Hartford Financial Services (HIG) 10-Q 2020 Q3 Quarterly report

0000874766hig:SyndicatePolicyholdersMemberus-gaap:DebtSecuritiesMember2019-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________ 

FORM 10-Q

 ____________________________________

(Mark One)

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

For the quarterly period ended September 30, 2020

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

____________________________________ 

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

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

One Hartford Plaza, Hartford, Connecticut 06155

(Address of principal executive offices) (Zip Code)

(860) 547-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HIG	The New York Stock Exchange
6.10% Notes due October 1, 2041	HIG 41	The New York Stock Exchange
7.875% Fixed-to-Floating Rate Junior Subordinated Debentures due 2042	HGH	The 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 share	HIG PR G	The New York Stock Exchange

1

Indicate by check mark:
•     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.	Yes	☒	No	☐
•     whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).	Yes	☒	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 filer ☒ 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). Yes ☐ No ☒

As of October 27, 2020, there were outstanding 358,330,435 shares of Common Stock, $0.01 par value per share, of the registrant.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

Item	Description	Page
	Part I
1.	FINANCIAL STATEMENTS
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	6
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019	7
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019	8
	CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019	9
	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019	10
	CONDENSED CONOLIDATED STATEMENTS OF CASH FLOWS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019	11
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	12
2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	57
3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	[a]
4.	CONTROLS AND PROCEDURES	122
	PART II. OTHER INFORMATION
1.	LEGAL PROCEEDINGS	123
1A.	RISK FACTORS	125
2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	126
6.	EXHIBITS	126
	EXHIBITS INDEX	127
	SIGNATURE	128

[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.

3

Forward-looking Statements

Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.

Forward-looking statements are based on management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company" or "The Hartford"). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statements; or in Part I, Item 1A, Risk Factors in The Hartford’s 2019 Form 10-K Annual Report, as amended in Part II Item 1A in its Form 10-Q Quarterly Reports; and those identified from time to time in our other filings with the Securities and Exchange Commission.

•Risks relating to the pandemic caused by the spread of novel strain of coronavirus, specifically identified as the Coronavirus Disease 2019 (“COVID-19”) including impacts to the Company's insurance and product-related, regulatory/legal, recessionary and other global economic, capital and liquidity and operational risks

•Risks Relating 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;

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

◦technological changes, including usage-based methods of determining premiums, advancements in automotive safety features, the development of autonomous vehicles, and platforms that facilitate ride sharing,

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

◦the uncertain effects of emerging claim and coverage issues;

•Financial Strength, Credit and Counterparty Risks:

4

◦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;

◦capital requirements which are subject to many factors, including many that are outside the Company’s control, such as National Association of Insurance Commissioners ("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 credit risk with counterparties associated with investments, derivatives, premiums receivable, reinsurance recoverables and indemnifications provided by third parties in connection with previous dispositions;

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

◦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:

◦risk associated with the use of analytical models in making decisions in key areas such as underwriting, pricing, capital management, 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 intent-to-sell impairments and allowance for credit losses on available-for-sale securities;

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

•Strategic and Operational Risks:

◦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 capital management plans, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;

◦risks associated with acquisitions and divestitures, including the challenges of integrating acquired companies or businesses, which may result in our inability to achieve the anticipated benefits and 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, state or foreign tax laws;

◦regulatory requirements that could delay, deter or prevent a takeover attempt that stockholders 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.

5

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, 2020, the related condensed consolidated statements of operations, comprehensive income (loss), and changes in stockholders' equity for the three-month periods and nine-month periods ended September 30, 2020 and 2019, and of cash flows for the nine-month periods ended September 30, 2020 and 2019, 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 information for it 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, 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 21, 2020, 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, 2019, 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 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.

/s/ DELOITTE & TOUCHE LLP

Hartford, Connecticut

October 29, 2020

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Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Operations

	Three Months Ended September 30,				Nine Months Ended September 30, 2020
(in millions, except for per share data)	2020		2019		2020		2019
	(Unaudited)
Revenues
Earned premiums	$	4,347	$	4,394	$	12,972	$	12,500
Fee income	323		330		941		970
Net investment income	492		490		1,290		1,448
Net realized capital gains (losses)	6		89		(116)		332
Other revenues	3		44		108		129
Total revenues	5,171		5,347		15,195		15,379
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	2,962		2,914		8,725		8,533
Amortization of deferred policy acquisition costs ("DAC")	421		437		1,287		1,184
Insurance operating costs and other expenses	1,093		1,167		3,394		3,356
Loss on extinguishment of debt	0		90		0		90
Loss on reinsurance transaction	0		0		0		91
Interest expense	58		67		179		194
Amortization of other intangible assets	18		19		55		47
Restructuring and other costs	87		0		87		0
Total benefits, losses and expenses	4,639		4,694		13,727		13,495
Income before income taxes	532		653		1,468		1,884
Income tax expense	73		118		268		347
Net income	459		535		1,200		1,537
Preferred stock dividends	6		11		16		16
Net income available to common stockholders	$	453	$	524	$	1,184	$	1,521
Net income available to common stockholders per common share
Basic	$	1.26	$	1.45	$	3.30	$	4.21
Diluted	$	1.26	$	1.43	$	3.29	$	4.17

See Notes to Condensed Consolidated Financial Statements.

7

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
	(Unaudited)
Net income	$	459	$	535	$	1,200	$	1,537
Other comprehensive income (loss):
Changes in net unrealized gain on fixed maturities	376		401		747		1,744
Change in unrealized losses on fixed maturities for which an allowance for credit losses ("ACL") has been recorded	0				1
Changes in other-than-temporary impairment ("OTTI") losses recognized in other comprehensive income			0				1
Changes in net gain on cash flow hedging instruments	(17)		6		22		22
Changes in foreign currency translation adjustments	6		(4)		(1)		0
Changes in pension and other postretirement plan adjustments	12		9		35		26
OCI, net of tax	377		412		804		1,793
Comprehensive income	$	836	$	947	$	2,004	$	3,330

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Balance Sheets

(in millions, except for share and per share data)	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $41,073 and $40,078, and ACL of $32 and $0)	$	44,044	$	42,148
Fixed maturities, at fair value using the fair value option	0		11
Equity securities, at fair value	819		1,657
Mortgage loans (net of ACL of $38 and $0)	4,461		4,215
Limited partnerships and other alternative investments	1,868		1,758
Other investments	187		320
Short-term investments	3,399		2,921
Total investments	54,778		53,030
Cash	173		185
Restricted cash	97		77
Premiums receivable and agents' balances (net of ACL of $174 and $145)	4,450		4,384
Reinsurance recoverables (net of allowance for uncollectible reinsurance of $109 and $114)	5,668		5,527
Deferred policy acquisition costs	808		785
Deferred income taxes, net	49		299
Goodwill	1,911		1,913
Property and equipment, net	1,144		1,181
Other intangible assets, net	973		1,070
Other assets	2,101		2,366
Assets held for sale	167		0
Total assets	$	72,319	$	70,817
Liabilities
Unpaid losses and loss adjustment expenses	$	37,306	$	36,517
Reserve for future policy benefits	650		635
Other policyholder funds and benefits payable	711		755
Unearned premiums	6,761		6,635
Short-term debt	0		500
Long-term debt	4,351		4,348
Other liabilities	4,585		5,157
Liabilities held for sale	153		0
Total liabilities	54,517		54,547
Commitments and Contingencies (Note 14)
Stockholders’ Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at September 30, 2020 and December 31, 2019, aggregate liquidation preference of $345	334		334
Common stock, $0.01 par value —1,500,000,000 shares authorized, 384,923,222 shares issued at September 30, 2020 and December 31, 2019	4		4
Additional paid-in capital	4,310		4,312
Retained earnings	13,503		12,685
Treasury stock, at cost — 26,689,649 and 25,352,977 shares	(1,205)		(1,117)
Accumulated other comprehensive income, net of tax	856		52
Total stockholders’ equity	17,802		16,270
Total liabilities and stockholders’ equity	$	72,319	$	70,817

See Notes to Condensed Consolidated Financial Statements.

9

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)	2020		2019		2020		2019
	(Unaudited)
Preferred Stock	$	334	$	334	$	334	$	334
Common Stock	4		4		4		4
Additional Paid-in Capital
Additional Paid-in Capital, beginning of period	4,299		4,300		4,312		4,378
Issuance of shares under incentive and stock compensation plans	(5)		(17)		(89)		(91)
Stock-based compensation plans expense	16		19		87		95
Issuance of shares for warrant exercise	0		0		0		(80)
Additional Paid-in Capital, end of period	4,310		4,302		4,310		4,302
Retained Earnings
Retained Earnings, beginning of period	13,167		11,836		12,685		11,055
Cumulative effect of accounting changes, net of tax	0		0		(18)		0
Adjusted balance, beginning of period	13,167		11,836		12,667		11,055
Net income	459		535		1,200		1,537
Dividends declared on preferred stock	(6)		(11)		(16)		(16)
Dividends declared on common stock	(117)		(109)		(348)		(325)
Retained Earnings, end of period	13,503		12,251		13,503		12,251
Treasury Stock, at cost
Treasury Stock, at cost, beginning of period	(1,211)		(984)		(1,117)		(1,091)
Treasury stock acquired	0		(63)		(150)		(90)
Issuance of shares under incentive and stock compensation plans	7		27		98		112
Net shares acquired related to employee incentive and stock compensation plans	(1)		(7)		(36)		(38)
Issuance of shares for warrant exercise	0		0		0		80
Treasury Stock, at cost, end of period	(1,205)		(1,027)		(1,205)		(1,027)
Accumulated Other Comprehensive Income (Loss), net of tax
Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period	479		(198)		52		(1,579)
Total other comprehensive income	377		412		804		1,793
Accumulated Other Comprehensive Income (Loss), net of tax, end of period	856		214		856		214
Total Stockholders’ Equity	$	17,802	$	16,078	$	17,802	$	16,078
Preferred Shares Outstanding
Preferred Shares Outstanding, beginning of period	13,800		13,800		13,800		13,800
Issuance of preferred shares	0		0		0		0
Preferred Shares Outstanding, end of period	13,800		13,800		13,800		13,800
Common Shares Outstanding
Common Shares Outstanding, beginning of period (in thousands)	358,099		361,605		359,570		359,151
Treasury stock acquired	0		(1,076)		(2,661)		(1,581)
Issuance of shares under incentive and stock compensation plans	151		588		2,011		2,447
Return of shares under incentive and stock compensation plans to treasury stock	(16)		(134)		(686)		(755)
Issuance of shares for warrant exercise	0		0		0		1,721
Common Shares Outstanding, at end of period	358,234		360,983		358,234		360,983
Cash dividends declared per common share	$	0.325	$	0.30	$	0.975	$	0.90
Cash dividends declared per preferred share	$	375.00	$	750.00	$	1,125.00	$	1,125.00

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
(in millions)	2020		2019
Operating Activities	(Unaudited)
Net income	$	1,200	$	1,537
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital losses (gains)	65		(332)
Amortization of deferred policy acquisition costs	1,287		1,184
Additions to deferred policy acquisition costs	(1,268)		(1,222)
Depreciation and amortization	411		333
Loss on extinguishment of debt	0		90
Loss on sale of business	51		0
Other operating activities, net	129		75
Change in assets and liabilities:
Decrease (increase) in reinsurance recoverables	(186)		115
Net change in accrued and deferred income taxes	437		784
Increase in insurance liabilities	1,019		630
Net change in other assets and other liabilities	(490)		(748)
Net cash provided by operating activities	2,655		2,446
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	14,734		14,335
Fixed maturities, fair value option	11		7
Equity securities, at fair value	1,420		1,260
Mortgage loans	710		491
Partnerships	84		201
Payments for the purchase of:
Fixed maturities, available-for-sale	(15,544)		(15,592)
Equity securities, at fair value	(758)		(847)
Mortgage loans	(995)		(515)
Partnerships	(235)		(218)
Net proceeds from derivatives	131		60
Net additions of property and equipment	(78)		(75)
Net proceeds from (payments for) short-term investments	(475)		1,480
Other investing activities, net	(12)		(6)
Amount paid for business acquired, net of cash acquired	0		(1,901)
Net cash used for investing activities	(1,007)		(1,320)
Financing Activities
Deposits and other additions to investment and universal life-type contracts	44		107
Withdrawals and other deductions from investment and universal life-type contracts	(78)		(101)
Net decrease in securities loaned or sold under agreements to repurchase	(511)		(291)
Repayment of debt	(500)		(1,583)
Proceeds from the issuance of debt	0		1,376
Net return of shares under incentive and stock compensation plans	(27)		(18)
Treasury stock acquired	(150)		(90)
Dividends paid on preferred stock	(16)		(16)
Dividends paid on common stock	(341)		(327)
Net cash used for financing activities	(1,579)		(943)
Foreign exchange rate effect on cash	(3)		(14)
Net increase in cash and restricted cash, including cash classified within assets held for sale	66		169
Less: Net increase in cash classified within assets held for sale	58		0
Net increase in cash and restricted cash	8		169
Cash and restricted cash – beginning of period	262		121
Cash and restricted cash– end of period	$	270	$	290
Supplemental Disclosure of Cash Flow Information
Income tax received	$	161	$	420
Interest paid	$	183	$	210

See Notes to Condensed Consolidated Financial Statements.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

On May 23, 2019, the Company completed the acquisition of The Navigators Group, Inc. ("Navigators Group"), a global specialty underwriter, for $70 a share, or $2.137 billion in cash, including transaction expenses.

On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For further discussion of this transaction, see Note 2 - Business Acquisition and Disposition.

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 2019 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 2019 Form 10-K Annual Report.

Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining property and casualty and group long-term disability insurance product reserves, net of reinsurance; evaluation of goodwill for impairment; valuation of investments and derivative instruments; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters.

Reclassifications

Certain reclassifications have been made to prior year financial information to conform to the current year presentation.

