net Investment IncomeInterest Expense Net Realized Capital Gain/(Loss)Net Investment IncomeInterest Expense
Interest rate swaps$—
$1
$—
 $—
$7
$—
 $2
$1
$1
 $1
$24
$—
Foreign currency swaps—
1
—
 —
—
—
 —
2
—
 —
—
—
Total$—
$2
$—
 $—
$7
$—
 $2
$3
$1
 $1
$24
$—
                
Total amounts presented on the Condensed Consolidated Statement of Operations$89
$490
$67
 $38
$444
$69
 $332
$1,448
$194
 $60
$1,323
$228
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)



Derivatives in Cash Flow Hedging Relationships
 Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
 Three Months Ended September 30, Nine months ended September 30,
 2017 2016
 2017 2016
Interest rate swaps$(1) $(26) $13
 $120
Foreign currency swaps(2) —
 (2) 1
Total$(3) $(26) $11
 $121
        
 Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 Three Months Ended September 30, Nine Months Ended September 30, 2017 
 2017 2016 2017
 2016
Interest rate swaps      
Net realized
 capital gain/(loss)
$—
 $—
 $4
 $7
Net investment income15
 16
 47
 46
Foreign currency swaps       
Net realized
 capital gain/(loss)
4
 1
 10
 3
Total$19
 $17
 $61
 $56
During the three and nine months ended As of September 30, 2017, and September 30, 20162019, the Company had no ineffectiveness recognized in income within net realized capital gains (losses).
As$20 of September 30, 2017, the before-taxbefore tax deferred net gains on derivative instruments recorded in AOCI that are expected to be
reclassified to earnings during the next twelve months are $35.months. 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 less than one year.
During the three and nine months ended September 30, 2017,2019 and September 30, 2016,2018, the Company had no0 net reclassifications from AOCI to
earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.
Fair Value Hedges
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
For the three and nine months ended September 30, 2017, the Company did not hold any fair value hedges. For the three and nine months ended September 30, 2016, the Company recognized in income immaterial gains and (losses) for the ineffective portion of fair value hedges related to the derivative instrument and the hedged item.
Non-QualifyingNon-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).

46
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)


Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
Non-qualifying Strategies Recognized within Net Realized Capital Gains (Losses)Non-qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
20172016 2017201620192018 20192018
Variable annuity hedge program   
GMWB product derivatives$58
$87
 $198
$(22)
GMWB reinsurance contracts(9)(15) (33)(2)
GMWB hedging instruments(34)(66) (112)16
Macro hedge program(65)(64) (189)(98)
Total variable annuity hedge program(50)(58) (136)(106)
Foreign exchange contracts      
Foreign currency swaps and forwards—
4
 (17)25
$2
$1
 $2
$2
Fixed payout annuity hedge(3)13
 8
109
Total foreign exchange contracts(3)17
 (9)134
Other non-qualifying derivatives      
Interest rate contracts      
Interest rate swaps, swaptions, and futures(9)(2) (3)(22)(5)1
 (20)7
Credit contracts      
Credit derivatives that purchase credit protection10
(12) 40
(19)(1)—
 (1)—
Credit derivatives that assume credit risk(3)24
 (19)28
—
8
 27
—
Equity contracts      
Equity index swaps and options(3)(2) (7)15
(1)(1) (5)(1)
Other   
Contingent capital facility put option—
(1) (1)(4)
Modified coinsurance reinsurance contracts—
(1) (10)(48)
Total other non-qualifying derivatives(5)6
 —
(50)(7)8
 1
6
Total [1]$(58)$(35) $(145)$(22)$(5)$9
 $3
$8
[1]
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements. 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 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.

47
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)



Credit Risk Assumed Derivatives by Type
    
Underlying Referenced Credit
Obligation(s) [1]
  
 
Notional
Amount
[2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair
Value [3]
As of September 30, 2019
Single name credit default swaps       
Investment grade risk exposure$121
$2
5 yearsCorporate CreditA-$—
$—
Basket credit default swaps [4]       
Investment grade risk exposure400
8
5 yearsCorporate CreditBBB+—
—
Investment grade risk exposure1
—
Less than 1 yearCMBS CreditA-1
—
Below investment grade risk exposure15
(5)Less than 1 yearCMBS CreditCCC-15
5
Total [5]$537
$5
   $16
$5
As of December 31, 2018
Single name credit default swaps       
Investment grade risk exposure$169
$2
4 yearsCorporate Credit/
Foreign Gov.		A$—
$—
Basket credit default swaps [4]       
Investment grade risk exposure799
(1)6 yearsCorporate CreditBBB+—
—
Below investment grade risk exposure125
2
5 yearsCorporate CreditB+—
—
Investment grade risk exposure11
—
5 yearsCMBS CreditA-2
—
Below investment grade risk exposure19
(6)Less than 1 yearCMBS CreditCCC19
6
Total [5]$1,123
$(3)   $21
$6
Credit Derivatives by Type
    
Underlying Referenced Credit
Obligation(s) [1]
  
 
Notional
Amount
[2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair
Value [3]
As of September 30, 2017
Single name credit default swaps       
Investment grade risk exposure$240
$5
4 yearsCorporate Credit/
Foreign Gov.		A-$15
$—
Below investment grade risk exposure52
—
Less than 1 yearCorporate CreditB52
—
Basket credit default swaps [4]       
Investment grade risk exposure1,579
4
3 yearsCorporate CreditBBB+719
(3)
Below investment grade risk exposure50
4
4 yearsCorporate CreditB+50
—
Investment grade risk exposure37
(2)4 yearsCMBS CreditA+17
1
Below investment grade risk exposure68
(13)Less than 1 yearCMBS CreditCCC+68
12
Total [5]$2,026
$(2)   $921
$10
As of December 31, 2016
Single name credit default swaps       
Investment grade risk exposure$169
$—
4 yearsCorporate Credit/
Foreign Gov.		A-$50
$—
Below investment grade risk exposure77
—
1 yearCorporate CreditB+77
—
Basket credit default swaps [4]       
Investment grade risk exposure2,065
22
3 yearsCorporate CreditBBB+1,204
(10)
Below investment grade risk exposure50
3
4 yearsCorporate CreditB50
(3)
Investment grade risk exposure297
(5)4 yearsCMBS CreditAA167
1
Below investment grade risk exposure110
(26)1 yearCMBS CreditCCC111
26
Embedded credit derivatives       
Investment grade risk exposure200
201
Less than 1 yearCorporate CreditA+—
—
Total [5]$2,968
$195
   $1,659
$14

[1]The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P Fitch and Morningstar.Fitch. 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.
[4]
Includes $1.7 billion and $2.5 billion asComprised ofSeptember 30, 2017, and December 31, 2016, respectively, of notional amount on swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.
[5]
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements. of Notes to Condensed Consolidated Financial Statements.
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 September 30, 20172019 and December 31, 2016,2018, the Company pledged cash collateral associated with derivative instruments with a fair value of $38less than $1 and $623,$4, respectively, for which theassociated with derivative instruments. The collateral receivable has been primarily included withinrecorded in other investmentsassets or other liabilities on the
Company's Condensed Consolidated Balance Sheets.Sheets as determined by the Company's election to offset on the balance sheet. As of September 30, 20172019 and December 31, 2016,2018, the Company also pledged securities collateral associated with derivative instruments with a fair value of $952$81 and $1.1 billion,$67, respectively, which have been included in fixed maturities on the Company's Condensed Consolidated Balance Sheets. The counterparties generally have the right to sell or re-pledge these securities.
In addition, as of September 30, 2019 and December 31, 2018, the Company has pledged initial margin of securities related to OTC-cleared and exchange traded derivatives with a fair value of $83 and $89, respectively, which are included within fixed maturities on the Company's Condensed Consolidated Balance Sheets.
As of September 30, 20172019 and December 31, 2016,2018, the Company accepted cash collateral associated with derivative instruments of $416$17 and $387,$9, respectively, which was invested and recorded

48
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Derivative Instruments (continued)


in the Company's Condensed Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other liabilities.investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of September 30, 20172019 and December 31, 2016,2018, with a fair value of $43$2 and $109,$5, respectively, of which the Company has the abilityright to sell or repledge $10repledge. As of September 30, 2019 and $81, respectively.December 31, 2018, the Company had 0 repledged securities and 0 securities held as collateral have been sold. As of September 30, 20172019 and December 31, 2016, the Company had no repledged securities and did not sell any securities. In addition, as of September 30, 2017 and December 31, 2016,2018, non-cash collateral accepted was held in
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.Sheets.


49
8. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Table
Property and Casualty Insurance Products
Rollforward of ContentsLiabilities for Unpaid Losses and Loss Adjustment Expenses
 For the nine months ended September 30,
 20192018
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$24,584
$23,775
Reinsurance and other recoverables4,232
3,957
Beginning liabilities for unpaid losses and loss adjustment expenses, net20,352
19,818
Navigators Group acquisition2,001
—
Provision for unpaid losses and loss adjustment expenses 
 
Current accident year5,448
5,151
Prior accident year development(23)(139)
Total provision for unpaid losses and loss adjustment expenses5,425
5,012
Payments 
 
Current accident year(1,549)(1,647)
Prior accident years(3,403)(3,166)
Total payments(4,952)(4,813)
Foreign currency adjustment

(12)—
Ending liabilities for unpaid losses and loss adjustment expenses, net22,814
20,017
Reinsurance and other recoverables5,083
3,780
Ending liabilities for unpaid losses and loss adjustment expenses, gross$27,897
$23,797
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED 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 nine months ended September 30,
 20172016
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$21,833
$21,825
Reinsurance and other recoverables2,776
2,882
Beginning liabilities for unpaid losses and loss adjustment expenses, net19,057
18,943
Add: Maxum acquisition—
122
Provision for unpaid losses and loss adjustment expenses 
 
Current accident year5,587
5,215
Prior accident year development1
409
Total provision for unpaid losses and loss adjustment expenses5,588
5,624
Less: payments 
 
Current accident year1,770
1,901
Prior accident years3,143
3,380
Total payments4,913
5,281
Less: net reserves transferred to liabilities held for sale—
487
Ending liabilities for unpaid losses and loss adjustment expenses, net19,732
18,921
Reinsurance and other recoverables [1]2,817
2,694
Ending liabilities for unpaid losses and loss adjustment expenses, gross$22,549
$21,615
[1]
Includes reinsurance recoverables of $2,355 and $2,313 for the nine months endedSeptember 30, 2017 and 2016, respectively.
Unfavorable (Favorable) Unfavorable Prior Accident Year Development
For the nine months ended September 30,For the nine months ended September 30,
2017201620192018
Workers’ compensation$(29)$(87)$(90)$(97)
Workers’ compensation discount accretion21
21
25
30
General liability10
67
62
32
Marine8
—
Package business(22)50
(32)(16)
Commercial property(5)2
(16)(10)
Professional liability—
(35)32
(12)
Bond10
(6)(2)—
Assumed Reinsurance3
—
Automobile liability - Commercial Lines20
19
27
(15)
Automobile liability - Personal Lines—
140
(28)(10)
Homeowners—
(4)—
(20)
Net asbestos reserves—
197
—
—
Net environmental reserves—
71
—
—
Catastrophes(12)(7)(27)(47)
Uncollectible reinsurance—
(30)—
22
Other reserve re-estimates, net8
11
15
4
Total prior accident year development$1
$409
Total prior accident year development [1]$(23)$(139)

[1] Included a prior accident year reserve increase of $68 related to the Navigators Group acquisition for the nine months ended September 30, 2019 consisting of $34 for general liability, $25 for professional liability, $10 for marine, $3 for assumed reinsurance and $2 for commercial auto liability, partially offset by a reserve decrease of $6 for commercial property.
Re-estimates of prior accident year reserves for the nine months ended September 30, 20172019
Workers’ compensation reserveswere reduced, primarilyprincipally in Small Commercial, givensmall commercial driven by lower than previously estimated claim severity for the continued emergence of favorable frequency2014 through 2017 accident years and, to a lesser extent, in national accounts due to lower estimated claim severity, primarily for accident years 2013 to 2015. Management has placed additional weight on this favorable experience as it becomes more credible.and prior.
General liability reserves were increased for the 2013increased, primarily due to 2016reserve increases in small commercial for accident years 2017 and 2018 due to higher frequency of high-severity bodily injury claims, reserve increases in middle and large commercial for accident years 2015 to 2018 due to higher estimated severity, as well as increased estimated severity on a classthe acquired Navigators book of business that insures servicerelated to U.S. construction, premises liability, products liability and maintenance contractors. Thisexcess casualty, mostly related to accident years 2014 to 2018. In addition, an increase in reserves for mass torts was partially offset by a decrease in recent accident year reserves for other Middle Market generalextra contractual liability reserves.claims.
Marine reserveswere increased, principally related to pollution exposure from the 1980s and 1990s related to the Navigators Group book of business.
Package business reserveswere reduced fordecreased, primarily due to favorable emergence on property claims related to accident years 20132016 through 2018 and prior largely due to reducing the Company’s estimatefavorable development of allocated loss adjustment expenses incurredon general liability claims for 2017 and prior accident years.
Commercial property reserveswere decreased, principally due to settlefavorable emergence of reported losses, including on the claims.acquired Navigators Group book of business related to offshore energy in accident years 2017 to 2018 and construction engineering across accident years 2015 to 2018.
BondProfessional liability reserveswere increased, primarily due to large loss activity, including wrongful termination and discrimination claims, in accident years 2017 and 2018 and increased estimated frequency and severity of directors’ and officers’ reserves on the Navigators Group book of business, principally for the 2014 to 2018 accident years.
Automobile liability reserveswere decreased in Personal Lines due to the emergence of lower estimated severity in automobile liability for accident year 2017 and were increased in Commercial Lines due to higher estimated severity on national accounts, principally in accident years 2017 and 2018.
Catastrophe reserves were reduced, primarily as a result of lower estimated net losses from 2017 hurricanes Harvey and Irma.
In September, 2019, PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) agreed in principle to an $11 billion settlement with insurers representing approximately 85 percent of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. The settlement is subject to approval of the bankruptcy court overseeing PG&E's Chapter 11 bankruptcy filing. The settlement is also subject to the confirmation by the bankruptcy court of a chapter 11 plan of reorganization (a "Plan") which implements the terms of the settlement. If a Plan is approved, certain of the Company’s insurance subsidiaries would be entitled to settlement payments. Based on reserve estimates submitted with the subrogation request, the amount our subsidiaries could collect from PG&E, if any, would be approximately $325 but could be more or less than that amount depending on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. Approval of the Plan and amount of the Company’s ultimate subrogation recoveries from PG&E are subject to uncertainty. This includes, among other things, uncertainty regarding liabilities for customs bonds written between 2000current or future wildfires caused or allegedly caused by PG&E, the value of recoveries by other creditors and 2010 which was partlyPG&E’s ability to secure funds to pay its creditors.
Given the uncertainty, the Company has not recognized a benefit from potential subrogation from PG&E and will evaluate in future periods when more information becomes known. The first $116 of subrogation recoveries would be offset by a $116 reduction in reserves for recent accident years as reportedreinsurance recoverables resulting in no net benefit to income. No changes have been made in 2019 to estimated incurred losses for commercial and contract surety have emerged favorably.
Automobile liability reserves within Commercial Lines were increased in Small Commercial and large national accounts forfrom the 2013 to 2016 accident years, driven by higher frequency of more severe accidents, including litigated claims.2017 or 2018 wildfires.

50
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Reserve for Unpaid Losses and Loss Adjustment Expenses (continued)



Catastrophes reserveswere reduced primarily due to lower estimates of 2016 wind and hail event losses and a decrease in losses on a 2015 wildfire.
Re-estimates of prior accident year reserves for thenine months endedSeptember 30, 20162018
Workers'Workers’ compensation reservesconsiderwere reduced in small commercial and middle market, primarily for accident years 2012 to 2015, as both claim frequency and medical claim severity have emerged favorably compared to previous reserve estimates.
General liability reserveswere increased, primarily due to an increase in reserves for higher hazard general liability exposures in middle market for accident years 2009 to 2017, partially offset by a decrease in reserves for other lines within middle market, including premises and operations, umbrella and products liability, principally for accident years 2015 and prior. Contributing to the increase in reserves for higher hazard general liability exposures was an increase in large losses and, in more recent accident years, an increase in claim frequency. Contributing to the reduction in reserves for other middle market lines were more favorable emergenceoutcomes due to initiatives to reduce legal expenses. In addition, reserve increases for claims with lead paint exposure were offset by reserve decreases for other mass torts and extra-contractual liability claims.
Package business reserveswere reduced, primarily due to lower reserve estimates for both liability and property for accident years 2010 and prior, including a recovery of loss adjustment expenses for the 2005 accident year.
Commercial property reserves were reduced, driven by an increase in estimated reinsurance recoverables on reportedmiddle market property losses from the 2017 accident year.
Professional liability reserves were reduced, principally for accident years 2014 and prior, for directors and officers liability claims principally due to a number of older claims closing with limited or no payment.
Automobile liability reserveswere reduced, primarily driven by reduced estimates of loss adjustment expenses in small commercial for recent accident years as well as a partially offsetting adverse impact related to two recent Florida Supreme Court rulings that have increased the Company's exposure to workers' compensation claimsand favorable development in that state. The favorable emergence has been driven by lower frequency and, to a lesser extent, lower medical severity and management has placed 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 and, in second quarter 2016, increased reserves in generalpersonal automobile liability for accident years 2008 and 2010 primarily2014 to 2017, principally due to indemnity losseslower severity, including with uninsured and legal costs associated with a litigated claim.underinsured motorist claims.
Small Commercial package businessHomeowners reservesincreased duewere reduced, primarily in accident years 2013 to higher2017, driven by lower 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.
across multiple perils.
Professional liabilityCatastrophe reservesdecreased for claims made years 2008 through 2013, were reduced, 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.
Automobile liability reservesincreased in commercial lines, predominantly for the 2015 accident year, primarily due to increased frequency of large claims. Automobile liability reserves also increased in personal lines, primarily related to increased bodily injury frequency and severity for the 2015 accident year, including for uninsured and under-insured motorist claims, and increased bodily injury severity for the 2014 accident year. Increases in auto liability loss costs were across both the direct and agency distribution channels.
Asbestos and environmental reserves increased during the period as a result of the 2016 comprehensive annual review. For a discussion of the Company's 2016 review of asbestoslower estimated net losses from 2017 catastrophes, principally related to hurricanes Harvey and environmental reserves, see Part II, Item 7 MD&A, Critical Accounting Estimates, Property & Casualty Other Operations sectionIrma. Before reinsurance, estimated losses for 2017 catastrophe events decreased by $133 in the Company’s 2016 Form 10-K Annual Report.nine months ended September 30, 2018, resulting in a decrease in reinsurance recoverables of $90 as the Company no longer expects to recover under the 2017 Property Aggregate reinsurance treaty as aggregate ultimate losses for 2017 catastrophe events are now projected to be less than $850.
Uncollectible reinsurance reservesdecreased as a result of giving greater weight were increased due to favorable collectibility experience in recent calendar periods in estimating future collections.lower anticipated recoveries related to older accident years.
Group Life, Disability and Accident Products
Roll-forwardRollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
For the nine months ended September 30,For the nine months ended September 30,
20172016 [1]20192018
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$5,772
$5,889
$8,445
$8,512
Reinsurance recoverables208
218
239
209
Beginning liabilities for unpaid losses and loss adjustment expenses, net5,564
5,671
8,206
8,303
Aetna U.S. group life and disability business acquisition—
42
Provision for unpaid losses and loss adjustment expenses







Current incurral year1,960
1,930
3,351
3,423
Prior year's discount accretion148
155
169
175
Prior incurral year development [2](162)(126)
Total provision for unpaid losses and loss adjustment expenses [3]1,946
1,959
Less: payments



Prior incurral year development [1](321)(284)
Total provision for unpaid losses and loss adjustment expenses [2]3,199
3,314
Payments



Current incurral year917
932
(1,603)(1,659)
Prior incurral years1,118
1,126
(1,743)(1,741)
Total payments2,035
2,058
(3,346)(3,400)
Ending liabilities for unpaid losses and loss adjustment expenses, net5,475
5,572
8,059
8,259
Reinsurance recoverables208
211
231
241
Ending liabilities for unpaid losses and loss adjustment expenses, gross$5,683
$5,783
$8,290
$8,500
[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]2]
Includes unallocated loss adjustment expenses of $74,130 and $76131 for the nine months endedSeptember 30, 20172019 and 20162018, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.

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Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Reserve for Unpaid Losses and Loss Adjustment Expenses (continued)



Re-estimates of prior incurral years reserves for the nine months ended September 30, 20172019
Group Disability-disability-Prior period reserve estimates decreased by approximately $105$265 largely driven by group long-term disability claim recoveries and deaths higher than prior reserve assumptions and claim incidence lower than prior assumptions.  This favorability wasLong-term disability ("LTD") reserve assumptions were also updated based partially reduced by lower expectation of future benefit offsets, particularly lower Social Security Disability Income approval rateson these more recent favorable trends.  New York Paid Family Leave also experienced favorable claim emergence and longer decision turnaround times in the Social Security Administration.refund compared to year-end estimates.
Group Lifelife and Accidentaccident (including Group Life Premium Waiver)group life premium waiver)-Prior period reserve estimates decreased by approximately $55$45 largely driven by lower than previouslylower-than-previously expected claim incidence in Group Life and Group Lifegroup life Premium Waiver.
Re-estimates of prior incurral years reserves for the nine months ended September 30, 20162018
Group Disability-disability-Prior period reserve estimates decreased by approximately $195 largely driven by group long-term
disability claim recoveries higher than prior reserve
assumptions and claim incidence lower than prior assumptions.
Short-term disability has also experienced favorable claim
recoveries.
Group life and accident (including group life premium waiver)-Prior period reserve estimates decreased by approximately $85 largely driven by lower-than-previously expected claim incidence inclusive of group long-term disability claim recoveries higher than prior reserve assumptions. This favorability was partially offset by lower Social Security Disability Income approvals driven by lower approval rateslife, group life premium waiver, and ongoing backlogsgroup accidental death & dismemberment.
9. RESERVE FOR FUTURE POLICY BENEFITS
Changes in Reserves for Future Policy Benefits[1]
Liability balance, as of January 1, 2019$642
Incurred63
Paid(77)
Change in unrealized investment gains and losses17
Liability balance, as of September 30, 2019$645
Reinsurance recoverable asset, as of January 1, 2019$27
Incurred2
Paid—
Reinsurance recoverable asset, as of September 30, 2019$29
Liability balance, as of January 1, 2018$713
Incurred10
Paid(25)
Change in unrealized investment gains and losses(42)
Liability balance, as of September 30, 2018$656
Reinsurance recoverable asset, as of January 1, 2018$26
Incurred10
Paid(1)
Reinsurance recoverable asset, as of September 30, 2018$35

[1]Reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits segment and reserves for run-off structured settlement and terminal funding agreement liabilities which are in the Social Security Administration.Corporate category.
Group Life and Accident (including Group Life Premium Waiver)-Prior period reserve estimates decreased by approximately $30 largely driven by lower than previously expected incidence on Group Life Premium Waiver.



52
10. DEBT
Table
Shelf Registrations
On May 17, 2019, the Company filed with the Securities and Exchange Commission (the “SEC”) an automatic shelf registration statement (Registration No. 333-231592) for the potential offering and sale of Contentsdebt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, guarantees, 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.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Reserve for Future Policy Benefits and Separate Account Liabilities


Changes in Reserves for Future Policy Benefits
 Universal Life - Type Contracts  
  GMDB/GMWB [1]Universal Life Secondary GuaranteesTraditional 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]57
231
582
870
Paid(76)—
(603)(679)
Change in unrealized investment gains and losses—
—
127
127
Liability balance as of September 30, 2017$767
$2,858
$10,622
$14,247
Reinsurance recoverable asset, as of January 1, 2017$432
$2,627
$1,392
$4,451
Incurred [3]37
231
60
328
Paid(63)—
(44)(107)
Reinsurance recoverable asset, as of September 30, 2017$406
$2,858
$1,408
$4,672
 Universal Life - Type Contracts  
  GMDB/GMWB [1]Universal Life Secondary GuaranteesTraditional 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]50
234
575
859
Paid(92)—
(604)(696)
Change in unrealized investment gains and losses—
—
433
433
Liability balance as of September 30, 2016$821
$2,547
$11,087
$14,455
Reinsurance recoverable asset, as of January 1, 2016$523
$2,313
$1,478
$4,314
Incurred [3]40
234
(14)260
Paid(73)—
(48)(121)
Reinsurance recoverable asset, as of September 30, 2016$490
$2,547
$1,416
$4,453
[1]These liability balances include all GMDB benefits, plus the life-contingent portion of GMWB benefits in excess of the return of the GRB. GMWB benefits that make up a shortfall between the account value and the GRB are embedded derivatives held at fair value and are excluded from these balances.
[2]Represents life-contingent reserves for which the company is subject to insurance and investment risk.
[3]Includes the portion of assessments established as additions to reserves as well as changes in estimates affecting the reserves.

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Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Reserve for Future Policy Benefits and Separate Account Liabilities (continued)


Account Value by GMDB/GMWB Type as of September 30, 2017
 Account Value (“AV”) [8]Net Amount at Risk (“NAR”) [9]Retained Net Amount at Risk (“RNAR”) [9]Weighted Average Attained Age of Annuitant
Maximum anniversary value (“MAV”) [1]    
MAV only$13,674
$2,047
$305
71
With 5% rollup [2]1,149
143
45
72
With Earnings Protection Benefit Rider (“EPB”) [3]3,482
522
80
71
With 5% rollup & EPB476
105
23
73
Total MAV18,781
2,817
453
 
Asset Protection Benefit (“APB”) [4]10,175
102
70
70
Lifetime Income Benefit (“LIB”) — Death Benefit [5]454
4
4
70
Reset [6] (5-7 years)2,445
6
5
70
Return of Premium (“ROP”) [7]/Other8,852
55
52
71
Subtotal Variable Annuity with GMDB/GMWB [10]40,707
$2,984
$584
71
Less: General Account Value with GMDB/GMWB3,665
   
Subtotal Separate Account Liabilities with GMDB37,042
   
Separate Account Liabilities without GMDB78,584
   
Total Separate Account Liabilities$115,626
   
[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 minimum death 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 $6.3 billion of total account value and weighted average attained age of 73 years. There is no NAR or retained NAR related to these contracts. Includes $1.7 billion of account value for contracts that had a GMDB at issue but no longer have a GMDB due to certain elections made by policyholders or their beneficiaries.
Account Balance Breakdown of Variable Separate Account Investments for Contracts with Guarantees
Asset typeAs of September 30, 2017As of December 31, 2016
Equity securities (including mutual funds)$34,267
$33,880
Cash and cash equivalents2,775
3,045
Total$37,042
$36,925
As of September 30, 2017 and December 31, 2016, approximately 15% and 16%, respectively, of the equity securities (including mutual funds), in the preceding table were funds invested in fixed income securities and approximately 85% and 84%, respectively, were funds invested in equity securities.
For further information on guaranteed living benefits that are accounted for at fair value, such as GMWB, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

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Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Debt

Senior Notes
On MarchJanuary 15, 2017,2019, The Hartford repaid at maturity the $413 principal amount of its 6.0% senior notes.
In the Navigators Group acquisition, the Company repaid its $416, 5.375%assumed $265 par value 5.75% Senior notes due on October 15, 2023 with a fair value of $284 as of the acquisition date.
On August 19, 2019, The Hartford issued $600 of 2.8% senior notes at maturity.
Junior Subordinated Debentures
On(“2.8% Notes”) due August 19, 2029 and $800 of 3.6% senior notes (“3.6% Notes”) due August 19, 2049 for net proceeds of approximately $1.38 billion, after deducting underwriting discounts and expenses. Under both senior note issuances interest is payable semi-annually in arrears on August 19 and 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 of19, commencing 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.19, 2020. The Hartford, will haveat its option, can redeem the right, on one or more occasions, to defer interest payments due on2.8% Notes and 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 notes3.6% Notes at any time, priorin whole or part, at a redemption price equal to February 12, 2047 (or such earlier datethe greater of 100% of the principal amount being redeemed or a make-whole amount based on whicha comparable maturity US Treasury plus a basis point spread, plus any accrued and unpaid interest, except the RCC terminates by its terms) it can only do so withmake-whole amount is not applicable within the final three months of maturity for the 2.8% Notes and the final six months of maturity for the 3.6% Notes. The spread over the comparable maturity US Treasury for determining the make-whole amount is 20 and 25 basis points for the 2.8% Notes and 3.6% Notes, respectively.
After receiving proceeds from the saleissuance of certain qualifying replacement securities.the 2.8% Notes and 3.6% Notes, in third quarter 2019, The RCC also prohibitsHartford repaid $265 of
5.75% senior notes due 2023 that had been assumed in the Company from redeeming all or anyNavigators Group acquisition, and its $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc., and recognized a loss on extinguishment of debt of $90.
Lloyd's Letter of Credit Facilities
As a result of the acquisition of Navigators Group, The Hartford assumed three existing letter of credit facility agreements: the Club Facility, the Bilateral Facility, and the Australian Dollar Facility. Letters of credit under the Club and Bilateral Facilities are used to provide a portion of the notes on or prior to February 15, 2022.capital requirements at Lloyd's. As of September 30, 2019, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million were outstanding under the Club Facility and $8 was outstanding under the Bilateral Facility. The Bilateral Facility has unused capacity of $17 for issuance of additional letters of credit. Among other covenants, the Club Facility and Bilateral Facility contain financial covenants regarding tangible net worth and Funds at Lloyd's ("FAL"). As of September 30, 2019, Navigators Group was in compliance with all financial covenants.
In April 2017,As of September 30, 2019, letters of credit in the Company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the variable interest payments into fixed interest paymentsamount of approximately 4.39%.24 million Australian Dollars were outstanding with 26 million Australian Dollars of unused capacity.



55
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income Taxes


INCOME TAXES
Income Tax Rate Reconciliation
 Three Months Ended September 30,Nine Months Ended September 30,
 2017201620172016
Tax provision at U.S. federal statutory rate$89
$185
$211
$378
Tax-exempt interest(31)(31)(91)(94)
Dividends-received deduction ("DRD")(37)(14)(75)(57)
Decrease in deferred tax valuation allowance—
—
—
(78)
Stock-based compensation(4)—
(12)—
Sale of U.K. business—
(50)5
(50)
Other5
—
(6)3
Provision for income taxes$22
$90
$32
$102
Income Tax Expense
In addition to the effect of tax-exempt interest and DRD, the Company’s effective tax rate for the three and nine months ended September 30, 2017 reflects a $4 and $12, respectively, 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.
Income Tax Rate Reconciliation
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Tax provision at U.S. federal statutory rate$138
$112
 $396
$333
Tax-exempt interest(14)(16) (43)(50)
Dividends received deduction ("DRD")(3)—
 (5)—
Executive compensation—
1
 5
8
Stock-based compensation(3)(3) (7)(5)
Tax Reform—
11
 —
13
Other—
(2) 1
(2)
Provision for income taxes$118
$103
 $347
$297
Additionally, the Company's effective tax rate for the nine months ended September 30, 2016 reflects a $78 federal income tax benefit from the reduction of the deferred tax asset valuation allowance on the capital loss carryover due to taxable gains on sales of investments during the period.
The separate account DRD is estimated for the current year using information from the most recent return, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments and level of policy owner equity account balances. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received in the mutual funds,
 
amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. The Company evaluates its DRD computations on a quarterly basis.
Roll-forward of Unrecognized Tax Benefits
 Three Months Ended September 30,Nine Months Ended September 30,
 2017201620172016
Balance, beginning of period$12
$12
$12
$12
Gross increases - tax positions in prior period3
—
3
—
Gross decreases - tax positions in prior period—
—
—
—
Balance, end of period$15
$12
$15
$12
Uncertain Tax Positions
The Company's unrecognized tax benefits were increased by $3 for the three and nine months ended September 30, 2017 due to the filing of the Company's 2016 federal consolidated income tax return.
Rollforward of Unrecognized Tax Benefits
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Balance, beginning of period$14
$9
 $14
$9
Gross increases - tax positions in prior period—
5
 —
5
Gross decreases - tax positions in prior period—
—
 —
—
Balance, end of period$14
$14
 $14
$14

The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release.
Other Tax Matters
In July 2019, the Company received a $421 refund of alternative minimum tax (AMT) credits. As of September 30, 2019 the Company had remaining AMT credit carryovers of $413 which are reflected as a current income tax receivable within other assets in the accompanying Condensed Consolidated Balance
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sheets. AMT credits may be used to offset a regular tax liability for any taxable year beginning after December 31, 2017, and are refundable at an amount equal to 50 percent of the excess of the minimum tax credit for the taxable year over the amount of credit allowable for the year against regular tax liability. Any remaining credits not used against regular tax liability are refundable in the 2021 tax year to be realized in 2022. For the three and nine months ended September 30, 2019, the Company offset $2 and $8 of regular tax liability with AMT credits.
The Company had net operating loss (NOL) carryforwards in the United States and the United Kingdom for which future tax benefits of $225 and $1 have been recognized and are included in the Condensed Consolidated Balance Sheet as a component of the net deferred tax asset. The Company also has NOLs in other foreign jurisdictions for which a full valuation allowance has been established. Although the Company projects there will be sufficient future taxable income to fully recover the remainder of the NOL carryover for which benefits have been recognized, the Company's estimate of the likely realization may change over time. The U.S. NOL carryovers, if unused, would expire between 2026 and 2036. The foreign NOLs do not expire.
The federal audit ofaudits for the years 2012Company have been completed through 2013, and 2013 was completed as of March 31, 2017 with no additional adjustments. Thethe Company is not currently under federal examination for any open years. Navigators Group is currently under federal audit of The Company's recently acquired subsidiary Maxum for the 2014 tax2016 year is expected to beand has completed in the fourth quarter of 2017 with no significant adjustments.examinations through 2015. Management believes that adequate provision has been made in the consolidated financial statementsCompany's Condensed Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.
Net deferredThe Company classifies interest and penalties (if applicable) as income taxes include the future tax benefits associated with the net operating loss carryover, foreign tax credit carryover, capital loss carryover, and alternative minimum tax credit carryover.
Future Tax Benefits
 As of 
 September 30, 2017December 31, 2016Expiration
 Carryover amountExpected tax benefit, grossCarryover amountExpected tax benefit, grossDatesAmount
Net operating loss carryover - U.S.$4,938
$1,728
$5,412
$1,894
2020$1
     2023-2036$4,937
Net operating loss carryover - foreign$3
$—
$48
$9
No expiration$3
Foreign tax credit carryover$33
$33
$56
$56
2021-2024$33
Alternative minimum tax credit carryover$742
$742
$640
$640
No expiration$742
General business credit carryover$3
$3
$99
$99
2031-2036$3
Capital loss carryover$44
$15
$—
$—
2022$44



56
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income Taxes (continued)


Net Operating Loss Carryover
Utilization of these loss carryovers is dependent upon the generation of sufficient future taxable income. Most of the net operating loss carryover originated from the Company's U.S. and international annuity business, including from the hedging program. Given the continued run off of the U.S. fixed and variable annuity business, the exposure to taxable losses from the 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 incomeexpense or benefit in the future to utilize its net operating loss carryover. Although the Company projects there will be sufficient future taxable income to fully recover the remainder of the loss carryover, the Company's estimate of the likely realization may change over time.
Tax Credit Carryovers
Alternative Minimum Tax Credits- These credit carryovers are available to offset regular federal income taxes from future taxable income and have no expiration date. Since the Company believes there will be sufficient regular federal taxable income in the future, and these credits have no expiration date, the Company believes it is more likely than not they will be fully utilized and thus no valuation allowance has been provided.
Foreign Tax Credits- As with the alternative minimum tax credits, these credits are available to offset regular federal income taxes from future taxable income. The use of these credits prior to expiration depends on the generation of sufficient taxable income to first utilize all U.S. net operating loss carryovers. However, the Company has identified and begun to purchase certain investments which allow for utilization of the foreign tax credits without first using the net operating loss carryover. Consequently, the Company believes it is more likely than not the foreign tax credit carryover will be fully realized. Accordingly, no valuation allowance has been provided.
Capital Loss Carryover- The Capital loss carryover is a result of the sale of Hartford Financial Products International Limited in May 2017, partially offset by year to date realized taxable capital gains.  Utilization of the capital loss carryover requires the Company to realize sufficient taxable capital gains.condensed consolidated financial statements. The Company expectsrecognized net interest income of $1 for the three and nine months ended September 30, 2019 related to generate sufficient taxable capital gainsthe AMT refund and $0 for the three and nine months ended September 30, 2018. The Company had 0 interest payable as of September 30, 2019 and 2018. The Company does not believe it would be subject to any penalties in the future to utilize the capital loss carryover,any open tax years and, thus no valuation allowancetherefore, has been provided.  Although the Company projects there will be sufficient future taxable capital gains to fully recover the remainder of the capital loss carryover, the Company’s estimate of the likely realization may change over time.not recorded any accrual for penalties.