Adoption of New Accounting Standards

Goodwill

On January 1, 2020, the Company adopted the Financial Accounting Standards Board's ("FASB") updated guidance on testing goodwill for impairment with 0 effect at adoption. The updated guidance requires impairment of goodwill if the carrying value of the reporting unit is greater than the estimated fair value, with the amount of the impairment not to exceed the carrying value of the reporting unit’s goodwill. Goodwill is reviewed for impairment at least annually and more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred.  Under the updated guidance, changes in market-based factors are more likely to result in a goodwill impairment than under the prior accounting guidance, whether a reporting unit's fair value is estimated using an income approach or a market approach. For example, changes in the weighted average cost of capital that is used to discount expected cash flows under the income approach or changes in market-based factors such as peer company price to earnings multiples or price to book multiples under a market approach can significantly affect changes to the estimated fair value of each reporting unit and such changes could result in impairments that have a material effect on our results of operations and financial condition.

Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted the FASB’s updated guidance for recognition and measurement of credit losses on financial instruments. The new guidance replaces the “incurred loss” approach with an “expected loss” model for recognizing credit losses for financial instruments carried at other than fair value. Under the new model, for financial instruments carried at

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other than fair value, such as mortgage loans, reinsurance recoverables and receivables, an allowance for credit losses ("ACL") is recognized which is an estimate of credit losses expected over the life of financial instruments. Under the prior accounting model an ACL was recognized using an incurred loss approach. The new guidance also requires that we estimate a liability for credit losses ("LCL") on off balance sheet credit exposures such as financial guarantees and mortgage loan commitments that the Company cannot unconditionally cancel.

Credit losses on fixed maturities, AFS carried at fair value continue to be measured based on the present value of expected future cash flows compared to amortized cost; however, the losses are now recognized through an ACL and no longer as an adjustment to the amortized cost. Recoveries of impairments on fixed maturities, AFS are now recognized as reversals of the ACL and no longer accreted as investment income through an adjustment to the investment yield. The ACL on fixed maturities,

AFS cannot cause the net carrying value to be below fair value and, therefore, it is possible that future increases in fair value due to decreases in market interest rates could cause the reversal of the ACL and increase net income. The new guidance also requires purchased financial assets with a more-than-insignificant amount of credit deterioration since original issuance to be recorded based on contractual amounts due and an initial allowance recorded at the date of purchase.

The Company adopted the guidance effective January 1, 2020, through a cumulative-effect adjustment that decreased retained earnings by $18, representing a net increase to the ACL and LCL, after-tax. No ACL was recognized at adoption for fixed maturities AFS; rather, these investments are evaluated for an ACL prospectively. The Company does not have any purchased financial assets with a more than insignificant amount of credit deterioration since original issuance.

Impact of Adoption on Condensed Consolidated Balance Sheet

	Balance as of January 1, 2020
	Opening Balance		Cumulative Effect of Accounting Change		Adjusted Opening Balance
Mortgage loans	$	4,215			$	4,215
ACL on mortgage loans	0		$	(19)	(19)
Mortgage loans, net of ACL	4,215		(19)		4,196
Premiums receivable and agents’ balances	4,529				4,529
ACL on premiums receivable and agents' balances	(145)		23		(122)
Premiums receivable and agents' balances, net of ACL	4,384		23		4,407
Reinsurance recoverables	5,641				5,641
ACL and allowance for disputed amounts on reinsurance recoverables	(114)		(2)		(116)
Reinsurance recoverables, net of allowance for uncollectible reinsurance	5,527		(2)		5,525
Deferred income tax asset, net	299		5		304
Other liabilities	(5,157)		(25)		(5,182)
Retained Earnings	$	12,685	$	(18)	$	12,667

Summary of Adoption Impacts

Net increase to ACL and LCL	$	(23)
Net tax effects	5
Net decrease to retained earnings	$	(18)

Reference Rate Reform

On March 12, 2020, the Company adopted the FASB’s temporary guidance which allows The Hartford to account for contract modifications made solely due to rate reform (such as replacing LIBOR with another reference rate) as continuations of existing contracts and to maintain hedge accounting when the hedging effectiveness between a financial instrument and its hedge is only affected by the change to a replacement rate. As a result, The Hartford will not recognize gains and losses during the transition period of LIBOR to an alternative reference rate that would otherwise have arisen from accounting assessments and remeasurements. The guidance expires for contract modifications made and hedge relationships entered into or evaluated after December 31, 2022. The Company is not required to measure the

effect of adoption on its financial position, cash flows or net income because the guidance provides relief from accounting for the effects of the change to a replacement rate.

Mortgage Loan Modification

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 4013 of the CARES Act allows financial institutions the option to suspend the requirement to disclose and account for loan modifications as troubled debt restructurings for loan modifications related to the novel strain of coronavirus, specifically identified as the Coronavirus Disease 2019 (“COVID-19”) pandemic occurring between March 1, 2020 and the earlier of 60 days after the end of the national emergency or December 31, 2020. The Company’s adoption of Section 4013 of the CARES Act had 0 impact on our results of operations, financial position or cash flows because The Hartford has not granted significant concessions to borrowers on its mortgage loans that would have been disclosed and accounted for as troubled debt restructurings.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. BUSINESS ACQUISITION AND DISPOSITION

Business Acquisition

Navigators Group

On May 23, 2019, The Hartford acquired Navigators Group, a specialty underwriter, for total consideration of $2.121 billion and recorded provisional estimates of the fair value of the assets acquired and liabilities assumed. In the second quarter of 2020, The Hartford finalized its provisional estimates and recorded additional assets of $9 and liabilities of $7 with a net reduction in

goodwill of $2. The measurement period adjustments, determined as if the accounting had been completed as of the acquisition date, had no effect on the Condensed Consolidated Statements of Operations. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date, the measurement period adjustments recorded, and the final purchase price allocation.

Fair Value of Assets Acquired and Liabilities Assumed at the Acquisition Date

	Preliminary Values as of May 23, 2019 (as previously reported)		Measurement Period Adjustments		Adjusted Values as of May 23, 2019
Assets
Cash and invested assets	$	3,848	$	3	$	3,851
Premiums receivable	492		6		498
Reinsurance recoverables	1,100		(3)		1,097
Prepaid reinsurance premiums	238		0		238
Other intangible assets	580		0		580
Property and equipment	83		0		83
Other assets	99		3		102
Total Assets Acquired	6,440		9		6,449
Liabilities
Unpaid losses and loss adjustment expenses	2,823		0		2,823
Unearned premiums	1,219		0		1,219
Long-term debt	284		0		284
Deferred income taxes, net	48		(1)		47
Other liabilities	568		8		576
Total Liabilities Assumed	4,942		7		4,949
Net identifiable assets acquired	1,498		2		1,500
Goodwill [1]	623		(2)		621
Net Assets Acquired	$	2,121	$	0	$	2,121

[1] Non-deductible for income tax purposes.

The following table presents supplemental pro forma amounts of revenue and net income for the Company for the nine months ended September 30, 2019, as though the business was acquired on January 1, 2018. Pro forma adjustments include the revenue and earnings of Navigators Group as well as amortization of identifiable intangible assets acquired.

Pro Forma Results

	Nine Months Ended September 30, 2019
Total Revenue	$	16,055
Net Income	$	1,532

Business Disposition

Sale of Continental Europe Operations

On September 30, 2020, the Company entered into a definitive agreement to sell our Continental Europe Operations. The transaction is expected to close by the second quarter of 2021, subject to customary closing conditions, including regulatory approvals. The complete sale of the Continental Europe Operations consists of multiple arrangements designed as a single transaction. The assets and liabilities of the Continental Europe Operations have been classified as held for sale in the Company's

Condensed Consolidated Balance Sheets beginning with the period ended September 30, 2020.

Total consideration less costs to sell is estimated to be approximately $14, resulting in an estimated loss on the sale of approximately $51, before tax, which has been recorded within net realized capital gains (losses) in the third quarter of 2020 in

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the Condensed Consolidated Statements of Operations. The Company also recorded related income tax benefits of $19, for an estimated after-tax loss of $32 on the sale, in the third quarter of 2020. The accrual for the estimated before tax loss is included as a reduction of the carrying value of assets held for sale in the Company's Condensed Consolidated Balance Sheets as of September 30, 2020. The Continental Europe Operations are reported under the Commercial Lines segment. The estimate of consideration less costs to sell of $14 includes an estimate of

consideration that is contingent on how the ultimate amounts required to settle claims on 2020 and prior accident years, as determined at the end of 2024 compare with recorded reserves as currently estimated. The contingent consideration has been estimated at its fair value of $12 and could increase or decrease depending on how ultimate losses develop. Any change in the estimated fair value of contingent consideration in a future period would increase or decrease the estimated loss on sale in that period.

Carrying Value of Assets and Liabilities to be Transferred in Connection With the Sale [1]

	As of September 30, 2020
Assets
Investments and cash	$	138
Reinsurance recoverables and other	29
Total assets held for sale	167
Liabilities
Unpaid losses and loss adjustment expenses	74
Unearned premiums	35
Other liabilities	44
Total liabilities held for sale	$	153

[1] As of September 30, 2020, the estimated fair value of the disposal group is $14 based on the estimated consideration to be received less cost to sell. Within the disposal group, as of September 30, 2020, investments in fixed maturities and short-term investments, which are measured at fair value on a recurring basis, had a fair value of $80, of which $2 was based on quoted prices in active markets for identical assets and $78 was based on significant observable inputs. The remaining fair value less costs to sell for the disposal group is ($66), which is measured on a nonrecurring basis using significant unobservable inputs. See Note 5—Fair Value Measurements for more information.

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)	2020		2019		2020		2019
Earnings
Net income	$	459	$	535	$	1,200	$	1,537
Less: Preferred stock dividends	6		11		16		16
Net income available to common stockholders	$	453	$	524	$	1,184	$	1,521
Shares
Weighted average common shares outstanding, basic	358.3		361.4		358.3		361.0
Dilutive effect of warrants [1]	0		0		0		0.7
Dilutive effect of stock-based awards under compensation plans	2.2		4.0		2.0		3.4
Weighted average common shares outstanding and dilutive potential common shares	360.5		365.4		360.3		365.1
Net income available to common stockholders per common share
Basic	$	1.26	$	1.45	$	3.30	$	4.21
Diluted	$	1.26	$	1.43	$	3.29	$	4.17

[1] On June 26, 2019, the Capital Purchase Program warrants issued in 2009 expired.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. SEGMENT INFORMATION

The Company currently conducts business principally in 5 reporting segments including Commercial Lines, Personal Lines,

Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category.

Net Income

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Commercial Lines	$	323	$	336	$	378	$	890
Personal Lines	79		94		548		252
Property & Casualty Other Operations	2		18		12		52
Group Benefits	119		146		324		377
Hartford Funds	44		40		119		108
Corporate	(108)		(99)		(181)		(142)
Net income	459		535		1,200		1,537
Preferred stock dividends	6		11		16		16
Net income available to common stockholders	$	453	$	524	$	1,184	$	1,521

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenues

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Earned premiums and fee income:
Commercial Lines
Workers’ compensation	$	776	$	825	$	2,312	$	2,480
Liability	355		330		1,035		731
Marine	59		59		191		86
Package business	390		376		1,150		1,092
Property	200		198		590		529
Professional liability	150		137		442		304
Bond	68		67		206		192
Assumed reinsurance	68		75		206		104
Automobile	193		191		562		522
Total Commercial Lines	2,259		2,258		6,694		6,040
Personal Lines
Automobile	547		564		1,552		1,690
Homeowners	240		248		721		741
Total Personal Lines [1]	787		812		2,273		2,431
Group Benefits
Group disability	697		697		2,142		2,124
Group life	594		621		1,833		1,902
Other	70		64		200		187
Total Group Benefits	1,361		1,382		4,175		4,213
Hartford Funds
Mutual fund and Exchange-Traded Products ("ETP")	228		231		660		674
Talcott Resolution life and annuity separate accounts [2]	22		23		64		69
Total Hartford Funds	250		254		724		743
Corporate	13		18		47		43
Total earned premiums and fee income	4,670		4,724		13,913		13,470
Net investment income	492		490		1,290		1,448
Net realized capital gains (losses)	6		89		(116)		332
Other revenues	3		44		108		129
Total revenues	$	5,171	$	5,347	$	15,195	$	15,379

[1]For the three months ended September 30, 2020 and 2019, AARP members accounted for earned premiums of $713 and $729, respectively. For the nine months ended September 30, 2020 and 2019, AARP members accounted for earned premiums of $2.1 billion and $2.2 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.

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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 Item	2020		2019		2020		2019
Commercial Lines
Installment billing fees	Fee income	$	8	$	8	$	21	$	26
Personal Lines
Installment billing fees	Fee income	8		9		26		28
Insurance servicing revenues	Other revenues	23		23		63		65
Group Benefits
Administrative services	Fee income	44		45		132		135
Hartford Funds
Advisor, distribution and other management fees	Fee income	228		232		659		677
Other fees	Fee income	22		22		65		65
Corporate
Investment management and other fees	Fee income	13		14		38		38
Transition service revenues	Other revenues	0		6		2		18
Total non-insurance revenues with customers		$	346	$	359	$	1,006	$	1,052

5. FAIR VALUE MEASUREMENTS

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

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

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

Level 3    Fair values derived when one or more of the significant inputs are unobservable (including

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

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

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of September 30, 2020
	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")	$	1,490	$	0	$	1,490	$	0
Collateralized loan obligations ("CLOs")	2,449		0		2,308		141
Commercial mortgage-backed securities ("CMBS")	4,444		0		4,352		92
Corporate	19,416		0		18,420		996
Foreign government/government agencies	984		0		984		0
Municipal	9,310		0		9,304		6
Residential mortgage-backed securities ("RMBS")	4,548		0		4,097		451
U.S. Treasuries	1,403		381		1,022		0
Total fixed maturities	44,044		381		41,977		1,686
Equity securities, at fair value	819		352		398		69
Derivative assets
Credit derivatives	11		0		11		0
Interest rate derivatives	1		0		1		0
Total derivative assets [1]	12		0		12		0
Short-term investments	3,399		3,176		209		14
Total assets accounted for at fair value on a recurring basis	$	48,274	$	3,909	$	42,596	$	1,769
Liabilities accounted for at fair value on a recurring basis
Derivative liabilities
Credit derivatives	$	1	$	0	$	1	$	0
Foreign exchange derivatives	$	6	$	0	$	6	$	0
Interest rate derivatives	(79)		0		(79)		0
Total derivative liabilities [2]	(72)		0		(72)		0
Total liabilities accounted for at fair value on a recurring basis	$	(72)	$	0	$	(72)	$	0

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2019
	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	$	1,476	$	0	$	1,461	$	15
CLOs	2,183		0		2,088		95
CMBS	4,338		0		4,329		9
Corporate	17,396		0		16,664		732
Foreign government/government agencies	1,123		0		1,120		3
Municipal	9,498		0		9,498		0
RMBS	4,869		0		4,309		560
U.S. Treasuries	1,265		330		935		0
Total fixed maturities	42,148		330		40,404		1,414
Fixed maturities, FVO	11		0		11		0
Equity securities, at fair value	1,657		1,401		183		73
Derivative assets
Credit derivatives	11		0		11		0
Interest rate derivatives	1		0		1		0
Total derivative assets [1]	12		0		12		0
Short-term investments	2,921		1,028		1,878		15
Total assets accounted for at fair value on a recurring basis	$	46,749	$	2,759	$	42,488	$	1,502
Liabilities accounted for at fair value on a recurring basis
Derivative liabilities
Credit derivatives	$	(1)	$	0	$	(1)	$	0
Equity derivatives	(15)		0		—		(15)
Foreign exchange derivatives	(2)		0		(2)		0
Interest rate derivatives	(60)		0		(60)		0
Total derivative liabilities [2]	(78)		0		(63)		(15)
Contingent consideration [3]	(22)		0		0		(22)
Total liabilities accounted for at fair value on a recurring basis	$	(100)	$	0	$	(63)	$	(37)

[1]Includes 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 and applicable law.

[2]Includes 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 and applicable law.

[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 $53 and $38 as of September 30, 2020 and December 31, 2019, respectively, which are measured at fair value using the net asset value as a practical expedient.

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

Valuation Techniques

The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market

expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order:

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

•Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, such as municipal 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, 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 derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and over-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.

Valuation Controls

The process for determining the fair value of investments is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company. The purpose of the Valuation Committee is to provide oversight of the pricing policy, procedures and controls, including approval of valuation methodologies and pricing sources. The Valuation Committee reviews market data trends, pricing statistics and trading statistics to ensure that prices are reasonable and consistent with our fair value framework. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews. Controls include, but are not limited to, reviewing daily and monthly price changes, stale prices, and missing prices and comparing new trade prices to third-party pricing services, weekly price changes to published bond prices of a corporate bond index, and daily OTC derivative market valuations to counterparty valuations. The Company has a dedicated pricing unit that works with trading and investment professionals to challenge the price received by a third party pricing source if the Company believes that the valuation received does not accurately reflect the fair value. New valuation models and changes to current models require approval by the Valuation Committee. In addition, the Company’s enterprise-wide Operational Risk Management function provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models.

Valuation Inputs

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

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives
Level 2 Primary Observable Inputs		Level 3 Primary Unobservable Inputs
Fixed Maturity Investments
Structured securities (includes ABS, 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, CLOs 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 and private bank loans: • Independent broker quotes • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
U.S. Treasuries, Municipals, and Foreign government/government agencies
	• Benchmark yields and spreads • Issuer credit default swap curves • Political events in emerging market economies • Municipal Securities Rulemaking Board reported trades and material event notices • Issuer financial statements		• 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
Short-term Investments
	• Benchmark yields and spreads • Reported trades, bids, offers • Issuer spreads and credit default swap curves • Material event notices and new issue money market rates		• Independent broker quotes
Derivatives
Credit derivatives
	• Swap yield curve • Credit default swap curves		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		Not applicable
Interest rate derivatives
	• Swap yield curve		• Independent broker quotes • Interest rate volatility

22

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Significant Unobservable Inputs for Level 3 - Securities
Assets accounted for at fair value on a recurring basis	Fair Value		Predominant Valuation Technique	Significant Unobservable Input	Minimum	Maximum	Weighted Average [1]	Impact of Increase in Input on Fair Value [2]
As of September 30, 2020
CLOs [3]	$	78	Discounted cash flows	Spread	414 bps	414 bps	414 bps	Decrease
CMBS [3]	$	13	Discounted cash flows	Spread (encompasses prepayment, default risk and loss severity)	275 bps	1,235 bps	1,188 bps	Decrease
Corporate [4]	$	866	Discounted cash flows	Spread	129 bps	972 bps	311 bps	Decrease
RMBS [3]	$	411	Discounted cash flows	Spread [6]	30 bps	590 bps	128 bps	Decrease
				Constant prepayment rate [6]	0%	11%	6%	Decrease [5]
				Constant default rate [6]	2%	6%	3%	Decrease
				Loss severity [6]	0%	100%	82%	Decrease
As of December 31, 2019
CLOs [3]	$	95	Discounted cash flows	Spread	246 bps	246 bps	246 bps	Decrease
CMBS [3]	$	1	Discounted cash flows	Spread (encompasses prepayment, default risk and loss severity)	9 bps	1,832 bps	161 bps	Decrease
Corporate [4]	$	633	Discounted cash flows	Spread	93 bps	788 bps	236 bps	Decrease
RMBS [3]	$	560	Discounted cash flows	Spread [6]	5 bps	233 bps	79 bps	Decrease
				Constant prepayment rate [6]	0%	11%	6%	Decrease [5]
				Constant default rate [6]	1%	6%	3%	Decrease
				Loss severity [6]	0%	100%	70%	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 bases 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.

[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 - Derivatives [1]
	Fair Value		Predominant Valuation  Technique	Significant Unobservable Input	Minimum		Maximum		Weighted Average [2]		Impact of  Increase in Input  Value [3]
As of December 31, 2019
Equity options	$	(15)	Option model	Equity volatility	13	%	28	%	17	%	Increase

[1] As of September 30, 2020, the fair values of the Company's level 3 derivatives were less than $1 and are excluded from the table.

[2]The weighted average is determined based on the fair value of the derivatives.

[3]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.

The tables above exclude certain 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. As of September 30, 2020, 0 significant adjustments were made by the Company to broker prices received.

23

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingent Consideration

The acquisition of Lattice Strategies LLC ("Lattice") on July 29, 2016 required the Company to make payments to former owners of Lattice of up to $60 contingent upon growth in exchange-traded products ("ETP") assets under management ("AUM") over a period of four years beginning on the date of acquisition. The contingent consideration was 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 had been discounted back to the valuation date using a risk-adjusted discount rate of 10.0%. The risk-adjusted discount rate is an internally generated and significant unobservable input to fair value.

In January 2020, we made a third payment of $10 after Lattice AUM reached $3.0 billion. Given the dramatic market declines and outflow in March, 2020, the Lattice AUM declined to $2.3 billion as of March 30, 2020 and the Company reduced the remaining contingent consideration liability to 0, recognizing an $11.9 before tax reduction in expense in first quarter 2020.

The earn out period ended on July 29, 2020 with 0 additional consideration payable.

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 rollforward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.

Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2020
				Total realized/unrealized gains (losses)
		Fair value as of June 30, 2020		Included in net income [1]		Included in OCI [2]		Purchases		Settlements		Sales		Transfers into Level 3 [3]		Transfers out of Level 3 [3]		Fair value as of September 30, 2020
Assets
Fixed Maturities, AFS
	ABS	$	23	$	0	$	0	$	0	$	0	$	0	$	0	$	(23)	$	0
	CLOs	99		0		1		63		(3)		0		0		(19)		141
	CMBS	20		0		2		66		(1)		0		5		0		92
	Corporate	1,109		1		19		45		(62)		0		22		(138)		996
	Municipal	0		(3)		2		0		0		0		7		0		6
	RMBS	479		0		2		40		(48)		0		0		(22)		451
Total Fixed Maturities, AFS		1,730		(2)		26		214		(114)		0		34		(202)		1,686
Equity Securities, at fair value		66		0		0		3		0		0		0		0		69
Short-term investments		14		0		0		0		0		0		0		0		14
Total Assets		$	1,810	$	(2)	$	26	$	217	$	(114)	$	0	$	34	$	(202)	$	1,769
Liabilities
Total Liabilities		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

24

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2020
				Total realized/unrealized gains (losses)
		Fair value as of January 1, 2020		Included in net income [1]		Included in OCI [2]		Purchases		Settlements		Sales		Transfers into Level 3 [3]		Transfers out of Level 3 [3]		Fair value as of September 30, 2020
Assets
Fixed Maturities, AFS
	ABS	$	15	$	0	$	(1)	$	43	$	0	$	0	$	0	$	(57)	$	0
	CLOs	95		0		(1)		82		(16)		0		0		(19)		141
	CMBS	9		0		2		79		(3)		0		5		0		92
	Corporate	732		(31)		0		161		(126)		(27)		481		(194)		996
	Foreign Govt./Govt. Agencies	3		0		0		0		0		0		0		(3)		0
	Municipal	0		(3)		2		0		0		0		7		0		6
	RMBS	560		0		(10)		66		(136)		(7)		0		(22)		451
Total Fixed Maturities, AFS		1,414		(34)		(8)		431		(281)		(34)		493		(295)		1,686
Equity Securities, at fair value		73		(10)		0		6		0		0		0		0		69
Short-term investments		15		0		0		0		(1)		0		0		0		14
Total Assets		$	1,502	$	(44)	$	(8)	$	437	$	(282)	$	(34)	$	493	$	(295)	$	1,769
Liabilities
Contingent Consideration		(22)		12		0		0		10		0		0		0		0
Derivatives, net [4]
Equity	Equity	(15)		36		0		0		0		(21)		0		0		0
Total Derivatives, net [4]		(15)		36		0		0		0		(21)		0		0		0
Total Liabilities		$	(37)	$	48	$	0	$	0	$	10	$	(21)	$	0	$	0	$	0

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, 2019		Included in net income [1]		Included in OCI [2]		Purchases		Settlements		Sales		Transfers into Level 3 [3]		Transfers out of Level 3 [3]		Fair value as of September 30, 2019
Assets
Fixed Maturities, AFS
	ABS	$	5	$	0	$	0	$	0	$	0	$	0	$	0	$	(5)	$	0
	CLOs	286		0		0		92		(8)		0		0		(74)		296
	CMBS	35		0		0		10		(1)		0		0		(24)		20
	Corporate	568		(3)		0		166		(7)		(4)		15		(12)		723
	Foreign Govt./Govt. Agencies	3		0		0		0		0		0		0		0		3
	RMBS	758		0		(3)		0		(51)		0		0		(90)		614
Total Fixed Maturities, AFS		1,655		(3)		(3)		268		(67)		(4)		15		(205)		1,656
Equity Securities, at fair value		72		(2)		0		0		0		0		0		0		70
Total Assets		$	1,727	$	(5)	$	(3)	$	268	$	(67)	$	(4)	$	15	$	(205)	$	1,726
Liabilities
Contingent Consideration		(21)		0		0		0		0		0		0		0		(21)
Derivatives, net [4]
	Equity	(3)		(2)		0		0		0		0		0		0		(5)
Total Derivatives, net [4]		(3)		(2)		0		0		0		0		0		0		(5)
Total Liabilities		$	(24)	$	(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	(26)

25

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 2019		Included in net income [1]		Included in OCI [2]		Purchases		Settlements		Sales		Transfers into Level 3 [3]		Transfers out of Level 3 [3]		Fair value as of September 30, 2019
Assets
Fixed Maturities, AFS
	ABS	$	10	$	0	$	0	$	5	$	(1)	$	0	$	0	$	(14)	$	0
	CLOs	100		0		0		329		(18)		(6)		0		(109)		296
	CMBS	12		0		1		34		(3)		0		0		(24)		20
	Corporate	520		(4)		9		261		(13)		(68)		61		(43)		723
	Foreign Govt./Govt. Agencies	3		0		0		0		0		0		0		0		3
	RMBS	920		1		(5)		134		(163)		(35)		0		(238)		614
Total Fixed Maturities, AFS		1,565		(3)		5		763		(198)		(109)		61		(428)		1,656
Equity Securities, at fair value		77		(3)		0		9		0		(13)		0		0		70
Derivatives, net [4]
	Interest rate	1		(1)		0		0		0		0		0		0		0
Total Derivatives, net [4]		1		(1)		0		0		0		0		0		0		0
Total Assets		$	1,643	$	(7)	$	5	$	772	$	(198)	$	(122)	$	61	$	(428)	$	1,726
Liabilities
Contingent Consideration		(35)		(6)		0		0		20		0		0		0		(21)
Derivatives, net [4]
	Equity	3		(8)		0		0		0		0		0		0		(5)
Total Derivatives, net [4]		3		(8)		0		0		0		0		0		0		(5)
Total Liabilities		$	(32)	$	(14)	$	0	$	0	$	20	$	0	$	0	$	0	$	(26)

[1]Amounts in these columns are generally reported in net realized capital gains (losses). All amounts are before income taxes.

[2]All amounts are before income taxes.

[3]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. Transfers into Level 3 for the nine months ended September 30, 2020, were primarily related to private securities that were priced using internal matrix pricing in the prior period, but changed to broker pricing in the current period.

[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.