57
12. COMMITMENTS AND CONTINGENCIES
Table
Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management establishes liabilities for these contingencies at its “best estimate,” or, if no one number within the range of Contentspossible losses is more probable than any other, the Company records an estimated liability at the low end of the range of losses.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and Contingencies

Litigation
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it.it, including claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper claims practices. 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“Run-off 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 actionslawsuits seeking certification of a state or national class. Such putative class actions have alleged,alleging improper business practices, including, 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 inwell as individual actionslawsuits 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.may be sought. 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’sCompany'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.
Mutual Funds Litigation — In February 2011, a derivative action was brought on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that Hartford Investment Financial Services,
LLC (“HIFSCO”), an indirect subsidiary of the Company, received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. During the course of the litigation, the claims regarding distribution fees were dismissed without prejudice, the lineup of funds as plaintiffs changed several times, and the plaintiffs added as a defendant Hartford Funds Management Company (“HFMC”), an indirect subsidiary of the Company that assumed the role of advisor to the funds as of January 2013. In June 2015, HFMC and HIFSCO moved for summary judgment, and plaintiffs cross-moved for partial summary judgment with respect to one fund. In March 2016, the court denied the plaintiff's motion, and granted summary judgment for HIFSCO and HFMC with respect to one fund, leaving six funds as plaintiffs: The Hartford Balanced Fund, The Hartford Capital Appreciation Fund, The Hartford Floating Rate Fund, The Hartford Growth Opportunities Fund, The Hartford Healthcare Fund, and The Hartford Inflation Plus Fund. The court further ruled that the appropriate measure of damages on the surviving claims would be the difference, if any, between the actual advisory fees paid through trial and the fees permitted under the applicable legal standard. A bench trial on the issue of liability was held in November 2016. In February 2017, the court granted judgment for HIFSCO and HFMC as to all claims. Plaintiffs have appealed to the United States Court of Appeals for the Third Circuit.
Run-off Asbestos and Environmental Claims–The Company continues to receive asbestos and environmental ("A&E") claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.
The vast majority of the Company's exposure to A&E relates to policy coverages provided prior to 1986, reported within the P&C Other Operations segment (“Runoff A&E”). In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments. 
Prior to 1986, the Company wrote several different categories of insurance contracts that may cover A&E claims. First, the Company wrote primary policies providing the first layer of coverage in an insured’s liability program. Second, the Company wrote excess and umbrella policies providing higher layers of coverage for losses that exhaust the limits of underlying coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other insurers writing primary, excess, umbrella and reinsurance coverages.
Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid gross losses and expenses related to environmental and particularly asbestos claims. The degree of variability of gross reserve estimates for these exposures is significantly greater than for other more traditional exposures.
In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

emerging legal doctrines. Furthermore, over time, insurers, including the Company, have experienced significant changes in the rate at which asbestos claims are brought, the claims experience of particular insureds, and the value of claims, making predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy proceedings, including “pre-packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some policyholders have asserted new classes of claims for coverages to which an aggregate limit of liability may not apply. Further uncertainties include insolvencies of other carriers and unanticipated developments pertaining to the Company’s ability to recover reinsurance for A&E claims. Management believes these issues are not likely to be resolved in the near future.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims, and uncertainty as to the monetary amount being sought by the claimant from the insured.
The reporting pattern for assumed reinsurance claims, including those related to A&E claims, is much longer than for direct claims. In many instances, it takes months or years to determine that the policyholder’s own obligations have been met and how the reinsurance in question may apply to such claims. The delay in reporting reinsurance claims and exposures adds to the uncertainty of estimating the related reserves.
It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of A&E claims.
Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the ultimate cost of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for A&E exposures. For this reason, 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 environmentalA&E exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year.year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity.
While the Company believes that its current asbestos and environmentalA&E reserves are appropriate, significant uncertainties limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not reasonably estimable now, could be material to The Hartford’s consolidated operating results and liquidity.
UnderFor its Run-off A&E, as of September 30, 2019, the Company reported $910 of net asbestos reserves and $133 of net environmental reserves. While the Company believes that its current Run-off A&E reserves are appropriate, significant uncertainties limit our ability to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and
any such additional liability, while not reasonably estimable now, could be material to The Hartford's consolidated operating results and liquidity.
Effective December 31, 2016, the Company entered into an A&E adverse development cover (“ADC”("ADC") reinsurance agreement with National Indemnity Company (“NICO”), a subsidiaryNICO to reduce uncertainty about potential adverse development of Berkshire Hathaway Inc.,A&E reserves. Under the ADC, the Company paid a reinsurance premium of $650 for NICO to reinsureassume adverse development of net asbestos and environmental loss and allocated loss adjustment expense reserves of a set amountreserve development up to $1.5 billion above the Company'sCompany’s existing net asbestos and environmentalA&E reserves as of December 31, 2016. For further information2016 of approximately $1.7 billion. The $650 reinsurance premium was placed in a collateral trust account as security for NICO’s claim payment obligations to the Company. Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid are recognized as a dollar-for-dollar offset to gross 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 A&E claims after December 31, 2016 in excess of $650 may result in significant charges against earnings. Furthermore, cumulative adverse development of A&E claims could ultimately exceed the $1.5 billion treaty limit in which case any 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 charges could be material to the Company’s consolidated operating results and liquidity. As of September 30, 2019, the Company has incurred $523 in cumulative adverse development on A&E reserves that have been ceded under the reinsurance agreement, see Note 8 - ReinsuranceADC treaty with NICO, leaving approximately $977 of Notes to Consolidated Financial Statements, included in The Hartford's 2016 Form 10-K Annual Report.coverage available for future adverse net reserve development, if any.

58
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and Contingencies (continued)

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 September 30, 20172019 was $1.3 billion.81. For this $1.3 billion,81, the legal entities have posted collateral of $95580 in the normal course of business. In addition, the Company has posted collateral of $31 associated with a customized GMWB derivative. Based on derivative market values as of September 30, 20172019, a downgrade of one level below the current financial strength
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

ratings by either Moody's or S&P would not require an additional $7 of assets to be posted as collateral. Based on derivative market values as of September 30, 20172019, a downgrade of two levels below the current financial strength ratings by either Moody's or S&P would require an additional $17$8 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 additional collateral that we would post, whenif required, iswould be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.
On October 23, 2017, Moody’s lowered its counterparty credit
13. EQUITY
Capital Purchase Program ("CPP") Warrants
CPP warrants were issued in 2009 as part of a program established by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008. The CPP warrants expired on June 26, 2019.
CPP warrant exercises were 0.1 million for the three months ended September 30, 2018. CPP warrant exercises were 1.9 million and insurer financial strength ratings on Hartford Life0.2 million for the nine months ended September 30, 2019 and Annuity Insurance Company and Hartford Life Insurance Company to Baa3.  Given this downgrade action, termination rating triggers in three derivative counterparty relationships were impacted.  The Company is in the process2018, respectively. As of re-negotiating the rating triggers which it expects to successfully complete.  Accordingly,December 31, 2018, the Company does not expecthad 1.9 million of CPP warrants outstanding and exercisable.
Equity Repurchase Program
In February, 2019, the current hedging programs to be adversely impactedCompany announced a $1.0 billion share repurchase authorization by the announcementBoard of Directors which is effective through December 31, 2020. Based on projected holding company resources, the Company has begun share repurchases in 2019 but anticipates using the majority of the downgradeprogram in 2020. Any repurchase of Hartford Lifeshares under the equity repurchase program is dependent on market conditions and Annuity Insurance Company and Hartford Life Insurance Company.  As of September 30, 2017,other factors.
During the notional amount and fair value relatedperiod October 1, 2019 to these three derivative counterparties is $989 and $43, respectively.  These counterparties have not exercised their right to terminate these relationships and, if they did, would have to settle all of the outstanding derivatives.  In addition, as a result of the downgrade of Hartford Life and Annuity Insurance Company,November 1, 2019, the Company is required to post an additional $7 of collateral related to a single counterparty relationship.

repurchased approximately 0.6 million common shares for $36.

Equity Repurchase Activity and Remaining Repurchase Capacity
Three months ended
Common Shares
Repurchased
Cost of Shares RepurchasedAverage Price Paid per ShareRemaining Capacity Under Share Repurchase Authorization
(In millions, except for per share data)    
June 30, 20190.5
$27
$53.84
$973
September 30, 20191.1
$63
$58.50
$910
Total1.6
$90
  
59
14. CHANGES IN AND RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Table of Contents
Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2019
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan Adjustments
AOCI,
net of tax
Beginning balance$1,367
$(3)$11
$34
$(1,607)$(198)
OCI before reclassifications458
—
8
(4)1
463
Amounts reclassified from AOCI(57)—
(2)—
8
(51)
     OCI, net of tax401
—
6
(4)9
412
Ending balance$1,768
$(3)$17
$30
$(1,598)$214

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Equity


Capital Purchase Program ("CPP") Warrants
Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2019
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan Adjustments
AOCI,
net of tax
Beginning balance$24
$(4)$(5)$30
$(1,624)$(1,579)
OCI before reclassifications1,857
1
27
—
1
1,886
Amounts reclassified from AOCI(113)—
(5)—
25
(93)
     OCI, net of tax1,744
1
22
—
26
1,793
Ending balance$1,768
$(3)$17
$30
$(1,598)$214
As of September 30, 2017 and December 31, 2016, respectively, the Company has 2.3 million and 4.0 million of CPP warrants outstanding and exercisable.
CPP warrant exercises were 0.6 million and 0.1 million for the three months ended September 30, 2017 and 2016, respectively. CPP warrant exercises were 1.7 million and 0.3 million for the nine months ended September 30, 2017 and 2016, respectively.
The declaration of common stock dividends by the Company in excess of a threshold triggers a provision in the Company's warrant agreement with The Bank of New York Mellon resulting in adjustments to the CPP warrant exercise price. Accordingly, the declaration of a common stock dividend during the three months ended September 30, 2017 resulted in an adjustment to

the CPP warrant exercise price. The CPP warrant exercise price was $9.030 as of September 30, 2017 and $9.126 as of December 31, 2016.
Reclassifications from AOCI
 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities   
Available-for-sale securities$72
$143
Net realized capital gains
 72
143
Total before tax
 15
30
 Income tax expense
 $57
$113
Net income
Net Gains on Cash Flow Hedging Instruments   
Interest rate swaps$—
$2
Net realized capital gains
Interest rate swaps1
1
Net investment income
Interest rate swaps—
1
Interest expense
Foreign currency swaps1
2
Net investment income
 2
6
Total before tax
 —
1
 Income tax expense
 $2
$5
Net income
Pension and Other Postretirement Plan Adjustments   
Amortization of prior service credit$2
$5
Insurance operating costs and other expenses
Amortization of actuarial loss(12)(37)Insurance operating costs and other expenses
 (10)(32)Total before tax
 (2)(7) Income tax expense
 $(8)$(25)Net income
Total amounts reclassified from AOCI$51
$93
Net income
Equity Repurchase Program
The Company's authorization for equity repurchases is $1.3 billion for the period October 31, 2016 through December 31, 2017.
Effective October 13, 2017 the Company suspended 2017 equity repurchases. The company does not currently expect to authorize an equity repurchase plan in 2018.
During the period October 1, 2017 through October 12, 2017, the Company repurchased approximately 0.9 million common shares for $52.

Equity Repurchase Activity and Remaining Repurchase Capacity
Three months ended
Common Shares
Repurchased
Cost of Shares RepurchasedAverage Price Paid per ShareRemaining Capacity Under Share Repurchase Authorization
(In millions, except for per share data)    
March 31, 20176.7
$325
$48.47
$975
June 30, 20176.6
$325
$49.34
$650
September 30, 20176.0
$325
$54.35
$325
Total19.3
$975


 


60
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Changes In
Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2018
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan Adjustments
AOCI,
net of tax
Beginning balance$211
$(3)$(12)$33
$(1,582)$(1,353)
OCI before reclassifications(183)(1)1
1
1
(181)
Amounts reclassified from AOCI12
—
(6)—
9
15
     OCI, net of tax(171)(1)(5)1
10
(166)
Ending balance$40
$(4)$(17)$34
$(1,572)$(1,519)

Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2018
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan Adjustments
AOCI,
net of tax
Beginning balance$1,931
$(3)$18
$34
$(1,317)$663
Cumulative effect of accounting changes, net of tax [1]273
—
2
4
(284)(5)
Adjusted balance, beginning of period2,204
(3)20
38
(1,601)658
OCI before reclassifications [2](2,213)—
(12)(4)—
(2,229)
Amounts reclassified from AOCI49
(1)(25)—
29
52
     OCI, net of tax(2,164)(1)(37)(4)29
(2,177)
Ending balance$40
$(4)$(17)$34
$(1,572)$(1,519)

[1] Includes reclassification to retained earnings of $88 of stranded tax effects and Reclassifications From Accumulated Other Comprehensive Income
$93 of net unrealized gains, net of tax, related to equity securities. For further discussion of these reclassifications, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to the Consolidated Financial Statements included in The Hartford's 2018 Form 10-K Annual Report.

Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2017
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI, net of tax
Beginning balance$1,755
$(3)$57
$13
$(1,328)$494
OCI before reclassifications119
(1)(2)14
1
131
Amounts reclassified from AOCI(34)—
(12)—
6
(40)
     OCI, net of tax85
(1)(14)14
7
91
Ending balance$1,840
$(4)$43
$27
$(1,321)$585
Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2017
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI, net of tax
Beginning balance$1,276
$(3)$76
$6
$(1,692)$(337)
OCI before reclassifications683
(1)7
21
(144)566
Amounts reclassified from AOCI(119)—
(40)—
515
356
     OCI, net of tax564
(1)(33)21
371
922
Ending balance$1,840
$(4)$43
$27
$(1,321)$585

61
Table[2]The reduction in AOCI included the effect of Contentsremoving $758 of Talcott Resolution AOCI from the balance sheet when the business was sold effective May 31, 2018.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Changes In and Reclassifications From Accumulated Other Comprehensive Income (continued)


Reclassifications from AOCI
 Three Months Ended September 30, 2018Nine Months Ended September 30, 2018Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Loss on Securities   
Available-for-sale securities$(15)$(59)Net realized capital gains
 (15)(59)Total before tax
 (3)(12) Income tax expense
 —
(2)Income from discontinued operations, net of tax
 $(12)$(49)Net income
OTTI Losses in OCI   
Other than temporary impairments$—
$—
Net realized capital gains 
 —
—
Income before taxes
 —
—
Income tax expense (benefit)
 $—
$1
Income from discontinued operations, net of tax
 $—
$1
Net Income (loss)
Net Gains on Cash Flow Hedging Instruments   
Interest rate swaps$—
$1
Net realized capital gains
Interest rate swaps7
24
Net investment income
 7
25
Total before tax
 1
5
 Income tax expense (benefit)
 —
5
Income from discontinued operations, net of tax
 $6
$25
Net income
Pension and Other Postretirement Plan Adjustments   
Amortization of prior service credit$2
$5
Insurance operating costs and other expenses
Amortization of actuarial loss(14)(42)Insurance operating costs and other expenses
 (12)(37)Total before tax
 (3)(8) Income tax expense
 $(9)$(29)Net income
Total amounts reclassified from AOCI$(15)$(52)Net income

Reclassifications from AOCI
 Three Months Ended September 30, 2017Nine Months Ended September 30, 2017Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities   
Available-for-sale securities$52
$183
Net realized capital gains (losses)
 52
183
Income before income taxes

 18
64
Income tax expense
 $34
$119
Net income
Net Gains on Cash Flow Hedging Instruments   
Interest rate swaps$—
$4
Net realized capital gains (losses)
Interest rate swaps15
47
Net investment income
Foreign currency swaps4
10
Net realized capital gains (losses)
 19
61
Income before income taxes

 7
21
Income tax expense
 $12
$40
Net income
Pension and Other Postretirement Plan Adjustments   
Amortization of prior service credit$2
$—
Insurance operating costs and other expenses
Amortization of actuarial loss(12)(45)Insurance operating costs and other expenses
Settlement loss—
(747)Insurance operating costs and other expenses
 (10)(792)
Income before income taxes

 (4)(277)Income tax expense
 $(6)$(515)Net income
Total amounts reclassified from AOCI$40
$(356)Net income

62
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)

Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2016
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI, net of tax
Beginning balance$2,437
$(10)$200
$(68)$(1,659)$900
OCI before reclassifications72
4
(17)78
—
137
Amounts reclassified from AOCI(50)1
(11)—
10
(50)
     OCI, net of tax22
5
(28)78
10
87
Ending balance$2,459
$(5)$172
$10
$(1,649)$987
Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2016
 Changes in
 Net Unrealized Gain on SecuritiesOTTI Losses in OCINet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI, net of tax
Beginning balance$1,279
$(7)$130
$(55)$(1,676)$(329)
OCI before reclassifications1,263
(1)78
65
—
1,405
Amounts reclassified from AOCI(83)3
(36)—
27
(89)
     OCI, net of tax1,180
2
42
65
27
1,316
Ending balance$2,459
$(5)$172
$10
$(1,649)$987

63
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)

Reclassifications of AOCI
 Three Months Ended September 30, 2016Nine Months Ended September 30, 2016Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities   
Available-for-sale securities$77
$128
Net realized capital gains (losses)
 77
128
Income before income taxes
 27
45
Income tax expense
 $50
$83
Net income
OTTI Losses in OCI   
Other than temporary impairments$(1)$(5)Net realized capital gains (losses)
 (1)(5)
Income before income taxes

 —
(2)Income tax expense
 $(1)$(3)Net Income
Net Gains on Cash Flow Hedging Instruments   
Interest rate swaps$—
$7
Net realized capital gains (losses)
Interest rate swaps16
46
Net investment income
Foreign currency swaps1
3
Net realized capital gains (losses)
 17
56
Income before income taxes

 6
20
Income tax expense
 $11
$36
Net income
Pension and Other Postretirement Plan Adjustments   
Amortization of prior service credit$2
$5
Insurance operating costs and other expenses
Amortization of actuarial loss(17)(46)Insurance operating costs and other expenses
 (15)(41)
Income before income taxes

 (5)(14)Income tax expense
 $(10)$(27)Net income
Total amounts reclassified from AOCI$50
$89
Net income

64
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Employee Benefit Plans

EMPLOYEE BENEFIT PLANS
The Company’s employee benefit plans are described in Note 18 - Employee Benefit Plans of Notes to Consolidated Financial Statements included in The Hartford’s 20162018 Annual Report on
Form 10-K.
On June 30, 2017, the The Company, transferred invested assets and cash from pension plan assets to purchase a group annuity contract that transferred approximately $1.6 billion of the Company’s outstanding pension benefit obligations related to certain U.S. retirees, terminated vested participants, and beneficiaries. As a result of this transaction, in the second quarter of 2017, the Company recognized a pre-tax settlement charge of $750 ($488 after-tax) and a reduction to shareholders' equity of $144.
In connection with this transaction, the Companyat its discretion, made a contribution of $280$70 in September 20172019 to the U.S. qualified defined benefit pension plan in order to maintain the plan's pre-transaction funded status.
Beginning with the first quarter of 2017, the Company adopted the full yield curve approach in the estimation of the interest cost component of net periodic benefit costs for its qualified and non-qualified pension plans and the postretirement benefit plan. The full yield curve approach applies the specific spot rates along the yield curve that are used in its determination of the projected
benefit obligation at the beginning of the year. The change has been made to provide a better estimate of the interest cost component of net periodic benefit cost by better aligning projected benefit cash flows with corresponding spot rates on the yield curve rather than using a single weighted average discount rate derived from the yield curve as had been done historically.
This change does not affect the measurement of the Company's total benefit obligations as the change in the interest cost in net income is completely offset in the actuarial (gain) loss reported for the period in other comprehensive income. The change reduced the before tax interest cost component of net periodic benefit cost by $9 and $28 for the three and nine months ended September 30, 2017, respectively. 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.
Net Periodic Cost (Benefit)
 Pension Benefits Other Postretirement Benefits
 Three Months Ended September 30,Nine months ended September 30, Three Months Ended September 30,Nine months ended September 30,
 2019201820192018 2019201820192018
Service cost$1
$1
$3
$3
 $—
$—
$—
$—
Interest cost40
36
119
107
 2
1
6
4
Expected return on plan assets(57)(57)(170)(172) (1)(2)(3)(5)
Amortization of prior service credit—
—
—
—
 (2)(2)(5)(5)
Amortization of actuarial loss11
12
33
37
 1
2
4
5
Net periodic cost (benefit)$(5)$(8)$(15)$(25) $—
$(1)$2
$(1)
Components of Net Periodic Cost (Benefit)
 Pension BenefitsOther Postretirement Benefits
 Three Months Ended September 30,Three Months Ended September 30,
 2017201620172016
Service cost$1
$1
$—
$—
Interest cost36
60
2
2
Expected return on plan assets(55)(78)(2)(2)
Amortization of prior service credit—
—
(2)(2)
Amortization of actuarial loss11
15
1
2
Settlements—
—
—
—
Net periodic cost (benefit)$(7)$(2)$(1)$—
Components of Net Periodic Cost (Benefit)
 Pension BenefitsOther Postretirement Benefits
 Nine months ended September 30,Nine months ended September 30,
 2017201620172016
Service cost$3
$2
$6
$—
Interest cost134
178
(6)8
Expected return on plan assets(214)(231)(5)(7)
Amortization of prior service credit—
—
—
(5)
Amortization of actuarial loss41
42
4
4
Settlements750
—
—
—
Net periodic cost (benefit)$714
$(9)$(1)$—


65
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. Subsequent Event


LEASES
On October 23, 2017,The Hartford has operating leases for real estate and equipment. The right-of-use asset as of September 30, 2019 was $200 and is included in property and equipment, net, in the Company announced thatCondensed Consolidated Balance Sheet. The lease liability as of September 30, 2019 was $209 and is included in other liabilities in the Condensed Consolidated Balance Sheet. Variable lease costs include changes in interest rates on variable rate leases primarily for automobiles.
Components of Lease Expense
 Three Months Ended September 30,Nine Months Ended September 30,
 20192019
Operating lease cost$13
$36
Short-term lease cost—
1
Variable lease cost—
1
Sublease income(1)(4)
Total lease costs included in insurance operating costs and other expenses$12
$34

Supplemental Operating Lease Information
 September 30, 2019
Operating cash flows for operating leases (for the nine months ended)$36
Weighted-average remaining lease term in years for operating leases6 years
Weighted-average discount rate for operating leases3.6%

Maturities of Operating Lease Liabilities
 As of September 30, 2019
2019$13
202051
202139
202233
202330
Thereafter66
Total lease payments232
Less: Discount on lease payments to present value23
Total lease liability$209

In July 2019, The Hartford Life and Accident Insurance Company (HLA), a wholly owned subsidiary of the Company, entered into a definitive agreement to purchase the U.S. group12 year operating lease for office space, which will result in an additional right-of-use asset and lease liability of approximately $34 upon lease commencement in July 2020.

17. BUSINESS DISPOSITION AND DISCONTINUED OPERATIONS
Sale of life and disability insuranceannuity business
On May 31, 2018, the Company’s wholly-owned subsidiary, Hartford Holdings, Inc., completed the sale of Aetna, Inc. (“Aetna”) throughits life and annuity business to a reinsurance transaction. HLA will pay cash considerationgroup of $1.45 billion, primarilyinvestors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group, Pine Brook and J. Safra Group. Under the terms of the sale agreement signed December 3, 2017, the investor group formed a limited partnership, Hopmeadow Holdings LP, that acquired HLI, and its life and annuity operating subsidiaries. The Hartford received a 9.7% ownership interest in the form of a ceding commission to an Aetna subsidiary that is cedinglimited partnership. The life and annuity operations met the business to HLA. Under the reinsurance agreement, the Company will receive invested assets with a fair value of approximately$3.4 billioncriteria for reporting as discontinued operations and will assume fair value reserves of approximately$3.3 billion after taking into account estimated purchase accounting adjustments. The transaction is expected to closeare reported in the fourth quarterCorporate category through the date of 2017, subjectsale.
The Hartford reported its 9.7% ownership interest in Hopmeadow Holdings LP, which is accounted for under the equity
method, in other assets in the Condensed Consolidated Balance Sheet. The Hartford recognizes its share of income in other revenues in the Condensed Consolidated Statement of Operations on a three month delay, when financial information from the investee becomes available. The Company recognized $14 and $45, before tax, of income for the three and nine months ended September 30, 2019, respectively. Cash inflows for dividends received from Hopmeadow Holdings LP were $67 for the three and nine months ended September 30, 2019. Other cash inflows and outflows from and to customarythe life and annuity business after closing conditions.were immaterial to the overall inflows and outflows of the Company.

For further information on the sale, including ongoing transactions with the life and annuity business sold, see Note 20 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements, included in The Hartford's 2018 Form 10-K Annual Report.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

66
Reconciliation of the Major Line Items Constituting Pretax Profit (Loss) of Discontinued Operations
 Three Months Ended September 30,Nine Months Ended September 30,
 20182018
Revenues  
Earned premiums$—
$39
Fee income and other—
382
Net investment income—
519
Net realized capital gains (losses)4
(68)
Total revenues4
872
Benefits, losses and expenses 
 
Benefits, losses and loss adjustment expenses—
535
Amortization of DAC—
58
Insurance operating costs and other expenses [1](5)157
Total benefits, losses and expenses(5)750
Income before income taxes9
122
Income tax expense (benefit)(7)2
Income from operations of discontinued operations, net of tax16
120
Net realized capital gain (loss) on disposal, net of tax(11)202
Income from discontinued operations, net of tax$5
$322
[1]Corporate allocated overhead has been included in continuing operations.
Cash Flows from Discontinued Operations
 Nine Months Ended September 30,
 2018
Net cash provided by operating activities from discontinued operations$603
Net cash provided by investing activities from discontinued operations$463
Net cash used in financing activities from discontinued operations [1]$(737)
Cash paid for interest$—
[1]
Excludes return of capital to parent of $619 for the nine months ended September 30, 2018.
Cash flows from discontinued operations are included in the Condensed Consolidated Statement of Cash Flows.






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 for per 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 34 and 45 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion and indiscussion; Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q; Part I, Item 1A, Risk Factors in The Hartford’s 20162018 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 OctoberMay 23, 2017,2019, the Company completed the previously announced that Hartford Life and Accidentacquisition of The Navigators Group, Inc. ("Navigators Group"), a global specialty underwriter, for $70 a share, or $2.137 billion in cash, including transaction expenses. Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse development (“Navigators ADC”) from National Indemnity Company ("NICO") on behalf of Navigators Insurance Company (HLA)and certain of its affiliates (collectively, the “Navigators Insurers”). For further information regarding the Navigators ADC, refer to Insurance Risk in the Enterprise Risk Management section.
On May 31, 2018, Hartford Holdings, Inc., a wholly owned subsidiary of the Company, entered intocompleted the sale of the issued and outstanding equity of Hartford Life, Inc. (“HLI”), a definitive agreement to purchase Aetna’s groupholding company, and its life and disability insurance business through a reinsurance transaction.annuity operating subsidiaries. For discussion of this transaction, see Note 1617 - Subsequent EventsBusiness Disposition and Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
On May 10, 2017,February 16, 2018, The Hartford entered into a renewal rights agreement with the Company completed the sale of its U.K. property and casualty run-off subsidiaries. The operating resultsFarmers Exchanges, of the Company's U.K. property and casualty run-off subsidiaries are includedFarmers Insurance Group of Companies, to acquire its Foremost-branded small commercial business sold through independent agents. Written premium from this agreement began in the P&C Other Operations reporting segment. For discussionthird quarter of this transaction, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements.2018.
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.
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 CommercialDistribution costs within the Commercial Lines reportingHartford Funds segment to the Personal Lines reporting segment. This realignment did not materially impactthat were 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 netnetted against fee income or core earnings.are presented gross in insurance operating costs and other expenses.
The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful.
INDEX
DescriptionPage
Key Performance Measures and Ratios
6754
The Hartford's Operations
7258
Consolidated Results of Operations
7661
Investment Results
65
Critical Accounting Estimates
66
Commercial Lines
74
Personal Lines
78
Critical Accounting Estimates
81
Commercial Lines
91
Personal Lines
95
Property & Casualty Other Operations
10083
Group Benefits
10184
Hartford Funds
86
Mutual FundsCorporate
10488
Talcott ResolutionEnterprise Risk Management
10689
CorporateCapital Resources and Liquidity
10999
Enterprise Risk Management
110
Capital Resources and Liquidity
123
Impact of New Accounting Standards
130105
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
Assets Under Management ("AUM")- include mutual fund and exchange-traded products ("ETP") assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the Company’s mutual fund and ETP revenues are based upon asset values. These revenues


67





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





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 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-Share excluding AOCI, accumulated other comprehensive income ("AOCI")-is calculated based upon a non-GAAP financial measure. It is calculated by dividing (a) totalcommon stockholders' equity, excluding AOCI, afternet of tax, by (b) common shares outstanding and dilutive potential common shares. Book value per diluted share is the most directly comparable U.S. GAAP ("GAAP") measure. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes it is useful to investors because it eliminates the effect of items in AOCI that can fluctuate significantly from period to period, primarily based on changes in interest rates.
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 restructuringany deferred gain resulting from retroactive reinsurance and othersubsequent changes in the deferred gain, integration and transaction costs pension settlements,in connection with an acquired business, loss on extinguishment of debt, reinsurance gains and losses from disposalon reinsurance transactions, change in loss reserves upon acquisition of businesses,a
business, income tax benefit from a reduction in deferred income tax valuation allowance, and results of discontinued operations and the impact of Unlocks to deferred policy acquisition costs ("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. Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain are excluded from core earnings given that these reinsurance agreements economically transfer risk to the reinsurers and including the benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business.Core earnings are net of preferred stock dividends declared since they are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding. Net income (loss) is, net income (loss) available to common stockholders and income (loss) from continuing operations, net of tax, available to common stockholders are the most directly comparable U.S. GAAP measure.measures to core earnings. Core earnings should not be considered as a substitute for net income (loss), net income (loss) available to common stockholders or income (loss) from continuing operations, net of tax, available to common stockholders 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), net income (loss) available to common stockholders, income (loss) from continuing operations, net of tax, available to common stockholders and core earnings when reviewing the Company’s performance.
Reconciliation of Net Income (Loss) to Core Earnings
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016 20172016
Net income$234
$438
 $572
$977
Less: Unlock benefit (charge), before tax23
(13) 61
18
Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax(5)(13) 50
(110)
Less: Pension settlement, before tax—
—
 (750)—
Less: Income tax benefit (expense) [1](6)51
 222
149
Core earnings$222
$413
 $989
$920
 Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018
Net income$535
$432
$1,537
$1,611
Preferred stock dividends11
—
16
—
Net income available to common stockholders524
432
1,521
1,611
Adjustments to reconcile net income available to common stockholders to core earnings:







Net realized capital gains excluded from core earnings, before tax(88)(37)(327)(57)
Loss on extinguishment of debt, before tax90
—
90
6
Loss on reinsurance transaction, before tax—
—
91
—
Integration and transaction costs associated with acquired business, before tax29
12
70
35
Change in loss reserves upon acquisition of a business, before tax—
—
97
—
Income tax expense (benefit)(7)16
(2)18
Income from discontinued operations, net of tax—
(5)—
(322)
Core earnings$548
$418
$1,540
$1,291
[1] Includes income tax benefit on items not included in core earnings



Part I - Item 2. Management's Discussion and other federal income tax benefits.Analysis of Financial Condition and Results of Operations




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 (a) core
earnings by (b) 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

68



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

Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses). on revenues or obscured by the effect on net income of realized capital gains (losses), integration costs, and the impact of Tax Reform on net deferred tax assets. 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 earningsnet income margin and net incomecore earnings 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.
Current Accident Year Catastrophe Ratio-a component of the loss and loss adjustment expense ratio, represents the ratio of catastrophe losses incurred in the current accident year (net of reinsurance) to earned premiums. For U.S. events, 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, as defined by the Property Claim Service office of Verisk. For international events, the Company's approach is similar, informed, in part, by how Lloyd's of London defines catastrophes. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"). The current accident year catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums.
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 ("DAC") and insurance operating costs and expenses, including certain centralized services costs and bad debt expense. Deferred policy acquisition costsDAC 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 including amortization of intangibles and amortization of deferred policy acquisition costs,DAC, to premiums and other considerations, excluding buyout premiums.
The expense ratio for Commercial Lines, Personal Lines and Group Benefits does not include integration and other transaction costs associated with an acquired business.
Fee Income-is largely driven from amounts earned as a result of contractually defined percentages of assets under management including account value of annuities and other products.in our Hartford Funds business. 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 and loss adjustment expenses incurred for both the current and prior accident years, as well as the costs of mortality and morbidity and other contractholder benefits to policyholders.years. 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 ratemakingrate-making 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 claimsloss and loss adjustment expenses 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 resultsprofitability 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-are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s consolidated financial statements.Condensed Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment 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



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




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 represents 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 (small commercial and middle market lines within middle & large commercial) 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.

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

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.the Company ceding losses to reinsurers.
Renewal Earned Price Increase (Decrease)-Written premiums are earned over the policy term, which is six 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 standard commercial lines policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy since the prior year 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 Hartford Funds segment’s operating performance. ROA, core earnings is calculated by dividing core earnings by a daily average AUM. 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 businessesHartford Funds segment because it reveals trends in our businessesbusiness 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.Hartford Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, and ROA, core earnings and ROA when reviewing the Company’sHartford Funds segment 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 - MutualHartford Funds.
Underlying Combined Ratio- a non-GAAP financial measure that represents the combined ratio before catastrophes, and prior accident year development.development and change in current accident year loss reserves recorded upon acquisition of a business. 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.development and current accident year change in loss reserves upon acquisition of a business. 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-taxbefore tax measure that represents earned premiums less incurred losses, loss adjustment expenses, amortization of DAC, underwriting expenses, amortization of other intangible assets and underwriting expenses.dividends to policyholders. 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



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




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-taxbefore tax profitability derived from underwriting activities, which are managed separately from the Company's investing activities. A reconciliation of net income (loss) to underwriting gain (loss) to net income (loss) foris set forth in the Results of Operations section within MD&A - Commercial Lines, Personal Lines and Property & Casualty Other Operations is set forth in segment sections of MD&A.Operations.
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 and disability 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

70



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

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 policiespremium remaining in-force from year-to-year.

71



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 sixfive reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits Mutualand Hartford Funds, and Talcott Resolution, as well as a Corporate category. The HartfordCompany includes in itsthe Corporate category discontinued operations related to the Company’slife and annuity business sold in May 2018, reserves for run-off structured settlement and terminal funding agreement liabilities, capital raising activities (including debt financing and related interest expense,expense), purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments)segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). Talcott Resolution is the new holding company of the life and annuity business that we sold in May 2018. In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold.
The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) fee income, including asset
management fees on separate account, mutual fund and ETP assets, mortality and expense fees, as well as cost of insurance charges;assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force. Asset management fees and mortality and expense fees are primarily generated from separate account assets and assets under management. Cost of insurance charges are assessed on the net amount at risk for investment-oriented life insurance products.
The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments.
departments and the Lloyd's Syndicate's ability to write business is subject to Lloyd's approval for its premium capacity each year.
Similar to Property & Casualty, profitability of the Group Benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss and expense trends emerge adversely during the rate guarantee period. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly from expected investment yields, affecting profitability of the business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies.
The financial results inof the Company’s mutual fund ETP and variable annuityETP businesses depend largely on the amount of the contractholder or shareholder account value or assets under



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




management on which it earns fees and the level of fees charged.charged based, in part, on asset share class and product type. Changes in account value or assets under management are driven by two main factors:factors, net flows, and the market return of the funds, which isare heavily influenced by the return realized in the equity and fixed incomebond markets. Net flows are comprised of deposits less withdrawals and surrenders, redemptions, death benefits, policy charges and annuitizations of investment type contracts, such as variable annuity contracts. In the mutual fund and ETP business, net flows are known as net sales. Net sales are comprised of new sales less redemptions by mutual fund and ETP shareholders. The Company uses the average daily value of the S&P 500 Index as an indicator for evaluating market returns of the underlying account portfolios for the variable annuity business. Financial results of variable products are highly correlated to the growth in account values or assets under management since these products generally earn fee income on a daily basis. Equity and fixed income market movements could also result in benefits for or charges against DAC.
The profitability of fixed annuities and other “spread-based” products depends largely on the Company’s ability to earn target spreads between earned investment rates on its general account assets and interest credited to policyholders.
The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losslosses 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 debtloan 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-taxnet of 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 20162018 Form 10-K Annual Report.

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

Financial Highlights
Net Income Available to Common StockholdersNet Income Available to Common Stockholders per Diluted ShareBook Value per Diluted Share
hig0930201_chart-10125.jpghig0930201_chart-11197.jpghig0930201_chart-12291.jpgchart-5168ff1cea9459b9a68.jpgchart-48b7daf707a154e484a.jpgchart-b74b767e4f67599bbaa.jpg
Net incomedecreased available to $234, or $0.65 per basic share and $0.64 per diluted share,common stockholders increased from third quarter 2016 net income of $438, or $1.14 per basic share and $1.12 per diluted share,2018 primarily due to catastrophe losses from hurricanes Harveylower current accident year catastrophes, a lower group disability loss ratio, an increase in net realized capital gains, and Irma in the third quarter 2017,higher net investment income, partially offset by a loss on extinguishment of debt in the accretive effect of share repurchases over the past year.2019 period and higher integration costs.
Common share repurchases during third quarter 2017 totaled $325, or 6 million shares and $258 of dividends were paid to shareholders.
Book value per diluted shareincreased to $47.33 from $44.35 as of December 31, 20162018, as a result of a 4% decrease23% increase in common shares outstanding and dilutive potential common shares and a 2% increase in stockholders' equity resulting primarily from net income and an increase in accumulated other comprehensive income (AOCI) over the nine month period, partially offset by common dividends and share repurchases. AOCI increased due to higher net unrealized capital gains and a reduction in unamortized actuarial losses on benefit plans due to a pension settlement in second quarter 2017.
Net Investment Income   Annualized Investment Yield After-tax
hig0930201_chart-13172.jpghig0930201_chart-14318.jpg
Net investment income of $729 decreased 6% compared with third quarter 2016 primarily due to lower income from limited partnerships and other alternative investments as well as lower asset levels as a resultnet income in excess of the continued run off of Talcott Resolution.
Net realized capital losses improved by $14 from the third quarter 2016 primarily due to losses related to the sale of the Company's U.K. property and casualty run-off subsidiaries in the prior year, lower impairments and lower losses on the variable annuity hedge program, partially offset by lower net gains on sales.

dividends.
73






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



Annualized investment yield of 3.0%, after-tax, decreased from 3.1%, after-tax, compared with third quarter 2016, primarily due to reinvesting at lower rates.
Net unrealized gains, after-tax, in the investment portfolio increased by $85 in third quarter 2017 primarily due to the effect of tighter credit spreads.
Written PremiumsCombined Ratio
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Written premiums decreased 2% compared with third quarter 2016 for Property & Casualty reflecting a decrease in Personal Lines, partially offset by an increase in Commercial Lines.
Combined ratio forProperty & Casualty increased 10.6 points to 107.1 compared with a combined ratio of 96.5 in third quarter 2016, largely due to catastrophe losses from hurricanes Harvey and Irma.
Catastrophe losses of $352, before tax, increased from catastrophe losses of $80, before tax, in third quarter 2016, largely due to losses of $175, before tax, from hurricane Harvey and losses of $157, before tax, from hurricane Irma.
Prior accident year developmentwas a net favorable $1, before tax, in third quarter 2017, primarily due to a decrease in reserves for Small Commercial package business offset by a reserve increase for customs bond claims. Reserve development was a net unfavorable $25, before tax, in third quarter 2016, largely due to an increase in commercial auto liability reserves.
Net Investment Income Margin - Group Benefits   Annualized Investment Yield, Net Income - Talcott Resolutionof tax
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Net investment income increased 10% compared with third quarter 2018 primarily due to higher asset levels, largely driven by the acquisition of Navigators Group, and higher returns on limited partnerships and other alternative investments, partially offset by the impact of lower reinvestment rates.
Net income marginrealized capital gainsimproved from the third quarter 2018, with gains in 2019 primarily driven by net gains on sales of fixed maturity securities driven by duration and credit management trades as well as appreciation in value of equity securities due to higher equity market levels.
Annualized investment yield, net of tax, was consistent with third quarter 2018 as a higher yield on limited partnerships and other alternative investments was offset by the impact of lower reinvestment rates.
Net unrealized gains, net of tax, for Group Benefitsfixed maturities in the investment portfolio increased to 7.7% from 6.7%by $401 in third quarter 2016,2019 primarily due to the effect of lower incurred loss costs in both group disability and group life.

interest rates.
74
P&C Written PremiumsP&C Combined Ratio
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Written premiums for Property & Casualty increased 17% compared with third quarter 2018 reflecting an increase in Commercial Lines, including the effect of the Navigators Group acquisition, partially offset by a decrease in Personal Lines.
Combined ratio forProperty & Casualty decreased 1.8 points compared with third quarter 2018, largely due to lower current accident year catastrophes and lower non-catastrophe property losses, partially offset by less favorable prior year reserve development and a higher expense ratio.
Catastrophe losses of $106, before tax, were lower compared with catastrophe losses of $169, before tax, in third quarter 2018, driven by lower losses from hurricanes and tropical storms in the 2019 period and losses from wildfires in the 2018 period.






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



Net income

Prior accident year developmentwas favorable $47, before tax, in the third quarter 2019, primarily due to a decrease in reserves for Talcott Resolutionworkers' compensation, personal auto liability and package business, partially offset by an increase in reserves for commercial auto and general liability. Reserve development was $80 compared with $78a net favorable $60, before tax, in third quarter 2016, as2018, primarily due to a decrease in reserves for workers' compensation, professional liability, auto liability and 2017 catastrophes.
Net Income Margin - Group Benefits
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Net income margin for Group Benefits increased compared with third quarter 2018 primarily due to a lower group disability ratio, a change to net unlock benefit compared to an unlock chargerealized capital gains, and additional tax expense in the prior year2018 period andthat was primarily driven by the effect of the lower operating expenses was largely offset by lower net investment income and fee incomerate on deferred tax assets due to the continued run offfiling of the business.

Company's 2017 Federal income tax return and finalization of the opening balance sheet for the Aetna Group Benefits acquisition. This was partially offset by a higher group life loss ratio, higher commission rates on voluntary products and investments in technology and claims operations. Contributing to the net income margin in both the 2019 and 2018 periods was favorable prior incurral year development.
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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 Condensed Consolidated Financial Statements and the related Notes beginning on page F-17 as well as with the segment operating results sections of MD&A.



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



 Three Months Ended September 30, Nine Months Ended September 30,
 20172016Change 20172016Change
Earned premiums$3,474
$3,484
—% $10,437
$10,332
1%
Fee income460
452
2% 1,381
1,338
3%
Net investment income729
772
(6%) 2,172
2,203
(1%)
Net realized capital gains (losses)(3)(17)82% 52
(119)144%
Other revenues24
24
—% 66
67
(1%)
Total revenues4,684
4,715
(1%) 14,108
13,821
2%
Benefits, losses and loss adjustment expenses2,994
2,780
8% 8,518
8,563
(1%)
Amortization of deferred policy acquisition costs357
403
(11%) 1,088
1,145
(5%)
Insurance operating costs and other expenses995
918
8% 3,652
2,777
32%
Interest expense82
86
(5%) 246
257
(4%)
Total benefits, losses and expenses4,428
4,187
6% 13,504
12,742
6%
Income before income taxes256
528
(52%) 604
1,079
(44%)
Income tax expense22
90
(76%) 32
102
(69%)
Net income$234
$438
(47%) $572
$977
(41%)

 Three Months Ended September 30, Nine Months Ended September 30,
 20192018Change 20192018Change
Earned premiums$4,394
$3,987
10% $12,500
$11,872
5%
Fee income330
344
(4%) 970
994
(2%)
Net investment income490
444
10% 1,448
1,323
9%
Net realized capital gains89
38
134% 332
60
NM
Other revenues44
29
52% 129
73
77%
Total revenues5,347
4,842
10% 15,379
14,322
7%
Benefits, losses and loss adjustment expenses2,914
2,786
5% 8,533
8,219
4%
Amortization of deferred policy acquisition costs437
348
26% 1,184
1,034
15%
Insurance operating costs and other expenses1,167
1,091
7% 3,356
3,195
5%
Loss on extinguishment of debt90
—
NM
 90
6
NM
Loss on reinsurance transaction—
—
—% 91
—
NM
Interest expense67
69
(3%) 194
228
(15%)
Amortization of other intangible assets19
18
6% 47
54
(13%)
Total benefits, losses and expenses4,694
4,312
9% 13,495
12,736
6%
Income from continuing operations, before tax653
530
23% 1,884
1,586
19%
 Income tax expense118
103
15% 347
297
17%
Income from continuing operations, net of tax535
427
25% 1,537
1,289
19%
Income from discontinued operations, net of tax—
5
(100%) —
322
(100%)
Net income535
432
24% 1,537
1,611
(5%)
Preferred stock dividends11
—
NM
 16
—
NM
Net income available to common stockholders$524
$432
21% $1,521
$1,611
(6%)
Three months ended September 30, 20172019 compared to the three months ended September 30, 20162018
Net incomedecreased available to common stockholdersincreased by $204$92 from third quarter 2018 primarily due to lower current accident year catastrophes, a lower group disability loss ratio, an increase in current accident year catastrophe losses of $177 after-tax, primarily due to hurricanes Harveynet realized capital gains, and Irma, and, to a lesser extent, a decrease inhigher net investment income. Apart from those impacts, net income, was relatively flat aspartially offset by a change to a net unlock benefit compared to an unlock chargeloss on extinguishment of debt in the prior year2019 period and morehigher integration costs. In addition, lower non-catastrophe property losses and an increase in earnings from the Company's retained equity interest in the former life and annuity operations were largely offset by the effect of lower Personal Lines earned premium and less favorable P&C prior accident year development in P&C was offsetdevelopment.
Earned premiumsincreased by higher variable incentive compensation costs.
Earned premiumsdecreased by $10,$407 before tax, reflecting a 6% decline in Personal Lines, largely offset by growth of 3%26% increase in Commercial Lines, including the effect of the MaxumNavigators Group acquisition, partially offset by a 5% decrease in Personal Lines and a 1% decrease in Group Benefits. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by Segment.Segment Operating Summaries.
Fee incomeincreased by 2% was down 4% reflecting reduced fee income in Hartford Funds resulting primarily from fee reductions and a 14% increase in Mutual Funds, partially offset by a 6% decline in Talcott Resolution. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.shift to lower fee funds.
Net investment incomedecreasedincreased by 6%10%, primarily due to lowerhigher asset levels, as a resultlargely driven by the acquisition of the continued run off of Talcott Resolution as well as lower income from
Navigators Group, and higher returns on limited partnerships and other alternative investments.investments, partially offset by the impact of lower reinvestment rates. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).
Income.
Net realized capital losses improved by $14gains of $89 in third quarter 2019 increased from third quarter 2016 largely due to to losses related to the sale of the Company's U.K. property and casualty run-off subsidiaries2018, with gains in the prior year, lower impairments and lower losses on the variable annuity hedge program, partially offset2019 primarily driven by lower net gains on sales.sales of fixed maturity securities driven by duration and credit management trades and appreciation in value of equity securities due to higher equity market levels. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).Gains.
Other revenues for the three month period in 2019 included $14 of before tax income recognized on the 9.7% ownership interest in the legal entity that acquired the life and annuity business sold in May 2018.
Benefits, losses and loss adjustment expenses increased in Property & Casualty driven byprimarily due to an increase in catastropheCommercial Lines, partially offset by a decrease in Personal Lines and Group Benefits. The increase in Commercial Lines was driven by the effect of losses on earned premium from the acquired Navigators Group business and decreasedless favorable prior accident reserve development, partially offset by lower current accident year catastrophes. The decrease in Group BenefitsPersonal Lines was primarily due to lower current accident year catastrophes and the effect of lower earned premium. Benefits, losses onand loss adjustment expenses for Group Benefits decreased, primarily due to a lower group disability loss ratio from lower claim incidence and life business. The net increase in incurred losses for Property & Casualty was driven by:higher claim terminations.



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




Current accident year losses and loss adjustment expenses before catastrophes in Property & Casualty decreased $16, before tax, primarily resulting from the effect of lower Personal Lines earned premium and lower Personal Lines auto liability loss costs, largely offset byincreased due to the effect of earned premium growthfrom the Navigators Group acquisition, partially offset by lower non-catastrophe property losses and the effect of lower earned premium in Small Commercial and higher workers' compensation loss costs.
Personal Lines.
Current accident year catastrophe losses of $352,$106, before tax, for the three months endedSeptember 30, 2017,2019, compared to $80,$169, before tax, for the prior year period. Catastrophe losses in 20172019 were primarily from hurricanes Harvey and Irma which accounted for $332, before tax, of catastrophe losses in the quarter. Catastrophe losses in 2016 were primarily due to multipletornado, wind and hail events acrossin various U.S. geographic regions.areas of the Midwest and Mountain West as well as losses from hurricanes and tropical storms in the Southeast. Catastrophe losses in 2018 were primarily from hurricane Florence, wind and hail events in Colorado and wildfires in California and Colorado. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

76



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

Net prior accident year reserve development in Property & Casualty was favorable $1,by $47, before tax, for the three months endedSeptember 30, 2017,2019, compared to unfavorablefavorable net reserve development of $25,$60, before tax, for the prior year period. Prior accident year development in 20172019 primarily included a decrease of reserves for workers' compensation, personal auto liability and package business, partially offset by an increase in reserves for Small Commercial package business offset by a reserve increase for customs bond claims.commercial auto and general liability. Prior accident year development in 2016 was largely due to an increase2018 primarily included reserve decreases in commercialreserves for workers’ compensation, professional liability, auto liability.liability and catastrophe reserves. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll Forwards and Development.
Property & Casualty Insurance Product Reserves, Net of Reinsurance.
Amortization of deferred policy acquisition costsdecreased year overwas up from the prior year due to an increase in Commercial Lines, which was driven by the run offimpact of the Talcott Resolution business, the effect of a favorable unlock in the 2017 period compared to an unfavorable unlock in the 2016 period and lower amortization in Personal Lines, partially offset by higher amortization in Commercial Lines.Navigators Group acquisition.
Insurance operating costs and other expenses increased primarily due to operating costs incurred related to the Navigators Group acquisition, higher variable incentive compensationinformation technology costs across Commercial Lines, Personal Lines and Group Benefits, and higher IT costscommissions in Commercial Lines and higher variable expenses in Mutual Funds.
Income tax expensedecreased primarily due to a $272 decrease in pre-tax incomeGroup Benefits. These increases were partially offset by lower incentive compensation and a decrease in Hartford Funds due to lower variable costs.
Loss on extinguishment of debtin the effect of a federal income tax benefit of $65 for the three months ended September 30, 2016 related to the sale2019 period arose from repayment before maturity of the Company's U.K. propertyCompany’s $265 of 5.75% senior notes due 2023 that had been assumed in the Navigators Group acquisition, and casualty run-off subsidiaries.its $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc.
Income tax expenseincreased due to an increase in income from continuing operations before tax. Differences between the Company's effective income tax rate and the U.S. statutory rate of 35%21% are due primarily to tax-exempt interest earned on invested assets, the dividends received deductionstock-based compensation and changes in the valuation allowance recorded on capital loss carryovers.non-deductible executive compensation. For further discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.
Nine months ended September 30, 20172019 compared to the nine months ended September 30, 20162018
Net income available to common stockholdersdecreased by $405$90 due to a reduction in income from discontinued operations due to the sale in May 2018 of the life and annuity business, partially offset by an increase in income from continuing operations. Income from continuing operations, net of tax, increased by $248 primarily due to an increase in net realized capital gains, higher net investment income, lower current accident year catastrophe losses in P&C, a pension settlement charge of $488, after-tax,lower disability loss ratio in Group Benefits, lower interest expense, a decrease in personal auto liability loss costs and higher earnings from the Company's retained equity interest in the nine months ended September 30, 2017former life and a $196 after-tax increase in catastrophe lossesannuity operations. These increases were partially offset by the effect of adversea loss on reinsurance and reserve increases totaling $188 before tax upon the acquisition of Navigators Group, a higher loss on extinguishment of debt in the 2019 period, an increase in integration and transaction costs, higher non-catastrophe property losses, the effect of lower Personal Lines earned premium, less favorable P&C prior accident year development of $266 after-tax, in the first nine months of 2016. Apart from those impacts, net income was slightly higher largely due to a higher unlock benefit and lower group disability and life loss costs offset by lower net investment income and higher variable incentive compensation.underwriting expenses.
Earned premiumsincreased by $35,$628 before tax, reflecting growth of 4%a 15% increase in Commercial Lines, including the effect of the MaxumNavigators Group acquisition, and 3% in Group Benefits, partially offset by a 5% decrease6% decline in Personal Lines.Lines with earned premiums for Group Benefits relatively flat. For a discussion of the Company's operating results by segment, see MD&A - Results of OperationsSegment Operating Summaries.
Fee incomedecreased by segment.
Fee2% reflecting lower fee incomeincreased reflecting in Hartford Funds largely due to lower average daily assets under management and a 15% increase in Mutual Funds,shift to lower fee funds, partially offset by a 6% declinehigher fee income in Talcott Resolution. For a discussionCorporate resulting from fees earned on the management of the Company's operating results by segment, see MD&A - Resultsinvestment portfolio of Operations by segment.the life and annuity business sold in May 2018.
Net investment incomedecreased 1%,increased by 9% primarily due to
lower higher asset levels, and lower reinvestment rates, largely offsetdriven by the acquisition of Navigators Group, higher income from limited partnerships and other alternative investments, higher average short-term interest rates, and higher returns on equity investments. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).Income.
Net realized capital gainsof $52 in$332 for the nine months ended September 30, 2017 compared to net realized capital losses of $119 in2019, improved from the first nine months ended September 30, 2018, with gains in 2019 primarily driven by appreciation in value of 2016, were primarilyequity securities due to losses in 2016 related to the sale of the Company's U.K. propertyhigher equity market levels and casualty run-off subsidiaries and derivatives, higher net gains on sales in 2019 of fixed maturity securities driven by duration and lower impairment losses, partially offset by higher variable annuity hedge program losses in 2017.credit management trades. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).Gains.
Other revenuesfor the nine months ended September 30, 2019 included $45 of before tax income recognized on the 9.7% ownership interest in the legal entity that acquired the life and annuity business sold in May 2018.



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




Benefits, losses and loss adjustment expenses decreased increased in Property & Casualty, and were relatively flatpartially offset by a decrease in Group Benefits as the effect on losses of growth in Group Benefits earned premium was offset by the effect of lower loss ratios for group disability and group life.Benefits. The net decrease in incurred lossesincrease for Property & Casualty was driven by:by an increase in Commercial Lines, partially offset by a decrease in Personal Lines. The increase in Commercial Lines was principally due to the effect of losses on earned premium from the acquired Navigators Group business, an increase in Navigators Group reserves upon acquisition of the business, a higher current accident year loss and loss adjustment expense ratio before catastrophes and less favorable prior accident year reserve development. The decrease in Personal Lines was primarily due to lower current accident year catastrophes, the effect of lower earned premium and, to a lesser extent, a lower current accident year loss and loss adjustment expense ratio before catastrophes. The decrease in Group Benefits was largely due to a lower group disability loss ratio, including favorable prior incurral year development.
LossesCurrent accident year losses and loss adjustment expenses before catastrophes in Property & Casualty increased $70, before tax, primarily resulting fromdue to the effect of higher earned premium in Commercial Lines, earned premium growth in Small Commercialincluding the impact of the Navigators Group acquisition, and higher loss costs in workers' compensation, commercial auto and non-catastrophe property losses, partially offset by a lower personal auto liability and homeowners loss ratio and the effect of lower earned premium in Personal Lines earned premium.
Lines.
Current accident year catastrophe losses of $657,$348, before tax, for the nine months ended September 30,2017, 2019, compared to $355,$460, before tax, for the prior year period. Catastrophe losses in 20172019 were primarily due to hurricanes Harveyfrom tornado, wind and Irmahail events in the third quarterSouth, Midwest and Mountain West and winter storms across the country as well as from hurricanes and tropical storms in the Southeast. Catastrophe losses in 2018 were primarily from multiple wind and hail events across various U.S. geographic regions, primarily in Colorado, the Midwest, Colorado, TexasSouth and Mid-Atlantic, winter storms on the Southeast. Catastrophe lossesEast Coast, hurricane Florence, and wildfires in 2016 were primarily due to multiple windCalifornia and hail and winter storm events across various U.S. geographic regions, concentrated in Texas and the central and southern plains and, to a lesser extent, winter storms.Colorado. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.
UnfavorableNet prior accident year reserve development in Property & Casualty of $1,was a net favorable $23, before tax, for the nine months ended September 30,2017, 2019, compared to unfavorablefavorable net reserve development of $409,$139, before tax, for the prior year period. Prior accident year development in 20172019 primarily included reserve decreases for workers’ compensation, catastrophes, and package business, partially offset by increases in general liability and professional liability, including increases in Navigators Group reserves upon acquisition of the business. Prior accident year
development in 2018 primarily included a decrease in reserves for Small Commercial package business offset by a reserve increase for commercial auto liability. Prior accident year development in 2016 was largely due to a $268 increase in asbestos and environmental reservesworkers’ compensation and a $140 increasedecrease in Personal Lines auto liability reserves.catastrophe reserves for the 2017 hurricanes. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll Forwards and Development.
Property & Casualty Insurance Product Reserves, Net of Reinsurance.
Amortization of deferred policy acquisition costsdecreasedwas up from the prior year period primarily due to lower amortization on lower earned premium for Personal Lines, the effect of the run off of Talcott Resolution, and a larger unlock benefit in 2017, partially offset by higher amortization on higher earned premium for Commercial Lines.

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

Insurance operating costs and other expenses increased primarily due to a $750 pre-tax pension settlement charge in second quarter 2017. Apart from the pension settlement charge, insurance operating costs and other expenses increased by 5%, primarily driven by higher variable incentive plan compensation, increased IT costsan increase in Commercial Lines, higher variable expenses in Mutual Fundsincluding the impact from the Navigators Group acquisition, and $20, before tax, of state guaranty fund assessmentsto a lesser extent an increase in Group Benefits, partially offset by lowera decrease in Personal Lines.
Insurance operating costs and other expenses increased due to higher information technology and operations costs across Commercial Lines, Personal Lines and Group Benefits, an increase in direct marketing costsexpenses in Personal Lines. Effective with awards grantedLines to generate new business growth and higher commissions in March, 2017, long-termCommercial Lines and Group Benefits as well as transaction costs and operating costs incurred related to the Navigators Group acquisition. The increase in Property & Casualty and Group Benefits was partially offset by lower incentive compensation awardsand by a decrease in Hartford Funds due to retirement-eligible employees now fully vest when they are granted, which resulted in an accelerated recognitionlower variable costs.
Loss on extinguishment of compensation expense debtin the first nine months2019 period arose from repayment before maturity of 2017the Company’s $265 of $21 pre-tax. For additional information on5.75% senior notes due 2023 that had been assumed in the pension settlement chargeNavigators Group acquisition, and its $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc.
Interest expensedecreased due to a reduction in second quarter 2017, see Note 15 - Employee Benefit Plansoutstanding debt.
Amortization of Notesother intangible assetsdecreased due to Condensed Consolidated Financial Statements.lower amortization of intangible assets arising from the acquisition of Aetna's U.S. group life and disability business.
Income tax expensedecreased for the nine months ended September 30, 2017,increased primarily due to a $475 decreasean increase in
income from continuing operations before income taxes, partially offset by the effect of federal income tax benefits of $78 for the nine months ended September 30, 2016 arising from a reduction of the deferred tax asset valuation allowance on capital loss carryovers and the effect of a federal income tax benefit of $65 for the nine months ended September 30, 2016 related to the sale of the Company's U.K. property and casualty run-off subsidiaries.
tax. Differences between the Company's effective income tax rate and the U.S. statutory rate of 35%21% are due primarily to tax-exempt interest earned on invested assets, the dividends received deductionstock-based compensation and changes in the valuation allowance recorded on capital loss carryovers.non-deductible executive compensation. For further 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




INVESTMENT RESULTS
Composition of Invested AssetsComposition of Invested Assets
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
AmountPercent AmountPercentAmountPercent AmountPercent
Fixed maturities, available-for-sale ("AFS"), at fair value$57,669
79.0% $56,003
79.3%$42,389
80.6% $35,652
76.2%
Fixed maturities, at fair value using the fair value option ("FVO")82
0.1% 293
0.4%39
0.1% 22
—%
Equity securities, AFS, at fair value1,112
1.5% 1,097
1.6%
Equity securities, at fair value1,414
2.7% 1,214
2.6%
Mortgage loans6,058
8.3% 5,697
8.1%3,736
7.1% 3,704
7.9%
Policy loans, at outstanding balance1,418
2.0% 1,444
1.9%
Limited partnerships and other alternative investments2,533
3.5% 2,456
3.5%1,770
3.3% 1,723
3.7%
Other investments [1]365
0.5% 403
0.6%302
0.6% 192
0.4%
Short-term investments3,756
5.1% 3,244
4.6%2,927
5.6% 4,283
9.2%
Total investments$72,993
100.0% $70,637
100.0%$52,577
100.0% $46,790
100.0%
[1]Primarily relates toconsists of investments of consolidated investment funds and derivative instruments.instruments which are carried at fair value.
September 30, 20172019 compared to December 31, 20162018
Total investmentsFixed maturities, AFSincreased primarily due to an increase inthe fixed maturities, AFS short-term investments and mortgage loans.
Fixed maturities, AFS increased primarily due toacquired as part of the acquisition of Navigators Group as well as an increase in valuations as a result ofdue to lower interest rates and tighter credit spreads and lower long-term interest rates as well as the purchases of Collateralized Loan Obligations ("CLOs") and tax-exempt municipal bonds.spreads.
 
Short-term investments increased largelydecreased due to an increase in short-term investments held as partthe funding of Navigators Group acquisition slightly offset by tax receipts related to the Company's securities lending agreements. For more information on the securities lending agreements, see Note 6 - Investments.
Mortgage Loans increased largely due to originationsrefund of multifamily commercial whole loans.

AMT tax credits.


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

Net Investment Income
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
20172016 2017201620192018 20192018
(Before tax)AmountYield [1]AmountYield [1] AmountYield [1]AmountYield [1]AmountYield [1]AmountYield [1] AmountYield [1]AmountYield [1]
Fixed maturities [2]$579
4.2%$589
4.2% $1,734
4.2%$1,788
4.2%$392
3.8%$370
3.9% $1,159
3.9%$1,077
3.9%
Equity securities6
2.2%5
2.7% 19
2.2%22
3.3%12
3.4%6
2.5% 31
3.0%18
2.4%
Mortgage loans62
4.2%62
4.4% 185
4.2%182
4.3%37
4.2%35
4.0% 118
4.3%102
4.1%
Policy loans20
5.5%20
5.3% 59
5.4%62
5.7%
Limited partnerships and other alternative investments71
11.7%93
15.2% 189
10.7%141
7.3%65
15.3%45
10.6% 181
14.7%157
13.3%
Other [3]23
 29
  78
 90
 5
 10
  21
 27
 
Investment expense(32) (26)  (92) (82) (21) (22)  (62) (58) 
Total net investment income$729
4.3%$772
4.5% $2,172
4.3%$2,203
4.2%$490
4.0%$444
4.0% $1,448
4.1%$1,323
4.0%
Total net investment income excluding limited partnerships and other alternative investments$658
4.0%$679
4.1% $1,983
4.0%$2,062
4.1%$425
3.6%$399
3.7% $1,267
3.7%$1,166
3.7%
[1]Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost as applicable, excluding repurchase agreement and securities lending collateral, , if any, and derivatives amortized cost.book value.
[2]Includes net investment income on short-term investments.
[3]Primarily includesIncludes income from derivatives that qualify for hedge accounting and hedge fixed maturities.
Three and nine months ended September 30, 2017,2019 compared to the three and nine months ended September 30, 20162018
Total net investment income decreased for the three month period in 2019 compared to 2018 increased primarily due to lower income fromhigher asset levels, largely driven by the acquisition of Navigators Group, and higher returns on limited partnerships and other alternative investments, as well as lower asset levels as a result of the continued run off of Talcott Resolution. Income from limited partnership and other alternative investments was below the prior year due to lower returns on private equity investments, partially offset by stronger returns on real estate investments.lower reinvestment
rates. Total net investment income decreased for the nine month period in 2019 compared to 2018 increased primarily due to lowerhigher asset levels, partially offsetlargely driven by the acquisition of Navigators Group, higher income from limited partnerships and other alternative investments. For the nine month period, income fromreturns on limited partnerships and other alternative investments, increased due to stronghigher average short-term interest rates and higher returns on real estate investments as well as losses on hedge funds during 2016.equity investments.
Annualized net investment income yield,excluding limited partnerships and other alternative investments, was 4.0%3.6% for the ninethree month period in 2017,2019, down slightly from 4.1% for the nine month period in 2016. Excluding non-routine
items, which primarily include make-whole payments on fixed maturities and income received from previously impaired securities, the annualized investment income yield was 4.0% for the nine month periods for both years.
Average reinvestment rate for the nine month period in 2017, excluding certain U.S. Treasury securities and cash equivalent securities, was approximately 3.5% which was below the average yield of sales and maturities of 3.9%3.7% for the same period. For the nine month period in 2017, the average reinvestment rate of 3.5% increased slightly from 3.4% for the nine month period in 2016,2018 due to higher interestlower reinvestment rates.
We expect the annualized Annualized net investment income yield, for the 2017 calendar year, excluding limited partnerships and other alternative investments, to be slightly below the portfolio yield earned in 2016. This assumes the Company earns less income in 2017 from make-whole payments on fixed maturities and recoveries on previously impaired securities than it did in 2016 and that reinvestment rates continue to be below the average yield of sales and maturities. The estimated impact on net investment income is subject to change as the composition of the portfolio changes through portfolio management and trading activities and changes in market conditions.


79





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





partnerships and other alternative investments, was 3.7% for the nine month period in 2019, consistent with the same period in 2018.
Average reinvestment rates on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities and cash equivalent securities, for the 2019 three and nine month periods were 3.1% and 3.5%, respectively, which were below the average yield of sales and maturities of 4.1% and 4.0%, respectively, due to lower interest rates and maturities of higher yielding tax-exempt municipals. Average reinvestment rate for
the 2018 three and nine month periods was 4.0% which was higher than the average yield of sales and maturities of 3.8% and 3.6%, respectively, due to higher interest rates.
Despite the decline in reinvestment rates in 2019, we expect the annualized net investment income yield for the 2019 calendar year, excluding limited partnerships and other alternative investments, to approximate the portfolio yield earned in 2018. The estimated impact on net investment income yield is subject to change as the composition of the portfolio changes through portfolio management and changes in market conditions.
Net Realized Capital Gains (Losses)
 Three Months Ended September 30,Nine Months Ended September 30,
(Before tax)2017201620172016
Gross gains on sales$80
$114
$332
$328
Gross losses on sales(26)(24)(132)(157)
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [1](2)(14)(17)(44)
Valuation allowances on mortgage loans—
—
2
—
Results of variable annuity hedge program







GMWB derivatives, net15
6
53
(8)
Macro hedge program(65)(64)(189)(98)
Total results of variable annuity hedge program(50)(58)(136)(106)
Transactional foreign currency revaluation2
(13)2
(144)
Non-qualifying foreign currency derivatives(3)17
(9)138
Other, net [2](4)(39)10
(134)
Net realized capital gains (losses)$(3)$(17)$52
$(119)
Net Realized Capital Gains
 Three Months Ended September 30, Nine Months Ended September 30,
(Before tax)20192018 20192018
Gross gains on sales$77
$26
 $190
$91
Gross losses on sales(4)(41) (44)(129)
Equity securities [1]19
46
 181
88
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [2](1)(1) (3)(1)
Valuation allowances on mortgage loans [2]—
—
 1
—
Transactional foreign currency revaluation—
—
 —
1
Non-qualifying foreign currency derivatives2
1
 2
2
Other, net [3](4)7
 5
8
Net realized capital gains$89
$38
 $332
$60
[1]
Includes all changes in fair value and trading gains and losses for equity securities. The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2019, were $17 and $100 for the three and nine months ended September 30, 2019, respectively. The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2018, were $41 and $50 for the three and nine months ended September 30, 2018, respectively.
[2]See Other-Than-Temporary Impairments and Valuation Allowances on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A.
[2]3]Primarily consists of changes in value of non-qualifying derivatives, including credit derivatives and interest rate derivatives used to manage duration, and embedded derivatives associated with modified coinsurance reinsurance contracts.duration.
Three and nine months ended September 30, 20172019
Gross gains and losses on sales were primarily the result of duration, liquidity and credit management within U.S. treasury securities, corporate securities, and tax-exempt municipal bonds.
Equity securities net gains were primarily driven by appreciation of equity securities due to higher equity market levels.
Other, net lossesfor the three month period were primarily due to losses on interest rate derivatives of $5 due to a decline in interest rates. Gains for the nine month period were primarily due to gains on credit derivatives of $26 driven by credit spread tightening, partially offset by losses on interest rate derivatives of $20 due to a decline in interest rates.
Three and nine months ended September 30, 2018
Gross gains and losses on saleswere primarily the result of duration, liquidity and credit management within corporate securities, U.S. treasury securities, and tax-exempt municipal bonds as well as from the sale of a private real estate investment.
Equity securitiesnet gains were driven by appreciation of equity securities due to higher equity market levels and, municipal bonds.
Variable annuity hedge program lossesfor the three and nine months included lossesmonth period, gains on the macro hedge program which were primarilysales due to losses of $42 and $109, respectively, driven by an improvement in domestic equity markets and $15 and $51, respectively, driven by time decay of options. Also included were losses of $8 and $37 driven by a decline in equity market volatility. For the three and nine month periods 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 $8 and $19, respectively, driven by a decline in equity market volatility, $7 and $18, respectively, driven by time decay of options, and $4 and $15, respectively, due to policyholder behavior.tactical repositioning.
Other, net gains and lossesfor the three month period were primarily
due to lossesgains on credit derivatives of $9$6 driven by credit spread
tightening. Gains for the nine month period were primarily driven
by gains on interest rate derivatives of $7 due to an increase in interest rates, partially offset by gains of $5 related to credit derivatives driven by credit spread tightening. For the nine month period gains were primarily related to $19 of credit derivatives due to credit spread tightening, partially offset by losses of $10 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.
Three and nine months ended September 30, 2016
Gross gains and losses on saleswere primarily due to the sale of U.S. treasury securities, corporate securities, including tender offers, municipal bonds, and equity securities. The sales were primarily a result of duration, liquidity and credit management.
Variable annuity hedge program gain and lossesfor the three and nine month periods included losses on the macro hedge program of $25 and $58, respectively, driven by an increase in equity markets and losses of $19 and $40, respectively, driven by time decay on options. Additional losses of $9 for the three month period were driven by a decline in equity volatility. For the three month period, gain on the combined GMWB derivatives, net, was primarily due to gains of $16 due to favorable policyholder behavior and gains of$11 driven by outperformance of the underlying actively managed funds as compared to their respective indices, partially offset by losses of $(11) primarily resulting from assumption updates and losses of $6 due to an increase in interest rates. For the nine month period the net loss related to the combined GMWB hedging program was primarily due to losses of $(19) driven by an increase in U.S equity markets, partially offset by non-market gains of $14. The non-market gains include favorable policyholder behavior and outperformance of the underlying actively managed funds compared to their respective indices, partially offset by assumption and fund regression updates.
Other, netloss for the three and nine month periods were primarily due to losses of $59 associated with the Company's U.K. property and casualty run-off subsidiaries that were sold in May 2017. The three month period also included gains of $10 on credit derivatives driven by credit spreads tightening. The nine month period also included losses of $48 associated with modified coinsurance reinsurance contracts driven by a decline in interest rates, losses of $28 on equity derivatives which were hedging

80



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

against a decline in the equity market on the investment portfolio and losses of $16 on interest rate derivatives driven by a decline in interest rates.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past have differed, from those estimates.
The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:
property and casualty insurance product reserves, net of reinsurance;



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




group benefit long-term disability (LTD) reserves, net of reinsurance;
estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts;
living benefits required to be fair valued (in other policyholder funds and benefits payable);
evaluation of goodwill for impairment;
valuation of investments and derivative instruments including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;
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 20162018 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 20162018 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 September 30, 2017.2019.
Property & Casualty Insurance Product Reserves, Net of Reinsurance
P&C Loss and Loss Adjustment Expense ("LAE") Reserves of $19,732,$22,814, Net of Reinsurance, by Segment as of September 30, 20172019
hig0930201_chart-11852.jpgchart-d518983a0aaa571f946.jpg
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.