26

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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,
		2020		2019		2020		2019		2020		2019		2020		2019
		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	0		0		1		0		0		0		(1)		1
	CMBS	0		0		2		0		0		0		2		0
	Corporate	(1)		(2)		17		0		(21)		(3)		1		8
	Foreign Govt./Govt. Agencies	0		0		0		0		0		0		0		1
	Municipal	(3)		0		2		0		(3)		0		2		0
	RMBS	0		0		2		(3)		0		0		(9)		(4)
Total Fixed Maturities, AFS		(4)		(2)		24		(3)		(24)		(3)		(5)		6
Equity Securities, at fair value		0		(2)		0		0		(9)		(2)		0		0
Derivatives, net
	Equity	0		0		0		0		0		0		0		0
	Interest rate	0		0		0		0		0		(1)		0		0
Total Derivatives, net		0		0		0		0		0		(1)		0		0
Short-term investments		—		—		—		—
Total Assets		$	(4)	$	(4)	$	24	$	(3)	$	(33)	$	(6)	$	(5)	$	6
Liabilities
Contingent Consideration		0		0		0		0		12		(6)		0		0
Derivatives, net
	Equity	0		(2)		0		0		0		(8)		0		0
Total Derivatives, net		0		(2)		0		0		0		(8)		0		0
Total Liabilities		$	0	$	(2)	$	0	$	0	$	12	$	(14)	$	0	$	0

[1]All amounts in these rows are reported in net realized capital gains (losses). All amounts are before income taxes.

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

[3]Changes in unrealized gain (loss) on fixed maturities, AFS are reported in changes in net unrealized gain on securities in the Condensed Consolidated 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 RMBS that contain embedded credit derivatives with underlying credit risk. These securities are included within Fixed Maturities, FVO on the Condensed Consolidated Balance Sheets and changes in the fair value of these securities are reported in net realized capital gains and losses.

As of September 30, 2020 and December 31, 2019, the fair value of assets using the fair value option was $0 and $11, respectively, with assets as of December 31, 2019 within the residential real estate sector.

For the three and nine months ended September 30, 2020 and 2019 there were 0 realized capital gains (losses) related to the fair value of assets using the fair value option.

27

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial Instruments Not Carried at Fair Value

Financial Assets and Liabilities Not Carried at Fair Value
	September 30, 2020					December 31, 2019
	Fair Value Hierarchy Level	Carrying Amount [1]		Fair Value		Fair Value Hierarchy Level	Carrying Amount		Fair Value
Assets
Mortgage loans	Level 3	$	4,461	$	4,720	Level 3	$	4,215	$	4,350
Liabilities
Other policyholder funds and benefits payable	Level 3	711		$	712	Level 3	$	763	$	765
Senior notes [2]	Level 2	$	3,261	$	4,172	Level 2	$	3,759	$	4,456
Junior subordinated debentures [2]	Level 2	$	1,090	$	1,093	Level 2	$	1,089	$	1,153

[1]As of September 30, 2020, carrying amount of mortgage loans is net of ACL of $38.

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

6. INVESTMENTS

Net Realized Capital Gains (Losses)
	Three Months Ended September 30,				Nine Months Ended September 30,
(Before tax)	2020		2019		2020		2019
Gross gains on sales	$	27	$	77	$	201	$	190
Gross losses on sales	(12)		(4)		(42)		(44)
Equity securities [1]	42		19		(269)		181
Net credit losses on fixed maturities, AFS [2]	(1)				(33)
Change in ACL on mortgage loans [3]	5				(19)
Intent-to-sell impairments	0		0		(5)		0
Net OTTI losses recognized in earnings			(1)				(3)
Valuation allowances on mortgage loans			0				1
Other, net [4]	(55)		(2)		51		7
Net realized capital gains (losses)	$	6	$	89	$	(116)	$	332

[1] The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2020, were $36 and $6 for the three and nine months ended September 30, 2020, respectively. The net unrealized gains (losses) 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.

[2] Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized capital losses previously reported as OTTI are now presented as credit losses which are net of any recoveries. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see Credit Losses on Fixed Maturities, AFS within the Investment Portfolio Risks and Risk Management section of the MD&A.

[3]Represents the change in ACL recorded during the period following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see ACL on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A.

[4] Primarily includes loss of $51 from the sale of the Continental Europe Operations for the three and nine months ended September 30, 2020. Also includes gains (losses) from transactional foreign currency revaluation of ($4) and $6 for the three and nine months ended September 30, 2020, respectively. Additionally, for the same periods, includes gains (losses) on non-qualifying derivatives of $(2) and $97, respectively. For the three and nine months ended September 30, 2019, includes gains (losses) on non-qualifying derivatives of $(5) and $3, respectively.

Proceeds from the sales of fixed maturities, AFS totaled $4.5 billion and $11.7 billion for the three and nine months ended September 30, 2020, respectively, and $2.6 billion and $11.5 billion for the three and nine months ended September 30, 2019, respectively.

Accrued Interest Receivable on Fixed Maturities, AFS and Mortgage Loans

As of September 30, 2020 and December 31, 2019, the Company reported accrued interest receivable related to fixed maturities, AFS of $331 and $334, respectively, and accrued interest receivable related to mortgage loans of $14 and $14, respectively. These amounts are recorded in other assets on the Condensed Consolidated Balance Sheets and are not included in

the amortized cost or fair value of the fixed maturities or mortgage loans. The Company does not include the current accrued interest receivable balance when estimating the ACL. The Company has a policy to write-off accrued interest receivable balances that are more than 90 days past due. Write-offs of accrued interest receivable are recorded as a credit loss component of realized capital gains and losses.

Interest income on fixed maturities and mortgage loans is accrued unless it is past due over 90 days or management deems the interest uncollectible.

28

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recognition and Presentation of Intent-to-Sell Impairments and ACL on Fixed Maturities, AFS

The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, AFS in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value on the impairment date and the amortized cost basis of the fixed maturity before recognizing the impairment.

When fixed maturities are in an unrealized loss position and the Company does not record an intent-to-sell impairment, the Company will record an ACL for the portion of the unrealized loss due to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in OCI. The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized capital gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity investment is determined to be uncollectible.

Developing 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/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security.

For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, instrument-specific developments including changes in credit ratings, industry earnings multiples and the issuer’s ability to restructure, access capital markets, 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 ratios ("LTVs"), 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.

ACL on Fixed Maturities, AFS by Type
	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
(Before tax)	Corporate		Municipal		Total		Corporate		Municipal		Total
Balance as of beginning of period	$	32	$	0	$	32	$	0	$	0	$	0
Credit losses on fixed maturities where credit losses were not previously recorded	0		3		3		35		3		38
Reduction due to sales	(1)		0		(1)		(3)		0		(3)
Net increase (decrease) in allowance on fixed maturities that had an allowance in a previous period	(2)		0		(2)		(3)		0		(3)
Balance as of end of period	$	29	$	3	$	32	$	29	$	3	$	32

Cumulative Credit Impairments on Fixed Maturities, AFS
	Three Months Ended September 30,		Nine Months Ended September 30,
(Before tax)	2019		2019
Balance as of beginning of period	$	(18)	$	(19)
Additions for credit impairments recognized on [1]:
Fixed maturities not previously impaired	(1)		(3)
Reductions for credit impairments previously recognized on:
Fixed maturities that matured or were sold during the period	0		3
Balance as of end of period	$	(19)	$	(19)

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

29

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fixed Maturities, AFS

Fixed Maturities, AFS, by Type
	September 30, 2020										December 31, 2019
	Amortized Cost		ACL [1]		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Non-Credit OTTI [2]
ABS	$	1,449	$	0	$	41	$	0	$	1,490		$	1,461	$	18	$	(3)	$	1,476	$	0
CLOs	2,465		0		4		(20)		2,449			2,186		5		(8)		2,183		0
CMBS	4,200		0		275		(31)		4,444			4,210		141		(13)		4,338		(4)
Corporate	17,930		(29)		1,597		(82)		19,416			16,435		986		(25)		17,396		0
Foreign govt./govt. agencies	901		0		83		0		984			1,057		66		0		1,123		0
Municipal	8,491		(3)		829		(7)		9,310			8,763		737		(2)		9,498		0
RMBS	4,394		0		156		(2)		4,548			4,775		97		(3)		4,869		0
U.S. Treasuries	1,243		0		160		0		1,403			1,191		75		(1)		1,265		0
Total fixed maturities, AFS	$	41,073	$	(32)	$	3,145	$	(142)	$	44,044		$	40,078	$	2,125	$	(55)	$	42,148	$	(4)

[1] Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.

[2]Represents the amount of cumulative non-credit impairment losses recognized in OCI on fixed maturities that also had credit impairments. These losses are included in gross unrealized losses as of December 31, 2019.

Fixed Maturities, AFS, by Contractual Maturity Year
	September 30, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	1,593	$	1,614	$	1,082	$	1,090
Over one year through five years	6,872		7,229		7,200		7,401
Over five years through ten years	8,166		8,769		7,395		7,803
Over ten years	11,934		13,501		11,769		12,988
Subtotal	28,565		31,113		27,446		29,282
Mortgage-backed and asset-backed securities	12,508		12,931		12,632		12,866
Total fixed maturities, AFS	$	41,073	$	44,044	$	40,078	$	42,148

Estimated maturities may differ from contractual maturities due to 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 0 investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity as of September 30, 2020 or December 31, 2019 other than U.S. government securities and certain U.S. government agencies.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unrealized Losses on Fixed Maturities, AFS

Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of September 30, 2020
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
ABS	$	44	$	0	$	0	$	0	$	44	$	0
CLOs	1,193		(10)		741		(10)		1,934		(20)
CMBS	533		(27)		16		(4)		549		(31)
Corporate	1,609		(56)		202		(26)		1,811		(82)
Foreign govt./govt. agencies	79		0		0		0		79		0
Municipal	478		(7)		0		0		478		(7)
RMBS	514		(2)		29		0		543		(2)
U.S. Treasuries	28		0		0		0		28		0
Total fixed maturities, AFS in an unrealized loss position	$	4,478	$	(102)	$	988	$	(40)	$	5,466	$	(142)

Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
ABS	$	398	$	(3)	$	9	$	0	$	407	$	(3)
CLOs	679		(2)		923		(6)		1,602		(8)
CMBS	538		(7)		20		(6)		558		(13)
Corporate	789		(9)		328		(16)		1,117		(25)
Foreign govt./govt. agencies	101		0		29		0		130		0
Municipal	222		(2)		0		0		222		(2)
RMBS	614		(3)		68		0		682		(3)
U.S. Treasuries	88		0		34		(1)		122		(1)
Total fixed maturities, AFS in an unrealized loss position	$	3,429	$	(26)	$	1,411	$	(29)	$	4,840	$	(55)

As of September 30, 2020, fixed maturities, AFS in an unrealized loss position consisted of 898 instruments, primarily in the corporate sectors, most notably energy issuers, as well as issuers in the financial services sector and issuers within the travel, leisure, and gaming industry, and CMBS and CLO securities, which were depressed largely due to widening of credit spreads since the purchase date. As of September 30, 2020, 96% of these fixed maturities were depressed less than 20% of cost or amortized cost. The increase in unrealized losses during the nine months ended September 30, 2020 was primarily attributable to wider credit spreads, partially offset by lower interest rates.

Most of the fixed maturities depressed for twelve months or more relate to corporates and CLOs. Corporate fixed maturities and CLO securities were primarily depressed because current market spreads are wider than at the respective purchase dates. Certain other corporate fixed maturities were depressed because of their variable-rate coupons and long-dated maturities, and current credit spreads are wider than at their purchase dates. The Company neither has an intention to sell nor does it expect to be required to sell the fixed maturities outlined in the preceding discussion. The decision to record credit impairments on fixed maturities, AFS in the form of an ACL requires us to make qualitative and quantitative estimates of expected future cash

flows. Given the uncertainty about the ultimate impact of the COVID-19 pandemic on issuers of these securities, actual cash flows could ultimately deviate significantly from our expectations resulting in realized losses in future periods.

Mortgage Loans

ACL on Mortgage Loans

The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios use macroeconomic data provided by an internationally recognized economics firm that generates forecasts of varying economic factors such as GDP growth, unemployment and interest rates. The economic scenarios are projected over 10 years. The first two to four years of the 10-year period assume a specific modeled economic scenario (including moderate upside, moderate recession and

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

severe recession scenarios) and then revert to historical long-term assumptions over the remaining period. Using these economic scenarios, the forecasting model projects property-specific operating income and capitalization rates used to estimate the value of a future operating income stream. The operating income and the property valuations derived from capitalization rates are compared to loan payment and principal amounts to create debt service coverage ratios ("DSCRs") and LTVs over the forecast period. The model overlays historical data about mortgage loan performance based on DSCRs and LTVs and projects the probability of default, amount of loss given a default and resulting expected loss through maturity for each loan under each economic scenario. Economic scenarios are probability-weighted based on a statistical analysis of the forecasted economic factors and qualitative analysis. The Company records the change in the ACL on mortgage loans based on the weighted-average expected credit losses across the selected economic scenarios.

In response to significant economic stress experienced as a result of the COVID-19 pandemic, during the first nine months of 2020, the Company increased the weight of both a moderate and severe recession in our estimate of the ACL. As of September 30, 2020, the economic scenarios improved modestly as compared to June 30, 2020, reflecting improvements in GDP growth, unemployment and other economic factors compared with the prior economic scenarios.

The ultimate impact to the Company’s financial statements could vary significantly from our estimates depending on, among other things, the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective. The impact on our commercial mortgage loan portfolio will also be impacted by borrower behavior in response to the economic stress. Borrowers with lower LTVs have an incentive to continue to make payments of principal and/or interest in order to preserve the equity they have in the underlying commercial real estate properties. As property values decline, borrowers have less incentive to continue to make payments.

When a borrower is experiencing financial difficulty, including when foreclosure is probable, the Company measures an ACL on individual mortgage loans. The ACL is established for any shortfall between the amortized cost of the loan and the fair value of the collateral less costs to sell. Estimates of collectibility from an individual borrower 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. As of

September 30, 2020, the Company did 0t have any mortgage loans for which an ACL was established on an individual basis.

There were 0 mortgage loans held-for-sale as of September 30, 2020 or December 31, 2019. For the three and nine months ended September 30, 2020 and 2019, respectively, the Company did 0t have any modifications that were accounted for as troubled debt restructurings.

ACL on Mortgage Loans
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
ACL as of beginning of period	$	43	$	0	$	0	$	1
Cumulative effect of accounting changes [1]					19
Adjusted beginning ACL	43		0		19		1
Current period provision (release)	(5)		0		19		(1)
ACL as of September 30,	$	38	$	0	$	38	$	0

[1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.

The decrease in the allowance for the three months ended September 30, 2020, is the result of improved property valuations in certain industry sectors that have been less impacted by the COVID-19 pandemic and modestly improved economic forecasts as compared to the prior quarter. The increase in the allowance for the nine months ended September 30, 2020, is the result of the COVID-19 pandemic and its impacts on the economic forecasts, as discussed above, as well as lower estimated property values and operating income as compared to the prior year.

The weighted-average LTV ratio of the Company’s mortgage loan portfolio was 55% as of September 30, 2020, while the weighted-average LTV ratio at origination of these loans was 60%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan with property values based on appraisals updated no less than annually. 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 and are updated no less than annually through reviews of underlying properties.

Mortgage Loans LTV & DSCR by Origination Year as of September 30, 2020
	2020			2019			2018			2017			2016			2015 & Prior			Total
Loan-to-value	Amortized Cost		Avg. DSCR	Amortized Cost		Avg. DSCR	Amortized Cost		Avg. DSCR	Amortized Cost		Avg. DSCR	Amortized Cost		Avg. DSCR	Amortized Cost		Avg. DSCR	Amortized Cost [1]		Avg. DSCR
65% - 80%	$	8	2.59x	$	248	1.81x	$	248	1.96x	$	80	1.73x	$	61	1.99x	$	165	1.73x	$	810	1.85x
Less than 65%	539		2.49x	672		2.70x	449		1.99x	426		1.89x	226		3.01x	1,377		3.07x	3,689		2.65x
Total mortgage loans	$	547	2.49x	$	920	2.46x	$	697	1.98x	$	506	1.86x	$	287	2.79x	$	1,542	2.93x	$	4,499	2.50x

[1] Amortized cost of mortgage loans excludes ACL of $38.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Mortgage Loans LTV & DSCR
	December 31, 2019
Loan-to-value		Amortized Cost		Avg. DSCR
65% - 80%		$	376	1.53x
Less than 65%		3,839		2.56x
Total mortgage loans		$	4,215	2.46x

Mortgage Loans by Region
	September 30, 2020				December 31, 2019
	Amortized Cost [1]		Percent of Total		Amortized Cost		Percent of Total
East North Central	$	284	6.3	%	$	270	6.4	%
Middle Atlantic	292		6.5	%	319		7.5	%
Mountain	201		4.5	%	109		2.6	%
New England	397		8.8	%	344		8.2	%
Pacific	989		22.0	%	906		21.5	%
South Atlantic	989		22.0	%	944		22.4	%
West North Central	44		1.0	%	46		1.1	%
West South Central	473		10.5	%	439		10.4	%
Other [2]	830		18.4	%	838		19.9	%
Total mortgage loans	$	4,499	100.0	%	$	4,215	100.0	%

[1] Amortized cost of mortgage loans excludes ACL of $38.

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

Mortgage Loans by Property Type
	September 30, 2020				December 31, 2019
	Amortized Cost [1]		Percent of Total		Amortized Cost		Percent of Total
Commercial
Industrial	$	1,284	28.5	%	$	1,167	27.7	%
Multifamily	1,493		33.2	%	1,313		31.2	%
Office	755		16.8	%	723		17.2	%
Retail	793		17.6	%	735		17.4	%
Single Family	134		3.0	%	137		3.2	%
Other	40		0.9	%	140		3.3	%
Total mortgage loans	$	4,499	100.0	%	$	4,215	100.0	%

[1] Amortized cost of mortgage loans excludes ACL of $38.

Past-Due Mortgage Loans

Mortgage loans are considered past due if a payment of principal or interest is not received according to the contractual terms of the loan agreement, which typically includes a grace period. As of September 30, 2020 and December 31, 2019, the Company held 0 mortgage loans considered past due.

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, 2020, under this program, the Company serviced mortgage loans with a total outstanding principal of $6.7 billion,

of which $3.6 billion was serviced on behalf of third parties and $3.1 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. As of December 31, 2019, the Company serviced mortgage loans with a total outstanding principal balance of $6.4 billion, of which $3.5 billion was serviced on behalf of third parties and $2.9 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or fair value and were $0 as of September 30, 2020 and December 31, 2019, because servicing fees were market-level fees at origination and remain adequate to compensate the Company for servicing the loans.

Purchased Financial Assets with Credit Deterioration

Purchased financial assets with credit deterioration ("PCD") are purchased financial assets with a “more-than-insignificant” amount of credit deterioration since origination. PCD assets are assessed only at initial acquisition date and for any investments identified, the Company records an allowance at acquisition with a corresponding increase to the amortized cost basis. As of September 30, 2020, the Company held 0 PCD fixed maturities, AFS or mortgage 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.

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, 2020 and December 31, 2019, the Company did 0t hold any securities for which it is the primary beneficiary.

Non-consolidated VIEs

The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of September 30, 2020 and December 31, 2019 was limited to the total carrying value of $1.2 billion and $1.1 billion, respectively, which are included in limited

33

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, the Company has outstanding commitments totaling $730 and $851, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. For further discussion of these investments, see Equity Method Investments within Note 6 - Investments of Notes to Consolidated Financial Statements included in the Company’s 2019 Form 10-K Annual Report.

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

Securities Lending, Repurchase Agreements, 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.

Securities Lending and Repurchase Agreements
	September 30, 2020		December 31, 2019
	Fair Value		Fair Value
Securities Lending Transactions:
Gross amount of securities on loan	$	74	$	606
Gross amount of associated liability for collateral received [1]	$	76	$	621
Repurchase agreements:
Gross amount of recognized receivables for reverse repurchase agreements	$	14	$	15

[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 $34 which are excluded from the Company's Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

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. The maturity of these transactions is generally ninety days or less. Repurchase agreements include master netting provisions that provide both parties 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 under specified conditions 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

34

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

be transferred to the Company under specified conditions 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.

Other Collateral Transactions

As of September 30, 2020 and December 31, 2019, the Company pledged collateral of $34 and $37, respectively, of U.S. government securities and municipal 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 in Note 7 - Derivatives of Notes to Condensed Consolidated Financial Statements.

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, 2020 and December 31, 2019, the fair value of securities on deposit was $2.6 billion and $2.3 billion, respectively.

In addition, as of September 30, 2020, the Company held fixed maturities and short-term investments of $639 and $10, respectively, in trust for the benefit of syndicate policyholders, held fixed maturities of $63 in a Lloyd's of London ("Lloyd's") trust account to provide a portion of the required capital, and maintained other investments of $53 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. As of December 31, 2019, the Company held fixed maturities and short-term investments of $447 and $189, respectively, in trust and other investments of $38 primarily consisting of overseas deposits in various countries with Lloyd's. Lloyd's is an insurance market-place operating worldwide. Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate").

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 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.

Strategies that Qualify for Hedge Accounting

Some of the Company's derivatives satisfy 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 2019 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 debt instruments issued. 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 variable-rate fixed maturity securities to fixed rates. The 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 13 - Debt of Notes

to the Consolidated Financial Statements, included in The Hartford's 2019 Form 10-K Annual Report.

Foreign currency swaps are used to convert foreign currency 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 previously 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 group benefits liabilities.

Non-qualifying Strategies

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities and equities do not qualify for hedge accounting. The non-qualifying strategies include:

Credit Contracts

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

35

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 2020 and December 31, 2019, the notional amount of interest rate swaps in offsetting relationships was $7.6 billion.

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 may at times enter into foreign currency forwards to hedge non-U.S. dollar denominated cash.

Equity Index Options

From time to time, the Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company also enters into covered call options on equity securities to generate additional return.

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. 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.

Derivative Balance Sheet Presentation
	Net Derivatives								Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value				Fair Value				Fair Value
Hedge Designation/ Derivative Type	Sep. 30, 2020		Dec. 31, 2019		Sep. 30, 2020		Dec. 31, 2019		Sep. 30, 2020		Dec. 31, 2019		Sep. 30, 2020		Dec. 31, 2019
Cash flow hedges
Interest rate swaps	$	2,340	$	2,040	$	1	$	0	$	1	$	1	$	0	$	(1)
Foreign currency swaps	269		270		6		(1)		9		3		(3)		(4)
Total cash flow hedges	2,609		2,310		7		(1)		10		4		(3)		(5)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures	8,334		9,338		(79)		(59)		5		3		(84)		(62)
Foreign exchange contracts
Foreign currency swaps and forwards	251		464		0		(1)		0		0		0		(1)
Credit contracts
Credit derivatives that purchase credit protection	5		124		0		(3)		0		0		0		(3)
Credit derivatives that assume credit risk [1]	600		500		12		13		12		13		0		0
Credit derivatives in offsetting positions	222		29		0		0		5		5		(5)		(5)
Equity contracts
Equity index swaps and options	4		941		0		(15)		0		15		0		(30)
Total non-qualifying strategies	9,416		11,396		(67)		(65)		22		36		(89)		(101)
Total cash flow hedges and non-qualifying strategies	$	12,025	$	13,706	$	(60)	$	(66)	$	32	$	40	$	(92)	$	(106)
Balance Sheet Location
Fixed maturities, available-for-sale	$	251	$	244	$	0	$	0	$	0	$	0	$	0	$	0
Other investments	1,381		1,277		12		12		12		13		0		(1)
Other liabilities	10,393		12,185		(72)		(78)		20		27		(92)		(105)
Total derivatives	$	12,025	$	13,706	$	(60)	$	(66)	$	32	$	40	$	(92)	$	(106)

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

36

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables

associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.

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, 2020
Other investments	$	32	$	9	$	12	$	11	$	1	$	22
Other liabilities	$	(92)	$	(4)	$	(72)	$	(16)	$	(81)	$	(7)
As of December 31, 2019
Other investments	$	40	$	37	$	12	$	(9)	$	1	$	2
Other liabilities	$	(106)	$	(23)	$	(78)	$	(5)	$	(73)	$	(10)

[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 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. 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,
		2020		2019			2020		2019
Interest rate swaps		$	0	$	0		$	36	$	20
Foreign currency swaps		(12)		10			12		14
Total		$	(12)	$	10		$	48	$	34

37

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Gain (Loss) Reclassified from AOCI into Income
	Three Months Ended September 30,												Nine Months Ended September 30,
	2020						2019						2020						2019
	Net Realized Capital Gain/(Loss)		Net Investment Income		Interest Expense		Net Realized Capital Gain/(Loss)		Net Investment Income		Interest Expense		Net Realized Capital Gain/(Loss)		Net Investment Income		Interest Expense		Net Realized Capital Gain/(Loss)		Net Investment Income		Interest Expense
Interest rate swaps	$	0	$	9	$	(2)	$	0	$	1	$	0	$	0	$	19	$	(4)	$	2	$	1	$	1
Foreign currency swaps	1		1		0		0		1		0		1		3		0		0		2		0
Total	$	1	$	10	$	(2)	$	0	$	2	$	0	$	1	$	22	$	(4)	$	2	$	3	$	1
Total amounts presented on the Condensed Consolidated Statement of Operations	$	6	$	492	$	58	$	89	$	490	$	67	$	(116)	$	1,290	$	179	$	332	$	1,448	$	194

As of September 30, 2020, the Company had $35 of before tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve 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.

During the three and nine months ended September 30, 2020 and 2019, the Company had 0 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.

Non-qualifying Strategies

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

Non-qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Foreign exchange contracts
Foreign currency swaps and forwards	$	0	$	2	$	3	$	2
Interest rate contracts
Interest rate swaps, swaptions, and futures	0		(5)		21		(20)
Credit contracts
Credit derivatives that purchase credit protection	(1)		(1)		3		(1)
Credit derivatives that assume credit risk	(1)		0		(5)		27
Equity contracts
Equity index swaps and options	0		(1)		75		(5)
Total [1]	$	(2)	$	(5)	$	97	$	3

[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 and CMBS issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.

38

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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, 2020
Single name credit default swaps
Investment grade risk exposure	$	100	$	2	5 years	Corporate Credit	A-	$	0	$	0
Basket credit default swaps [4]
Investment grade risk exposure	500		10		5 years	Corporate Credit	BBB+	0		0
Investment grade risk exposure	100		0		8 years	CMBS Credit	AAA	100		0
Below investment grade risk exposure	11		(4)		Less than 1 year	CMBS Credit	CCC	11		4
Total [5]	$	711	$	8				$	111	$	4
As of December 31, 2019
Single name credit default swaps
Investment grade risk exposure	$	100	$	3	5 years	Corporate Credit	A-	$	0	$	0
Basket credit default swaps [4]
Investment grade risk exposure	400		10		5 years	Corporate Credit	BBB+	0		0
Investment grade risk exposure	1		0		Less than 1 year	CMBS Credit	A	1		0
Below investment grade risk exposure	14		(5)		Less than 1 year	CMBS Credit	CCC-	14		5
Total [5]	$	515	$	8				$	15	$	5

[1]The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P and 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 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]Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.

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

Derivative Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of September 30, 2020, the Company has 0t pledged cash collateral. As of December 31, 2019, the Company pledged cash collateral with a fair value of less than $1 associated with derivative instruments. The collateral receivable has been recorded in other assets or other liabilities on the Company's Condensed Consolidated Balance Sheets as determined by the Company's election to offset on the balance sheet. As of September 30, 2020 and December 31, 2019, the Company also pledged securities collateral associated with derivative instruments with a fair value of $88 and $78, 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, 2020 and December 31, 2019, the Company has pledged initial margin of securities related to

OTC-cleared and exchange traded derivatives with a fair value of $80 and $88, respectively, which are included within fixed maturities on the Company's Condensed Consolidated Balance Sheets.