81





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



Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and Loss Adjustment Expenses for the Nine Months EndedSeptember 30, 2017

Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2019Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2019
Commercial
Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty InsuranceCommercial
Lines		Personal
Lines		Property & Casualty Other OperationsTotal Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$17,238
$2,094
$2,501
$21,833
$19,455
$2,456
$2,673
$24,584
Reinsurance and other recoverables2,325
25
426
2,776
3,137
108
987
4,232
Beginning liabilities for unpaid losses and loss adjustment expenses, net14,913
2,069
2,075
19,057
16,318
2,348
1,686
20,352
Navigators Group acquisition2,001




2,001
Provision for unpaid losses and loss adjustment expenses 







Current accident year before catastrophes2,971
1,959
—
4,930
3,552
1,548
—
5,100
Current accident year ("CAY") catastrophes ("CATS")404
253
—
657
Current accident year ("CAY") catastrophes234
114
—
348
Prior accident year development ("PYD")12
(12)1
1
(7)(25)9
(23)
Total provision for unpaid losses and loss adjustment expenses3,387
2,200
1
5,588
3,779
1,637
9
5,425
Less: payments2,602
2,118
193
4,913
Payments(2,981)(1,841)(130)(4,952)
Foreign currency adjustment(12)—
—
(12)
Ending liabilities for unpaid losses and loss adjustment expenses, net15,698
2,151
1,883
19,732
19,105
2,144
1,565
22,814
Reinsurance and other recoverables2,404
24
389
2,817
4,006
109
968
5,083
Ending liabilities for unpaid losses and loss adjustment expenses, gross$18,102
$2,175
$2,272
$22,549
$23,111
$2,253
$2,533
$27,897
Earned premiums$5,159
$2,818
 
Earned premiums and fee income$6,040
$2,431

Loss and loss expense paid ratio [1]50.4
75.2
 49.4
75.7

Loss and loss expense incurred ratio66.0
79.0
 62.8
68.1

Prior accident year development (pts) [2]0.2
(0.4) (0.1)(1.0)
[1]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.
Catastrophe Losses
Current Accident Year Catastrophe Losses for the Nine Months Ended September 30, 2019, Net of Reinsurance

Commercial
Lines		Personal
Lines		Total
Wind and hail$140
$87
$227
Winter storms57
19
76
Tropical storms6
4
10
Hurricanes23
4
27
Earthquake1
—
1
Typhoon6
—
6
Other1
—
1
Total catastrophe losses$234
$114
$348
In September, 2019, PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) agreed in principle to an $11 billion settlement with insurers representing approximately 85 percent of $657insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. The settlement is subject to approval of the bankruptcy court overseeing PG&E's Chapter 11 bankruptcy filing. The settlement is also subject to the confirmation by the bankruptcy court of a chapter 11 plan of reorganization (a "Plan") which implements the terms of the settlement. If a Plan is approved, certain of the Company’s insurance subsidiaries would
be entitled to settlement payments. Based on reserve estimates submitted with the subrogation request, the amount our subsidiaries could collect from PG&E, if any, would be approximately $325 but could be more or less than that amount depending on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. Approval of the Plan and amount of the Company’s ultimate subrogation recoveries from PG&E are subject to uncertainty. This includes, among other things, uncertainty regarding liabilities for current or future wildfires caused or allegedly caused by PG&E, the Nine Months Ended September 30, 2017
hig0930201_chart-12794.jpg
[1] These amounts represent an aggregationvalue of multiple catastrophes.recoveries by
[2] Includes Commercial Lines of $1 and Personal Lines of $3.
[3] Includes catastrophe losses from Hurricane Harvey and Hurricane Irma of $175 and $157, respectively.



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



(Favorable) Unfavorable Prior Accident Year Development for the Three Months Ended September 30, 2017

 Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(9)$—
$—
$(9)
Workers’ compensation discount accretion5
—
—
5
Package business(22)—
—
(22)
Commercial property1
—
—
1
Bond20
—
—
20
Catastrophes1
—
—
1
Other reserve re-estimates, net1
2
—
3
Total prior accident year development$(3)$2
$—
$(1)
(Favorable) Unfavorable Prior Accident Year Development for the Nine Months Ended September 30, 2017
 Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(29)$—
$—
$(29)
Workers’ compensation discount accretion21
—
—
21
General liability10
—
—
10
Package business(22)—
—
(22)
Commercial property(5)—
—
(5)
Bond10
—
—
10
Automobile liability20
—
—
20
Catastrophes(1)(11)—
(12)
Other reserve re-estimates, net8
(1)1
8
Total prior accident year development$12
$(12)$1
$1

Workers’ compensation reserves were reduced, primarilyother creditors and PG&E’s ability to secure funds to pay its creditors.
Given the uncertainty, the Company has not recognized a benefit from potential subrogation from PG&E and will evaluate in Small Commercial, givenfuture periods when more information becomes known. In connection with the continued emergence2018 Camp wildfire, the Company has recognized a $32 reinsurance recoverable for losses incurred in excess of favorable frequency for accident years 2013 to 2015. Managementa $350 per occurrence retention. Under its 2018 property aggregate catastrophe treaty, the Company 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 onrecognized 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.
Package reserveswere reduced for accident years 2013 and prior largely due to reducing the Company’s estimate of allocated loss adjustment expenses incurred to settle the claims.reinsurance
 
Bond business reserves increasedrecoverable for customs bonds written between 2000 and 2010 which was partlyaggregate catastrophe losses in excess of an $825 retention, with the recoverable currently estimated at $84. As such, the first $116 of subrogation recoveries would be offset by a $116 reduction in reserves for recent accident years as reportedthese reinsurance recoverables resulting in no net benefit to income. No changes have been made in 2019 to estimated incurred losses for commercial and contract surety have emerged favorably.from the 2017 or 2018 wildfires.
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.
Catastrophes reserveswere reduced primarily due to lower estimates of 2016 wind and hail event losses and a decrease in losses on a 2015 wildfire.

Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2019
 Commercial LinesPersonal
Lines		Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(40)$—
$—
$(40)
Workers’ compensation discount accretion8
—
—
8
General liability19
—
—
19
Marine(2)—
—
(2)
Package business(23)—
—
(23)
Commercial property(1)—
—
(1)
Professional liability(1)—
—
(1)
Bond(2)—
—
(2)
Assumed Reinsurance—
—
—
—
Automobile liability25
(23)—
2
Homeowners—
(1)—
(1)
Net asbestos reserves—
—
—
—
Net environmental reserves—
—
—
—
Catastrophes(5)—
—
(5)
Uncollectible reinsurance—
—
—
—
Other reserve re-estimates, net3
(4)—
(1)
Total prior accident year development$(19)$(28)$—
$(47)
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE

Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2019
 Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(90)$—
$—
$(90)
Workers’ compensation discount accretion25
—
—
25
General liability62
—
—
62
Marine8
—
—
8
Package business(32)—
—
(32)
Commercial property(16)—
—
(16)
Professional liability32
—
—
32
Bond(2)—
—
(2)
Assumed Reinsurance3
—
—
3
Automobile liability27
(28)—
(1)
Homeowners—
—
—
—
Net asbestos reserves—
—
—
—
Net environmental reserves—
—
—
—
Catastrophes(33)6
—
(27)
Uncollectible reinsurance—
—
—
—
Other reserve re-estimates, net9
(3)9
15
Total prior accident year development$(7)$(25)$9
$(23)
Workers’ compensation reserveswere reduced, principally in small commercial driven by lower than previously estimated claim severity for the Nine Months EndedSeptember 30,2014 through 2017 accident years and, to a lesser extent, in national accounts due to lower estimated claim severity, primarily for accident years 2013 and prior.
General liability reserves were increased, primarily due to reserve increases in small commercial for accident years 2017 and 2018 due to higher frequency of high-severity bodily injury claims, reserve increases in middle and large commercial for accident years 2015 to 2018 due to higher estimated severity, as well as increased estimated severity on the acquired Navigators book of business related to U.S. construction, premises liability, products liability and excess casualty, mostly related to accident years 2014 to 2018. In addition, an increase in reserves for mass torts was offset by a decrease in reserves for extra contractual liability claims.
Marine reserveswere increased, principally related to pollution exposure from the 1980s and 1990s related to the Navigators Group book of business.
Package business reserveswere decreased, primarily due to favorable emergence on property claims related to accident years 2016 through 2018 and due to favorable
development of allocated loss adjustment expenses on general liability claims for 2017 and prior accident years.
Commercial property reserveswere decreased, principally due to favorable emergence of reported losses, including on the acquired Navigators Group book of business related to offshore energy in accident years 2017 to 2018 and construction engineering across accident years 2015 to 2018.
Professional liability reserveswere increased, primarily due to large loss activity, including wrongful termination and discrimination claims, in accident years 2017 and 2018 and increased estimated frequency and severity of directors’ and officers’ reserves on the Navigators Group book of business, principally for the 2014 to 2018 accident years.
Automobile liability reserveswere decreased in Personal Lines due to the emergence of lower estimated severity in automobile liability for accident year 2017 and were increased in Commercial Lines due to higher estimated severity on national accounts, principally in accident years 2017 and 2018
Catastrophes reserves were reduced, primarily as a result of lower estimated net losses from 2017 hurricanes Harvey and Irma.



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




Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2018Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2018
Commercial
Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Commercial
Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$16,559
$1,845
$3,421
$21,825
$18,893
$2,294
$2,588
$23,775
Reinsurance and other recoverables2,293
19
570
2,882
3,147
71
739
3,957
Beginning liabilities for unpaid losses and loss adjustment expenses, net14,266
1,826
2,851
18,943
15,746
2,223
1,849
19,818
Add: Maxum acquisition122
—
—
122
Provision for unpaid losses and loss adjustment expenses  
Current accident year before catastrophes2,820
2,040
—
4,860
3,003
1,688
—
4,691
Current accident year catastrophes167
188
—
355
238
222
—
460
Prior accident year development8
131
270
409
(145)(21)27
(139)
Total provision for unpaid losses and loss adjustment expenses2,995
2,359
270
5,624
3,096
1,889
27
5,012
Less: payments2,582
2,228
471
5,281
Less: net reserves transferred to liabilities held for sale—
—
487
487
Payments(2,676)(1,967)(170)(4,813)
Ending liabilities for unpaid losses and loss adjustment expenses, net14,801
1,957
2,163
18,921
16,166
2,145
1,706
20,017
Reinsurance and other recoverables2,299
18
377
2,694
3,089
21
670
3,780
Ending liabilities for unpaid losses and loss adjustment expenses, gross$17,100
$1,975
$2,540
$21,615
$19,255
$2,166
$2,376
$23,797
Earned premiums$4,950
$2,931
 
Earned premiums and fee income$5,267
$2,594
 
Loss and loss expense paid ratio [1]52.2
76.0
 50.8
75.8
 
Loss and loss expense incurred ratio60.5
80.5
 59.1
73.7
 
Prior accident year development (pts) [2]0.2
4.5
 (2.8)(0.8) 
[1]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.
Catastrophe Losses of $355 for the Nine Months Ended September 30, 2016

hig0930201_chart-14655.jpg
[1]These amounts represent an aggregation of multiple catastrophes.
[2]This amount is related to Personal Lines.


84




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



(Favorable) Unfavorable Prior Accident Year Development for the Three Months Ended September 30, 2016

 Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(4)$—
$—
$(4)
Workers’ compensation discount accretion7
—
—
7
General liability1
—
—
1
Package business(2)—
—
(2)
Commercial property5
—
—
5
Professional liability(2)—
—
(2)
Automobile liability18
—
—
18
Homeowners—
1
—
1
Catastrophes(3)1
—
(2)
Other reserve re-estimates, net2
1
—
3
Total prior accident year development$22
$3
$—
$25
Current Accident Year Catastrophe Losses for the Nine Months Ended September 30, 2018, Net of Reinsurance
 
Commercial
Lines
Personal
Lines		Total
Wind and hail$118
$158
$276
Winter storms57
22
79
Flooding1
1
2
Volcanic eruption—
2
2
Wildfire2
32
34
Hurricane59
6
65
Massachusetts gas explosion1
1
2
Total catastrophe losses$238
$222
$460
(Favorable) Unfavorable Prior Accident Year Development for the Nine Months Ended September 30, 2016
Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2018Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2018
Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty InsuranceCommercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(87)$—
$—
$(87)$(24)$—
$—
$(24)
Workers’ compensation discount accretion21
—
—
21
10
—
—
10
General liability67
—
—
67
4
—
—
4
Package business50
—
—
50
(9)—
—
(9)
Commercial property2
—
—
2
2
—
—
2
Professional liability(35)—
—
(35)(20)—
—
(20)
Bond(6)—
—
(6)—
—
—
—
Automobile liability19
140
—
159
(5)(10)—
(15)
Homeowners—
(4)—
(4)—
(7)—
(7)
Net asbestos reserves—
—
197
197
—
—
—
—
Net environmental reserves—
—
71
71
—
—
—
—
Catastrophes(4)(3)—
(7)(11)(2)—
(13)
Uncollectible reinsurance(30)—
—
(30)—
—
11
11
Other reserve re-estimates, net11
(2)2
11
—
1
—
1
Total prior accident year development$8
$131
$270
$409
$(53)$(18)$11
$(60)
Workers' compensation reservesconsider favorable emergence on reported losses for recent accident years as well as a partially offsetting adverse impact related to two recent Florida Supreme Court rulings that have increased the Company's exposure to workers' compensation claims in that state. The favorable emergence has been driven by lower frequency and, to a lesser extent, lower medical severity and management has placed 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 and, in second quarter 2016, increased reserves in general liability for accident years 2008 and 2010 primarily due to indemnity losses and legal costs associated with a litigated claim.

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.
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.
Automobile liability reservesincreased in commercial lines, predominantly for the 2015 accident year, primarily due to increased frequency of large claims. Automobile liability reserves also increased in personal lines, primarily related to increased bodily injury frequency and severity for the 2015

85




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





Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2018
 Commercial Lines
Personal
Lines
Property & Casualty Other OperationsTotal Property & Casualty Insurance
Workers’ compensation$(97)$—
$—
$(97)
Workers’ compensation discount accretion30
—
—
30
General liability32
—
—
32
Package business(16)—
—
(16)
Commercial property(10)—
—
(10)
Professional liability(12)—
—
(12)
Bond—
—
—
—
Automobile liability(15)(10)—
(25)
Homeowners—
(20)—
(20)
Net asbestos reserves—
—
—
—
Net environmental reserves—
—
—
—
Catastrophes(63)16
—
(47)
Uncollectible reinsurance—
—
22
22
Other reserve re-estimates, net6
(7)5
4
Total prior accident year development$(145)$(21)$27
$(139)
Workers’ compensation reserveswere reduced in small commercial and middle market, primarily for accident year,years 2012 to 2015, as both claim frequency and medical claim severity have emerged favorably compared to previous reserve estimates.
General liability reserveswere increased, primarily due to an increase in reserves for higher hazard general liability exposures in middle market for accident years 2009 to 2017, partially offset by a decrease in reserves for other lines within middle market, including premises and operations, umbrella and products liability, principally for accident years 2015 and prior. Contributing to the increase in reserves for higher hazard general liability exposures was an increase in large losses and, in more recent accident years, an increase in claim frequency. Contributing to the reduction in reserves for other middle market lines were more favorable outcomes due to initiatives to reduce legal expenses. In addition, reserve increases for claims with lead paint exposure were offset by reserve decreases for other mass torts and extra-contractual liability claims.
Package business reserveswere reduced, primarily due to lower reserve estimates for both liability and property for accident years 2010 and prior, including a recovery of loss adjustment expenses for the 2005 accident year.
Commercial property reserves were reduced, driven by an increase in estimated reinsurance recoverables on middle market property losses from the 2017 accident year.
Professional liability reserves were reduced, principally for accident years 2014 and prior, for directors and officers liability claims principally due to a number of older claims closing with limited or no payment.
Automobile liability reserveswere reduced, primarily driven by reduced estimates of loss adjustment expenses in small commercial for recent accident years and favorable development in personal automobile liability for accident years 2014 to 2017,
principally due to lower severity, including with uninsured and under-insuredunderinsured motorist claims, and increased bodily injuryclaims.
Homeowners reserveswere reduced, primarily in accident years 2013 to 2017, driven by lower than expected severity for the 2014 accident year. Increases in auto liability loss costsacross multiple perils.
Catastrophes reserves were across both the direct and agency distribution channels.
Asbestos and environmental reserves increased during the periodreduced, primarily as a result of the 2016 comprehensive annual review. For a discussion of the Company's 2016 review of asbestoslower estimated net losses from 2017 catastrophes, principally related to hurricanes Harvey and environmental reserves, see Part II, Item 7 MD&A, Critical Accounting Estimates, Property & Casualty Other Operations sectionIrma. Before reinsurance, estimated losses for 2017 catastrophe events decreased by $133 in the Company’s 2016 Form 10-K Annual Report.nine months ended September 30, 2018, resulting in a decrease in reinsurance recoverables of $90 as the Company no longer expects to recover under the 2017 Property Aggregate reinsurance treaty as aggregate ultimate losses for 2017 catastrophe events are now projected to be less than $850.
Uncollectible reinsurance reservesdecreased as a result of giving greater weight were increased due to favorable collectibility experience in recent calendar periods in estimating future collections.lower anticipated recoveries related to older accident years.
P&C Other Operations Total Reserves, Net of Reinsurancehig0930201_chart-10083.jpg
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
 AsbestosEnvironmental
September 30, 2017  
Property and Casualty Other Operations$1,179
$188
Commercial Lines and Personal Lines74
56
Ending liability — net$1,253
$244
December 31, 2016  
Property and Casualty Other Operations$1,282
$234
Commercial Lines and Personal Lines81
58
Ending liability — net$1,363
$292
Property & Casualty Reserves Asbestos and Environmental ("A&E") Summary as of September 30, 2017
  AsbestosEnvironmentalTotal A&E
Gross   
 Direct$1,450
$262
$1,712
 Assumed Reinsurance143
—
143
 Total1,593
262
1,855
Ceded(340)(18)(358)
Net$1,253
$244
$1,497



86






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



Roll-Forward of Asbestos and Environmental Losses and LAE for the Nine Months Ended September 30, 2017 and September 30, 2016

 AsbestosEnvironmental
2017  
Beginning liability—net$1,363
$292
Reclassification of allowance for uncollectible reinsurance [1]1
—
Less: losses and loss adjustment expenses paid111
48
Ending liability – net$1,253
$244
2016  
Beginning liability—net$1,803
$318
Losses and loss adjustment expenses incurred197
71
Less: losses and loss adjustment expenses paid [2]389
35
Less: net reserves transferred to liabilities held for sale205
41
Ending liability – net$1,406
$313

[1] Related to the reclassification of an allowance for uncollectible reinsurance from the "All Other" category of P&C Other Operations reserves.
[2] Included $262 related to the settlement in 2016 of PPG Industries ("PPG") asbestos liabilities, net of reinsurance billed to third-party reinsurers.
The Company classifies its asbestos and environmental reserves into two categories: Direct and Assumed Reinsurance.
Direct Insurance- includes primary and excess coverage. Of the two categories of claims, direct policies tend to have the greatest factual development from which to estimate the Company’s exposures.
Assumed Reinsurance- includes both “treaty” reinsurance (covering broad categories of claims or blocks of business) and “facultative” reinsurance (covering specific risks or individual policies of primary or excess insurance companies). Assumed Reinsurance exposures are less predictable than direct insurance exposures because the Company does not generally receive notice of a reinsurance 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.
Net Survival Ratio
Net survival ratio is the quotient of the net carried reserves divided by average annual payments net of reinsurance and is an indication of the number of years that net carried reserves would last (i.e. survive) if future annual net payments were consistent with the calculated historical average.
The net survival ratios shown below are calculated for the one and three year periods ended September 30, 2017 and are calculated excluding the effect of net reserves for asbestos and environmental related to the second quarter 2017 sale of the Company's U.K. Property & Casualty run-off subsidiaries. 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 Industries ("PPG") settlement in the second quarter of 2016.
Net Survival Ratios
 AsbestosEnvironmental
One year net survival ratio6.93.5
Three year net survival ratio4.84.2
One year net survival ratio - excluding PPG settlement8.1 
Three year net survival ratio - excluding PPG settlement7.5 
Asbestos and Environmental Paid and Incurred Losses and LAE Development for the Nine Months Ended September 30, 2017
 AsbestosEnvironmental
 Paid
Losses &  LAE		Incurred
Losses &  LAE		Paid
Losses &  LAE		Incurred
Losses &  LAE
Gross    
Direct$105
$—
$51
$—
Assumed Reinsurance34
—
7
—
Total139
—
58
—
Ceded(28)—
(10)—
Net$111
$—
$48
$—
Annual Reserve Reviews
Review of Asbestos Reserves
In 2017, the Company expects to perform its regular comprehensive annual review of asbestos reserves in the fourth quarter.
As part of its evaluation in the second quarter of 2016, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts. Based on this evaluation, the Company increased its net asbestos reserves for prior year development by $197 in second quarter 2016.
Review of Environmental Reserves
In 2017, the Company expects to perform its regular comprehensive annual review of environmental reserves in the fourth quarter.
As part of its evaluation in the second quarter of 2016, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability, as well as assumed reinsurance accounts and its London Market exposures for both direct and assumed reinsurance. Based on this evaluation, the

87



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

Company increased its net environmental reserves for prior year development by $71 in second quarter 2016.
2016 Reserve Reviews
For a discussion of the Company's 2016 comprehensive annual review of asbestos and environmental reserves, see Part II, Item 7 MD&A, Critical Accounting Estimates, Property & Casualty Other Operations section in the Company’s 2016 Form 10-K Annual Report.
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 in 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 that were part of the Company’s U.K. Property and Casualty run-off subsidiaries that were sold in May 2017, which have been accounted for as liabilities held for sale in the consolidated balance sheets as of 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 the fourth quarter of 2016. 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 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.
As of September 30, 2017 , the Company reported $1.3 billion of net asbestos reserves and $244 million of net environmental reserves. The Company believes that its current asbestos and environmental reserves are appropriate. However, analyses of future developments could cause The Hartford to change its estimates of its asbestos and environmental reserves. As discussed above the effect of these changes could be material to the Company's liquidity and, if cumulative adverse development subsequent to December 31, 2016 exceeded $650, the effect of the changes could be material to the Company's consolidated operating results. The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in the Company's 2016 Form 10-K Annual Report.
Consistent with the Company's long-standing reserve practices, the Company will continue to review and monitor its reserves in Property & Casualty Other Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables and the allowance for uncollectible reinsurance, and environmental liabilities, and where future developments indicate, make appropriate adjustments to the reserves. For a discussion of the Company's reserving practices, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance in the Company's 2016 Form 10-K Annual Report.
Estimated Gross Profits
Estimated gross profits (“EGPs”) are used in the valuation and amortization of assets, including DAC and SIA. Portions of EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and other universal life type contracts.
Talcott Resolution Significant EGP - based Balances
 As of September 30, 2017As of December 31, 2016
DAC$986
$1,066
SIA$51
$53
Death and Other Insurance Benefit Reserves, net of reinsurance [1]$361
$354
[1] For additional information on death and other insurance benefit reserves, see Note 9 - Reserve for Future Policy Benefits and Separate Account Liabilities of Notes to Condensed Consolidated Financial Statements.

88



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

Talcott Resolution Benefit (Charge) to Income, Net of Tax, as a Result of Unlock
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016 20172016
DAC$18
$(29) $40
$(17)
SIA1
4
 2
5
Death and Other Insurance Benefit Reserves4
12
 19
30
Total (before tax)23
(13) 61
18
Income tax effect8
(4) 21
7
Total (after-tax)$15
$(9) $40
$11
The Unlock benefit for the three and nine month 2017 periods was primarily due to separate account returns being above our aggregated estimated returns during the period largely due to an increase in equity markets.
The Unlock charge for the three months ended September 30, 2016 was primarily due to the reduction of the fixed annuity DAC balance to zero due to the impact of the sustained low interest rates on estimated gross profits, partially offset by an off-cycle assumption change that reduced future expected lapse rates given recent experience and an unlock benefit on variable annuity DAC due to separate account returns being above our aggregated estimated returns during the period largely due to an increase in equity markets.
The Unlock benefit for the nine months ended September 30, 2016 was primarily due to separate account returns being above our aggregated estimated returns during the period largely due to an increase in equity markets partially offset by the reduction of the fixed annuity DAC balance to zero.
Use of Estimated Gross Profits in Amortization and Reserving
For most annuity contracts, the Company estimates gross profits over 20 years as EGPs emerging subsequent to that time frame are immaterial. Products sold in a particular year are aggregated into cohorts. Future gross profits for each cohort are projected over the estimated lives of the underlying contracts, based on future account value projections for variable annuity products. The projection of future account values requires the use of certain assumptions including: separate account returns; separate account fund mix; fees assessed against the contract holder’s account balance; surrender and lapse rates; interest margin; mortality; and the extent and duration of hedging activities and hedging costs. Changes in these assumptions and changes to other policyholder behavior assumptions such as resets, partial surrenders, reaction to price increases, and asset allocations cause EGPs to fluctuate, which impacts earnings.
The Company determines EGPs from a single deterministic reversion to mean (“RTM”) separate account return projection which is an estimation technique commonly used by insurance entities to project future separate account returns. Through this estimation technique, the Company’s DAC model is adjusted to reflect actual account values at the end of each quarter. Through
consideration of recent market returns, the Company will unlock, or adjust, projected returns over a future period so that the account value returns to the long-term expected rate of return, providing that those projected returns do not exceed certain caps.
Market Unlocks
In addition to updating assumptions in the fourth quarter of each year, an Unlock revises EGPs, on a quarterly basis, to reflect the Company’s current best estimate assumptions and market updates of policyholder account value. The Unlock for future separate account returns is determined each quarter. Under RTM, the expected long-term weighted average rate of return is 8.3%. The annual return assumed over the next five years of approximately 0.1% was calculated based on the return needed over that period to produce an 8.3% return since March of 2009, the date the Company adopted the RTM estimation technique to project future separate account returns. Based on the expected trend of policy lapses and annuitizations, the Company expects approximately 55% of its block of variable annuities to run off in the next 5 years.
Aggregate Recoverability
After each quarterly Unlock, the Company also tests the aggregate recoverability of DAC by comparing the DAC balance to the present value of future EGPs. The margin between the DAC balance and the present value of future EGPs for variable annuities was 42% as of September 30, 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 September 30, 2017, including past operating results, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. In the event we determine it is not more likely than not that we will be able to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance would be reversed. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions.

89



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

As of September 30, 2017 and December 31, 2016, the Company had no valuation allowance. In assessing the need for a valuation allowance, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of debt securities with market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset-liability matching. Management views such tax planning strategies as prudent and feasible, and would implement them, if necessary, to realize the deferred tax assets.


90



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

SEGMENT OPERATING SUMMARIES
COMMERCIAL LINES
Results of Operations
Underwriting Summary
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
20172016Change 20172016Change20192018Change 20192018Change
Written premiums$1,702
$1,673
2% $5,229
$5,068
3%$2,235
$1,751
28% $6,262
$5,336
17%
Change in unearned premium reserve(21)(4)NM
 98
118
(17%)(15)(34)56% 248
95
161%
Earned premiums1,723
1,677
3% 5,131
4,950
4%2,250
1,785
26% 6,014
5,241
15%
Fee income9
10
(10%) 28
29
(3%)8
9
(11%) 26
26
—%
Losses and loss adjustment expenses


   


   
Current accident year before catastrophes1,009
969
4% 2,971
2,820
5%1,336
1,055
27% 3,552
3,003
18%
Current accident year catastrophes270
43
NM
 404
167
142%
Prior accident year development(3)22
(114%) 12
8
50%
Current accident year catastrophes [1]74
95
(22%) 234
238
(2%)
Prior accident year development [1](19)(53)64% (7)(145)95%
Total losses and loss adjustment expenses1,276
1,034
23% 3,387
2,995
13%1,391
1,097
27% 3,779
3,096
22%
Amortization of deferred policy acquisition costs253
243
4% 754
727
4%356
264
35% 940
780
21%
Underwriting expenses348
303
15% 995
915
9%410
353
16% 1,139
1,013
12%
Amortization of other intangible assets7
2
NM
 11
3
NM
Dividends to policyholders4
4
—% 11
12
(8%)12
8
50% 24
18
33%
Underwriting gain (loss)(149)103
NM
 12
330
(96%)
Underwriting gain82
70
17% 147
357
(59%)
Net servicing income1
2
(50%) 2
2
—%2
(1)NM
 3
—
NM
Net investment income [1]241
239
1% 724
674
7%
Net realized capital gains [1]13
39
(67%) 56
31
81%
Net investment income [2]291
250
16% 831
750
11%
Net realized capital gains [2]60
29
107% 229
63
NM
Loss on reinsurance transaction—
—
—% (91)—
NM
Other income (expenses)(1)(3)67% —
(2)100%(20)2
NM
 (27)1
NM
Income before income taxes105
380
(72%) 794
1,035
(23%)415
350
19% 1,092
1,171
(7%)
Income tax expense [2]15
112
(87%) 215
305
(30%)
Income tax expense [3]79
61
30% 202
212
(5%)
Net income$90
$268
(66%) $579
$730
(21%)$336
$289
16% $890
$959
(7%)
[1]For discussion of consolidated investment results,current accident year catastrophes and prior accident year development, see MD&A - Investment Results,Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).
[2]
For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.
Premium Measures [1]
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016 20172016
New business premium$274
$270
 $864
$832
Standard commercial lines policy count retention83%85% 84%84%
Standard commercial lines renewal written price increase3.5%2.0% 3.4%2.1%
Standard commercial lines renewal earned price increase3.1%2.2% 2.7%2.4%
Standard commercial lines policies in-force as of end of period (in thousands)   1,341
1,345
[1]Standard commercial lines consists of Small Commercial and Middle Market. Standard Commercial premium measures exclude Middle Market programs and livestock lines of business.

91



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

Underwriting Ratios
 Three Months Ended September 30, Nine Months Ended September 30,

20172016Change 20172016Change
Loss and loss adjustment expense ratio       
Current accident year before catastrophes58.6
57.8
0.8
 57.9
57.0
0.9
Current accident year catastrophes15.7
2.6
13.1
 7.9
3.4
4.5
Prior accident year development(0.2)1.3
(1.5) 0.2
0.2
—
Total loss and loss adjustment expense ratio74.1
61.7
12.4
 66.0
60.5
5.5
Expense ratio34.4
32.0
2.4
 33.5
32.6
0.9
Policyholder dividend ratio0.2
0.2
—
 0.2
0.2
—
Combined ratio108.6
93.9
14.7
 99.8
93.3
6.5
Current accident year catastrophes and prior year development15.5
3.9
11.6
 8.1
3.6
4.5
Underlying combined ratio93.2
90.0
3.2
 91.7
89.8
1.9
Net Income
hig0930201_chart-11287.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Net income decreased for the three month period, primarily due to the effect of hurricanes Harvey and Irma in the third quarter of 2017 and, to a lesser extent, a decrease in net realized capital gains and an increase in underwriting expenses.
Net income decreased for the nine month period due to a lower underwriting gain primarily driven by higher catastrophe losses and an increase in underwriting expenses, partially offset by increases in net investment income and net realized capital gains.
Underwriting Gain (Loss)
hig0930201_chart-12222.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Underwriting gain (loss)decreased for the three month period, primarily due to higher catastrophe losses due to hurricanes Harvey and Irma. Also, contributing to the decrease were higher underwriting expenses, driven by higher variable incentive compensation and technology costs, and higher current accident year loss costs in workers’ compensation, partially offset by a change to net favorable prior year development.
Underwriting gaindecreased for the nine month period due to higher catastrophe losses and higher underwriting expenses due to an increase in variable incentive compensation. Also, contributing to the decrease were higher current accident year loss costs for workers’ compensation and non-catastrophe property, partially offset by the effect of earned premium growth.

92



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

Earned Premiums
hig0930201_chart-13264.jpg
[1] Other of $10 and $11 for the three months ended September 30, 2016, and 2017, and $32 and $35 for the nine months ended September 30, 2016, and 2017, respectively, is included in the total.
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Earned premiums increased for the three and nine month periods reflecting written premium growth over the preceding twelve months.
Written premiumsincreased for the three month period due to growth in Small Commercial, partially offset by declines in Middle Market and Specialty Commercial. Written premiums increased for the nine month period primarily due to growth in Small Commercial.
Small Commercial written premium growth for both the three and nine month periods was primarily due to higher renewal premium driven by renewal written price increases and growth from the acquisition of Maxum, partially offset by lower new business premium, excluding Maxum, and the effect of lower policy retention.
Middle Market written premiums declined for the three month period due to lower renewal and other premium,
partially offset by higher new business premium. For the nine month period, Middle Market written premiums were up modestly as higher new business was largely offset by lower renewal and other premium.
Specialty Commercial written premium declined for the three month period, primarily due to a decline in National Accounts. For the nine month period, Specialty Commercial written premiums were essentially flat as declines in National Accounts were offset by an increase in Bond.
For the three month period, renewal written price increases averaged 3.5% in standard commercial, which included 4.7% for Small Commercial and 1.3% for Middle Market.
Loss and LAE Ratio before Catastrophes and Prior Accident Year Development
hig0930201_chart-15366.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Loss and LAE ratio before catastrophes and prior accident year developmentincreased for the three month period, primarily due to a higher loss and loss adjustment expense ratio in workers' compensation and general liability, partially offset by a lower loss and loss adjustment expense ratio in commercial automobile.
Loss and LAE ratio before catastrophes and prior accident year developmentincreased for the nine month period, primarily due to a higher loss and loss adjustment expense ratio in workers' compensation, commercial automobile and general liability, as well as higher commercial property losses in Middle Market.

93



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

Catastrophes and (Favorable) Unfavorable Prior Accident Year Development
hig0930201_chart-16431.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Current accident year catastrophe losses for the three month 2017 period were primarily from hurricanes Harvey and Irma. Catastrophe losses for the three month 2016 period were primarily due to multiple wind and hail events concentrated in the Midwest and the central plains.
Current accident year catastrophe losses for the nine month 2017 period were primarily from hurricanes Harvey and Irma, but also included wind and hail events in the Midwest, Texas and Colorado. Catastrophe losses for the nine month 2016 period were primarily due to wind and hail events and winter storms across various U.S. geographic regions.
Prior accident year development was favorable for the three month 2017 period compared to unfavorable prior accident year development for the three month 2016 period. Net reserve decreases for the three month 2017 period were primarily related to reductions in package business and workers' compensation reserves, partially offset by an increase in bond reserves. Net reserve increases for the three month 2016 period were primarily related to increases in commercial auto liability.
Prior accident year development was unfavorable for the nine month 2017 period compared to unfavorable prior accident year development for the nine month 2016 period. Net reserve increases for the nine month 2017 period were primarily related to commercial automobile liability, general liability and bond, largely offset by a decrease in reserves for package business. Net reserve increases for the nine month 2016 period were primarily related to reserve increases for general liability, package business and commercial auto, largely offset by reserve
decreases in workers' compensation, professional liability and uncollectible reinsurance.


94



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 September 30, Nine Months Ended September 30,
Underwriting Summary20172016Change 20172016Change
Written premiums$924
$1,000
(8%) $2,738
$2,945
(7%)
Change in unearned premium reserve3
20
(85%) (47)14
NM
Earned premiums921
980
(6%) 2,785
2,931
(5%)
Fee income11
10
10% 33
29
14%
Losses and loss adjustment expenses


   
Current accident year before catastrophes663
719
(8%) 1,959
2,040
(4%)
Current accident year catastrophes82
37
122% 253
188
35%
Prior accident year development2
3
(33%) (12)131
(109%)
Total losses and loss adjustment expenses747
759
(2%) 2,200
2,359
(7%)
Amortization of DAC76
86
(12%) 236
264
(11%)
Underwriting expenses146
147
(1%) 425
461
(8%)
Underwriting loss(37)(2)NM
 (43)(124)65%
Net servicing income [1]4
6
(33%) 11
15
(27%)
Net investment income [2]36
35
3% 107
99
8%
Net realized capital gains [2]2
5
(60%) 9
4
125%
Other income3
2
50% 1
2
(50%)
Income (loss) before income taxes8
46
(83%) 85
(4)NM
Income tax expense (benefit) [3]—
13
(100%) 20
(10)NM
Net income$8
$33
(76%) $65
$6
NM
[1]
Includes servicing revenues of $24 for the three months endedSeptember 30, 2017 and 2016, and $66 and $67 for the nine months endedSeptember 30, 2017and2016, respectively.
Reinsurance.
[2]For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).Results.
[3]
For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.
Written and Earned Premiums

 Three Months Ended September 30, Nine Months Ended September 30,
Written Premiums20172016Change 20172016Change
Product Line       
Automobile$636
$691
(8%) $1,919
$2,067
(7%)
Homeowners288
309
(7%) 819
878
(7%)
Total$924
$1,000
(8%) $2,738
$2,945
(7%)
Earned Premiums  
   

Product Line  
   

Automobile$644
$686
(6%) $1,950
$2,044
(5%)
Homeowners277
294
(6%) 835
887
(6%)
Total$921
$980
(6%) $2,785
$2,931
(5%)


95




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





Premium Measures
 Three Months Ended September 30, Nine Months Ended September 30,
Premium Measures20172016 20172016
Policies in-force end of period (in thousands)     
Automobile   1,768
2,016
Homeowners   1,071
1,208
New business written premium     
Automobile$37
$70
 $117
$263
Homeowners$11
$18
 $35
$62
Policy count retention     
Automobile80%84% 81%84%
Homeowners83%84% 82%84%
Renewal written price increase     
Automobile12.0%8.0% 10.9%7.0%
Homeowners8.6%8.3% 8.9%7.9%
Renewal earned price increase     
Automobile10.1%6.4% 9.1%6.0%
Homeowners8.7%7.8% 8.4%7.5%
Underwriting Ratios
 Three Months Ended September 30, Nine Months Ended September 30,
Underwriting Ratios20172016Change 20172016Change
Loss and loss adjustment expense ratio       
Current accident year before catastrophes72.0
73.4
(1.4) 70.3
69.6
0.7
Current accident year catastrophes8.9
3.8
5.1
 9.1
6.4
2.7
Prior year development0.2
0.3
(0.1) (0.4)4.5
(4.9)
Total loss and loss adjustment expense ratio81.1
77.4
3.7
 79.0
80.5
(1.5)
Expense ratio22.9
22.8
0.1
 22.5
23.7
(1.2)
Combined ratio104.0
100.2
3.8
 101.5
104.2
(2.7)
Current accident year catastrophes and prior year development9.1
4.1
5.0
 8.7
10.9
(2.2)
Underlying combined ratio94.9
96.1
(1.2) 92.9
93.3
(0.4)

Three Months Ended September 30, Nine Months Ended September 30,

20192018 20192018
Small commercial new business premium$150
$145
 $508
$443
Middle market new business premium146
131
 463
404
Small commercial policy count retention83%83% 83%82%
Middle market policy count retention [1]83%78% 82%78%
Standard commercial lines renewal written price increases [1] [2]2.8%1.9% 2.3%2.6%
Standard commercial lines renewal earned price increases [1] [2]2.2%3.0% 2.2%3.2%
Small commercial policies in-force as of end of period (in thousands)1,294
1,264
   
Middle market policies in-force as of end of period (in thousands) [1]64
64
   
[1]Excludes certain risk classes of higher hazard general liability in middle market.
[2]Small commercial and middle market lines within middle & large commercial are generally referred to as standard commercial lines.