As of September 30, 2020 and December 31, 2019, the Company accepted cash collateral associated with derivative instruments of $23 and $16, respectively, which was invested and recorded in the Company's Condensed Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other 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, 2020 and December 31, 2019, with a fair value of $1 as of both dates, which the Company has the right to sell or repledge. As of September 30, 2020 and December 31, 2019, the Company had 0 repledged securities and 0 securities held as collateral have been sold. Non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.

39

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. PREMIUMS RECEIVABLE AND AGENTS' BALANCES

Premiums Receivable and Agents' Balances
	As of September 30, 2020
Premiums receivable, excluding receivables for losses within a deductible and retrospectively-rated policy premiums	$	4,027
Receivables for loss within a deductible and retrospectively-rated policy premiums, by credit quality:
AAA	0
AA	139
A	52
BBB	226
BB	103
Below BB	77
Total receivables for losses within a deductible and retrospectively-rated policy premiums	597
Total Premiums Receivable and Agents' Balances, Gross	4,624
ACL	(174)
Total Premiums Receivable and Agents' Balances, Net of ACL	$	4,450

ACL on Premiums Receivable and Agents' Balances

Premium receivable and agents' balances, excluding receivables for losses within a deductible and retrospectively-rated policy premiums, are primarily comprised of premiums due from policyholders, which are typically collectible within one year or less. The Company had an immaterial amount of receivables with a due date of more than one year that are past-due. Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods.

For these balances, the ACL is estimated based on an aging of receivables and recent historical credit loss and collection experience, adjusted for current economic conditions and reasonable and supportable forecasts, when appropriate. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during the nine months ended September 30, 2020, the Company increased the expected loss factors used to estimate the ACL based on collections experience during past moderate and severe recessions as well as experience during periods when we provided policyholders additional time to make premiums payments. During the three months ended September 30, 2020, the ACL on premiums receivable decreased as the provision required on premiums written in the quarter was more than offset by write-offs and a reduction in the provision reflecting improved collection experience relative to prior assumptions in certain lines of business.

A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated plans.

Under some commercial insurance contracts with a large deductible, the Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are utilized primarily for workers' compensation coverage, whereby the ultimate premium is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and oversight.

The ACL for receivables for loss within a deductible and retrospectively-rated policy premiums is estimated as the amount of the receivable exposed to loss multiplied by estimated factors for probability of default and the amount of loss given a default. The probability of default is assigned based on each policyholder's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The exposure amount is estimated net of collateral and other credit enhancement, considering the nature of the collateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical corporate defaults for receivables with similar durations estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors through multiple economic cycles. The Company's evaluation of the required ACL for receivables for loss within a deductible and retrospectively-rated policy premiums considers the current economic environment as well as the probability-weighted macroeconomic scenarios similar to the approach used for estimating the ACL for mortgage loans. See Note 6 - Investments. In response to significant economic stress experienced as a result of the COVID-19 pandemic during the first nine months of 2020, the Company increased the weight of both a moderate and severe recession scenario in our estimate of the ACL for loss within a deductible and retrospectively-rated policy premiums. During the three months ended September 30, 2020, the economic scenarios improved modestly as compared to June 30, 2020, reflecting improvements in GDP growth, unemployment and other economic factors compared with the prior economic scenarios.

The ultimate impact to the Company’s financial statements from the COVID-19 pandemic could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.

40

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Rollforward of ACL on Premiums Receivable and Agents' Balances
	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Premiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy Premiums		Receivables for Loss within a Deductible and Retrospectively-Rated Policy Premiums		Total		Premiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy Premiums		Receivables for Loss within a Deductible and Retrospectively-Rated Policy Premiums		Total
Beginning ACL	$	139	$	44	$	183	$	85	$	60	$	145
Cumulative effect of accounting change [1]	0		0		0		(2)		(21)		(23)
Adjusted beginning ACL	139		44		183		83		39		122
Current period provision (release)	2		0		2		78		5		83
Current period gross write-offs	(12)		0		(12)		(35)		0		(35)
Current period gross recoveries	1		0		1		4		0		4
Ending ACL	$	130	$	44	$	174	$	130	$	44	$	174

[1]Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. The adjusted beginning ACL was based on the Company's historical loss information adjusted for current conditions and the forecasted economic environment at the time the guidance was adopted. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.

The Company records total credit loss expenses related to premiums receivable in insurance operating costs and other expenses. Write-offs of premiums receivable and agents'

balances and any related ACL are recorded in the period in which the balance is deemed uncollectible.

9. REINSURANCE

The Company cedes insurance risk to reinsurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.

Reinsurance Recoverables

Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment

expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.

41

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Reinsurance Recoverables by Credit Quality Indicator as of September 30, 2020
	Property and Casualty		Group Benefits		Corporate		Total
A.M. Best Financial Strength Rating
A++	$	1,301	$	0	$	0	$	1,301
A+	1,754		234		309		2,297
A	571		0		0		571
A-	31		9		0		40
B++	673		0		3		676
Below B++	23		1		0		24
Total Rated by A.M. Best	4,353		244		312		4,909
Mandatory (Assigned) and Voluntary Risk Pools	263		0		0		263
Captives	319		0		0		319
Other not rated companies	279		7		0		286
Gross Reinsurance Recoverables	5,214		251		312		5,777
Allowance for uncollectible reinsurance	(106)		(1)		(2)		(109)
Net Reinsurance Recoverables	$	5,108	$	250	$	310	$	5,668

The Company had no reinsurance recoverables with a due date of one year or more that are past-due. Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days.

To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating.

Where its contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers.

The Company periodically evaluates the recoverability of its reinsurance recoverable assets and establishes an allowance for uncollectible reinsurance. The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible.

Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.

The ACL is estimated as the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability

of default and the amount of loss given a default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The probability of default factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors of corporations through multiple economic cycles or, in the case of purchased annuities funding structured settlements accounted for as reinsurance, historical recovery rates for annuity contract holders.

As shown in the table above, a portion of the total gross reinsurance recoverable balance relates to the Company’s participation in various mandatory (assigned) and voluntary risk pools. Reinsurance recoverables due from pools are backed by the financial position of all insurance companies participating in the pools and the credit backing the reinsurance recoverable is not limited to the financial strength of each pool. The mandatory pools generally are funded through policy assessments or surcharges and if any participant in the pool defaults, remaining liabilities are apportioned among the other members.

The Company's evaluation of the required ACL for reinsurance recoverables considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 6 - Investments. Insurance companies, including reinsurers, are regulated and hold risk-based capital to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance recoverables. As a result, there is limited history of losses from insurer defaults. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during the first nine months of 2020, the Company increased the weight of both a moderate and severe recession in our estimate of the ACL. While GDP growth, unemployment and other economic factors improved modestly in the third quarter of 2020 compared with prior economic scenarios, this improvement did not have a

42

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

significant impact on our expected credit losses on reinsurance recoverables. The Company expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. The ultimate impact to the Company's financial statements could vary significantly from our estimates depending on the duration and severity of the

pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective. The following table presents the activity within the Company's ACL for reinsurance recoverables.

Allowance for Uncollectible Reinsurance
	Three Months Ended September 30, 2020								Nine Months Ended September 30, 2020
	Property and Casualty		Group Benefits		Corporate		Total		Property and Casualty		Group Benefits		Corporate		Total
Beginning allowance for uncollectible reinsurance	$	108	$	1	$	2	$	111	$	114	$	0	$	0	$	114
Beginning allowance for disputed amounts	57		0		0		57		66		0		0		66
Beginning ACL	51		1		2		54		48		0		0		48
Cumulative effect of accounting change [1]	0		0		0		0		0		1		1		2
Adjusted beginning ACL	51		1		2		54		48		1		1		50
Current period provision (release)	1		0		0		1		3		0		1		4
Current period gross recoveries	0		0		0		0		1		0		0		1
Ending ACL	52		1		2		55		52		1		2		55
Ending allowance for disputed amounts	54		0		0		54		54		0		0		54
Ending allowance for uncollectible reinsurance	$	106	$	1	$	2	$	109	$	106	$	1	$	2	$	109

[1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.

The Company records credit loss expenses related to reinsurance recoverables in benefits losses and loss adjustment expenses. Write-offs of reinsurance recoverables and any related ACL are recorded in the period in which the balance is deemed uncollectible. Expected recoveries are included in the estimate of the ACL. There were 0 write-offs for the three and nine months ended September 30, 2020, respectively.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Property and Casualty Insurance Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses

	For the nine months ended September 30,
	2020		2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	28,261	$	24,584
Reinsurance and other recoverables	5,275		4,232
Beginning liabilities for unpaid losses and loss adjustment expenses, net	22,986		20,352
Navigators Group acquisition	0		2,001
Provision for unpaid losses and loss adjustment expenses
Current accident year	5,992		5,448
Prior accident year development [1]	(320)		(23)
Total provision for unpaid losses and loss adjustment expenses	5,672		5,425
Change in deferred gain on retroactive reinsurance included in other liabilities [1]	(97)		0
Payments
Current accident year	(1,447)		(1,549)
Prior accident years	(3,338)		(3,403)
Total payments	(4,785)		(4,952)
Net reserves transferred to liabilities held for sale	(43)		0
Foreign currency adjustment	(3)		(12)
Ending liabilities for unpaid losses and loss adjustment expenses, net	23,730		22,814
Reinsurance and other recoverables	5,421		5,083
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	29,151	$	27,897

[1] Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators adverse development cover ('Navigators ADC') which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from National Indemnity Company ("NICO"). For additional information regarding the Navigators ADC agreement, please refer to Adverse Development Covers discussion below.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unfavorable (Favorable) Prior Accident Year Development

	For the nine months ended September 30,
		2020		2019
Workers’ compensation		$	(72)	$	(90)
Workers’ compensation discount accretion		27		25
General liability		112		62
Marine		1		8
Package business		(24)		(32)
Commercial property		(6)		(16)
Professional liability		(16)		32
Bond		(10)		(2)
Assumed reinsurance		(7)		3
Automobile liability - Commercial Lines		27		27
Automobile liability - Personal Lines		(53)		(28)
Homeowners		3		0
Catastrophes		(413)		(27)
Uncollectible reinsurance		(8)		0
Other reserve re-estimates, net		22		15
Prior accident year development before change in deferred gain		(417)		(23)
Change in deferred gain on retroactive reinsurance included in other liabilities [1]		97		0
Total prior accident year development		$	(320)	$	(23)

[1] The change in deferred gain for the nine months ended September 30, 2020 primarily included increased reserves for marine, professional liability, general liability, assumed reinsurance and prior accident year catastrophes.

Re-estimates of prior accident year reserves for the nine months ended September 30, 2020

Workers’ compensation reserves were reduced on national account business within middle & large commercial, driven by lower than previously estimated claim severity for the 2014 and prior accident years and were reduced in small commercial due to lower than expected claim severity for the 2013 to 2018 accident years.

General liability reserves were increased in part due to guaranteed cost construction business for accident years 2014 to 2019 as incurred losses are developing higher than previously expected for premises and operations claims and product liability claims, partly due to a change in industry mix and a heavier concentration of losses in California than initially assumed, as well as increased reserves for middle market and complex liability claims for accident year 2018 largely due to higher than expected severity. Also contributing were increases in reserves on primary layer construction account business within global specialty, mainly related to accident years 2015-2017, which is included as a component of the change in deferred gain under retroactive reinsurance in the above table.

In addition, the Company recorded an increase in reserves for sexual molestation and abuse claims related to cases brought against religious and other institutions that were insureds of the

Company which was partly offset by reserve decreases for other mass torts and extra contractual liability claims.

The Company increased reserves for sexual molestation claims by $129 considering the impact of recent bankruptcy filings and an expected increase in claim incidence largely driven by legislation passed in a number of states that provides an opportunity for claimants to file claims for a period of time despite the fact that the original statute of limitations had expired.

Marine reserves were increased principally due to an increase in domestic marine liability, mostly in accident years 2017 and 2018 due to a higher number of large losses. The increase in marine reserves is included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Package business reserves decreased for accident years 2014 to 2017 largely due to lower estimates of allocated loss adjustment expenses.

Commercial property reserves were decreased for accident year 2019 due to favorable developments on marine and middle market property claims.

Professional liability reserves were decreased primarily due to lower estimated severity on non-security class action D&O claims and fewer than expected E&O claims with financial institutions for the 2011 to 2018 accident years, partially offset by an increase in D&O reserves for the 2019 accident year driven by higher frequency of class action lawsuits and an increase in large Syndicate D&O losses for the 2016 and 2017 accident years. These Syndicate reserve increases within Global Specialty are included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Assumed reinsurance reserves were increased for accident year 2018 mostly due to higher accident and health reserve estimates for medical professionals on assumed casualty business. These reserve increases are included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Automobile liability reserves were decreased in Personal Lines principally due to lower than previously expected AARP Direct automobile liability claim severity for the 2017 and 2018 accident years. Automobile liability reserves were increased in Commercial Lines primarily due to higher than expected large losses on national accounts in the first quarter of 2020 related to accident years 2015 to 2017 and due to large losses within middle & large commercial, primarily within the 2018 and 2019 accident years.

Catastrophes reserves were reduced, primarily due to a reduction in estimated reserves for 2017 and 2018 California wildfires and a reduction in estimated catastrophes for wind and hail events in the 2018 and 2019 accident years, partially offset by an increase in reserves for 2019 typhoons Hagibis and Faxai in Asia. The reduction in reserves for the 2017 and 2018 wildfires was largely due to recognizing a $289 subrogation benefit in the second quarter of 2020 from PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”).

In December, 2019, the judge overseeing the bankruptcy of PG&E approved an $11 billion settlement of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. That settlement was contingent upon, among other things, the judge

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

entering an order confirming PG&E’s chapter 11 bankruptcy plan (“PG&E Plan”) incorporating the settlement agreement. On June 20, 2020, the bankruptcy court judge approved the PG&E Plan and PG&E subsequently transferred the $11 billion settlement amount to a trust designed to allocate and distribute the settlement among subrogation holders, including certain of the Company’s insurance subsidiaries. In the second quarter of 2020, the Company recorded an estimated $289 subrogation benefit though the ultimate amount it collects will depend on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation.