Product CombinedUnderwriting Ratios
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
20172016Change 20172016Change20192018Change 20192018Change
Automobile 

  

Loss and loss adjustment expense ratio
 
Current accident year before catastrophes59.4
59.1
0.3
 59.1
57.3
1.8
Current accident year catastrophes3.3
5.3
(2.0) 3.9
4.5
(0.6)
Prior accident year development(0.8)(3.0)2.2
 (0.1)(2.8)2.7
Total loss and loss adjustment expense ratio61.8
61.5
0.3
 62.8
59.1
3.7
Expense ratio34.0
34.2
(0.2) 34.3
33.8
0.5
Policyholder dividend ratio0.5
0.4
0.1
 0.4
0.3
0.1
Combined ratio106.3
104.8
1.5
 101.5
109.5
(8.0)96.4
96.1
0.3
 97.6
93.2
4.4
Current accident year catastrophes and prior year development2.5
2.3
0.2
 3.8
1.7
2.1
Current accident year change in loss reserves upon acquisition of a business [1]—
—
—
 0.5
—
0.5
Underlying combined ratio101.6
103.1
(1.5) 99.1
100.7
(1.6)93.9
93.7
0.2
 93.3
91.4
1.9
Homeowners 

  

Combined ratio97.9
89.2
8.7
 101.6
92.1
9.5
Underlying combined ratio78.9
79.6
(0.7) 78.4
76.3
2.1
[1]Upon acquisition of Navigators Group and a review of Navigators Insurers reserves, the nine months ended September 30, 2019 included $68 of prior accident year reserve increases and $29 of current accident year reserve increases which were excluded for the purposes of the underlying combined ratio calculation.
Net Income

chart-8b7921dd82f2581c8d9.jpg
96Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net incomeincreased for the three months ended September 30, 2019 due to higher net investment income, higher net realized capital gains and a higher underwriting gain.
Net incomedecreased for the nine months ended September 30, 2019 due to$91 before tax of ADC ceded premium and a lower underwriting gain, primarily due to $97 before tax of reserve increases upon the acquisition of Navigators Group and a decrease in net favorable prior accident year development for other reserves, partially offset by higher net investment income and higher net realized capital gains.
Contributing to the increase in net investment income for both the three and nine month periods was income on invested assets acquired from Navigators Group and higher income from limited






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





Net Incomepartnerships and alternative investments. For further discussion of investment results, see MD&A - Investment Results.
hig0930201_chart-12396.jpgUnderwriting Gain
chart-9d9a2e9bbca5501c929.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Net incomeforUnderwriting gainincreased in the three month period decreased from 2016 to 2017, primarily resulting from higher catastrophe losses due to hurricanes Harvey and Irma.
Net incomefor the nine month period increased from 2016 to 2017, primarily due tolower current accident year catastrophes, a lower underwritingcurrent accident year loss drivenand loss adjustment expense ratio before catastrophes, excluding Navigators Group, and the effect of higher earned premium, excluding Navigators Group, partially offset by improved auto underwriting results.less favorable prior accident year development.
Underwriting Loss
hig0930201_chart-13856.jpg
Three andgaindecreased in the nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Underwriting lossincreased for the three month period, primarily due to $97 before tax of increases to Navigators reserves upon acquisition of the higher currentbusiness, less favorable prior accident year catastrophes in 2017. A decrease in underwriting expenses and DAC
amortization was offset by the effect of lower earned premium as the Company took actions to improve profitability.
Underwriting lossdecreased for the nine month period primarily due to the effect of unfavorable reserve development inunrelated to the first half of 2016 and a decrease in underwriting expenses, partially offset by higher catastrophes,Navigators Group acquisition, a higher current accident year loss and loss adjustment expense ratio before catastrophes, and higher expenses, partially offset by the effect of a declinehigher earned premium, excluding Navigators Group. Higher commissions contributed to the increase in earned premium. The decreaseamortization of DAC. Contributing to the increase in underwriting expenses was primarily duethe effect of higher information technology and operations costs in middle market as well as higher operations and other costs in small commercial associated with the 2018 renewal rights agreement with Farmers Group to a decrease in direct marketing expenses that wasacquire its Foremost-branded small commercial business, partially offset by higher variablelower incentive compensationcompensation.
For both the three and nine month periods, the decreaseacquisition of Navigators Group contributed to the increase in earned premiums with a corresponding increase to losses and loss adjustment expenses, amortization of DAC amortization was driven primarily by lower Agency commissions.and underwriting expenses. Apart from the effect of the Navigators Group acquisition, earned premiums increased in small commercial and in middle and large commercial.
Earned Premiums
hig0930201_chart-15122.jpgchart-144b45eb34be5cd4a75.jpg
[1]Other of $12 and $11 for the three months ended September 30, 2018, and 2019, respectively, and $35 and $33 for the nine months ended September 30, 2018 and 2019, respectively, is included in the total.
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Earned premiums decreasedincreased for the three and nine month periods,months ended September 30, 2019 reflecting a decline in written premium growth over the prior six topreceding twelve months, particularly in Other Agency business.months.
Written premiums decreasedincreased for the three and nine month periodsmonths ended September 30, 2019 with growth in AARP Directmiddle & large commercial, and both Agency channels primarily due to a decline in new businessglobal specialty, including growth from the acquisition of Navigators Group and, lower policy count retention in both automobile and homeowners.
Forfor the three and nine month periods,period only, growth in small commercial. In standard commercial lines, renewal written price increases declined slightly for the nine month period in 2019, mostly attributable to larger rate decreases in small commercial workers' compensation, partially offset by higher written pricing increased in both automobileproperty and home, as the Company increased rates to improve profitability.
Policy count retention decreasedgeneral liability, and improved for the three and nine month periods in both automobile and homeowners, driven in part by renewalperiod due to higher written pricing increases.

increases in property and general liability and lower written pricing decreases in workers' compensation. New business premium in small commercial and middle market


97





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





Policies in-forcedecreased forincreased over the prior year in both the three and nine month periodperiods, with increases in both automobileworkers' comp and homeowners, driven by lower new business and lower policy count retention.property.
•
Small commercial written premium was flat for the three month period and increased for the nine month period. The increase for the nine month period was primarily driven by the business acquired under a 2018 renewal rights agreement with Farmers Group to acquire its Foremost-branded small commercial business.
•
Middle & large commercial written premium growth for both the three and nine month periods was primarily due to new business growth and higher renewal premium in core middle market lines, as well as growth in certain industry verticals, including construction, energy, large property and specialty programs. The increase in renewal premium was due to renewal written price increases and higher audit premium.
•
Global specialty written premium increased for both the three and nine month periods driven by the acquisition of Navigators as well as growth in financial products and bond.
Loss and LAE Ratio before Catastrophes and Prior Accident Year Development
hig0930201_chart-16517.jpgchart-e8526132e13f5168a69.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Loss and LAE ratio before catastrophes and prior accident year development decreased increased for the three month period,months ended September 30, 2019, primarily asdue to a result of lower automobile liabilityhigher loss and auto physical damage frequency,loss adjustment expense ratio on the acquired Navigators Group business, partially offset by lower non-catastrophe weather-related homeowners losses and the effect of earned pricing increases.property losses.
Loss and LAE ratio before catastrophes and prior accident year developmentincreased for the nine months ended September 30, 2019 primarily due to a higher loss and loss adjustment expense ratio on the acquired Navigators Group business and higher non-catastrophe property losses in middle market inland marine.
Included in current accident year loss and loss adjustment expenses before catastrophes for the nine month period was a $29 increase in current accident year Navigators reserves upon acquisition of the business in May 2019, which was driven primarily as a result of higher non-catastrophe weather-related homeowners losses, partially offset by the effect of increases in earned pricing. Taking into account management’s current view ofincreased loss cost changesestimates for the first nine months of 2016, automobilegeneral liability, frequency has decreased while automobileinternational professional liability severity has increased modestly.and assumed reinsurance accident and health business.
 
Current Accident Year Catastrophes and Unfavorable (Favorable) Unfavorable Prior Accident Year Developmenthig0930201_chart-17724.jpg
chart-5a5fb87c5a0e56b2b5a.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Current accident year catastrophe lossestotaled $74, before tax, for the three month 2017 periodmonths ended September 30, 2019 compared to $95, before tax, for the three months ended September 30, 2018. Current accident year catastrophe losses for the three months ended September 30, 2019 were primarily related to wind and hail events in various areas of the Midwest and Mountain West as well as from hurricane Dorian and tropical storm Imelda. Current accident year catastrophe losses for the three months ended September 30, 2018 were primarily due to hurricanes Harveywind and Irma. Catastrophehail events in Colorado and hurricane Florence.
Current accident year catastrophe lossestotaled $234, before tax, for the three month 2016 period nine months ended September 30, 2019 compared to $238 before tax, for the nine months ended September 30, 2018. Current accident year catastrophe losses for the nine months ended September 30, 2019 were primarily from winter storms in the northern plains, Midwest and Northeast as well as tornado, wind and hail events in various areas of the Midwest, Mountain West and South. Current accident year catastrophe losses for the nine months ended September 30, 2018 were primarily due to multiple wind and hail events across various U.S. geographic regions.
Current accident year catastrophe lossesforin Colorado, the nine month 2017 period were primarily due to hurricanes HarveyMidwest, South and IrmaMid-Atlantic and hurricane Florence as well as multiple wind and hail events across various U.S. geographic regions, concentrated in Texas, Colorado,winter storms on the Midwest and the Southeast. Catastrophe losses for the nine month 2016 period were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the Midwest and central plains.east coast.
Prior accident year developmentwas slightly unfavorable a net favorable $19 for the three month periodsperiod in both 2016 and 2017. Net reserves increased 2019, compared with $53 of net favorable prior accident year development for the three month 2017 period primarily due to increases in reserves2018 and was a net favorable $7 for prior accident year non-catastrophe homeowners.
Prior accident year development was favorable for the nine month 2017 period compared to unfavorable prior accident year development for the nine month 2016 period. Net


98





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





reserves decreased nine months ended September 30, 2019 compared to favorable prior accident year development of $145, before tax, for the nine months ended September 30, 2018. Net reserve decreases for the three month 2017 period in 2019 were primarily duerelated to lower loss reserve estimates for workers' compensation claims and package business reserves, partially offset by increases in reserves for auto liability and general liability. Net reserve decreases for the nine months ended September 30, 2019 were primarily related to lower loss reserve estimates for workers' compensation claims, catastrophes and package business reserves, largely offset by a $68 before tax increase to Navigators reserves upon acquisition of the business and increases in reserves for auto liability and general liability. The increase in Navigators reserves upon acquisition of the business principally
related to higher reserve estimates for general liability, professional liability and marine.
Net reserve decreases for the three months ended September 30, 2018 were primarily related to decreases in reserves for prior accident year catastrophes.workers' compensation, professional liability and the 2017 hurricanes. Net reserves increased reserve decreases for the nine month 20162018 period were primarily related to increased bodily injury frequencydecreases for workers' compensation and severitycatastrophe reserves. Estimated losses for 2017 catastrophe events in Commercial Lines decreased by $93 in the 2015 accident year and increased bodily injury severity fornine month 2018 period resulting in a decrease in reinsurance recoverables of $43 as the 2014 accident year. Increases in auto liability loss costs were across bothCompany no longer expects to recover under the direct and agency distribution channels.2017 Property Aggregate reinsurance treaty.

99


PERSONAL LINES

Results of Operations
Underwriting Summary
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018Change 20192018Change
Written premiums$822
$854
(4%) $2,417
$2,518
(4%)
Change in unearned premium reserve19
5
NM
 14
(46)130%
Earned premiums803
849
(5%) 2,403
2,564
(6%)
Fee income9
10
(10%) 28
30
(7%)
Losses and loss adjustment expenses


   
Current accident year before catastrophes531
565
(6%) 1,548
1,688
(8%)
Current accident year catastrophes [1]32
74
(57%) 114
222
(49%)
Prior accident year development [1](28)(18)(56%) (25)(21)(19%)
Total losses and loss adjustment expenses535
621
(14%) 1,637
1,889
(13%)
Amortization of DAC64
68
(6%) 194
209
(7%)
Underwriting expenses154
155
(1%) 464
454
2%
Amortization of other intangible assets1
1
—% 4
3
33%
Underwriting gain58
14
NM
 132
39
NM
Net servicing income [2]4
5
(20%) 11
13
(15%)
Net investment income [3]46
39
18% 134
116
16%
Net realized capital gains [3]9
5
80% 36
10
NM
Other income (expenses)—
1
(100%) (1)1
NM
Income before income taxes117
64
83% 312
179
74%
 Income tax expense [4]23
13
77% 60
33
82%
Net income$94
$51
84% $252
$146
73 %
[1]For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.
[2]
Includes servicing revenues of $23 and $24 for the three months ended September 30,2019 and 2018 and $65 and $66 for the nine months ended September 30,2019 and 2018. Includes servicing expenses of $19 for both the three months ended September 30,2019 and 2018, and $54 and $53 for the nine months ended September 30, 2019 and 2018.
[3]For discussion of consolidated investment results, see MD&A - Investment Results.
[4]
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





Written and Earned Premiums
 Three Months Ended September 30, Nine Months Ended September 30,
Written Premiums20192018Change 20192018Change
Product Line       
Automobile$562
$583
(4%) $1,681
$1,750
(4%)
Homeowners260
271
(4%) 736
768
(4%)
Total$822
$854
(4%) $2,417
$2,518
(4%)
Earned Premiums  
   

Product Line  
   

Automobile$558
$591
(6%) $1,670
$1,787
(7%)
Homeowners245
258
(5%) 733
777
(6%)
Total$803
$849
(5%) $2,403
$2,564
(6%)
Premium Measures
 Three Months Ended September 30, Nine Months Ended September 30,
Premium Measures20192018 20192018
Policies in-force end of period (in thousands)     
Automobile   1,445
1,547
Homeowners   893
948
New business written premium     
Automobile$58
$47
 $173
$126
Homeowners$21
$12
 $57
$32
Policy count retention     
Automobile85%83% 85%82%
Homeowners86%83% 85%83%
Renewal written price increase     
Automobile4.1%6.0% 4.8%7.9%
Homeowners5.9%9.9% 6.9%9.9%
Renewal earned price increase     
Automobile5.1%9.2% 5.8%10.1%
Homeowners8.0%9.6% 8.8%9.2%



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




Underwriting Ratios
 Three Months Ended September 30, Nine Months Ended September 30,
Underwriting Ratios20192018Change 20192018Change
Loss and loss adjustment expense ratio       
Current accident year before catastrophes66.1
66.5
(0.4) 64.4
65.8
(1.4)
Current accident year catastrophes4.0
8.7
(4.7) 4.7
8.7
(4.0)
Prior year development(3.5)(2.1)(1.4) (1.0)(0.8)(0.2)
Total loss and loss adjustment expense ratio66.6
73.1
(6.5) 68.1
73.7
(5.6)
Expense ratio26.2
25.2
1.0
 26.4
24.8
1.6
Combined ratio92.8
98.4
(5.6) 94.5
98.5
(4.0)
Current accident year catastrophes and prior year development0.5
6.6
(6.1) 3.7
7.9
(4.2)
Underlying combined ratio92.3
91.8
0.5
 90.8
90.6
0.2
Product Combined Ratios
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018Change 20192018Change
Automobile  

   

Combined ratio95.7
98.9
(3.2) 95.3
97.2
(1.9)
Underlying combined ratio98.8
98.5
0.3
 96.4
96.4
—
Homeowners  

   

Combined ratio86.5
96.9
(10.4) 93.0
101.5
(8.5)
Underlying combined ratio76.6
76.3
0.3
 78.1
77.2
0.9
Net Income
chart-69ef0927713e57ff8ab.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net incomeincreased for the three month period primarily due to a higher underwriting gain and higher net investment income. Net income for the nine month period increased, primarily due to a higher underwriting gain, an increase in net realized capital gains and higher net investment income.
Underwriting Gain
chart-3f13c589538953aca25.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Underwriting gainincreased for the three month period in 2019 primarily due to lower current accident year catastrophes and more favorable prior accident year reserve development partially offset by the effect of lower earned premium. Underwriting gain increased for the nine month period



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




in 2019 primarily due to lower current accident year catastrophes and lower current accident year loss ratios before catastrophes in both auto and homeowners partially offset by the effect of lower earned premium and an increase in underwriting expenses. For the nine month period, the increase in underwriting expenses was largely driven by investments in information technology, and an increase in direct marketing spending, selling expenses, and operational costs to generate new business, partially offset by a reduction in state taxes and assessments and lower incentive compensation. The decrease in amortization of DAC for both the three and nine month periods was commensurate with the reduction in earned premium.
Earned Premiums
chart-7823fdf033d95795b4c.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Earned premiums decreased in 2019, reflecting a decline in written premium over the prior six to twelve months in both Agency channels and in AARP Direct.
Written premiums decreased in 2019 in AARP Direct and both Agency channels. Despite an increase in new business and higher policy count retention in both auto and homeowners, written premium declined, primarily due to not generating enough new business to offset the loss of non-renewed premium.
Renewal written pricing increases in 2019 were lower in both auto and homeowners in response to moderating loss cost trends.
Policy count retention increased in both automobile and homeowners, in part driven by moderating renewal written price increases.
Policies in-forcedecreased in 2019 in both automobile and homeowners, driven by not generating enough new business to offset the loss of non-renewed policies.
Loss and LAE Ratio before Catastrophes and Prior Accident Year Development
chart-193542664a535edbad6.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Loss and LAE ratio before catastrophes and prior accident year development decreased in both the three and nine month periods. For auto in the three month period, a modest increase in loss costs was offset by the effect of earned pricing increases. For auto in the nine month period, a decrease in the loss and loss adjustment expense ratio was due to the effect of earned pricing increases and a slight decrease in average claim frequency, partially offset by a modest increase in average claim severity. For home in both the three and nine month periods, the primary drivers were the effect of earned pricing increases as well as lower non-catastrophe loss costs.



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




Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development
chart-32dff133282d53579d5.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Current accident year catastrophe lossesfor the three months ended September 30, 2019 were primarily from wind and hail events in the Midwest and Mountain West and losses from hurricane Dorian and tropical storm Imelda. Catastrophe losses for three months ended September 30, 2018 were from catastrophe events across the country, principally wildfires in California and Colorado, wind and hail storms in Colorado and wind storms in the Midwest, Mid-Atlantic and Northeast. Catastrophe losses for the nine months ended September 30, 2019 primarily included winter storms across the country and tornado, wind and hail events in the South, Midwest, and Mountain West. Catastrophe losses for the nine month 2018 period included multiple wind and hail events across the Mountain West, Midwest, South, and Northeast and wildfires in California and Colorado as well as from east coast winter storms.
Prior accident year developmentwas favorable in both the three and nine months ended September 30, 2019 primarily due to a decrease in auto liability reserves for the 2017 accident year. Prior accident year development was favorable in the 2018 three month period primarily due to decreases in reserves for both auto liability and homeowners related to recent accident years.Prior accident year development for the 2018 nine month period included decreases in reserves for auto liability and for homeowners partially offset by increases in reserves for prior accident year catastrophes. Estimated losses for 2017 catastrophe events in Personal Lines decreased by $30 in the 2018 nine month period, resulting in a decrease in reinsurance recoverables of $47, as the Company no longer expects to recover under the 2017 Property Aggregate reinsurance treaty.




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




PROPERTY & CASUALTY OTHER OPERATIONS
Results of Operations
Underwriting Summary
 Three Months Ended September 30, Nine Months Ended September 30,
Underwriting Summary20172016Change 20172016Change
Losses and loss adjustment expenses  

   

       Prior accident year development$—
$—
—% $1
$270
(100%)
Total losses and loss adjustment expenses—
—
—% 1
270
(100%)
Underwriting expenses3
7
(57%) 11
20
(45%)
Underwriting loss(3)(7)57% (12)(290)96%
Net investment income [1]26
31
(16%) 84
96
(13%)
Net realized capital gains (losses) [1]1
(47)102% 10
(44)123%
Other income2
2
—% 4
4
—%
Income (loss) before income taxes26
(21)NM
 86
(234)137%
Income tax expense (benefit) [2]8
(52)115% 24
(128)119%
Net income (loss)$18
$31
(42%) $62
$(106)158%
 Three Months Ended September 30, Nine months ended September 30,
 20192018Change 20192018Change
Losses and loss adjustment expenses  

    
       Prior accident year development [1]$—
$11
(100%) $9
$27
(67%)
Total losses and loss adjustment expenses—
11
(100%) 9
27
(67%)
Underwriting expenses3
3
—% 9
9
—%
Underwriting loss(3)(14)79% (18)(36)50%
Net investment income [2]21
22
(5%) 64
68
(6%)
Net realized capital gains [2]4
3
33% 17
5
NM
 Income before income taxes22
11
100% 63
37
70%
Income tax expense [3]4
2
100% 11
6
83%
Net income$18
$9
100% $52
$31
68%
[1]For discussion of prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance.
[2]For discussion of consolidated investment results, see MD&A - Investment Results.
[3]
For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.
Net Income
chart-7f124a9e98ef562ba0e.jpg
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net Income increased for the three and nine months ended September 30, 2019 primarily due to a decrease in net unfavorable prior accident year development and, for the nine month period, an increase in net realized capital gains.
Underwriting lossdecreased for the three and nine months ended September 30, 2019 primarily due to a decrease in unfavorable prior accident year development. Net unfavorable prior accident year reserve development in the 2019 nine month period included reserve increases for product liability and construction defects claims. Net unfavorable prior accident year reserve development in the 2018 nine month period included reserve increases for certain mass torts and the allowance for uncollectible reinsurance.
Asbestos and environmental reservecomprehensive annualreviews will occur in the fourth quarter of 2019. For information on A&E reserves, see MD&A - Critical Accounting Estimates, Asbestos and Environmental Reserves included in the Company's 2018 Form 10-K Annual Report.




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




GROUP BENEFITS
Results of Operations
Operating Summary
 Three Months Ended September 30, Nine months ended September 30,

20192018Change 20192018Change
Premiums and other considerations$1,382
$1,396
(1%) $4,213
$4,198
—%
Net investment income [1]121
117
3% 363
353
3%
Net realized capital gains (losses) [1]14
(3)NM
 26
(26)NM
Total revenues1,517
1,510
—% 4,602
4,525
2%
Benefits, losses and loss adjustment expenses983
1,054
(7%) 3,098
3,198
(3%)
Amortization of DAC14
12
17% 41
33
24%
Insurance operating costs and other expenses329
319
3% 968
957
1%
Amortization of other intangible assets10
15
(33%) 31
48
(35%)
Total benefits, losses and expenses1,336
1,400
(5%) 4,138
4,236
(2%)
Income before income taxes181
110
65% 464
289
61%
 Income tax expense [2]35
33
6% 87
62
40%
Net income$146
$77
90% $377
$227
66%
[1]For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Results.
[2]
For discussion of income taxes, see Note 11 - Income (Loss) and Net Realized Capital Gains (Losses).Taxes of Notes to the Condensed Consolidated Financial Statements.
[2] For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.
Premiums and Other Considerations
 Three Months Ended September 30, Nine months ended September 30,

20192018Change 20192018Change
Fully insured – ongoing premiums$1,337
$1,353
(1%) $4,072
$4,062
—%
Buyout premiums—
—
—% 6
5
20%
Fee income45
43
5% 135
131
3%
Total premiums and other considerations$1,382
$1,396
(1%) $4,213
$4,198
—%
Fully insured ongoing sales, excluding buyouts$74
$104
(29%) $580
$643
(10%)
Net Income (Loss)
hig0930201_chart-10364.jpg
Ratios, Excluding Buyouts
 Three Months Ended September 30, Nine months ended September 30,

20192018Change 20192018Change
Group disability loss ratio64.4%75.9%(11.5) 69.0%75.0%(6.0)
Group life loss ratio80.8%76.6%4.2 80.0%78.3%1.7
Total loss ratio71.1%75.5%(4.4) 73.5%76.2%(2.7)
Expense ratio [1]24.9%23.9%1.0 24.1%23.9%0.2
Three[1] Integration and nine months ended September 30, 2017 comparedtransaction costs related to the threeacquisition of Aetna's U.S. group life and nine months ended September 30, 2016
Net income for the three month period decreased from 2016, primarily due to lower net investment income and lower net realized capital gains after tax. In the 2016 three month period, the Company recognized a gain of $6, after-tax related to
the sale of its U.K. property and casualty run-off subsidiaries consisting of a $59 pre-tax loss and a $65 tax benefit.
Net income (loss) for the nine month period, improved from a loss in 2016 to net income in 2017, primarily due to the effect of unfavorable asbestos and environmental reserve development in 2016.
Underwriting lossdecreased for the three and nine month periods, primarily due to a $268 increase in asbestos and environmental reserves in 2016.
Asbestos and environmental comprehensive annual reserve reviews were performeddisability business are not included in the second quarter of 2016. Based on this evaluation, the Company increased its net asbestos and environmental reserves for prior year development by $197 and $71, respectively, in 2016.
In 2017, the Company will complete its annual asbestos and environmental reserve review in the fourth quarter. The Company has an adverse development cover in place that reinsures asbestos and environmental reserve development after December 31, 2016, subject to a limit of $1.5 billion. For a discussion of the adverse development cover and the Company's second quarter 2016 comprehensive annual review of asbestos and environmental reserves, see Part II, Item 7 MD&A, Critical Accounting Estimates, Property & Casualty Other Operations section in the Company’s 2016 Form 10-K Annual Report.

expense ratio.
100






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




GROUP BENEFITS
Results of Operations
Operating Summary
 Three Months Ended September 30, Nine Months Ended September 30,

20172016Change 20172016Change
Premiums and other considerations$822
$812
1 % $2,481
$2,415
3 %
Net investment income [1]95
95
— % 278
271
3 %
Net realized capital gains [1]9
19
(53)% 30
37
(19)%
Total revenues926
926
— % 2,789
2,723
2 %
Benefits, losses and loss adjustment expenses614
642
(4)% 1,893
1,894
— %
Amortization of DAC8
8
— % 24
23
4 %
Insurance operating costs and other expenses204
190
7 % 617
580
6 %
Total benefits, losses and expenses826
840
(2)% 2,534
2,497
1 %
Income before income taxes100
86
16 % 255
226
13 %
Income tax expense [2]29
24
21 % 70
59
19 %
Net income$71
$62
15 % $185
$167
11 %
[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 September 30, Nine Months Ended September 30,

20172016Change 20172016Change
Fully insured – ongoing premiums$803
$792
1 % $2,410
$2,354
2 %
Buyout premiums—
—
— % 14
6
133 %
Fee income19
20
(5)% 57
55
4 %
Total premiums and other considerations$822
$812
1 % $2,481
$2,415
3 %
Fully insured ongoing sales, excluding buyouts$68
$61
11 % $346
$407
(15)%
Ratios, Excluding Buyouts
 Three Months Ended September 30, Nine Months Ended September 30,

20172016Change 20172016Change
Group disability loss ratio73.0%79.4%6.4 78.3%80.5%2.2
Group life loss ratio77.7%80.0%2.3 75.0%77.4%2.4
Total loss ratio74.7%79.1%4.4 76.2%78.4%2.2
Expense ratio25.8%24.4%(1.4) 26.0%25.0%(1.0)
Margin
 Three Months Ended September 30, Nine Months Ended September 30,
 20172016Change 20172016Change
Net income margin7.7%6.7%1.0
 6.7%6.1%0.6
Effect of net capital realized gains (losses), net of tax on after-tax margin0.5%1.1%(0.6) 0.6%0.7%(0.1)
Core earnings margin7.2%5.6%1.6
 6.1%5.4%0.7

101



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

Margin
 Three Months Ended September 30, Nine months ended September 30,
 20192018Change 20192018Change
Net income margin9.6%5.1%4.5
 8.2%5.0%3.2
Adjustments to reconcile net income margin to core earnings margin:       
Net realized capital losses (gains) excluded from core earnings, before tax(0.9%)0.2%(1.1) (0.5%)0.6%(1.1)
Integration and transaction costs associated with acquired business, before tax0.6%0.8%(0.2) 0.6%0.8%(0.2)
 Income tax benefit0.1%0.6%(0.5) —%—%—
Core earnings margin9.4%6.7%2.7
 8.3%6.4%1.9
Net Income
hig0930201_chart-10764.jpgchart-910fd1d28e80582a89d.jpg
Three and nine months endedSeptember 30, 20172019 compared to the three and nine months endedSeptember 30, 20162018
Net incomeincreased for the three month period,and nine-month periods primarily due to higher premiuma lower loss ratio, a change from net realized capital losses to net realized capital gains and $14 of additional tax expense in the 2018 period that was primarily driven by the effect of the lower rate on deferred tax assets due to the filing of the Company's 2017 Federal income tax return and finalization of the opening balance sheet for the Aetna Group Benefits acquisition. Also contributing to the increase for the nine month period was lower amortization of other considerationsintangible assets. Partially offsetting the increase in both the three and lower benefits, losses and loss adjustment expenses, partially offset bynine-month periods was higher insurance operating costs and other expenses and lower net realized capital gains. For the nine month period, net income increased due to higher premium and other considerations and net investment income, partially offset by higher insurance operating costs, state guaranty fund assessments related to the liquidation of a life and health insurance company, and lower net realized capital gains.expenses.
Insurance operating costs and other expensesfor the three month and nine month period increased 7%, primarily due to an increasehigher commissions on our voluntary product offerings and investments in variable incentive compensation. Fortechnology and claims operations, partially offset by achievements of expense synergies, and, for the nine month period, insurance operating costslower state taxes and other expenses increased 6%, primarily due to state guaranty fund assessments of $20 before tax related to the liquidation of a life and health insurance company and an increase in variable incentive compensation.assessments.
 
Fully Insured Ongoing Premiums
hig0930201_chart-12060.jpgchart-7485c21dcfce58589f5.jpg
[1] Other of $51$60 and $53$64 is included in the three months ended September 30, 2016,2018, and 2017,2019, respectively, and $153$179 and $159$187 for the nine months endedSeptember 30, 2016,2018, and 2017,2019, respectively is included in the total.
Three and nine months endedSeptember 30, 20172019 compared to the three and nine months endedSeptember 30, 20162018
Fully insured ongoing premiums increased 1% and 2%, respectively, decreased slightly for the three andmonth period reflecting a decrease in group life partially offset by an increase in group disability. For the nine month periods due to salesperiod, premium was relatively flat as the increase in excess of cancellations, strong group life and group disability persistency and modest disability pricing increases.the higher premium from Voluntary products was largely offset by a decrease in group life.
Fully insured ongoing sales, excluding buyouts, for the three month period increased 11% due to higher large new case salesdecreased 29% driven primarily by a decrease in the third quarter of 2017.both group disability and group life sales. For the nine month period, fully insured ongoing sales decreased 15%, due to fewer large case10% as the prior year included first year sales in2017.
Ratios
hig0930201_chart-13319.jpgfrom the new New York Paid Family Leave product and group life sales decreased.


102





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





Ratios
chart-0f6af59a457050c48b1.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Total lossratio decreased 4.4 points for the three month
period and 2.7 points for the nine month period reflecting a lower disability loss ratio partially offset by a higher group life loss ratio.
The group disability loss ratio decreased 11.5 points and 6.0 points for the three and nine month periods decreased 4.4 points and 2.2 points, respectively, reflecting lower group life and group disability loss ratios. The group life loss ratio for the three and nine month periods decreased 2.3 points and 2.4 points,period, respectively, due to continued favorable mortality. The groupincidence trends and strong claim recoveries on prior incurral year reserves. In addition, included in the disability loss ratio for the three and nine month periods decreased 6.4were favorable changes in long term disability reserve assumptions of 2.7 points and 2.20.9 points, respectively, largely driven from updating our claim recovery probabilities due to more recent experience, and an experience refund from prior year related to the New York Paid Family Leave product of 1.1 points and 0.4 points, respectively.
The group life loss ratio increased 4.2 points and 1.7 points in the three and nine month periods, respectively, due to favorable claim recoveries includingincreased life losses largely due to higher than expected deaths. In addition, results reflect continued improvements in incidence trends and modest pricing increases for group disability.severity.
Expense ratio increased 1.4 points1.0 point for the three month period due to an increaseand 0.2 points in variable incentive compensation. For the nine month period the expense ratio increased 1.0 points primarily due to state guaranty fund assessments related to the liquidationhigher commissions on our voluntary product offerings, and investments in technology and claims, and higher amortization of a life and health insurance company and an increaseDAC in both periods, partially offset by achievements of expense synergies, lower variable incentive compensation.compensation, and in the nine month period, lower state taxes and assessments.

103



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

MUTUALHARTFORD FUNDS
Results of Operations
Operating Summary
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,

20172016Change 20172016Change20192018Change 20192018Change
Fee income and other revenue$203
$178
14 % $595
$517
15 %$254
$267
(5%) $743
$786
(5%)
Net investment income1
—
NM
 2
1
100 %1
1
—% 5
3
67%
Net realized capital gains1
—
NM
 3
(1)NM
Total revenues204
178
15 % 597
518
15 %256
268
(4%) 751
788
(5%)
Amortization of DAC5
6
(17)% 16
17
(6)%3
4
(25%) 9
12
(25%)
Operating costs and other expenses159
141
13 % 468
407
15 %202
212
(5%) 607
635
(4%)
Total benefits, losses and expenses164
147
12 % 484
424
14 %205
216
(5%) 616
647
(5%)
Income before income taxes40
31
29 % 113
94
20 %51
52
(2%) 135
141
(4%)
Income tax expense14
10
40 % 40
33
21 %11
11
—% 27
29
(7%)
Net income$26
$21
24 % $73
$61
20 %$40
$41
(2%) $108
$112
(4%)
     
Daily Average Total Mutual Funds segment AUM$109,640
$93,753
17 % $105,491
$90,760
16 %
Return on Assets ("ROA") [1]     
Net income9.5
8.5
12 % 9.3
8.9
4 %
Core Earnings9.5
8.5
12 % 9.3
8.9
4 %
Daily average Hartford Funds AUM$119,738
$119,897
—% $116,635
$118,098
(1%)
ROA [1]13.3
13.6
(2%) 12.4
12.7
(2%)
Adjustment to reconcile ROA to ROA, core earnings:     
Effect of net realized capital losses (gains) excluded from core earnings, before tax(0.4)—
NM
 (0.3)0.1
NM
ROA, core earnings [1]12.9
13.6
(5%) 12.1
12.8
(5%)
[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 September 30, Nine Months Ended September 30,
 20172016Change 20172016Change
Mutual Fund AUM - beginning of period$91,256
$74,941
22 % $81,298
$74,413
9 %
Sales5,364
4,896
10 % 18,830
13,682
38 %
Redemptions(4,597)(4,702)2 % (15,416)(14,093)(9)%
Net flows767
194
NM
 3,414
(411)NM
Change in market value and other3,165
2,769
14 % 10,476
3,902
168 %
Mutual Fund AUM - end of period$95,188
$77,904
22 % $95,188
$77,904
22 %
Exchange Traded Products AUM409
210
NM
 409
210
NM
Mutual Funds segment AUM before Talcott Resolution95,597
78,114
22 % 95,597
78,114
NM
Talcott Resolution AUM [1]16,127
16,387
(2)% 16,127
16,387
(2)%
Total Mutual Funds segment AUM$111,724
$94,501
18 % $111,724
$94,501
18 %
[1] Talcott Resolution AUM consist of Company-sponsored mutual fund assets held in separate accounts supporting variable insurance and investment products.
Mutual Fund AUM by Asset Class
 September 30,
2017		September 30, 2016Change
Equity$61,163
$48,476
26%
Fixed Income14,454
12,864
12%
Multi-Strategy Investments [1]19,571
16,564
18%
Mutual Fund AUM$95,188
$77,904
22%
[1] Includes balanced, allocation, and alternative investment products.