Re-estimates of prior accident year reserves for the nine months ended September 30, 2019

Workers’ compensation reserves were reduced, principally in small commercial driven by lower than previously estimated claim severity for the 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.

Package business reserves were 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 reserves were 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 reserves were 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.

Marine reserves were increased, principally related to pollution exposure from the 1980s and 1990s related to the Navigators Group book of business.

Automobile liability reserves were 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.

Adverse Development Covers

The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion 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. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.

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 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. As of September 30, 2020, the Company has incurred $640 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $860 of available limit remaining under the A&E ADC.

Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO, on behalf of 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.

As of September 30, 2020, the Company has recorded a reinsurance recoverable under the Navigators ADC of $204, as estimated cumulative loss development on the 2018 and prior accident year reserves of $304 exceed the $100 deductible. While the reinsurance recoverable is $204, the Company has also

46

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

recorded a $113 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a

deferred gain. As the Company has ceded $204 of the $300 available limit, there is $96 of remaining limit available as of September 30, 2020.

Group Life, Disability and Accident Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses

	For the nine months ended September 30,
	2020		2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	8,256	$	8,445
Reinsurance recoverables [1]	246		239
Beginning liabilities for unpaid losses and loss adjustment expenses, net	8,010		8,206
Provision for unpaid losses and loss adjustment expenses
Current incurral year	3,339		3,351
Prior year's discount accretion	160		169
Prior incurral year development [2]	(362)		(321)
Total provision for unpaid losses and loss adjustment expenses [3]	3,137		3,199
Payments
Current incurral year	(1,553)		(1,603)
Prior incurral years	(1,681)		(1,743)
Total payments	(3,234)		(3,346)
Ending liabilities for unpaid losses and loss adjustment expenses, net	7,913		8,059
Reinsurance recoverables	242		231
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	8,155	$	8,290

[1]Reflects a cumulative effect adjustment of $(1) representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies for further information.

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

[3]Includes unallocated loss adjustment expenses of $133 and $130 for the nine months ended September 30, 2020 and 2019, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2020

Group disability- Prior period reserve estimates decreased by approximately $293 largely driven by group long-term disability lower claim incidence and higher recoveries on prior incurral year claims, and a refund on the New York Paid Family Leave program.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $50 largely driven by lower-than-previously expected claim incidence in group life premium waiver.

Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $19 driven by lower-than-expected emergence of prior year claims, especially for voluntary critical Illness and voluntary accident products.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2019

Group disability- Prior period reserve estimates decreased by approximately $265 largely driven by group long-term disability claim recoveries higher than prior reserve assumptions and claim incidence lower than prior assumptions. Long-term disability ("LTD") reserve assumptions were also updated based partially on these more recent favorable trends. New York Paid Family Leave also experienced favorable claim emergence and refund compared to year-end estimates.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $45 largely driven by lower-than-previously expected claim incidence in group life premium waiver.

47

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. RESERVE FOR FUTURE POLICY BENEFITS

Changes in Reserves for Future Policy Benefits[1]
Liability balance, as of January 1, 2020	$	635
Incurred	74
Paid	(67)
Change in unrealized investment gains and losses	8
Liability balance, as of September 30, 2020	$	650
Reinsurance recoverable asset, as of January 1, 2020	$	31
Incurred	(2)
Paid	0
Reinsurance recoverable asset, as of September 30, 2020	$	29

Liability balance, as of January 1, 2019	$	642
Incurred	63
Paid	(77)
Change in unrealized investment gains and losses	17
Liability balance, as of September 30, 2019	$	645
Reinsurance recoverable asset, as of January 1, 2019	$	27
Incurred	2
Paid	0
Reinsurance recoverable asset, as of September 30, 2019	$	29

[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 Corporate category.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. DEBT

Senior Notes

On March 30, 2020, The Hartford repaid at maturity the $500 principal amount of its 5.5% senior notes.

Lloyd's Letter of Credit Facilities

As a result of the acquisition of Navigators Group, The Hartford has two letter of credit facility agreements: the Club Facility and the Bilateral Facility, which are used to provide a portion of the

capital requirements at Lloyd's. As of September 30, 2020, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million were outstanding under the Club Facility and £18 million was outstanding under the Bilateral Facility. As of September 30, 2020, the Bilateral Facility has unused capacity of $2 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, 2020, Navigators Group was in compliance with all financial covenants.

13. INCOME TAXES

Income Tax Expense

Income Tax Rate Reconciliation
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Tax provision at U.S. federal statutory rate	$	111	$	138	$	308	$	396
Tax-exempt interest	(12)		(14)		(36)		(43)
Dividends received deduction ("DRD")	(4)		(3)		(5)		(5)
Executive compensation	1		0		6		5
Increase in deferred tax valuation allowance	6		0		19		0
Stock-based compensation	0		(3)		(1)		(7)
Sale of business	(8)		0		(8)		0
Tax credits	(4)		0		(4)		0
Carryback benefit	(11)		0		(11)		0
Other	(6)		0		0		1
Provision for income taxes	$	73	$	118	$	268	$	347

Uncertain Tax Positions

Rollforward of Unrecognized Tax Benefits
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Balance, beginning of period	$	14	$	14	$	14	$	14
Gross increases - tax positions in prior period	0		0		0		0
Gross decreases - tax positions in prior period	0		0		0		0
Gross increases - tax positions in current period	1		0		1		0
Balance, end of period	$	15	$	14	$	15	$	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

On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government

49

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax ("AMT") credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property.

The legislation resulted in a benefit of $6 related to the ability to carryback non-insurance losses to recover taxes paid in prior years as described below. The changes to AMT recovery periods do not impact the Company due to the fact that the Company was already expecting to receive a refund or reduction of regular tax payable for all the remaining AMT credits in 2020.

For the period ending September 30, 2020 the Company recorded a tax benefit of $11 related to the expected carryback of losses from the Navigators Group 2019 pre-acquisition tax return to recover taxes paid in prior years at the previous statutory tax rate of 35%, of which $6 was due to the non-insurance carryback provision of the CARES Act.

For the three and nine months ended September 30, 2020, the Company recorded a tax benefit of $8 related to the excess tax over GAAP basis on the sale of the Continental Europe Operations. For discussion of this transaction, refer to Note 2 - Business Acquisition and Disposition.

In July of 2020, the Company received a $206 refund of AMT credits including $1 of interest, with the remaining balance of AMT credits to be utilized against 2020 federal estimated tax payments.

For the period ending September 30, 2020, the Company has utilized all US net operating loss carryforwards as a reduction of

2020 current tax liability. The Company has foreign net operating losses of $11 for which a valuation allowance of $11 has been established. While the foreign NOLs do not expire, this assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions.

Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, 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.

The federal audits for the Company have been completed through 2013, and the Company is not currently under federal examination for any open years. The statute of limitations is closed through the 2015 tax year with the exception of NOL carryforwards utilized in open tax years. Navigators Group is currently under federal audit for the 2016 year and has completed examinations through 2015. Management believes that adequate provision has been made in the Company'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.

14. COMMITMENTS AND CONTINGENCIES

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 possible losses is more probable than any other, the Company records an estimated liability at the low end of the range of losses.

Litigation

The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties discussed  under “Regulatory and Legal Risks” of 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, 2019, as amended in Part II Item 1A herein, and in the following discussion under the caption “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 putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper sales or underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, disability, life and inland marine. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

COVID-19 Pandemic Business Income Insurance Coverage Litigation

Like many others in the property and casualty insurance industry, beginning in April 2020, various direct and indirect subsidiaries of the Company (collectively the "Hartford Writing Companies”), and in some instances the Company itself, have been served as defendants in lawsuits seeking insurance coverage under commercial insurance policies issued by the Hartford Writing Companies for alleged losses resulting from the shutdown or suspension of their businesses due to the spread of COVID-19. More than 200 such lawsuits have been filed, of which more than 50 purport to be filed on behalf of broad nationwide or statewide classes of policyholders. These lawsuits have been filed in state and federal courts in roughly 27 states. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts, interest, and attorney’s fees. Many of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages. The Joint Panel on Multi-District Litigation (“JPMDL”) considered consolidating, for pre-trial purposes, all COVID-19 pandemic business income coverage lawsuits pending in federal court against any commercial insurer, including Hartford Writing Companies, or alternatively, against specific insurers, including Hartford Writing Companies. The Hartford Writing Companies opposed consolidation on an industry and individual basis. In October 2020, the JPMDL declined to consolidate the cases involving the Company or Hartford Writing Companies.

The Company and its subsidiaries deny the allegations and intend to defend vigorously. The Hartford Writing Companies maintain that they have no coverage obligations with respect to these suits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the clear terms of the applicable insurance policies. Although the policy terms vary depending, among other things, upon the size, nature, and location of the policyholder’s business, in general, the claims at issue in these lawsuits were denied because the claimant identified no direct physical damage or loss to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. In addition, the vast majority of the policies at issue expressly exclude from coverage any loss caused directly or indirectly by the presence, growth, proliferation, spread or activity of a virus, subject to a narrow set of exceptions not applicable in connection with this pandemic, and contain a pollution and contamination exclusion that, among other things, expressly excludes from coverage any loss caused by material that threatens human health or welfare.

In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present numerous uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any state or nationwide classes will be certified, and the size and scope of any such classes. The legal theories advocated by plaintiffs vary significantly by case as do the state laws that govern the policy interpretation. These lawsuits are in the earliest stages of litigation, many were stayed pending a decision on the contemplated multi-district litigation, many

complaints are in the process of being amended, and some have been dismissed voluntarily and may be refiled. Accordingly, little discovery has occurred and few substantive legal rulings have been made. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss, and, in any event, the Company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the large number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate, could have a material adverse effect on the Company’s consolidated operating results.

Run-off Asbestos and Environmental Claims

The Company continues to receive 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 Run-off A&E, reported within the P&C Other Operations segment. In addition, since 1986, the Company has written asbestos and environmental exposures under commercial 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 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.

51

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 A&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, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity.

While the Company believes that its current A&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 estimable now, could be material to The Hartford’s consolidated operating results and liquidity.

For its Run-off A&E, as of September 30, 2020, the Company reported $749 of net asbestos reserves and $101 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.

The Company’s A&E ADC reinsurance agreement with NICO reinsures substantially all A&E reserve development for 2016 and prior accident years, including Run-off A&E and A&E reserves included in Commercial Lines and Personal Lines. The A&E ADC has a coverage limit of $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7

billion. As of September 30, 2020, the Company has incurred $640 in cumulative adverse development on A&E reserves that have been ceded under the A&E ADC treaty with NICO, leaving $860 of coverage available for future adverse net reserve development, if any. Cumulative adverse development of A&E claims for accident years 2016 and prior 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. For more information on the A&E ADC, refer to Note 11, Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements included in the Company's 2019 Form 10-K Annual Report.

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and, in certain instances, 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, 2020 was $86 for which the legal entities have posted collateral of $88 in the normal course of business. Based on derivative market values as of September 30, 2020, a downgrade of one level below the current financial strength ratings by either Moody's or S&P would not require additional assets to be posted as collateral. A downgrade of two levels would require an additional $5 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.

Guarantees

The Hartford has guaranteed the timely payment of contractual claims under certain life, accident and health and annuity contracts issued by its former life and annuity business with most of the guaranteed contracts issued between 1990 and 1997 (the "Talcott Guarantees"). Upon the sale of the life and annuity business in May 2018, the purchaser indemnified the Company for any liability arising under the guarantees. The Talcott Guarantees cover contractual obligations only but otherwise have no limitation as to maximum potential future payments. Prior to January 1, 2020, the Company had not recorded a liability because the likelihood of any payment under the Talcott Guarantees is remote. Upon adoption of new credit loss guidance

52

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

on January 1, 2020, the Company estimated a LCL of $25. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.

The LCL is calculated for the estimated amount payable under guaranteed contracts multiplied by the probability of default and the amount of loss given a default. The probability of default is assigned by credit rating of the applicable insurance company that issued the contract and is based on historical insurance industry defaults for liabilities with similar durations estimated through multiple economic cycles. Credit ratings are current and forward-looking and consider a variety of economic outcomes. Because annuities represent the majority of the contracts issued, the loss given default factors are based on a historical study of annuity policyholder recoveries from insolvent estate assets. The Company's exposure is expected to run off over a period that will include more than one economic cycle.

The Company's evaluation of the required LCL for the Talcott Guarantees considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 6 - Investments for additional information. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during

the first nine months of 2020 the Company increased the weight of both a moderate and severe recession scenario in our estimate of the LCL. As of September 30, 2020, the economic scenarios improved modestly as compared to June 30, 2020, reflecting improvements in GDP growth, unemployment and other economic factors compared with the prior economic scenarios. The ultimate impact to the Company’s financial statements could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective. The Company has never experienced a loss on financial guarantees of this nature and we believe the risk of loss is remote. For the three and nine months ended September 30, 2020, the Company recorded net credit loss expense (reversal) within insurance operating costs and other expenses of $(1) and $2, respectively, related to the Talcott Guarantees. The decrease for the three months ended September 30, 2020, was primarily due to a reduction in the estimated amount payable under the guaranteed contracts due to equity market recovery as well as due to the run-off of the business. The increase for the nine months ended September 30, 2020 was primarily as a result of the COVID-19 pandemic and the impacts on the economic forecasts, as discussed above.