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





Hartford Funds Segment AUM
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018Change 20192018Change
Mutual Fund and ETP AUM - beginning of period$106,889
$101,665
5% $91,557
$99,090
(8%)
Sales - mutual fund5,199
5,176
—% 17,218
16,605
4%
Redemptions - mutual fund(6,126)(5,192)(18%) (18,123)(15,892)(14%)
Net flows - ETP127
261
(51%) 874
683
28%
Net flows - mutual fund and ETP(800)245
NM
 (31)1,396
(102%)
Change in market value and other(129)3,623
(104%) 14,434
5,047
186%
Mutual fund and ETP AUM - end of period105,960
105,533
—% 105,960
105,533
—%
Talcott Resolution life and annuity separate account AUM [1]14,021
15,543
(10%) 14,021
15,543
(10%)
Hartford Funds AUM$119,981
$121,076
(1%) $119,981
$121,076
(1%)
[1]Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment.
Mutual Fund and ETP AUM by Asset Class
 September 30,
 20192018Change
Equity$66,999
$69,463
(4%)
Fixed Income15,685
14,831
6%
Multi-Strategy Investments [1]20,429
20,062
2%
Exchange-traded Products2,847
1,177
142%
Mutual Fund and ETP AUM$105,960
$105,533
—%
[1]Includes balanced, allocation, and alternative investment products.
Net Income
hig0930201_chart-11345.jpgchart-91a3b3834a575ac699c.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Net incomefor the three month period decreased compared to the prior year period due to lower investment management fee revenue driven by fee reductions and a shift to lower fee funds. Net income for the nine month periods increasedperiod decreased compared to the prior year period due to higherlower investment management fees resulting from higherfee revenue driven by lower average daily AUM levels and a shift to lower fee funds as well as due to an increase in contingent consideration
payable associated with the additionacquisition of Schroders' funds, partially offset by higher variable costs including sub-advisory and distribution and services expenses.Lattice. See note 5 - Fair Value Measurements for additional information.
Hartford Funds AUM
chart-783b962c4f6c525ca44.jpg
September 30, 20172019 compared to September 30, 20162018
Total MutualHartford Funds segment AUM increaseddecreased compared to the prior year primarily resulting from positive net flows,due to the additioncontinued runoff of Schroders' fundsAUM related to the Talcott Resolution life and market appreciation. The increase in Mutual Fund business AUMannuity separate account AUM. Net appreciation over the 12 month period ended September 30, 2019 was partiallylargely offset by the continued run offnet outflows from equity funds due to redemptions in excess of Talcott Resolution AUM.sales.


105






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





TALCOTT RESOLUTIONCORPORATE
Results of Operations
Operating Summary
Operating Summary
 Three Months Ended September 30,Nine Months Ended September 30,

20172016Change20172016Change
Earned premiums$27
$35
(23%)$97
$91
7%
Fee income and other218
233
(6%)666
705
(6%)
Net investment income [1]325
366
(11%)963
1,039
(7%)
Realized capital losses:  

   
Total other-than-temporary impairment (“OTTI”) losses(1)(10)90%(10)(19)47%
Other net realized capital losses(30)(22)(36%)(44)(122)64%
Net realized capital losses [1](31)(32)3%(54)(141)62%
Total revenues539
602
(10%)1,672
1,694
(1%)
Benefits, losses and loss adjustment expenses357
345
3%1,037
1,045
(1%)
Amortization of DAC15
60
(75%)58
114
(49%)
Insurance operating costs and other expenses105
105
—%307
325
(6%)
Total benefits, losses and expenses477
510
(6%)1,402
1,484
(6%)
Income before income taxes62
92
(33%)270
210
29%
Income tax expense (benefit)(18)14
NM
17
11
55%
Net income$80
$78
3%$253
$199
27%
Assets Under Management (end of period)  
   
Variable annuity account value$40,707
$41,696
(2%)  
Fixed market value adjusted and payout annuities7,335
7,792
(6%)  
Institutional annuity account value13,836
15,550
(11%)  
Other account value [2]87,547
86,869
1%  
Total account value$149,425
$151,907
(2%)  
Variable Annuity Account Value  
   
Account value, beginning of period$40,668
$41,738
(3%)$40,698
$44,245
(8%)
Net outflows(1,169)(1,417)18%(4,062)(4,379)7%
Change in market value and other1,208
1,375
(12%)4,071
1,830
122 %
Account value, end of period$40,707
$41,696
(2%)$40,707
$41,696
(2%)
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018Change 20192018Change
Fee income$14
$15
(7%) $38
$21
81%
Other revenue24
6
NM
 68
8
NM
Net investment income10
15
(33%) 51
33
55%
Net realized capital gains1
4
(75%) 21
9
133%
Total revenues49
40
23% 178
71
151%
Benefits, losses and loss adjustment expenses [1]5
3
67% 10
9
11%
Insurance operating costs and other expenses20
25
(20%) 66
59
12%
Loss on extinguishment of debt [2]90
—
NM
 90
6
NM
Interest expense [2]67
69
(3%) 194
228
(15%)
Total benefits, losses and expenses182
97
88% 360
302
19%
Loss before income taxes(133)(57)(133%) (182)(231)21%
Income tax benefit [3](34)(17)(100%) (40)(45)11%
Loss from continuing operations, net of tax(99)(40)(148%) (142)(186)24%
Income from discontinued operations, net of tax—
5
(100%) —
322
(100%)
Net income (loss)(99)(35)(183%) (142)136
NM
Preferred stock dividends11
—
NM
 16
—
NM
Net income (loss) available to common stockholders$(110)$(35)NM
 $(158)$136
NM
[1]For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss)Represents benefits expense on life and Net Realized Capital Gains (Losses).annuity business previously underwritten by the Company.
[2]
Other account value included $31.4 billion, $15.1 billion,For discussion of debt, see Note 10 - Debt of Notes to Condensed Consolidated Financial Statements and $41.1 billion asNote 13- Debt of September 30, 2017 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Other account value included $31.5 billion, $14.6 billion, and $40.7 billion at September 30, 2016 for the Retirement Plans, Individual Life and Private Placement Life Insurance businesses, respectively. Account values associated with the Retirement Plans and Individual Life businesses no longer generate asset-based feeNotes to Consolidated Financial Statement in The Hartford's 2018 Form 10-K Annual Report.
[3]
For discussion of income duetaxes, see Note 11 - Income Taxes of Notes to the sales of these businesses through reinsurance transactions.Condensed Consolidated Financial Statements.

Net Income (Loss)
chart-6137586a57045a7eb22.jpg
106Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
Net Lossfor the three month period increased primarily due to a $90 loss on extinguishment of debt related to the third quarter 2019 repayment of senior notes before their maturity date. Net loss for the nine months ended September 30, 2019 compared to net income for the nine months ended September 30, 2018 as the 2018 nine month period included income from discontinued operations related to the life and annuity business sold in May 2018 and the 2019 nine month period included the $90 loss on extinguishment of debt.
Excluding the loss on extinguishment of debt, the loss from continuing operations, net of tax, decreased for both the three month and nine month periods. The three month period improved largely due to other revenues of $14 from earnings on the Company's retained equity interest in the former life and annuity operations, partially offset by a decrease in net investment income driven by lower average invested assets due to the acquisition of the Navigators Group in May 2019. The nine month period improved due, in part, to other revenues of $45 from earnings on the Company's retained equity interest, lower interest expense and higher net realized capital gains, partially






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





Net Income
hig0930201_chart-10764.jpg
Three and nine months ended September 30, 2017 comparedoffset by transaction costs related to the three and nine months ended September 30, 2016
Navigators Group acquisition. Net income for the three month period was up slightly. A change to a net unlock benefit compared to an unlock charge in the prior year period was largely offset by lower net investment income and fee income, the effect of the continued run off of the business.
Net incomeincreased for the nine month period increased primarily due to lower net realized capital losses in 2017. Net realized capital losses were down due to higher net gains on sales of investments in 2017, a decrease in losses on the modified coinsurance reinsurance contract related to the individual life business reinsured with Prudential, partially offset by an increase in losses on the variable annuity hedge program. Apart from the lower net realized capital losses, earnings were relatively flat as an increase in the unlock benefit and lower interest credited were largely offset by lower net investment income and lower fee income due to the continued run off of the variable annuity block.
For the nine month period in 2017, net investment income decreased due to the run off of the annuity business assets under management and lower limited partnership investment income.
Total Account Value
hig0930201_chart-11731.jpg
September 30, 2017 compared to September 30, 2016
Account valuedecreased by approximately $2.5 billion to $149 billion due to outflows from institutional annuity due to the transfer of $1.6 billion of Hartford pension assets to a third party provider (see Note 15 Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements) and net outflows in variable annuity account value, partially offset by market appreciation.
Variable annuity net outflows were approximately $1.2 billion and $4.1 billion respectively, for the three and nine months period in 2017, due to the continued run off of the business.
Variable Annuity Annualized Full Surrender Rate
hig0930201_chart-12783.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Variable annuity annualized full surrender rate for the three month period decreased to 5.8%. For the nine month period the variable annuity annualized full surrender rate decreased to 7.0%. In general, as the block of variable annuity

107



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

contracts ages, the remaining in-force contracts are less likely to surrender. However, full surrender rates can fluctuate from period to period.
Contract Counts (in thousands)
hig0930201_chart-13868.jpg
September 30, 2017 compared to September 30, 2016
Contract counts decreased 9% for annuities, due to the continued run off of the block.
Income Taxes
The effective tax rates in 2017 and 2016 differ from the U.S. federal statutory rate of 35% primarily due to permanent differences related to separate account DRD. For discussion of income taxes, see Note 11 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

108



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 September 30, Nine Months Ended September 30,
Operating Summary20172016Change 20172016Change
Fee income [1]$—
$1
(100%) $2
$3
(33%)
Net investment income [2]5
6
(17%) 14
23
(39%)
Net realized capital gains (losses) [2]3
(1)NM
 1
(6)117%
Total revenues8
6
33% 17
20
(15%)
Insurance operating costs and other expenses [1]11
6
83% 20
11
82%
Pension settlement—
—
—% 750
—
NM
Interest expense82
86
(5%) 246
257
(4%)
Total benefits, losses and expenses93
92
1% 1,016
268
NM
Loss before income taxes(85)(86)1% (999)(248)NM
Income tax benefit [3](26)(31)16% (354)(168)(111%)
Net loss$(59)$(55)(7%) $(645)$(80)NM
[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.
[2]For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).
[3]
For discussion of income taxes, see Note 11 - Income Taxes of Notes to the Consolidated Financial Statements.
Net Loss
hig0930201_chart-10270.jpg
Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Net loss for the three months increased from net loss in the prior year period primarily due to an increase in Insurance
operating costsshort term interest rates as well as the reinvestment of the proceeds from the sale of the life and other expenses. Forannuity business sold in May 2018 until the nine months , net loss increased primarily due to an after tax pension settlement chargeacquisition of $488 that occurredthe Navigators Group in the second quarter.May 2019.
Interest Expense
hig0930201_chart-11856.jpgchart-590d60b4ab885872a90.jpg
Three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 20162018
Interest expense for both the three and nine month periods decreased, primarily due to a decrease in outstanding debt due to debt maturities and the paydown of senior notes. Since September 30, 2016, $691maturity of senior notes have either matured orpayable in January 2019, partially offset by the issuance of senior notes in August in excess of the amount of proceeds used to redeem other outstanding senior notes. On January 15, 2019, the Company repaid at maturity the $413 principal amount of its 6.0% senior notes. After receiving net proceeds of $1.38 billion from the issuance of the 2.8% Notes and 3.6% Notes, in third quarter 2019, The Hartford repaid $265 of 5.75% senior notes due 2023 that had been paid down.assumed in the Navigators Group acquisition, and its $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc., and recognized a loss on extinguishment of debt of $90. On March 15, 2018, the Company issued $500 of 4.4% senior notes due March 15, 2048 for net proceeds of approximately $490. The Company used a portion of the net proceeds to repay the Company's $320 of 6.3% notes at maturity. On June 15, 2018, The Hartford redeemed $500 aggregate principal amount of its 8.125% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068.
 

109



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

ENTERPRISE RISK MANAGEMENT
The Company’s Board of Directors has ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management is tasked with the day-to-day management of the Company’s risks.
The Company manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) oversees the risk profile and risk management practices of the Company.
The Company's enterprise risk management ("ERM") function supports the ERCC and functional committees, and is tasked with, among other things:
risk identification and assessment;
the development of risk appetites, tolerances, and limits;
risk monitoring; and
internal and external risk reporting.
The Company categorizes its main risks as insurance risk, operational risk and financial risk. Insurance risk and financial risk are described in more detail below. Operational risk and specific risk tolerances for natural catastrophes terrorism risk and pandemic risk are described in the ERM section of the MD&A in The Hartford’s 20162018 Form 10-K Annual Report.
Insurance Risk
The Company categorizes its insurance risks across property-
casualty,property-casualty and group benefits and life products. Non-catastrophe insurance risk arises from a number of exposures including property, liability, mortality, morbidity, disability and longevity.
Catastrophe risk primarily arises in the property, automobile, workers' compensation, casualty, group life, and group disability property, and workers' compensation product lines.lines of business. The Company establishes risk limits to control potential loss and actively monitors the risk exposures as a percent of statutory surplus. The Company also uses reinsurance to transfer insurance risk to well-established and financially secure reinsurers.
Reinsurance as a Risk Management Strategy
The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers' compensation exposures, and individual risk (including facultative reinsurance) or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. Facultative reinsurance is used by the Company to manage policy-specific risk exposures based on established underwriting guidelines. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program established under “TRIPRA”(“TRIPRA”) and other reinsurance programs relating to particular risks or specific lines of business.
Reinsurance for Catastrophes- The Company has several catastropheutilizes various reinsurance programs to mitigate catastrophe losses including reinsuranceexcess of loss occurrence-based treaties that covercovering property and workers'workers’ compensation, aggregate property catastrophe treaty providing protection for the aggregate of all catastrophe events designated by Property Claims Services and individual risk (including facultative reinsurance) that reinsure losses aggregating from singlespecific classes or lines of business. In addition, as a result of the acquisition of Navigators Group, catastrophe events.treaties in-force at the time of the acquisition related to Navigators exposures remain in-force.



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




Primary Catastrophe Treaty Reinsurance Coverages as of September 30, 20172019 [1]
CoverageEffective for the period% of layer(s) reinsurancePer occurrence limit Retention
Property losses arising from a single catastrophe event [1] [2]1/1/2017 to 1/1/201888%$800
 $350
Property catastrophe losses from a Personal Lines Florida hurricane6/1/2017 to 6/1/201890%$102
[3]$32
Workers compensation losses arising from a single catastrophe event [4]1/1/2017 to 12/31/201780%$350
 $100
Portion of losses reinsuredPortion of losses retained by The Hartford
Per Occurrence Property Catastrophe Treaty for all catastrophe events from 1/1/2019 to 12/31/2019 [2]
Losses of $0 to $350 from one eventNone100% retained
Losses of $350 to $500 from one event75% of $150 in excess of $35025% co-participation
Losses of $500 to $1.1 billion from one event [3]90% of $600 in excess of $50010% co-participation
Additional Per Occurrence Property Catastrophe Treaty for catastrophes from 3/1/2019 to 12/31/2019 other than named storms and earthquake events [2] [6]
Losses of $0 to $150 from one eventNone100% retained
Losses of $150 to $350 from one event80% of $200 in excess of $15020% co-participation
Aggregate Property Catastrophe Treaty for 1/1/2019 to 12/31/2019 [4]
$0 to $775 of aggregate lossesNone100% retained
$775 to $1.0 billion of aggregate losses100%None
Workers' Compensation Catastrophe Treaty for 1/1/2019 to 12/31/2019
Losses of $0 to $100 from one eventNone100% retained
Losses of $100 to $450 from one event [5]80% of $350 in excess of $10020% co-participation
[1]Certain aspects
Navigators Group catastrophe exposures are not covered by these treaties. For 2019, Navigators Group treaties in-force at the time 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.acquisition remain in-force. For additional information on business acquisitions see Note 2 - Business Acquisition in Notes to Condensed Consolidated Financial Statements.
[2]$50In addition to the Property Occurrence Treaty and Additional Property Occurrence Treaty for Florida events, The Hartford has purchased the mandatory FHCF reinsurance for the period from 6/1/2019 to 5/30/2020. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford Insurance Company of the property occurrence treaty can alternatively be used as partMidwest, with coverage for approximately $84 of the Property Aggregate treaty referenced below.per event losses in excess of a $29 retention.
[3]The per occurrence limit for Florida Hurricane Catastrophe Fund (FHCF), which is requiredPortions of this layer of coverage for homeowners business in Florida,  is estimated to be $102 forextend beyond the current treatytraditional one year which is calculated on the best of available information from FHCF as of September 2017. term.
[4]The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all events designated as catastrophes by PCS (Property Claims Services/Verisk) with a $350 limit on any one event. All catastrophe losses apply toward satisfying the $775 attachment point under the aggregate treaty regardless of whether a portion of per event losses up to $350 are recovered under the Additional Per Occurrence Property Catastrophe Treaty.
[5]In addition to the limitlimits shown, the workersworkers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of a $30 in per event limitlosses in excess of a $20 retention.
[6]The Additional Per Occurrence Property Catastrophe Treaty covers losses from catastrophe events other than from named hurricanes, tropical storms and earthquakes.
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 losslosses. The Per Occurrence Property Catastrophe Treaty, Additional Per Occurrence Property Catastrophe Treaty and on a per risk basis. The principal property catastrophe reinsurance program and certain other reinsurance programsWorkers' Compensation Catastrophe Treaty include a provision to reinstate limits in the event that a catastrophe loss exhausts limits on one or more layers under the treaties. In addition, covering the period from January 1, 2017 to December 31, 2017, the Company has a Property Aggregate treaty in place which provides one limit of
$200 of aggregate qualifying property catastrophe losses in excess of a net retention of $850.
Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological ("NBCR") attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through the Terrorism Risk Insurance Program ("TRIPRA")TRIPRA to the end of 2020.

110



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$180 billion in 2015,2019, with the threshold increasing to $200 billion 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%81% in 2017,2019, decreasing by 1 point
annually to 80% in the year 2020. The Company's estimated deductible under the program is $1.2$1.3 billion for 2017.2019. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.
Reinsurance for A&E Reserve Development- Under an ADC reinsurance agreement, NICO assumes adverse net loss and allocated loss adjustment expense reserve development up to $1.5 billion above the Company’s net A&E reserves recorded as of December 31, 2016, including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 results in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid for the ADC are recognized as a dollar-for-dollar offset to direct losses incurred.



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




As of September 30, 2019, $523 of incurred A&E losses had been ceded to NICO, leaving approximately $977 of coverage available for future adverse net reserve development, if any. 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 A&E 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 A&E 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 charges could be material to the Company’s consolidated operating results and liquidity.
Reinsurance for Navigators Reserve Development- Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse reserve development (“Navigators ADC”) from NICO on behalf of Navigators Insurance Company and certain of its affiliates (collectively, the “Navigators Insurers”). Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the
treaty of $1.816 billion for accidents and losses prior to December 31, 2018. In addition to recognizing a $91 before tax charge to earnings in the second quarter of 2019 for the Navigators ADC reinsurance premium, the Company recognized a charge against earnings of $97 before tax in the second quarter of 2019 as a result of a review of Navigators Insurers’ net acquired reserves upon acquisition of the business. Navigators Insurers had previously recognized $52 before tax of adverse reserve development in the first quarter of 2019, including $32 of adverse development subject to the Navigators ADC. As such, reserve development of $97 before tax in the second quarter of 2019 included $68 remaining of the $100 Navigators ADC retention for 2018 and prior accident years and $29 of adverse reserve development related to the 2019 accident year which is not covered by the ADC. The $68 of reserve development for the 2018 and prior accident years recorded in the second quarter of 2019 was net of a $91 reinsurance recoverable recognized under the Navigators ADC with the Company having ceded $91 of the $300 available limit, leaving $209 of remaining limit. There was no additional net adverse development subject to the Navigators ADC in the third quarter. The Navigators ADC will be accounted for as retroactive reinsurance and future adverse reserve development, if any, would result in recognizing a deferred gain.
Reinsurance Recoverables
Property and casualty insurance product reinsurance recoverables represent loss and loss adjustment expense recoverables from a number of entities, including reinsurers and pools.
Property & Casualty Reinsurance Recoverables
As of September 30, 2017As of December 31, 2016As of September 30, 2019As of December 31, 2018
Paid loss and loss adjustment expenses$91
$89
$236
$127
Unpaid loss and loss adjustment expenses2,431
2,449
4,678
3,773
Gross reinsurance recoverables [1]$2,522
$2,538
Less: Allowance for uncollectible reinsurance(167)(165)
Gross reinsurance recoverables4,914
3,900
Allowance for uncollectible reinsurance(148)(126)
Net reinsurance recoverables$2,355
$2,373
$4,766
$3,774
[1]
Excludes reinsurance recoverables classified as held-for-sale as of December 31, 2016 and subsequently transferred to the buyer in connection with the sale of the Company's U.K. property and casualty run-off subsidiaries in May, 2017. For discussion of the sale transaction, see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements.
Group benefits and life insurance product reinsurance recoverables represent reserve for future policy benefits and unpaid loss and loss
adjustment expenses and other
policyholder funds and benefits payable that are recoverable from a number of reinsurers.
Group Benefits and Life Insurance Reinsurance Recoverables
Reinsurance RecoverablesAs of September 30, 2017As of December 31, 2016
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable$20,968
$20,938
Gross reinsurance recoverables$20,968
$20,938
Less: Allowance for uncollectible reinsurance [1]—
—
Net reinsurance recoverables$20,968
$20,938
 As of September 30, 2019As of December 31, 2018
Paid loss and loss adjustment expenses$13
$12
Unpaid loss and loss adjustment expenses231
239
Gross reinsurance recoverables244
251
Allowance for uncollectible reinsurance [1]—
—
Net reinsurance recoverables$244
$251
[1]No allowance for uncollectible reinsurance is required as of September 30, 20172019 and December 31, 2016.2018.
As of September 30, 2017, the Company has reinsurance recoverables from MassMutual and Prudential of $8.4 billion and $11.4 billion, respectively. As of December 31, 2016, the Company had reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $11.1 billion, respectively. The Company's obligations to its direct policyholders that have been reinsured to MassMutual and Prudential are secured by invested assets held in trust. Net of invested assets held in trust, as of September 30, 2017, the Company has no reinsurance-related concentrations of credit risk greater than 10% of the Company’s Condensed Consolidated Stockholders’ Equity.
For further explanation of the Company's insurance risk management strategy, see MD&A Enterprise Risk Management Insurance Risk Management in The Hartford's 20162018 Form 10-K Annual Report.

 
Financial Risk
Financial risks include direct and indirect risks to the Company's financial objectives coming from events that impact financial market conditions or prices.and the value of financial assets. Some events may



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




cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's general account assets and the liabilities and the guarantees which the company has written over various liability products, particularly its fixed and variable annuity guarantees. invested assets.
Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored and managed, with risks mitigated where appropriate. The Company uses various risk management strategies, including reinsurancelimiting aggregation of risk, portfolio re-balancing and hedging with over-the-counter and exchange tradedexchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve one of four Company-approved objectives: hedging risk arising from interest rate, equity market, commodity

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market, credit spread and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; or entering into synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management.
The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity and foreign currency exchange.
Liquidity Risk
Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value.
The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability of liquidity. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact liquidity.operating cash flows or liquid assets.
For further discussion on liquidity see the section on Capital Resources and Liquidity.
Credit Risk and Counterparty 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. 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 risk of a change in value due to changes in credit spreads.
Sources of Credit RiskThe majority of the Company’s credit risk is concentrated in its investment holdings and use of derivatives, but it is also present in the Company’s ceded reinsurance activities and various insurance portfolios, includingproducts.
ImpactA decline in creditworthiness is typically reflected as an increase in an investment’s credit spread and associated decline in value, potentially resulting in an increase in other-than-temporary impairment and an increased probability of a realized loss upon sale. In certain instances, counterparties may default on their obligations and the Company may realize a loss on default. Premiums receivable, reinsurance recoverable and deductible losses recoverable are also subject to credit risk associatedbased on the counterparty’s unwillingness or inability to pay.
ManagementThe objective of the Company’s enterprise credit risk management strategy is to identify, quantify and manage credit risk in aggregate and to limit potential losses in accordance with reinsurance recoverables and premiums receivable.
the Company's credit risk management policy. The Company primarily manages its credit risk by managing aggregations of risk, holding a diversified mix of investment grade issuers and counterparties across its investment, reinsurance and insurance portfolios.portfolios and limiting exposure to any specific reinsurer or counterparty. Potential credit losses are also limited within portfolios by diversifying acrosscan be mitigated through diversification (e.g., geographic regions, asset types, industry sectors), hedging and sectors.the use of collateral to reduce net credit exposure.
The Company manages credit risk on an ongoing basis through the use of various analyses and governance processes. Both the investment and reinsurance areas have formal policies and procedures for counterparty approvals and authorizations, which establish minimum levels of creditworthiness and financial stability. Credits considered for investment are subject to underwriting reviews and private securities are subject to management approval. Mitigation strategies vary across the three sources of credit risk, 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 institutionsinstitutions;
Requiring collateral; and
Non-renewing policies/contracts or reinsurance treaties.
The Company has developed credit exposure thresholds which are based upon counterparty ratings. Aggregate counterparty credit quality and exposure are 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 and aggregated by ultimate parent of the counterparty across investments, reinsurance receivables, insurance products with credit risk, and derivatives.
As of September 30, 20172019, 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.agencies. 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.derivatives. In some cases, downgrades may give derivative counterparties for over-the-counter ("OTC")OTC derivatives and clearing brokers for OTC-cleared derivatives the right to cancel and settle outstanding



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




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 additional 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 Credit exposures are generally quantified based on the company’sprior business day’s net fair value, including income accruals, of all derivative programs, the maximum uncollateralized threshold for a derivative counterparty for a single legal entity is $10. The Company currently transacts OTC derivatives in two legal entities that have a threshold greater than zero. The maximum combined threshold forpositions transacted with a single counterparty across allfor each separate legal entities that useentity.  The Company enters into collateral arrangements in connection with its derivatives positions and have a thresholdcollateral is pledged to or held by, or on behalf of, the Company to the extent the exposure is greater than zero, is $10. In addition,subject to minimum transfer thresholds. For the nine months ended September 30, 2019, the Company may have exposure to multiple counterparties in a single corporate familyincurred no losses on derivative instruments due to a common credit support provider. As of September 30, 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.counterparty default. For further discussion, see the Derivative Commitments section of Note 12 Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.
For the nine months ended September 30, 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 or referenced index, or asset pool.index. 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.

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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 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.indexes.
For further information on credit derivatives, see Note 7 - Derivative InstrumentsDerivatives 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.
Sources of Interest Rate RiskThe Company has exposure to interest ratesrate risk arising from its fixed maturity investments, commercial mortgage loans, capital securities interest sensitive liabilities such as fixed rate annuities and structured settlementsissued by the Company and discount rate assumptions associated with the Company’s claim reserves and pension and other post retirementpost-retirement benefit obligations. In addition, certain product liabilities, including those containing GMWB or GMDB, exposeobligations as well as from assets that support the Company to interest rate risk but also have significant equity risk. These liabilities are discussed as part of the Variable Product Guarantee RisksCompany's pension and Risk Management section. Management also evaluates performance of certain Talcott Resolution products based on net investment spread which is, in part, influenced by changes in interest rates.other post-retirement benefit plans.
ImpactChanges in interest rates from current levels can have both favorable and unfavorable effects for the Company.
ManagementThe Company manages its exposure to interest rate risk by constructing investment portfolios that maintain asset allocation limitsseek to protect the firm from the economic impact associated with changes in interest rates by setting portfolio duration targets that are aligned with the duration of the liabilities that they support. The Company analyzes interest rate risk using various models including parametric models and asset/liabilitycash 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 the associated liabilities include duration, matching targets which may include the use of derivatives.convexity and key rate duration.
The Company also utilizes a variety of derivative instruments to mitigate interest rate risk associated with its investment portfolio or to hedge liabilities. Interest rate caps, floors, swaps, swaptions, and futures may be used to manage portfolio duration.
Equity Risk
Equity risk is defined as the risk of financial loss due to changes in the value of global equities or equity indices.
Sources of Equity RiskThe Company has
exposure to equity risk from invested assets, under management, embedded derivatives within the Company’s variable annuities and assets that support the Company’s pension and other post-retirement benefit plans, and fee income derived from Hartford Funds assets under management. In addition, the Company has equity exposure through its 9.7% ownership interest in the limited partnership, Hopmeadow Holdings LP, that owns the life and annuity business sold in 2018. For further information, see Note 20 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements included in the Company’s 2018 Form 10-K Annual Report.
ImpactThe investment portfolio is exposed to losses from market declines affecting equity securities, alternative assets and limited partnerships which could negatively impact the Company's reported earnings. For assets supporting pension and other post retirementpost-retirement benefit plans. plans, the Company may be required to make additional plan contributions if equity investments in the plan portfolios decline in value. Hartford Funds earnings are also significantly influenced by the U.S. and other equity markets. Generally, declines in equity markets will reduce the value of assets under management and the amount of fee income generated from those assets. Increases in equity markets will generally have the inverse impact.
ManagementThe Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, reinsurance of product liabilities and hedging of changes in equity indices. Equity Risk on the Company’s variable annuity products is mitigated through various hedging programs which are primarily focused on mitigating the economic exposure while considering the potential impacts on statutory and GAAP accounting results. (See the Variable Annuity Hedging Program Section).
Talcott Resolution includes certain guaranteed benefits, primarily associated with variable annuity products, which increase the Company's potential benefit exposure in the periods that equity markets decline and the Company has a dynamic and macro hedging program in place to hedge the exposure.
For the assets that support itssupporting pension plans and other post retirementpost-retirement benefit plans, the Company may be required to make additional plan contributions if equity investments in the plan portfolio decline in value. 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 certaininvestments and impose concentration limits and investment quality requirements imposed on permissible investment options.
Managing Equity Risk on the Company's Variable Annuity Products-Most of the Company’s variable annuities include GMDB and certain contracts with GMDB also include GMWB features. Declines in the equity markets will increase the Company’s liability for these benefits. Many contracts with a GMDB include a maximum anniversary value ("MAV"), which in rising markets resets the guarantee on the anniversary to be 'at the money'. As the MAV increases, it can increase the NAR for subsequent declines in account value. Generally, a GMWB contract is ‘in the money’ if the contractholder’s guaranteed remaining balance ("GRB") becomes greater than the account value.

The NAR is generally defined as the guaranteed minimum benefit amount in excess of the contractholder’s current account value. Variable annuity account values with guarantee features were $40.7 billion as of September 30, 2017 and December 31, 2016.
The following tables summarize the account values of the Company’s variable annuities with guarantee features and the NAR split between various guarantee features (retained net amount at risk does not take into consideration the effects of the variable annuity hedge programs in place as of each balance sheet date).
Total Variable Annuity Guarantees as of September 30, 2017
($ in billions)Account
Value		Gross Net Amount at RiskRetained Net Amount at Risk% of Contracts In the Money[2]% In the Money [2] [3]
U.S. Variable Annuity [1]     
GMDB [4]$40.7
$3.0
$0.6
14%28%
GMWB$17.9
$0.2
$0.1
5%19%

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Total Variable Annuity Guarantees as of December 31, 2016
($ in billions)
Account
Value
Gross Net Amount at RiskRetained Net Amount at Risk% of Contracts In the Money [2]% In the Money [2] [3]
U.S. Variable Annuity [1]     
GMDB [4]$40.7
$3.3
$0.7
28%14%
GMWB$18.3
$0.2
$0.1
7%13%
[1]Contracts with a guaranteed living benefit also have a guaranteed death benefit. The NAR for each benefit is shown; however these benefits are not additive. When a contract terminates due to death, any NAR related to GMWB is released. Similarly, when a contract goes into benefit status on a GMWB, the GMDB NAR is reduced to zero.
[2]Excludes contracts that are fully reinsured.
[3]For all contracts that are “in the money”, this represents the percentage by which the average contract was in the money.
[4]
Includes contracts that had a GMDB at issue but no longer have a GMDB due to certain elections made by policyholders or their beneficiaries. Such contracts had $1.7 billion of account value as of September 30, 2017 and $1.5 billion as of December 31, 2016.
Many policyholders with a GMDB also have a GMWB. Policyholders that have a product that offers both guarantees can only receive the GMDB or GMWB. The GMDB NAR disclosed in the preceding tables is a point in time measurement and assumes that all participants utilize the GMDB on that measurement date.
The Company expects to incur GMDB payments in the future only if the policyholder has an “in the money” GMDB at their death. For contracts with a GMWB rider, the company expects to incur GMWB payments in the future only if the account value is reduced over time to a specified level through a combination of market performance and periodic withdrawals, at which point the contractholder will receive an annuity equal to the GRB which is generally equal to premiums less withdrawals. For the Company’s “lifetime” GMWB products, this annuity can exceed the GRB. As the account value fluctuates with equity market returns on a daily basis and the “lifetime” GMWB payments may exceed the GRB,
the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than the Company’s current carried liability. For additional information on the Company’s GMWB liability, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements. For additional information on the Company's GMDB liability, see Note 9 - Reserve for Future Policy Benefits and Separate Account Liabilities of Notes to Condensed Consolidated Financial Statements.
Variable Annuity Market Risk Exposures
The following table summarizes the broad Variable Annuity Guarantees offered by the Company and the market risks to which the guarantee is most exposed from a U.S. GAAP accounting perspective:
Variable Annuity Guarantees [1]U.S. GAAP Treatment [1]Primary Market Risk Exposures [1]
GMDB and life-contingent component of the GMWBAccumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paidEquity Market Levels
GMWB (excluding life-contingent portions)Fair Value
Equity Market Levels / Implied
Volatility / Interest Rates
[1]Each of these guarantees and the related U.S. GAAP accounting volatility will also be influenced by actual and estimated policyholder behavior.
Variable Annuity Hedging Program
The Company’s variable annuity hedging program is primarily focused, through the use of reinsurance and capital market derivative instruments, on reducing the economic exposure to market risks associated with guaranteed benefits that are embedded in our variable annuity contracts. The variable annuity hedging program also considers the potential impacts on statutory capital.
Reinsurance
The Company uses reinsurance for a portion of contracts with GMWB riders issued prior to the second quarter of 2006. The Company also uses reinsurance for a majority of the GMDB with NAR.
GMWB Hedge Program
Under the dynamic hedging program, the Company enters into derivative contracts to hedge market risk exposures associated with the GMWB liabilities that are not reinsured. These derivative contracts include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index.
Additionally, the Company holds customized derivative contracts to provide protection from certain capital market risks for the remaining term of specified blocks of non-reinsured GMWB riders. These customized derivative contracts are based on policyholder behavior assumptions specified at the inception of the derivative contracts. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.
While the Company actively manages this dynamic hedging program, increased U.S. GAAP earnings volatility may result from factors including, but not limited to: policyholder behavior, capital markets, divergence between the performance of the underlying funds and the hedging indices, changes in hedging positions and the relative emphasis placed on various risk management objectives.
Macro Hedge Program
The Company’s macro hedging program uses derivative instruments, such as options and futures on equities and interest rates, to provide protection against the statutory tail scenario risk arising from GMWB and GMDB liabilities on the Company’s

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statutory surplus. These macro hedges cover some of the residual risks not otherwise covered by the dynamic hedging program. Management assesses this residual risk under various scenarios in designing and executing the macro hedge program. The macro hedge program will result in additional U.S. GAAP earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in GAAP liabilities.
Variable Annuity Hedging Program Sensitivities
The underlying guaranteed withdrawal benefit liabilities (excluding the life contingent portion of GMWB contracts) and hedge assets within the GMWB hedge and Macro hedge programs are carried at fair value.
The following table presents our estimates of the potential instantaneous impacts from sudden market stresses related to
equity market prices, interest rates, and implied market volatilities. The following sensitivities represent: (1) the net estimated difference between the change in the fair value of GMWB liabilities and the underlying hedge instruments and (2) the estimated change in fair value of the hedge instruments for the macro program, before the impacts of amortization of DAC and taxes. As noted in the preceding discussion, certain hedge assets are used to hedge liabilities that are not carried at fair value and will not have a liability offset in the U.S. GAAP sensitivity analysis. All sensitivities are measured as of September 30, 2017 and are related to the fair value of liabilities and hedge instruments in place at that date for the Company’s variable annuity hedge programs. The impacts presented in the table that follows are estimated individually and measured without consideration of any correlation among market risk factors.
GAAP Sensitivity Analysis (before tax and DAC) as of September 30, 2017 [1]
 GMWBMacro
Equity Market Return-20 %-10 %10 %-20 %-10 %10 %
Potential Net Fair Value Impact$1
$3
$(6)$387
$149
$(105)
Interest Rates-50bps
-25bps
+25bps
-50bps
-25bps
+25bps
Potential Net Fair Value Impact$—
$—
$(1)$2
$1
$(1)
Implied Volatilities10 %2 %-10 %10 %2 %-10 %
Potential Net Fair Value Impact$(62)$(12)$55
$130
$25
$(105)
[1]
These sensitivities are based on the following key market levels as of September 30, 2017: 1) S&P of 2,519; 2) 10yr US swap rate of 2.33%; and 3) S&P 10yr volatility of 23.71%.
The preceding sensitivity analysis is an estimate and should not be used to predict the future financial performance of the Company's variable annuity hedge programs. The actual net changes in the fair value liability and the hedging assets illustrated in the preceding table may vary materially depending on a variety of factors which include but are not limited to:
The sensitivity analysis is only valid as of the measurement date and assumes instantaneous changes in the capital market factors and no ability to rebalance hedge positions prior to the market changes;
Changes to the underlying hedging program, policyholder behavior, and variation in underlying fund performance relative to the hedged index, which could materially impact the liability; and
The impact of elapsed time on liabilities or hedge assets, any non-parallel shifts in capital market factors, or correlated moves across the sensitivities.
During the three months ended September 30, 2017, the Company added hedge positions in the macro hedge program to reduce open equity risk exposure, which increased the sensitivity that changes in equity market returns would have on GAAP net income.

Foreign Currency Exchange Risk
Sources of Currency RiskForeign currency exchange risk is the risk of financial loss due to changes in the relative value between currencies.
The functional currency of The Company's principal insurance subsidiaries is the U.S. dollar. The Company has foreign currency exchange risk primarily inby holding non-U.S. dollar denominated investments, which primarily consist of fixed maturity and equity investments and foreign denominated cash.
ImpactChanges in relative values between currencies can create variability in cash flows and a yen denominated fixed payout annuity. In addition,realized or unrealized gains and losses on changes in the Company’s Talcott Resolution segment formerly issued non-U.S. dollar denominated funding agreement liability contracts.fair value of assets and liabilities.
ManagementThe open foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using currency futures/forwards/swaps.
In orderaddition, as a global company, we transact business in multiple currencies. Many of our non-U.S. subsidiaries maintain assets and liabilities in local currencies that differ from their functional currency. We manage our foreign currency exchange rate risk primarily through asset-liability matching. In addition to manage the currency risk related to anyholding non-U.S. dollar denominated liability contracts, the Company enters into foreign currency swaps or holdsassets to support non-U.S. dollar denominated investments.liabilities, legal entity required capital is invested in non-U.S. dollar currencies in order to satisfy regulatory requirements and to support local insurance operations exposing the Company to the fluctuation of the U.S. dollar.
Investment Portfolio Risk
The following table presents the Company’s fixed maturities, AFS, by credit quality. The credit ratings referenced throughout this section are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar.Fitch. If no rating is available from a rating agency, then an internally developed rating is used.

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Fixed Maturities by Credit Quality
September 30, 2017December 31, 2016September 30, 2019 December 31, 2018
Amortized CostFair ValuePercent of Total Fair ValueAmortized CostFair ValuePercent of Total Fair ValueAmortized CostFair ValuePercent of Total Fair Value Amortized CostFair ValuePercent of Total Fair Value
United States Government/Government agencies$7,462
$7,724
13.4%$7,474
$7,626
13.6%$5,362
$5,588
13.2% $4,446
$4,430
12.4%
AAA6,926
7,225
12.5%6,733
6,969
12.5%6,124
6,360
15.0% 6,366
6,440
18.1%
AA9,292
9,757
16.9%8,764
9,182
16.4%7,762
8,202
19.4% 6,861
6,985
19.6%
A14,549
15,727
27.3%14,169
14,996
26.8%10,161
10,894
25.7% 8,314
8,370
23.5%
BBB13,366
14,210
24.6%13,399
13,901
24.8%9,303
9,850
23.2% 8,335
8,163
22.9%
BB & below2,883
3,026
5.3%3,266
3,329
5.9%1,462
1,495
3.5% 1,281
1,264
3.5%
Total fixed maturities, AFS$54,478
$57,669
100%$53,805
$56,003
100%$40,174
$42,389
100.0% $35,603
$35,652
100.0%
The fair value of securitiesfixed maturities, AFS increased as compared to December 31, 2016,2018, primarily due to purchasesthe transfer in of highly rated CLOs and tax-exempt municipal bonds,assets related to the acquisition of Navigators Group as well as higheran increase in valuations as a result ofdue to lower interest rates and tighter credit spreads and a decrease in
 
long-term interest rates.credit spreads. Fixed maturities, FVO, are not included in the preceding table. For further discussion on FVO securities, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.


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Securities by Type
September 30, 2017December 31, 2016September 30, 2019 December 31, 2018
Cost or Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValuePercent of Total Fair ValueCost or Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValuePercent of Total Fair ValueCost or Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValuePercent of Total Fair Value Cost or Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValuePercent of Total Fair Value
Asset-backed securities ("ABS")         
Consumer loans$1,896
$13
$(14)$1,895
3.3%$2,057
$10
$(30)$2,037
3.6%$1,187
$20
$(1)$1,206
2.8% $1,159
$5
$(1)$1,163
3.3%
Small business78
3
(1)80
0.1%86
3
(1)88
0.2%
Other326
4
 -330
0.6%253
4
—
257
0.5%128
3
—
131
0.3% 113
—
—
113
0.3%
Collateralized debt obligations ("CDOs")    
CLOs2,355
5
(2)2,358
4.1%1,597
7
(4)1,600
2.9%
Other9
28
—
37
0.1%256
60
—
316
0.6%
Collateralized loan obligations ("CLOs")2,162
4
(8)2,158
5.1% 1,455
2
(20)1,437
4.0%
CMBS         
Agency [1]1,733
31
(16)1,748
3.0%1,439
24
(20)1,443
2.6%1,828
63
(4)1,887
4.5% 1,447
13
(33)1,427
4.0%
Bonds2,648
72
(17)2,703
4.7%2,681
62
(33)2,710
4.7%2,002
115
—
2,117
5.0% 1,845
13
(29)1,829
5.1%
Interest only (“IOs”)653
20
(4)669
1.2%787
11
(15)783
1.4%
Interest only237
15
(2)250
0.6% 289
9
(2)296
0.8%
Corporate         
Basic industry1,095
88
 -
1,183
2.0%1,071
61
(9)1,123
2.0%666
35
(1)700
1.7% 604
8
(21)591
1.7%
Capital goods1,844
130
(6)1,968
3.4%1,522
110
(15)1,617
2.9%1,449
72
(3)1,518
3.6% 1,132
8
(31)1,109
3.1%
Consumer cyclical1,407
90
(3)1,494
2.6%1,517
78
(10)1,585
2.8%1,108
57
(2)1,163
2.7% 943
9
(29)923
2.6%
Consumer non-cyclical3,314
245
(12)3,547
6.2%3,792
206
(45)3,953
7.1%2,355
131
(3)2,483
5.9% 1,936
11
(71)1,876
5.3%
Energy2,134
183
(7)2,310
4.0%2,098
142
(17)2,223
4.0%1,480
88
(4)1,564
3.7% 1,156
14
(43)1,127
3.1%
Financial services5,062
345
(11)5,396
9.4%4,806
262
(32)5,036
9.0%4,045
178
(18)4,205
9.9% 3,368
17
(99)3,286
9.2%
Tech./comm.3,242
365
(5)3,602
6.2%3,385
265
(20)3,630
6.5%2,523
203
(1)2,725
6.4% 1,720
34
(54)1,700
4.8%
Transportation895
58
(1)952
1.6%896
46
(7)935
1.7%771
45
(1)815
1.9% 548
4
(18)534
1.5%
Utilities4,578
381
(35)4,924
8.5%5,024
326
(65)5,285
9.3%2,105
146
(3)2,248
5.3% 2,017
43
(69)1,991
5.6%
Other354
16
 -
370
0.6%269
14
(4)279
0.5%365
15
—
380
0.9% 272
—
(11)261
0.7%
Foreign govt./govt. agencies1,300
71
(6)1,365
2.4%1,164
33
(26)1,171
2.1%1,053
65
(1)1,117
2.6% 866
7
(26)847
2.4%
Municipal bonds         
Taxable1,579
151
(9)1,721
3.0%1,497
116
(20)1,593
2.8%764
65
—
829
2.0% 629
14
(17)626
1.8%
Tax-exempt10,006
718
(10)10,714
18.6%9,328
616
(51)9,893
17.7%8,331
736
(1)9,066
21.4% 9,343
407
(30)9,720
27.3%
RMBS         
Agency1,842
41
(5)1,878
3.2%2,493
39
(28)2,504
4.5%2,545
61
—
2,606
6.1% 1,508
7
(29)1,486
4.2%
Non-agency258
6
 -
264
0.5%178
3
(1)180
0.3%1,448
21
(1)1,468
3.5% 933
5
(6)932
2.6%
Alt-A107
6
 -
113
0.2%117
2
—
119
0.2%42
3
—
45
0.1% 43
4
—
47
0.1%
Sub-prime1,876
74
 -
1,950
3.4%1,950
22
(8)1,964
3.5%591
22
—
613
1.4% 786
28
—
814
2.3%
U.S. Treasuries3,887
224
(13)4,098
7.1%3,542
182
(45)3,679
6.6%989
106
—
1,095
2.6% 1,491
41
(15)1,517
4.2%
Fixed maturities, AFS54,478
3,368
(177)57,669
100%53,805
2,704
(506)56,003
100%
Equity securities    
Financial services157
27
 -
184
16.5%203
15
(1)217
19.8%
Other853
103
(28)928
83.5%817
81
(18)880
80.2%
Equity securities, AFS1,010
130
(28)1,112
100%1,020
96
(19)1,097
100%
Total AFS securities$55,488
$3,498
$(205)$58,781
 $54,825
$2,800
$(525)$57,100
 
Total fixed maturities, AFS$40,174
$2,269
$(54)$42,389
100.0% $35,603
$703
$(654)$35,652
100.0%
Fixed maturities, FVO $82
  $293
  $39
   $22
 
Equity securities, at fair value $1,414
   $1,214
 
[1]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.

The fair value of AFS securities increased as compared to December 31, 2018, primarily due to the transfer in of assets related to the acquisition of Navigators Group as well as an increase in valuations due to lower interest rates and tighter credit spreads.

117Commercial & Residential Real Estate
The following table presents the Company’s exposure to CMBS and RMBS by current credit quality included in the preceding Securities by Type table.






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



The fair value of AFS securities increased as compared to December 31, 2016 due to higher valuations as a result of tighter credit spreads and a decrease in long-term interest rates. 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
 September 30, 2017 December 31, 2016
 Amortized CostFair ValueNet Unrealized Gain/(Loss) Amortized CostFair ValueNet Unrealized Gain/(Loss)
AAA$33
$35
$2
 $13
$15
$2
AA409
429
20
 583
602
19
A2,548
2,733
185
 2,219
2,354
135
BBB1,996
2,120
124
 1,856
1,934
78
BB & below233
263
30
 338
348
10
Total [1]$5,219
$5,580
$361
 $5,009
$5,253
$244
Exposure to CMBS & RMBS Bonds as of September 30, 2019
 AAAAAABBBBB and BelowTotal
 Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
CMBS            
   Agency [1]$1,828
$1,887
$—
$—
$—
$—
$—
$—
$—
$—
$1,828
$1,887
   Bonds1,031
1,085
475
500
402
432
94
100
—
—
2,002
2,117
   Interest Only159
168
70
75
1
1
5
5
2
1
237
250
Total CMBS3,018
3,140
545
575
403
433
99
105
2
1
4,067
4,254
RMBS            
   Agency2,521
2,581
24
25
—
—
—
—
—
—
2,545
2,606
   Non-Agency982
996
264
269
172
173
29
29
1
1
1,448
1,468
   Alt-A—
—
9
9
4
4
9
9
20
23
42
45
   Sub-Prime13
13
50
50
189
195
177
185
162
170
591
613
Total RMBS3,516
3,590
347
353
365
372
215
223
183
194
4,626
4,732
Total CMBS & RMBS$6,534
$6,730
$892
$928
$768
$805
$314
$328
$185
$195
$8,693
$8,986
Exposure to CMBS & RMBS Bonds as of December 31, 2018
 AAAAAABBBBB and BelowTotal
 Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
CMBS            
   Agency [1]$1,447
$1,427
$—
$—
$—
$—
$—
$—
$—
$—
$1,447
$1,427
   Bonds983
973
444
436
368
370
50
50
—
—
1,845
1,829
   Interest Only204
210
77
79
1
1
5
4
2
2
289
296
Total CMBS2,634
2,610
521
515
369
371
55
54
2
2
3,581
3,552
RMBS            
   Agency1,508
1,486
—
—
—
—
—
—
—
—
1,508
1,486
   Non-Agency611
610
167
167
111
109
33
33
11
13
933
932
   Alt-A—
—
10
10
4
5
9
9
20
23
43
47
   Sub-Prime31
32
72
73
211
217
179
186
293
306
786
814
Total RMBS2,150
2,128
249
250
326
331
221
228
324
342
3,270
3,279
Total CMBS & RMBS$4,784
$4,738
$770
$765
$695
$702
$276
$282
$326
$344
$6,851
$6,831
[1]
Includes equity, AFS securities with an amortized cost and fair value of $157 and $184, respectively as of September 30, 2017 and an amortized cost and fair value of $203 and $217, respectively, as of December 31, 2016 included in the Securities by Type table above.
Commercial Real Estate
The following table presents the Company’s exposure to CMBS bonds by current credit quality and vintage year included in the preceding Securities by Type table. Credit protection represents the current weighted average percentage of the outstanding
capital structure subordinated to the Company’s investment holding that is available to absorb losses before the security incurs the first dollar loss of principal and excludes any equity interest or property value in excess of outstanding debt.
Exposure to CMBS Bonds as of September 30, 2017
 AAAAAABBBBB and BelowTotal
Vintage Year [1]Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
2008 & Prior$108
$118
$48
$53
$—
$—
$—
$—
$21
$21
$177
$192
2009—
—
11
11
—
—
—
—
—
—
11
11
201018
19
—
—
—
—
—
—
—
—
18
19
201155
58
—
—
15
15
—
—
—
—
70
73
201239
40
6
6
13
13
19
18
—
—
77
77
201316
16
95
98
98
102
4
4
—
—
213
220
2014301
311
59
61
73
73
9
9
8
8
450
462
2015213
215
200
200
203
209
85
88
11
11
712
723
2016143
142
227
225
121
126
63
66
—
—
554
559
2017101
101
243
243
—
—
22
23
—
—
366
367
Total$994
$1,020
$889
$897
$523
$538
$202
$208
$40
$40
$2,648
$2,703
Credit  protection31.1%21.5%14.0%10.5%30.7%22.9%

118



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

Exposure to CMBS Bonds as of December 31, 2016
 AAAAAABBBBB and BelowTotal
Vintage Year [1]Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
2008 & Prior$278
$294
$137
$143
$102
$102
$14
$14
$22
$22
$553
$575
200911
11
—
—
—
—
—
—
—
—
11
11
201018
19
8
8
—
—
—
—
—
—
26
27
201155
59
—
—
13
13
2
2
—
—
70
74
201240
41
6
6
30
30
20
18
—
—
96
95
201316
17
95
99
110
113
4
4
—
—
225
233
2014301
309
64
65
72
70
1
1
—
—
438
445
2015210
210
200
198
207
206
87
87
—
—
704
701
2016132
130
249
242
113
113
64
64
—
—
558
549
Total$1,061
$1,090
$759
$761
$647
$647
$192
$190
$22
$22
$2,681
$2,710
Credit 
protection		33.3%22.4%18.0%16.2%32.5%25.3%
[1]The vintage year represents the year the poolpools of loans was originated.issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.
The Company also has exposure to commercial mortgage loans as presented in the following table.loans. These loans are collateralized by a variety of commercialreal estate properties andthat are diversified both geographically throughout the United States and by property type. These loans are primarily inoriginated by the form ofCompany as high quality whole loans, where the Company is the sole lender, but may include participations.
and are participated out to third parties. Loan participations are loans where the Company has purchased or retained a portion of an outstanding loan or package of loans and participates on a pro-rata basis in collecting interest and principal pursuant to the terms of the participation agreement. In general, A-Note participations have senior payment priority.
Commercial Mortgage Loans
 September 30, 2017 December 31, 2016
 Amortized Cost [1] Valuation Allowance Carrying Value Amortized Cost [1] Valuation Allowance Carrying Value
Whole loans$5,950
 $(1) $5,949
 $5,580
 $(19) $5,561
A-Note participations109
 —
 109
 136
 —
 136
Total$6,059
 $(1) $6,058
 $5,716
 $(19) $5,697
[1] AmortizedAs of September 30, 2019, commercial mortgage loans had an amortized cost representsof $3.7 billion and carrying value prior toof $3.7 billion, with no valuation allowances, if any.allowance. As of December 31, 2018,
commercial mortgage loans had an amortized cost of $3.7 billion and carrying value of $3.7 billion, with a valuation allowance of $1.
The Company funded $827$242 of commercial wholemortgage loans with a weighted average loan-to-value (“LTV”) ratio of 66%61% and a weighted average yield of 3.9% during the nine months ended September 30, 2017.2019. 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 September 30, 20172019 or December 31, 2016.2018.


119





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





Municipal Bonds
The following table presents the Company's exposure to
 
municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table.
Available For Sale Investments in Municipal Bonds
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Amortized Cost Fair Value Weighted Average Credit Quality Amortized Cost Fair Value Weighted Average Credit QualityAmortized CostFair ValueWeighted Average Credit Quality Amortized CostFair ValueWeighted Average Credit Quality
General Obligation$1,789
 $1,931
 AA $1,809
 $1,907
 AA$1,177
$1,297
AA $1,222
$1,275
 AA
Pre-Refunded [1]1,623
 1,727
 AAA 1,590
 1,693
 AAA901
945
AAA 1,845
1,904
 AAA
Revenue

 

 
 

 

 





 




Transportation1,658
 1,826
 A+ 1,591
 1,724
 A+1,601
1,779
 A+ 1,449
1,537
 A+
Health Care1,327
 1,408
 AA- 1,216
 1,285
 AA-1,395
1,508
 AA- 1,270
1,304
 AA-
Water & Sewer1,078
 1,145
 AA 1,019
 1,066
 AA
Education1,071
 1,124
 AA+ 988
 1,023
 AA816
891
 AA 941
953
 AA
Leasing [2]907
 981
 AA- 681
 734
 AA-779
846
 AA- 772
799
 AA-
Water & Sewer762
809
AA 816
847
 AA
Sales Tax590
 650
 AA 574
 627
 AA483
547
 AA 507
541
 AA
Power531
 575
 A+ 571
 605
 A+336
373
 A 308
328
 A+
Housing83
 89
 A 136
 140
 A83
85
 AA+ 33
35
 A+
Other928
 979
 AA- 650
 682
 AA-762
815
 AA- 809
823
 AA-
Total Revenue8,173
 8,777
 AA- 7,426
 7,886
 AA-7,017
7,653
AA- 6,905
7,167
 AA-
Total Municipal$11,585
 $12,435
 AA $10,825
 $11,486
 AA$9,095
$9,895
AA- $9,972
$10,346
 AA
[1]Pre-Refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest.
[2]Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.
As of both September 30, 2017,2019 and December 31, 2018, the largest issuer concentrations were the New York Dormitory Authority, the State of California, and the New York City Transitional Finance Authority, and the Commonwealth of Massachusetts, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. As of December 31, 2016, the largest issuer concentrations were the state of California, the Commonwealth of Massachusetts, and the New York Dormitory Authority, which each comprised less than 3%In total, municipal bonds make up 19% of the fair value of the Company's investment portfolio. In light of changes in corporate income tax rates that began in 2018, the Company has reduced its exposure to municipal bond portfoliobonds through maturities, asset sales and were primarily comprised of general obligation and revenue bonds.principal repayments.
 
Limited Partnerships and Other Alternative Investments
The following tables presenttable presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity funds. Real estate funds consist of investments primarily in real estate joint ventures and, to a lesser extent, equity funds, including some funds with public market exposure, and real estate joint ventures.funds. Private equity 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.

Limited Partnerships and Other Alternative Investments - Net Investment Income
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 AmountYield AmountYield AmountYield AmountYield
Hedge funds$1
1.9 % $4
7.1 % $5
4.4% $(10)(3.6)%
Real estate funds29
18.6 % 1
0.7 % 40
8.8% 11
2.5 %
Private equity funds41
13.1 % 90
28.8 % 136
14.8% 148
16.3 %
Other alternative investments—
(0.7)% (2)(1.6)% 8
2.7% (8)(2.7)%
Total$71
11.7 % $93
15.2 % $189
10.7% $141
7.3 %



Limited Partnerships and Other Alternative Investments - Net Investment Income
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 AmountYield AmountYield AmountYield AmountYield
Hedge funds$2
8.0% $3
20.0% $4
8.4% $3
9.3%
Real estate funds21
19.0% 26
20.0% 55
16.8% 36
9.6%
Private equity funds38
19.2% 18
9.7% 96
16.7% 119
24.5%
Other alternative investments [1]4
4.6% (2)(1.1%) 26
9.2% (1)(0.2%)
Total$65
15.3% $45
10.6 % $181
14.7% $157
13.3%
120






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





Investments in Limited Partnerships and Other Alternative Investments
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
AmountPercent AmountPercentAmountPercent AmountPercent
Hedge funds$148
5.9% $155
6.3%$76
4.3% $51
3.0%
Real estate funds652
25.7% 629
25.6%450
25.4% 499
29.0%
Private equity and other funds1,345
53.1% 1,291
52.6%842
47.6% 788
45.7%
Other alternative investments [1]388
15.3% 381
15.5%402
22.7% 385
22.3%
Total$2,533
100% $2,456
100%$1,770
100.0% $1,723
100.0%
[1]Consists of an insurer-owned life insurance policy which is invested in hedge funds and other investments. This amount was previously included in hedge funds.
Available-for-sale Securities — Unrealized Loss Aging
The total gross unrealized losses were $20554 as of September 30, 20172019 and have decreased $320, or 61%600, from December 31, 20162018, primarily due to lower interest rates and tighter credit spreads and a decrease in long-term interest rates.spreads. As of September 30, 20172019, $18339 of the gross unrealized losses were associated with securities depressed less than 20% of cost or amortized cost. The remaining $2215 of gross unrealized losses were associated with securities depressed greater than 20%. The securities depressed more than 20% are primarily equity securities depressed duerelated to one corporate security experiencing issuer specific deterioration, as well as securities with exposuredifficulties, and, to a lesser extent, commercial real estate securities which are depressed primarily due to higher rateswider spreads since the securities were purchased.
 
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 depressed and are expected to recover in value as the securities approach maturity or as market spreads tighten. For these securities in an unrealized loss position where a credit impairment has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities. For further information regarding the Company’s impairment analysis, see Other-Than-Temporary Impairments in the Investment Portfolio Risks and Risk Management section of this MD&A.
Unrealized Loss Aging for AFS Securities
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Consecutive MonthsItems Cost or Amortized Cost Fair Value Unrealized Loss Items Cost or Amortized Cost Fair Value Unrealized LossItemsCost or Amortized CostFair ValueUnrealized Loss ItemsCost or Amortized CostFair ValueUnrealized Loss
Three months or less901
 $5,000
 $4,970
 $(30) 2,119
 $11,299
 $11,037
 $(262)248
$1,716
$1,704
$(12) 468
$3,191
$3,153
$(38)
Greater than three to six months315
 1,151
 1,135
 (16) 1,109
 2,039
 1,934
 (105)79
298
295
(3) 359
2,530
2,487
(43)
Greater than six to nine months213
 529
 518
 (11) 151
 484
 456
 (28)18
26
25
(1) 347
2,243
2,186
(57)
Greater than nine to eleven months399
 2,015
 1,971
 (44) 151
 452
 441
 (11)60
620
616
(4) 817
5,921
5,688
(233)
Twelve months or more663
 2,444
 2,340
 (104) 657
 2,565
 2,446
 (119)376
1,195
1,161
(34) 969
5,272
4,989
(283)
Total2,491
 $11,139
 $10,934
 $(205) 4,187
 $16,839
 $16,314
 $(525)781
$3,855
$3,801
$(54) 2,960
$19,157
$18,503
$(654)
Unrealized Loss Aging for AFS Securities Continuously Depressed Over 20%
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Consecutive MonthsItems Cost or Amortized Cost Fair Value  Unrealized Loss Items Cost or Amortized Cost Fair Value Unrealized LossItemsCost or Amortized CostFair Value Unrealized Loss ItemsCost or Amortized CostFair ValueUnrealized Loss
Three months or less78
 $29
 $22
 $(7) 83
 $24
 $18
 $(6)8
$49
$38
$(11) 13
$59
$43
$(16)
Greater than three to six months32
 17
 10
 (7) 38
 13
 9
 (4)—
—
—
—
 —
—
—
—
Greater than six to nine months20
 2
 1
 (1) 21
 14
 10
 (4)—
—
—
—
 3
3
2
(1)
Greater than nine to eleven months13
 —
 —
 —
 11
 1
 —
 (1)—
—
—
—
 2
2
1
(1)
Twelve months or more55
 16
 9
 (7) 56
 19
 11
 (8)31
10
6
(4) 36
13
8
(5)
Total198
 $64
 $42
 $(22) 209
 $71
 $48
 $(23)39
$59
$44
$(15) 54
$77
$54
$(23)
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations





Other-than-temporary Impairments Recognized in Earnings by Security Type
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,

201720162017201620192018 20192018
Credit Impairments   
CMBS$—
$—
$2
$1
$—
$1
 $—
$1
Corporate1
13
13
38
$1
$—
 $3
$—
Equity1
1
2
5
Total$2
$14
$17
$44
$1
$1
 $3
$1
Three and nine months ended September 30, 20172019
ForImpairments recognized in earnings were comprised of credit impairments of $1 and $3 for the three and nine months ended September 30, 2017, impairments recognized in earnings included2019. The credit impairments of $1 and $15, respectively. These impairments were primarily related to a private issuertwo corporate securities experiencing issuer-specific financial difficulty that is currently undergoing a sale and is not expected to generate enough cash flow for the Company to recover the investment. difficulties.
The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific trends, as well as our expectations with respect to security specific developments.
Non-credit impairments recognized in other comprehensive income were $3$0 and $7, respectively,$2 for the three and nine months ended September 30, 2017.2019, respectively.
Future impairments may develop as the result of changes in intent-to-sell specific securities that are in an unrealized loss position or if actual results underperformmodeling assumptions, such as macroeconomic factors or security specific developments, change unfavorably from our current modeling assumptions, which may be the result of, but are not limited to, macroeconomic factors and security-specific performance below currentresulting in lower cash flow expectations.
Three and nine months ended September 30, 20162018
For the three and nine months ended September 30, 2016,2018, impairments recognized in earnings were comprised of credit impairments of $13$1 and $36, respectively, and intent-to-sell$1, respectively. The credit impairments of $0 and $3, respectively, both of which were primarily concentrated in corporate securities. Also,related to interest-only CMBS and were identified through security specific review of the expected future cash flows.
Non-credit impairments recognized in earnings included impairments on equity securities of $1other comprehensive income were $3 and $5 respectively, that were in an unrealized loss positionfor the three and the Company no longer believed the securities would recover in the foreseeable future.nine months ended September 30, 2018, respectively.

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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 atto the holding company as of September 30, 2017:2019:
$1.3 billion
•
$1.3 billion in fixed maturities, short-term investments, and cash at The Hartford Financial Services Group, Inc, ("HFSG Holding Company") .
•
A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to $750 of unsecured credit through March 29, 2023. No borrowings were outstanding as of September 30, 2019.
•
Borrowings available under a commercial paper program to a maximum of $750. As of September 30, 2019 there was no commercial paper outstanding.
•
An intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes.
2019 expected dividends and other sources of capital:
•
P&C - The Company has not and does not anticipate receiving net dividends from its property and casualty insurance subsidiaries in 2019.
•
Group Benefits - The Company received $225 in dividends from Hartford Life and Accident Insurance Company ("HLA") through the first nine months of 2019, and anticipates receiving an additional $75 in dividends over the remainder of 2019.
•
Hartford Funds - The Company received $84 in dividends from Hartford Funds through the first nine months of 2019 and expects to receive an additional $32 in dividends from Hartford Funds over the remainder of 2019.
In July 2019, the Company received a $421 refund of AMT credits of which HFSG Holding Company
received $314. Through the first nine months of 2019, HFSG Holding Company has received cash tax receipts of $650, including the $314 of AMT credits and $336 from its subsidiaries as a result of utilizing net operating loss carryovers and other tax benefits. Over the remainder of 2019, HFSG Holding Company anticipates additional cash tax receipts of approximately $115, including realization of net operating losses.
Borrowings available underIn September 2019, the Company received a commercial paper program to a maximum of $1 billion. As of September 30, 2017 there was no commercial paper outstanding
A senior unsecured five-year revolving credit facility$67 dividend from its retained equity interest in the legal entity that provides for borrowing capacity up to $1 billion of unsecured credit through October 31, 2019. No borrowings were outstanding as of September 30, 2017
acquired the life and annuity business sold in May 2018.
 
Expected liquidity requirements for the next twelve months as of September 30, 2017:2019:
$320500 maturing debt payment due in March of 20182020.
$500 junior subordinated debt expected to be called in June


Part I - Item 2. Management's Discussion and Analysis of 2018Financial Condition and Results of Operations



$315 of interest on debt
$353 of common stockholders dividends, subject to the discretion of the Board of Directors
$1.45 billion of cash consideration to be paid for the purchase of Aetna's group life and disability insurance business by the Company's indirect wholly-owned subsidiary, Hartford Life and Accident Insurance Company ("HLA") in November of 2017
$200 capital contribution to HLA by the HFSG holding company in 4Q 2017
•
$240 of interest on debt.
Equity repurchase program:
Authorization for equity repurchases of up to $1.3 billion for the period October 31, 2016 through December 31, 2017.
Effective October 13, 2017, the Company suspended 2017 equity repurchases. The company does not currently expect to authorize an equity repurchase plan in 2018.
During the nine months endedSeptember 30, 2017, the Company repurchased 19.3 million common shares for $975. During the period October 1, 2017 through October 12, 2017 the Company repurchased approximately 0.9 million common shares for $52 under this authorization.
•
$21 dividends on preferred stock, subject to the discretion of the Board of Directors.
•
$440 of common stockholders' dividends, subject to the discretion of the Board of Directors and before share repurchases and any changes in common stockholder dividend rate.
•
Approximately $30 cash capital contribution to its Lloyd's corporate member in November 2019.
 
2017 dividend capacity:Equity repurchase program:
The Company has 2017 dividend capacity of $1.5 billion for property and casualty subsidiaries, $207 for Hartford Life and Accident Insurance Company ("HLA") , and $1 billion for Hartford Life Insurance Company ("HLIC").
During the first nine months of 2017, HFSG holding company received approximately $625 in net dividends from its P&C insurance subsidiaries, $188 in dividends from HLA, and $600 in dividends from HLIC.
In connection with the purchase of Aetna's group life and disability insurance business, the property and casualty subsidiaries have received approval to pay an extraordinary dividend to the HFSG holding company of $1.4 billion, of which $800 will be funded by approved extraordinary dividends from HLIC.
Including the extraordinary dividends and other ordinary dividends anticipated in the fourth quarter, total dividends anticipated for 2017 include approximately $2.3 billion from property and casualty subsidiaries, $188 from HLA, $1.4 billion from HLIC and $76 from Mutual Funds. However, since $800 of the HLIC dividends funded a portion of the property and casualty dividends, the net dividends anticipated to the HFSG holding company for the 2017 full year is approximately $3.1 billion.
•
Authorization for equity repurchases of up to $1.0 billion effective through December 31, 2020. Under the program the company repurchased 1.6 million shares during the period from January 1, 2019 to September 30, 2019 for $90 with $910 of authorization remaining as of September 30, 2019. During the period from October 1, 2019 to November 1, 2019, the Company repurchased approximately 0.6 million common shares for $36 with $874 of authorization remaining as of November 1, 2019.
 
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,maturities; short-term investments and cash, andcash; dividends, from its subsidiaries, principally from its insurance operations, as well assubsidiaries; and tax receipts, including realization of HFSG Holding Company net operating losses and refunds of prior period AMT credits. In addition, HFSG Holding Company can meet its liquidity requirements through the issuance of common stock, debt or other capital securities and borrowings from its credit facilities, as needed.
As of September 30, 2019, HFSG Holding Company held fixed maturities, short-term investments, and cash of $1.3 billion. Expected liquidity requirements of HFSG Holding Company for the next twelve months include payment of the 5.5% senior note of $500 due at maturity in March of 2020, interest payments on debt of approximately $240, preferred stock dividends of approximately $21 and common stockholder dividends of approximately $440, both subject to the discretion of the Board of Directors, and approximately $30 cash capital contribution to its Lloyds corporate member in November 2019.
In the third quarter 2019, $65 of capital was contributed by HFSG holding company to its Lloyds corporate member.
Debt
On January 15, 2019, The Hartford repaid at maturity the $413 principal amount of its 6.0% senior notes.
In the Navigators Group acquisition, the Company assumed $265 par value 5.75% senior notes due on October 15, 2023 with a fair value of $284 as of the acquisition date.
On August 19, 2019, The Hartford issued $600 of 2.8% senior notes (“2.8% Notes”) due August 19, 2029 and $800 of 3.6% senior notes (“3.6% Notes”) due August 19, 2049 for net proceeds of approximately $1.38 billion, after deducting underwriting discounts and expenses. Under both senior note issuances, interest is payable semi-annually in arrears on August 19 and February 19, commencing February 19, 2020.
After receiving proceeds from the issuance of the 2.8% Notes and 3.6% Notes, in third quarter 2019, The Hartford repaid $265 of 5.75% senior notes due 2023 that had been assumed in the Navigators Group acquisition, and its $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc., and recognized a loss on extinguishment of debt of $90. The balance of the proceeds will be used for general corporate purposes.
For additional information on Debt, see Note 10- Debt of Notes to Condensed Consolidated Financial Statements
Equity
Under a $1.0 billion share repurchase authorization by the Board of Directors in February, 2019, during the nine months ended September 30, 2019, the Company repurchased 1.6 million common shares for $90. During the period from October 1, 2019 to November 1, 2019, the Company repurchased approximately 0.6 million common shares for $36 under this authorization.  The Company anticipates using the majority of the program in 2020. Any repurchase of shares under the equity repurchase program is dependent on market conditions and other factors.

Dividends
The Hartford's Board of Directors declared the following quarterly dividends since July 1, 2019:
Common Stock Dividends
DeclaredRecordPayableAmount per share
 July 18, 2019 September 3, 2019October 1, 2019$0.30
October 23, 2019December 2, 2019January 2, 2020$0.30
Preferred Stock Dividends
DeclaredRecordPayableAmount per share
July 18, 2019August 1, 2019August 15, 2019$375.00
September 12, 2019November 1, 2019November 15, 2019$375.00
October 23, 2019February 1, 2020February 18, 2020$375.00
There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its stockholders.
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, 2018.

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





facilities,Pension Plans and Other Postretirement Benefits
The Company does not have a 2019 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 contributed $70 in September 2019 to its U.S. qualified defined benefit pension plan.
Dividends from Subsidiaries
Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. Upon the acquisition of Navigators Group, the Company’s principal insurance subsidiaries are domiciled in the United States, the United Kingdom and Belgium.
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 statutory policyholder surplus as needed.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.
Property casualty insurers domiciled in New York, including Navigators Insurance Company ("NIC") and Navigators Specialty Insurance Company ("NSIC"), generally may not, without notice to and approval by the state insurance commissioner, pay dividends out of earned surplus in any twelve‑month period that exceeds the lesser of (i) 10% of the insurer’s statutory policyholders’ surplus as of the most recent financial statement on file, or (ii) 100% of its adjusted net investment income, as defined, for the same twelve month period. As part of the New York state insurance commissioner's approval of the Navigators Group acquisition, and as is common practice, any dividend from NIC and NSIC before May 2021 will require prior approval from the state insurance commissioner.
The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. 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.
Corporate members of Lloyd's Syndicates may pay dividends to its parent to the extent of available profits that have been distributed from the syndicate in excess of the Funds at Lloyd's ("FAL") capital requirement. The FAL is determined based on the syndicate’s solvency capital requirement of the syndicate under
the E.U.'s Solvency II capital adequacy model, plus a Lloyd’s specific economic capital assessment.
Insurers domiciled in the United Kingdom may pay dividends to its parent out of its statutory profits subject to restrictions imposed under U.K. Company law and European Insurance regulation (Solvency II). Belgium domiciled insurers may only pay dividends if, at the end of its previous fiscal year, the total amount of its assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law.
As of December 31, 2018, under the formulas described above, the Company’s property and casualty insurance subsidiaries in the United States and overseas are permitted to pay up to a maximum of approximately $1.3 billion in dividends to HFSG Holding Company in 2019, though only approximately $250 of this dividend capacity could have been paid before the fourth quarter of 2019. Hartford Life and Accident Insurance Company ("HLA") has $380 of dividend capacity for 2019.
Through the first nine months of 2019, HFSG Holding Company received $312 of dividends, including $225 from HLA, $84 from Hartford Funds and $3 from a run-off HFSG subsidiary. There were no dividends received from P&C subsidiaries during the first nine months of 2019.
Over the remainder of 2019, the Company anticipates receiving approximately $75 of dividends from HLA and $32 of dividends from Hartford Funds, and does not anticipate receiving net dividends from its P&C subsidiaries.
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 stockholder returns. As a result, the Company may from time to time raise capital from the issuance of debt, common equity, preferred stock, 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 stockholder interests or reduced net income due to additional interest expense.
Shelf Registrations
The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.
Revolving Credit Facilities and Commercial Paper
Revolving Credit Facilities
The Company has a senior unsecured five-year revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit through March 29, 2023. As of September 30, 2017, HFSG Holding2019, no borrowings were outstanding and $4 in letters of credit were issued under the Credit Facility and the Company held fixed maturities, short-term investmentswas in compliance with all financial covenants.



Part I - Item 2. Management's Discussion and cashAnalysis of $1.3 billion. Expected liquidity requirementsFinancial Condition and Results of the HFSG Holding Company for the next twelve months include payments of 6.3% senior notes of $320 at maturity in March 2018, redemption of $500 junior subordinated notes in June 2018, interest payments on debt of approximately $315, common stockholder dividends, subject to the discretion of the Board of Directors, of approximately $353 and a capital contribution of $1.65 billion to HLA in the fourth quarter of 2017 of which $1.45 billion will be used to purchase Aetna's group life and disability insurance business. For further details see Note 16- Subsequent Events of Notes to Condensed Consolidated Financial Statements.Operations
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.



Commercial Paper
As of September 30, 2017,2019, The Hartford's maximum borrowings available under its commercial paper program is $750 and there werewas no amounts outstanding from the HFSG Holding Company.commercial paper outstanding.
Debt
On March 15, 2017, the Company repaid its $416, 5.375% senior notes at maturity.
On February 15, 2017, pursuant to the put option agreement with the Glen Meadow ABC Trust, the Company issued $500 junior subordinated notes with a scheduled maturity of February 12, 2047, and a final maturity of February 12, 2067. The junior subordinated notes bear interest at an annual rate of three-month LIBOR plus 2.125%, payable quarterly. The Hartford will have the right, on one or more occasions, to defer interest payments due on the junior subordinated notes under specified circumstances.
The issuance of the $500 junior subordinated notes has increased debt to capital ratios though the Company anticipates calling in June 2018 its outstanding $500 of 8.125% junior subordinated debentures that are due 2068 and are first callable at that time. Accordingly, the Company expects debt to capital ratios to be reduced in June, 2018.
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%.
Intercompany Liquidity AgreementsOther Sources of Capital for the HFSG Holding Company
On January 5, 2017,The Hartford Fire Insuranceendeavors 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 stockholder returns. As a result, the Company a subsidiarymay from time to time raise capital from the issuance of debt, common equity, preferred stock, 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 stockholder interests or reduced net income due to additional interest expense.
Shelf Registrations
The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.
Revolving Credit Facilities and Commercial Paper
Revolving Credit Facilities
The Company issuedhas a Revolving Notesenior unsecured five-year revolving credit facility (the "Note""Credit Facility")
in the principal amount that provides up to $750 of $230 to Hartford Accident and Indemnity Company, an indirect wholly-owned subsidiary of the Company, under the intercompany liquidity agreement. The note was issued to fund the liquidity needs associated with the $650 ceded premium paid in January 2017 for the adverse development cover with NICO. The Note was repaid onunsecured credit through March 29, 2017. The company has $2.0 billion available under the intercompany liquidity agreement as2023. As of September 30, 2017.
Equity
During2019, no borrowings were outstanding and $4 in letters of credit were issued under the nine months ended September 30, 2017,Credit Facility and the Company repurchased 19.3 million common shares for $975. During the period October 1, 2017 through October 12, 2017, the Company repurchased approximately 0.9 million common shares for $52 under this authorization. Effective October 13, 2017 the Company suspended 2017 equity repurchases. The Company does not currently expect to authorize an equity repurchase planwas in 2018.
For further information about equity repurchases, see Part II. Other Information, Item 2.
Dividends
The Hartford's Board of Directors declared the following quarterly dividends:
DeclaredRecordPayableAmount
October 23, 2017December 1, 2017January 2, 2018$0.25
July 20, 2017September 1, 2017October 2, 2017$0.23
May 18, 2017June 1, 2017July 3, 2017$0.23
February 23, 2017March 6, 2017April 3, 2017$0.23
There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its shareholders.
For a discussion of restrictions on dividends to the HFSG Holding Company from its insurance subsidiaries, see the following "Dividends from Insurance Subsidiaries" discussion. For a discussion of potential restrictions on the HFSG Holding Company's ability to pay dividends, see the risk factor "Our ability to declare and pay dividends is subject to limitations" in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Pension Plans and Other Postretirement Benefits
On June 30, 2017, the Company purchased a group annuity contract to transfer approximately $1.6 billion of the Company’s outstanding pension benefit obligations related to certain U.S. retirees, terminated vested participants, and beneficiaries. As a result of this transaction, in the second quarter of 2017, the Company recognized a pre-tax settlement charge of $750 ($488 after-tax) and a reduction to shareholders' equity of $144.
In connectioncompliance with this transaction, the Company made a contribution of $280 in September 2017 to the U.S. qualified pension plan in order to maintain the plan’s pre-transaction funded status.all financial covenants.


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Dividends from Insurance SubsidiariesCommercial Paper
Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. The paymentAs of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. Dividends paid to HFSG Holding Company by its life insurance subsidiaries are further dependent on cash requirements of Hartford Life, Inc. ("HLI"), Hartford Holdings, Inc. ("HHI") 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.
For 2017, the amount of dividends that may be paid by the company's subsidiaries up to the HFSG holding company without approval of extraordinary dividends included $1.5 billion for property and casualty insurance subsidiaries, $207 for Hartford Life and Accident Insurance Company ("HLA") and $1 billion for Hartford Life Insurance Company ("HLIC").
During the first nine months of 2017, HFSG holding company received approximately $625 in net dividends from its P&C insurance subsidiaries, $188 in dividends from HLA and $600 in dividends from HLIC. While the HFSG holding company received approximately $787 in dividends from its P&C insurance subsidiaries in the first nine months of 2017, that amount included $100 which was subsequently contributed to a run-off P&C subsidiary and approximately $63 related to principal and interest payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company, resulting in a net dividend of $625.
In connection with the purchase of Aetna’s group life and disability insurance business, the P&C insurance subsidiaries have received approval to pay an extraordinary dividend to the HFSG holding company of $1.4 billion, of which $800 will be funded by approved extraordinary dividends from HLIC. The extraordinary dividends from HLIC are being funded, in part, by $550 of extraordinary dividends that have been approved from HLIC’s indirect wholly-owned subsidiary, Hartford Life and Annuity Insurance Company. The $800 of extraordinary dividends from HLIC will be used to pay down principal on the intercompany note owed by HHI to Hartford Fire Insurance Company. The
extraordinary dividends will be paid prior to the closing of the transaction.
In addition to the extraordinary dividends approved in connection with the purchase of Aetna’s group life and disability insurance business, the Company anticipates that the HFSG holding company will take out an additional $225 dividend from its P&C insurance subsidiaries in the fourth quarter of 2017.
During the first nine months of 2017, Mutual Funds paid $54 in dividends to HFSG Holding Company with another $22 of dividends expected to be paid before year end.
Given the additional 2017 dividends from the property and casualty subsidiaries and HLIC to fund the purchase of Aetna’s group life and disability business, the Company expects subsidiary dividends to the HFSG holding company in 2018 to be significantly below the level of subsidiary dividends paid in recent years.
Taking into consideration subsidiary dividends received through September 30, 2017, extraordinary dividends approved in connection with the purchase of Aetna's group life2019, The Hartford's maximum borrowings available under its commercial paper program is $750 and disability insurance business, and other dividends anticipated in the fourth quarter, total dividends anticipated for 2017 include approximately $2.3 billion from P&C insurance subsidiaries, $188 from HLA, $1.4 billion from HLIC and $76 from Mutual Funds. However, since $800 of the HLIC dividends were paid up to Hartford Fire Insurance Company to fund a portion of dividends from the P&C insurance subsidiaries, the net dividends anticipated to the HFSG holding company for the 2017 full year is approximately $3.1 billion. In connection with the purchase of Aetna's group life and disability insurance business, the HFSG holding company will contribute $1.65 billion to HLA in order to fund the purchase price and provide additional capital support.there was no commercial paper outstanding.
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 shareholderstockholder returns. As a result, the Company may from time to time raise capital from the issuance of debt, common equity, preferred stock, 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 shareholderstockholder interests or reduced net income due to additional interest expense.
Shelf Registrations
The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on July 29, 2016May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.
Commercial Paper and Revolving Credit Facility
Facilities and Commercial Paper
The Hartford’s maximum borrowings available under its commercial paper program are $1 billion. Revolving Credit Facilities
The Company is dependent upon market conditionshas a senior unsecured five-year revolving credit facility (the "Credit Facility") that provides up to access short-term financing$750 of unsecured credit through March 29, 2023. As of September 30, 2019, no borrowings were outstanding and $4 in letters of credit were issued under the issuance of commercial paper to investors.Credit Facility and the Company was in compliance with all financial covenants.


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Commercial Paper
As of September 30, 20172019, The Hartford's maximum borrowings available under its commercial paper program is $750 and there was no commercial paper outstanding.
RevolvingIntercompany Liquidity Agreements
The Company has $2.0 billion available under an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. The Connecticut Department of Insurance ("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 September 30, 2019 there were no amounts outstanding at the HFSG Holding Company.
Collateralized Advances with Federal Home Loan Bank of Boston
The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company (“HLA”), are members of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. Advances may be used to support general corporate purposes, which would be presented as short- or long-term debt, or to earn incremental investment income, which would be presented in other liabilities consistent with other collateralized financing transactions. As of September 30, 2019, there were no advances outstanding.
For further information regarding collateralized advances with Federal Home Loan Bank of Boston, see Note 13 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2018 Form 10-K Annual Report.
Lloyd's Letter of Credit Facilities
As a result of the acquisition of Navigators Group, The Company has a senior unsecured five-year revolvingHartford assumed three existing letter of credit facility (the “Credit Facility”) that provides for borrowing capacity upagreements: the Club Facility, the Bilateral Facility, and the Australian Dollar Facility. Letters of credit under the Club and Bilateral Facilities are used to $1 billionprovide a portion of unsecured credit through October 31, 2019 available in U.S. dollars, Euro, Sterling, Canadian dollars and Japanese Yen.the capital requirements at Lloyd's. As of September 30, 2017, no borrowings2019, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million were outstanding under the CreditClub Facility and $8 was outstanding under the Bilateral Facility. As of September 30, 2017,2019, the CompanyBilateral Facility has unused capacity of $17 for issuance of additional letters of credit. Among other covenants, the Club Facility and Bilateral Facility contain financial covenants regarding tangible net worth and Funds at Lloyd's ("FAL"). As of September 30, 2019, Navigators Group was in compliance with all financial covenants withincovenants. It is expected that in November of 2019, the Credit Facility.Company will use $15 of the available $17 of capacity as of September 30, 2019 under the Bilateral Facility to issue letters of credit. It is expected that the amount of letters of credit permitted to support Lloyd's capital requirements will be reduced by the end of 2020, which may require the Company to seek alternative means of supporting its obligations at Lloyd's, including utilizing holding company resources.
As of September 30, 2019, letters of credit in the amount of 24 million Australian Dollars were outstanding with 26 million
Australian Dollars of unused capacity. Effective November 7, 2019 we expect letters of credit in the amount of 50 million Australian Dollars will be outstanding.
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 September 30, 20172019 was $1.3 billion.81. For this $1.3 billion,81, the legal entities have posted collateral of $95580 in the normal course of business. In addition, the Company has posted collateral of $31 associated with a customized GMWB derivative. Based on derivative market values as of September 30, 20172019, a downgrade of one level below the current financial strength ratings by either Moody's or S&P would not require an additional $7 of assets to be posted as collateral. Based on derivative market values as of September 30, 2017,2019, a downgrade of two levels below the current financial strength ratings by either Moody'sMoody’s or S&P would require an additional $17$8 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 additional 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 September 30, 2017, the aggregate notional amount and fair value of2019, no derivative relationships that couldpositions would be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings was $1.2 billion and $25, respectively. These amountsratings. This 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.
On October 23, 2017, Moody’s lowered its counterparty credit and insurer financial strength ratings on Hartford Life and Annuity Insurance Company and Hartford Life Insurance Company to Baa3. Given this downgrade action, termination rating triggers in three derivative counterparty relationships
were impacted. The Company is in the process of re-negotiating the rating triggers which it expects to successfully complete.  Accordingly, the Company does not expect the current hedging programs to be adversely impacted by the announcement of the downgrade of Hartford Life and Annuity Insurance Company and Hartford Life Insurance Company.  As of September 30, 2017, the notional amount and fair value related to these three derivative counterparties is $989 and $43, respectively. These counterparties have not exercised their right to terminate these relationships and, if they did, would have to settle all of the outstanding derivatives.  In addition, as a result of the downgrade of Hartford Life and Annuity Insurance Company, the Company is required to post an additional $7 of collateral related to a single counterparty relationship.
Insurance Operations
While subject to variability period to period, claim frequencyunderwriting and severity patterns and the level of policy surrendersinvestment cash flows continue to be within historical norms and, therefore, the Company’s insurance operations’ current liquidity position is considered to be sufficient to meet anticipated demands over the next twelve months. For a discussion and tabular presentation of the Company’s current contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A included in The Hartford’s 20162018 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 primarily 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,and insurance operating costs, to pay taxes, to



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




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 lifeGroup Benefits.
The Company's insurance and legacy annuity products (collectively referred to as “Life Operations”).
Property & Casualty Operations
Property & Casualty Operations includes the followingoperations hold fixed maturity securities andincluding a significant short-term investmentsinvestment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs.
Property & Casualty
 As of September 30, 2017
Fixed maturities$25,867
Short-term investments1,310
Cash74
Less: Derivative collateral95
Total$27,156
Liquidity requirements that are unable to be funded by Property & Casualty Operation’sthe Company's insurance operations' short-term investments would be satisfied with current operating funds, including premiums or investing cash flows, which includes proceeds received or through the sale of invested assets. A sale of invested assets could result in significant realized capital gains (losses).losses.
Life Operations
Life Operations’ total general account contractholder obligations are supported by $40 billion of cash and total general account invested assets, which includesThe following tables represent the following fixed maturity

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securities holdings, including the aforementioned cash and short-term investments available to meet liquidity needs.
Life Operations
 As of September 30, 2017
Fixed maturities$31,090
Short-term investments1,895
Cash258
Less: Derivative collateral1,272
Total$31,971
Capital resources available to fund liquidity upon contractholder surrender or termination are a functionneeds, for each 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.Company’s insurance operations.
Property & Casualty
 As of September 30, 2019
Fixed maturities$31,305
Short-term investments1,453
Cash162
Less: Derivative collateral66
Total$32,854
 
HLIC, an indirect wholly-owned subsidiary, is a member of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows HLIC access to collateralized advances, which may be used to support various spread-based businesses and enhance liquidity management. FHLBB membership requires the company to own member stock and advances require the purchase of activity stock. The amount of advances that can be taken is dependent on the asset types pledged to secure the advances. The CTDOI will permit HLIC to pledge up to $1.1 billion in qualifying assets to secure FHLBB advances for 2017. The pledge limit is recalculated annually based on statutory admitted assets and capital and surplus. HLIC would need to seek the prior approval of the CTDOI in order to exceed these limits. As of September 30, 2017, HLIC had no advances outstanding under the FHLBB facility.
Group Benefits Operations
 As of September 30, 2019
Fixed maturities$10,499
Short-term investments328
Cash37
Less: Derivative collateral30
Total$10,834
Contractholder Obligations
 As of September 30, 2017
Total Life contractholder obligations$165,716
Less: Separate account assets [1]115,626
General account contractholder obligations$50,090
Composition of General Account Contractholder Obligations 
Contracts without a surrender provision and/or fixed payout dates [2]$24,555
U.S. Fixed MVA annuities [3]4,798
Other [4]20,737
General account contractholder obligations$50,090
[1]In the event customers elect to surrender separate account assets, Life Operations will use the proceeds from the sale of the assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In some instances Life Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life Operations’ liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see the following) will decrease Life Operations’ obligation for payments on guaranteed living and death benefits.
[2]Relates to contracts such as payout annuities, institutional notes, term life, group benefit contracts, or death and living benefit reserves, which cannot be surrendered for cash.
[3]Relates to annuities that are recorded in the general account under U.S. GAAP as the contractholders are subject to the Company's credit risk, although these annuities are held in a statutory separate account. In the statutory separate account, Life Operations is required to maintain invested assets with a fair value greater than or equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life Operations is required to contribute additional capital to the statutory separate account. Life Operations will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are at least equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life Operations.
[4]Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Life Operations' individual variable annuities and the variable life contracts of the former Individual Life business, the general account option for annuities of the former Retirement Plans business and universal life contracts sold by the former Individual Life business, may be funded through operating cash flows of Life Operations, available short-term investments, or Life Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. The Company has ceded reinsurance in connection with the sales of its Retirement Plans and Individual Life businesses to MassMutual and Prudential, respectively. These reinsurance transactions do not extinguish the Company's primary liability on the insurance policies issued under these businesses.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
There have been no material changes to the Company’s off-
balanceoff-balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s 20162018 Form 10-K Annual Report.


Capitalization
127
Capital Structure
 September 30, 2019December 31, 2018Change
Short-term debt (includes current maturities of long-term debt)$500
$413
21%
Long-term debt4,346
4,265
2%
Total debt4,846
4,678
4%
Common stockholders' equity excluding AOCI, net of tax15,530
14,346
8%
Preferred stock334
334
—%
AOCI, net of tax214
(1,579)114%
Total stockholders’ equity16,078
13,101
23%
Total capitalization$20,924
$17,779
18%
Debt to stockholders’ equity30%36% 
Debt to capitalization23%26% 
Total capitalization increased $3,145, or 18%, as of September 30, 2019 compared to December 31, 2018 primarily due to an increase in AOCI and net income in excess of stockholder dividends.
For additional information on AOCI, net of tax, including unrealized capital gains from securities, see Note 14 - Changes In
and Reclassifications From Accumulated Other Comprehensive Income (Loss), Note 6 - Investments . For additional information on debt, see Note 10 - Debt.of Notes to Condensed Consolidated Financial Statements.






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



Capitalization

Cash Flow[1]
Capital Structure
 September 30, 2017December 31, 2016Change
Short-term debt (includes current maturities of long-term debt)$320
$416
(23)%
Long-term debt4,818
4,636
4 %
Total debt [1]5,138
5,052
2 %
Stockholders’ equity excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)16,648
17,240
(3)%
AOCI, net of tax585
(337)NM
Total stockholders’ equity$17,233
$16,903
2 %
Total capitalization including AOCI$22,371
$21,955
2 %
Debt to stockholders’ equity30%30% 
Debt to capitalization23%23% 
 Nine Months Ended September 30,
 20192018
Net cash provided by operating activities$2,446
$1,842
Net cash used for investing activities$(1,320)$(762)
Net cash used for financing activities$(943)$(1,691)
Cash and restricted cash– end of period$290
$102
[1]
Total debt of the Company excludes $9 and $20 of consumer notes as of September 30, 2017 and December 31, 2016, respectively.
Total capitalization increased $416, or 2%, as of September 30, 2017 compared to December 31, 2016 primarily due to net income and increases[1] Cash activities in AOCI, partially offset by share repurchases and stockholder dividends.
For additional information on AOCI, net of tax, and unrealized capital gains2018 include cash flows from securities,Discontinued Operations; see Note 1417 - Changes InBusiness Disposition and
Reclassifications From Accumulated Other Comprehensive Income, and Note 6 - Investments Discontinued Operations of Notes to Condensed Consolidated Financial Statements.
Cash Flow
 Nine Months Ended September 30,
 20172016
Net cash provided by operating activities$1,524
$1,405
Net cash provided (used) by investing activities$(1,485)$945
Net cash used for financing activities$(658)$(1,967)
Cash – end of period$333
$810
Statements for information on cash flows from Discontinued Operations.
Cash provided by operating activitiesincreased in 20172019 as compared to the prior year period, despite the inclusion of operations from the life and annuity business sold in May 2018 in the prior year period, primarily due to an AMT refund of $421 in 2019 as well as an increase in premiums received in excess of losses and expenses paid.
Cash used for investing activities increased, primarily due to a decrease inchange from net losses paid and a decrease in income taxes paid, partially offset by a $650 premium payment to reinsure adverse development on asbestos and environmental reserves.
Cash used by investing activities in 2017 primarily relatesproceeds to net payments for fixed maturities in the purchase2019 period, as well as cash paid for the acquisition of available-for-sale securitiesNavigators Group of $568 and net payments for derivatives$1.9 billion (net of $98. Cash provided by investing activities in 2016 primarily relates to net proceeds from available-for-sale securities of $1.0 billion and net proceeds from partnerships of $358,cash acquired), partially offset by net proceeds from short term investments in 2019 as opposed to net payments for short-term investments of $388 and cash paid for acquisitions of $175, net of cash acquired of $13.in the 2018 period.
Cash used for financing activities in 2017 consistsdecreased from the 2018 period primarily ofdue to a lower net payments for deposits, transfers and withdrawals for investments and universal life products of $915 and the repurchase of common shares outstanding, offset by an increasedecrease in cash fromused for net securities loaned or sold under agreements to repurchase, securities andan increase in proceeds from issuance of debt. Cash used for financing activitiesdebt, and the sale of the life and annuity business in 2016 consists primarilyMay 2018 which contributed significant cash outflows in the 2018 period. These items were partially offset by an increase in repayments of acquisitions of treasury stock of $1,050, net payments for deposits, transfers and withdrawals for investments and universal life products of $622, and dividends paid on common stock of $253.
debt in 2019.
Operating cash flowsflow for the nine months ended September 30, 20172019 have been adequate to meet liquidity requirements.
Equity Markets
For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk Liquidity Risksection in this MD&A and the Financial Risk on Statutory Capital sectionssection of the MD&A in this MD&A.the Company's 2018 Form 10-K Annual Report.
Ratings
Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the Company’sCompany'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 ratings actions were announced in connection with the definitive agreement to acquire Aetna's group life and disability insurance business:
On October 23, 2017, Moody's Investor Service affirmed the A2 insuranceApril 15, 2019, Standards & Poor's ("S&P") raised its issuer credit and financial strength (IFS) rating ofratings on Hartford Life and
Accident Insurance Co. ("HLA") to A+ from A. The upgrade of HLA's ratings reflects S&P's improved view of the Company's group benefits business which they consider core to the Company under their group rating methodology criteria.

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

AccidentOn August 30, 2019, AM Best raised its financial strength rating on Navigators Insurance Company ("HLA") and downgraded the IFS rating of Hartford Life Insurance Company ("HLIC") and Hartford Life and Annuity Insurance Company ("HLAI"NIC") to Baa3A+ from Baa2.A. The ratings outlook on these companies remains stable. The debt ratings ofupgrade reflects the support provided by The Hartford, Financial Services Group andas well as the IFS rating ofimportance it will play within the overall Hartford Fire Insurance Company are not affected.organization, following its acquisition in May 2019.
On October 23, 2017, Standard & Poor’s Global Ratings affirmed its "A" long-term issuer credit rating on HLA. All other ratings were not affected.
On October 23, 2017, A.M. Best commented that the credit ratings of The Hartford Financial Services Group and its subsidiaries remain unchanged following The Hartford’s announcement that it had entered a definitive agreement to acquire Aetna’s group life and disability insurance business.
Insurance Financial Strength Ratings as of October 24, 2017November 1, 2019
 A.M. BestStandard & Poor’sMoody’s
Hartford Fire Insurance CompanyA+A+A1
Hartford Life and Accident Insurance CompanyAAA+A2
Hartford LifeNavigators Insurance CompanyA-A+BBB+ABaa3Not Rated
Hartford Life and Annuity Insurance CompanyA-BBB+Baa3
Other Ratings:   
The Hartford Financial Services Group, Inc.:   
Senior debta-BBB+Baa2Baa1
Commercial paperAMB-1A-2P-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.



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




Statutory Capital
Statutory Capital Roll Forward for the Company's Insurance Subsidiaries
 Property and Casualty Insurance SubsidiariesLife Insurance SubsidiariesTotal
U.S. statutory capital at January 1, 2017$8,261
$6,022
$14,283
Variable annuity surplus impacts—
18
18
Statutory earnings (excluding VA for Life)743
317
1,060
Dividends to parent(625)(788)(1,413)
Other items(138)156
18
Net change to U.S. statutory capital(20)(297)(317)
U.S. statutory capital at September 30, 2017$8,241
$5,725
$13,966
U.S. Statutory Capital Rollforward for the Company's Insurance Subsidiaries
 Property and Casualty Insurance Subsidiaries [1] [2]Group Benefits Insurance SubsidiaryTotal
U.S statutory capital at January 1, 2019$8,440
$2,407
$10,847
Statutory income1,046
359
1,405
Dividends to parent(14)(225)(239)
Other items284
25
309
Net change to U.S. statutory capital1,316
159
1,475
U.S statutory capital at September 30, 2019$9,756
$2,566
$12,322
[1]The statutory capital for property and casualty insurance subsidiaries in this table does not include the value of an intercompany note owed by Hartford Holdings, Inc. to Hartford Fire Insurance Company.
[2]Excludes insurance operations in the U.K. and continental Europe. Though the business was not acquired until May 23, 2019, this table includes statutory capital and surplus of Navigators U.S. insurance subsidiaries as of both January 1, 2019 and September 30, 2019.
Contingencies
Legal Proceedings –
For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” and "Asbestos and Environmental Claims" in Note 12 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements and Part II, Item 1 Legal Proceedings, which are incorporated herein by reference.
Legislative and Regulatory Developments
Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act")
The outcome of efforts underway inIt is unclear whether the Administration, Congress or the courts will seek to reverse, amend or alter the ongoing operation of the Affordable Care Act ("ACA") and in Congress. If such actions were to repeal and replace the ACAoccur, they may have an impact on various aspects of our business, including our insurance businesses. It is unclear what an amended ACA would entail, and to what extent there may be a transition period for the phase out of the ACA. The impact to The Hartford as an employer willwould be consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business from the enactment of the ACA. We will continue to monitor the impact of the ACA 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.liabilities.
United States DepartmentTax Reform
At the end of Labor Fiduciary Rule
On April 6, 2016,2017, Congress passed and the president signed, the Tax Cuts and Jobs Act of 2017 ("Tax Reform"), which enacted significant reforms to the U.S. Departmenttax code. The major areas of Labor (“DOL”) issued a final regulation expandinginterest to the rangecompany include the reduction of activities consideredthe corporate tax rate from 35% to be fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (“ERISA”)21% and the Internal Revenue Code. The DOL also extended the applicability date for the final

129



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

rule from April 10, 2017 to June 9, 2017. Implementation is being phased in, with the regulation scheduled to be in full effect by January 1, 2018. As part of a stated intent to continue to study the rule, the DOL published a Request for Information on July 6, 2017. It sought comment generally on a delayrepeal of the January 1, 2018 applicability date, as well as a number of other questions on compliancecorporate alternative minimum tax (AMT) and the implementationrefunding of provisions currently scheduled to go into effect on January 1, 2018.
The impact of the new regulation on our mutual fund business is difficult to assess because the regulation is new and is still being studied. While weAMT credits. We continue to analyze the regulation, we believe the regulationTax Reform for other potential impacts. The U.S. Treasury and IRS are developing guidance on implementing Tax Reform, and Congress may impact the compensation paid
consider additional technical corrections to the financial intermediaries who sell our mutual funds to their retirement clientslegislation. Tax proposals and could negatively impact our mutual funds business.
In 2016, several plaintiffs, including insurers and industry groups such asregulatory initiatives which have been or are being considered by Congress and/or the U.S. ChamberTreasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of Commerceany Congressional or regulatory action with respect to any such efforts is unclear. For additional information on risks to the Company related to Tax Reform, please see the risk factor entitled "Changes in federal or state tax laws could adversely affect our business, financial condition, results of operations and the Securities Industry and Financial Markets Association (SIFMA), filed a lawsuit against the DOL challenging the constitutionalityliquidity" under "Risk Factors" in Part I of the fiduciary rule, andCompany's Annual Report on Form 10-K for the DOL's rulemaking authority. In most cases, the district courts have entered a summary judgment in favor of the DOL. Certain cases were appealed to the Fifth Circuit and on July 5, 2017, the DOL filed a brief in support of upholding the rule. We continue to monitor potential effects of case law and the regulatory landscape on our mutual funds business.year ended December 31, 2018.
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 20162018 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.

130





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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the Financial Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

131




Part I - Item 4. Controls and Procedures




Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company’s disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of September 30, 2017.2019.
On May 23, 2019 we acquired Navigators Group. SEC guidance permits management to omit an assessment of an acquired business from management's assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, we have not yet included Navigators Group in our assessment of the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of September 30, 2019. For the three months ended September 30, 2019, Navigators Group accounted for 8.2% of our total net revenue, and as of September 30, 2019 represented 10.3% of total assets.
Changes in Internal Control Over Financial Reporting
There waswere no changechanges in the Company's internal control over financial reporting that occurred during the Company's current fiscal quarter that hashave materially affected, or isare reasonably likely to materially affect, the Company's internal control over financial reporting.
As described above, our management excluded an assessment of the internal controls over financial reporting of Navigators Group from its assessment of the effectiveness of our internal control over financial reporting as of September 30, 2019. The Company has begun integrating Navigators Group into its existing control procedures, which may lead us to modify certain internal controls in future periods.


132






Part II - Item 1. Legal Proceedings



Item 1. LEGAL PROCEEDINGS
Litigation
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it.it, including claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper claims practices. 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 environmentalA&E claims discussed in Note 12 - Commitments and Contingencies of the Notes to Condensed 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 actionslawsuits seeking certification of a state or national class. Such putative class actions have alleged,alleging improper business practices, including, 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 inwell as individual actionslawsuits 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.may be sought. 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’sCompany'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.
Mutual Funds Litigation — In February 2011, a derivative action was brought on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that Hartford Investment Financial Services, LLC (“HIFSCO”), an indirect subsidiary of the Company, received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. During the course of the litigation, the claims regarding distribution fees were dismissed without prejudice, the lineup of funds as plaintiffs changed several times, and the plaintiffs added as a defendant Hartford Funds Management Company (“HFMC”), an indirect subsidiary of the Company that assumed the role of advisor to the funds as of January 2013.  In June 2015, HFMC and HIFSCO moved for summary judgment, and plaintiffs cross-moved for partial summary judgment with respect to one fund. In March 2016, the court denied the plaintiff's motion, and granted summary judgment for HIFSCO and HFMC with respect to one fund, leaving six funds as plaintiffs: The Hartford Balanced Fund, The Hartford Capital Appreciation Fund, The Hartford Floating Rate Fund, The Hartford Growth Opportunities Fund, The Hartford Healthcare Fund, and The Hartford Inflation Plus Fund. The court further ruled that the appropriate measure of damages on the surviving claims would be the difference, if any, between the actual advisory fees paid through trial and the fees permitted under the applicable legal standard. A bench trial on the issue of liability was held in November 2016. In February 2017, the court granted judgment for HIFSCO and HFMC as to all claims.  Plaintiffs have appealed to the United States Court of Appeals for the Third Circuit.


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Part III - Item 1A. Risk Factors


Item 1A.    RISK FACTORS
Investing in The Hartford involves risk. In deciding whether to invest in The Hartford, you should carefully consider the risk factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2018, as updated by Item 1A of Part II of the Company's Form 10-Q for the period ended June 30, 2019, 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.

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Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The Company’sIn February, 2019, the Company announced a $1.0 billion share 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.which is
Effective October 13, 2017 the Company suspended 2017 equity repurchases. The company does not currently expect to authorize an equity repurchase plan in 2018.
The Company's authorization for equity repurchases is $1.3 billion for the period commencing October 31, 2016
effective through December 31, 2017.2020. While the Company has repurchased shares in 2019, it anticipates using the majority of the program in 2020. Any repurchase of shares under the equity repurchase program is dependent on market conditions and other factors.


Repurchases of Common Stock by the Issuer for the Three Months Ended September 30, 2017
Period
Total Number
of Shares
Purchased
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)
July 1, 2017 - July 31, 20172,012,300
$53.40
2,012,300
$543
August 1, 2017 - August 31, 20172,292,018
$55.58
2,292,018
$415
September 1, 2017 - September 30, 20171,677,971
$53.80
1,677,971
$325
Total5,982,289
$54.35
5,982,289
 
Repurchases of Common Stock by the Issuer for the Three Months Ended September 30, 2019
Period
Total Number
of Shares
Purchased
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)
July 1, 2019 - July 31, 2019283,735
$57.07
283,735
$957
August 1, 2019 - August 31, 2019434,829
$58.19
434,829
$931
September 1, 2019 - September 30, 2019358,011
$60.01
358,011
$910
Total1,076,575
$58.50
1,076,575
 
.


135






Part II - Item 6. Exhibits


Item 6. EXHIBITS
See Exhibits Index on page
138111.







THE HARTFORD FINANCIAL SERVICES GROUP, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 2019
FORM 10-Q
EXHIBITS INDEX
Exhibit No.DescriptionFormFile No.Exhibit NoFiling Date
3.01
Restated Certificate of Incorporation of The Hartford, as filed with the Delaware Secretary of State on October 20, 2014.
8-K001-139583.110/20/2014
3.02
Amended and Restated By-Laws of The Hartford, amended effective July 21, 2016.
8-K001-139583.17/21/2016
4.01
Second Supplemental Indenture, dated as of August 19, 2019, between The Hartford Financial Services Group, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee. 
8-K
001-13958

4.38/19/2019
4.02
Form of global note for $600,000,000 aggregate principal amount of 2.800% Senior Notes due 2029.
8-K
001-13958

4.48/19/2019
4.03
Form of global note for $800,000,000 aggregate principal amount of 3.600% Senior Notes due 2049.
8-K
001-13958

4.58/19/2019
*10.01
Amendment to The Hartford Excess Savings Plan IA.**
    
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. Costello 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. Costello pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
    
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.    
101.SCHInline XBRL Taxonomy Extension Schema.**    
101.CALInline XBRL Taxonomy Extension Calculation Linkbase.**    
101.DEFInline XBRL Taxonomy Extension Definition Linkbase.**    
101.LABInline XBRL Taxonomy Extension Label Linkbase.**    
101.PREInline XBRL Taxonomy Extension Presentation Linkbase.**    
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL.    
*Management contract, compensatory plan or arrangement.    
**Filed with the Securities and Exchange Commission as an exhibit to this report.    





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:October 26, 2017November 4, 2019
/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 SEPTEMBER 30, 2017
FORM 10-Q
EXHIBITS INDEX
112
Exhibit No.DescriptionFormFile No.Exhibit NoFiling Date
3.01
Restated Certificate of Incorporation of The Hartford, as filed with the Delaware Secretary of State on October 20, 2014.
8-K  001-139583.0110/20/2014
3.02
Amended and Restated By-Laws of The Hartford, amended effective July 21, 2016.
8-K  001-139583.017/21/2016
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.INSXBRL Instance Document.**    
101.SCHXBRL Taxonomy Extension Schema.**    
101.CALXBRL Taxonomy Extension Calculation Linkbase.**    
101.DEFXBRL Taxonomy Extension Definition Linkbase.**    
101.LABXBRL Taxonomy Extension Label Linkbase.**    
101.PREXBRL Taxonomy Extension Presentation Linkbase.**    
**Filed with the Securities and Exchange Commission as an exhibit to this report.    

138