15. EQUITY

Equity Repurchase Program

In February, 2019, the Company announced a $1.0 billion share repurchase authorization by the Board of Directors which is effective through December 31, 2020. During the nine months ended September 30, 2020, the Company repurchased

2.7 million common shares for $150. Any repurchase of shares under the remaining equity repurchase authorization of $650 is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

16. CHANGES IN AND RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2020
	Changes in
	Net Unrealized Gain on Fixed Maturities		Unrealized Loss on Fixed Maturities with ACL		Net Gain on Cash Flow Hedging Instruments		Foreign Currency Translation Adjustments		Pension and Other Postretirement Plan Adjustments		AOCI, net of tax
Beginning balance	$	2,055	$	(2)	$	48	$	27	$	(1,649)	$	479
OCI before reclassifications	388		0		(10)		6		0		384
Amounts reclassified from AOCI	(12)		0		(7)		0		12		(7)
OCI, net of tax	376		0		(17)		6		12		377
Ending balance	$	2,431	$	(2)	$	31	$	33	$	(1,637)	$	856

53

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2020
	Changes in
	Net Unrealized Gain on Fixed Maturities		Unrealized Loss on Fixed Maturities with ACL		Net Gain on Cash Flow Hedging Instruments		Foreign Currency Translation Adjustments		Pension and Other Postretirement Plan Adjustments		AOCI, net of tax
Beginning balance	$	1,684	$	(3)	$	9	$	34	$	(1,672)	$	52
OCI before reclassifications	842		1		37		(1)		(1)		878
Amounts reclassified from AOCI	(95)		0		(15)		0		36		(74)
OCI, net of tax	747		1		22		(1)		35		804
Ending balance	$	2,431	$	(2)	$	31	$	33	$	(1,637)	$	856

Reclassifications from AOCI
	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020		Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Fixed Maturities
Available-for-sale fixed maturities	$	15	$	120	Net realized capital gains (losses)
	15		120		Total before tax
	3		25		Income tax expense
	$	12	$	95	Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps	$	9	19		Net investment income
Interest rate swaps	(2)		(4)		Interest expense
Foreign currency swaps	1		3		Net investment income
Foreign currency swaps	$	1	$	1	Net realized capital gains (losses)
	9		19		Total before tax
	2		4		Income tax expense
	$	7	$	15	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)		(50)		Insurance operating costs and other expenses
	(15)		(45)		Total before tax
	(3)		(9)		Income tax expense
	$	(12)	$	(36)	Net income
Total amounts reclassified from AOCI	$	7	$	74	Net income

Changes in AOCI, Net of Tax for the Three Months Ended September 30, 2019
	Changes in
	Net Unrealized Gain on Securities		OTTI Losses in OCI		Net Gain on Cash Flow Hedging Instruments		Foreign Currency Translation Adjustments		Pension and Other Postretirement Plan Adjustments		AOCI, net of tax
Beginning balance	$	1,367	$	(3)	$	11	$	34	$	(1,607)	$	(198)
OCI before reclassifications	458		0		8		(4)		1		463
Amounts reclassified from AOCI	(57)		0		(2)		0		8		(51)
OCI, net of tax	401		0		6		(4)		9		412
Ending balance	$	1,768	$	(3)	$	17	$	30	$	(1,598)	$	214

54

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Changes in AOCI, Net of Tax for the Nine Months Ended September 30, 2019
	Changes in
	Net Unrealized Gain on Securities		OTTI Losses in OCI		Net Gain on Cash Flow Hedging Instruments		Foreign Currency Translation Adjustments		Pension and Other Postretirement Plan Adjustments		AOCI, net of tax
Beginning balance	$	24	$	(4)	$	(5)	$	30	$	(1,624)	$	(1,579)
OCI before reclassifications	1,857		1		27		0		1		1,886
Amounts reclassified from AOCI	(113)		0		(5)		0		25		(93)
OCI, net of tax	1,744		1		22		0		26		1,793
Ending balance	$	1,768	$	(3)	$	17	$	30	$	(1,598)	$	214

Reclassifications from AOCI
	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Securities
Available-for-sale securities	$	72	$	143	Net realized capital gains (losses)
	72		143		Total before tax
	15		30		Income tax expense
	$	57	$	113	Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps	$	0	$	2	Net realized capital gains (losses)
Interest rate swaps	1		1		Net investment income
Interest rate swaps	0		1		Interest expense
Foreign currency swaps	1		2		Net investment income
	2		6		Total before tax
	0		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

17. 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 2019 Annual Report on

Form 10-K. The Company, at its discretion, made a contribution of $70 in September 2020 to the U.S. qualified defined benefit pension plan.

55

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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,
	2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	1	$	1	$	3	$	3	$	0	$	0	$	0	$	0
Interest cost	31		40		95		119		1		2		4		6
Expected return on plan assets	(53)		(57)		(161)		(170)		0		(1)		(2)		(3)
Amortization of prior service credit	0		0		0		0		(2)		(2)		(5)		(5)
Amortization of actuarial loss	15		11		45		33		2		1		5		4
Net periodic cost (benefit)	$	(6)	$	(5)	$	(18)	$	(15)	$	1	$	0	$	2	$	2

18. RESTRUCTURING AND OTHER COSTS

In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020 the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Hartford Next is intended to reduce annual insurance operating costs and other expenses through reduction of the Company's headcount, investment in information technology ("IT") to further enhance our capabilities, and other activities. The activities are expected to be substantially complete by the end of 2022. These estimated restructuring and other costs do not include all costs associated with a real estate consolidation plan as those plans are not yet sufficiently developed to provide a full estimate of those costs and related savings.

Termination benefits related to workforce reductions and professional fees are included within restructuring and other costs in the Condensed Consolidated Statement of Operations and unpaid restructuring costs are included in other liabilities in the September 30, 2020 Condensed Consolidated Balance Sheet. Subsequent to September 30, 2020, the Company expects to incur additional costs including accelerated amortization of IT and right of use assets, other IT costs to retire applications, professional fees and other expenses. Total restructuring and other costs are expected to be approximately $150, before tax, and will be recognized in Corporate for segment reporting.

Restructuring and Other Costs, Before Tax
	Incurred in the Three and Nine Months Ended September 30, 2020 [1]		Total Amount Expected to be Incurred
Severance benefits	$	78	$	78
IT costs	0		28
Professional fees and other expenses	9		44
Total restructuring and other costs, before tax	$	87	$	150

[1] Amounts incurred for the nine months ended September 30, 2020 are the cumulative incurred under the restructuring program.

Accrued Restructuring and Other Costs
	Nine Months Ended September 30, 2020
	Severance Benefits and Related Costs		IT Costs		Professional Fees and Other		Total Restructuring and Other Costs Liability
Balance, beginning of period	$	0	$	0	$	0	$	0
Incurred	78		0		9		87
Payments	(3)		0		(9)		(12)
Balance, end of period	$	75	$	0	$	0	$	75

56

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 4 and 5 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; Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q; Part I, Item 1A, Risk Factors in The Hartford’s 2019 Form 10-K Annual Report; and 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 September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For discussion of this transaction, see Note 2 - Business Acquisition and Disposition of Notes to Condensed Consolidated Financial Statements.

On May 23, 2019, the Company completed the acquisition of Navigators Group, a specialty underwriter. For discussion of this transaction, see Note 2 - Business Acquisition and Disposition of Notes to Condensed Consolidated Financial Statements.

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

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

INDEX

Description	Page
Key Performance Measures and Ratios	57
The Hartford's Operations	62
Consolidated Results of Operations	69
Investment Results	75
Critical Accounting Estimates	77
Commercial Lines	85
Personal Lines	90
Property & Casualty Other Operations	95
Group Benefits	96
Hartford Funds	99
Corporate	101
Enterprise Risk Management	102
Capital Resources and Liquidity	114
Impact of New Accounting Standards	121

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.

57

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

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 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 excluding accumulated other comprehensive income ("AOCI")- This is a non-GAAP per share measure that is calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. 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 that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure.

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- The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings:

•Certain realized capital gains and losses - 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 that tend to be highly variable from period to period based on capital market conditions. The Hartford 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.

•Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business.

•Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business.

•Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business.

•Integration and transaction costs in connection with an acquired business - As transaction costs are incurred upon acquisition of a business and integration costs are completed within a short period after an acquisition, they do not represent ongoing costs of the business.

•Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition.

•Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business.

•Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards.

•Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses.

In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends 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) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company’s performance.

58

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

Reconciliation of Net Income to Core Earnings
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	459	$	535	$	1,200	$	1,537
Preferred stock dividends	6		11		16		16
Net income available to common stockholders	453		524		1,184		1,521
Adjustments to reconcile net income available to common stockholders to core earnings:
Net realized capital losses (gains) excluded from core earnings, before tax	(6)		(88)		119		(327)
Restructuring and other costs, before tax	87		—		87		—
Loss on extinguishment of debt, before tax	—		90		—		90
Loss on reinsurance transaction, before tax	—		—		—		91
Integration and transaction costs associated with acquired business, before tax	14		29		40		70
Change in loss reserves upon acquisition of a business, before tax	—		—		—		97
Change in deferred gain on retroactive reinsurance, before tax	14		—		97		—
Income tax expense	(35)		(7)		(77)		(2)
Core earnings	$	527	$	548	$	1,450	$	1,540

Core Earnings Margin- The Hartford uses the non-GAAP measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin, calculated by dividing net income by revenues, is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses) as well as other items excluded in the calculation of core earnings. Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits.

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. DAC 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 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 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 favorable market performance will have a favorable impact on fee income. Conversely, either negative net flows or unfavorable market performance will reduce fee income.

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. 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

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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 rate-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 loss 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, excluding those related to buyout premiums, 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 profitability 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 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 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- 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.

Premium Retention- Represents renewal premium written in the current period divided by total premium written in the prior period.

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

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

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

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

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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- The Company uses this non-GAAP financial measure to evaluate, and believes is an important measure of, the Hartford Funds segment’s operating performance. ROA, core earnings is calculated by dividing annualized 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 the Hartford Funds segment because it reveals trends in our business that may be obscured by the effect of items excluded in the calculation of core earnings. ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our Hartford Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, and ROA, core earnings when reviewing the Hartford Funds segment performance. A reconciliation of ROA to ROA, core earnings is set forth in the Results of Operations section within MD&A - Hartford Funds.

Underlying Combined Ratio- This non-GAAP financial measure of underwriting results represents the combined ratio before catastrophes, prior accident year development and current accident year change in loss reserves upon acquisition of a business. Combined ratio is the most directly comparable GAAP measure. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes and current accident year change in loss reserves upon acquisition of a business. The Company believes this 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. The changes to loss reserves upon acquisition of a business are excluded from underlying combined ratio because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition as such trends are valuable to our investors' ability to assess the Company's financial performance.

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 Hartford's management evaluates profitability of the Commercial and Personal Lines segments primarily on the basis of underwriting gain or loss. Underwriting gain (loss) is a before tax non-GAAP measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of The Hartford's pricing. Underwriting profitability over time is also greatly influenced by The Hartford's underwriting discipline, as management strives to manage exposure to loss through favorable risk selection and diversification, effective management of claims, use of reinsurance and its ability to manage its expenses. The Hartford believes that the measure underwriting gain (loss) provides investors with a valuable measure of profitability, before tax, derived from underwriting activities, which are managed separately from the Company's investing activities.

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

Reconciliation of Net Income to Underwriting Gain (Loss)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Commercial Lines
Net income	$	323	$	336	$	378	$	890
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income	(1)		(2)		(2)		(3)
Net investment income	(316)		(291)		(797)		(831)
Net realized capital losses (gains)	26		(60)		105		(229)
Other expense	8		20		25		27
Loss on reinsurance transaction	—		—		—		91
Income tax expense	52		79		71		202
Underwriting gain (loss)	$	92	$	82	$	(220)	$	147
Personal Lines
Net income	$	79	$	94	$	548	$	252
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income	(5)		(4)		(10)		(11)
Net investment income	(41)		(46)		(110)		(134)
Net realized capital losses (gains)	(3)		(9)		12		(36)
Other expense	2		—		1		1
Income tax expense	20		23		142		60
Underwriting gain	$	52	$	58	$	583	$	132
P&C Other Ops
Net income	$	2	$	18	$	12	$	52
Adjustments to reconcile net income to underwriting gain (loss):
Net investment income	(14)		(21)		(40)		(64)
Net realized capital losses (gains)	(2)		(4)		3		(17)
Income tax expense	1		4		2		11
Underwriting loss	$	(13)	$	(3)	$	(23)	$	(18)

Written and Earned Premiums- Written premium represents the amount of premiums charged for policies issued, net of reinsurance, during a fiscal period. 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 are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of premium remaining in-force from year-to-year.

THE HARTFORD’S OPERATIONS

The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, 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 holding company of the life and annuity business that was sold in May 2018. In addition, Corporate

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

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) management fees on mutual fund and ETP 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.

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 and the Lloyd's Syndicate's ability to write business is subject to Lloyd's approval for its premium capacity each year. Most of Personal Lines written premium is associated with our exclusive licensing agreement with AARP.  This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand.  During the second quarter of this year, the Company extended this agreement through December 31, 2032.

Similar to property and 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 or if investment returns are lower than expected at the time the products were sold. 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 of the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and product type. Changes in assets under management are driven by the two main factors of net flows and the market return of the funds, which are heavily influenced by the return realized in the equity and bond markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis.

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, losses 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, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities, asset-backed securities and collateralized loan 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 net 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.

Impact of COVID-19 on our financial condition, results of operations and liquidity

Impact to revenues

Earned premiums

The COVID-19 pandemic has caused significant disruption to the economy of the U.S. and other countries in which we operate. Due to government restrictions that have prevented some businesses from offering goods and services to their customers and due to shelter-in-place guidelines that have reduced business activity, many of our customers, especially small businesses, have had to curtail their operations or have found they are unable to meet cash flow needs due to declining business volume, causing some to lay off workers. As one of the largest providers of small business insurance in the U.S., we experienced a 3% year over year decline in our small commercial written premium in the first nine months of 2020 though only a 1% decline in third quarter 2020. In addition to the expected decline in small commercial written and earned premium, other business lines in Commercial Lines have also been negatively affected due to government-

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

mandated restrictions and stay-at-home guidelines reducing business activity and due to consumers having less disposable income or less willingness to spend on the products and services that our commercial lines policyholders sell. Excluding the effect of the Navigators acquisition, Commercial Lines written premium declined $249, or 4%, year over year for the nine months ended September 30, 2020 and we expect written premium declines to continue for the remainder of 2020, driven by lower new business and due to endorsements or other changes to in-force policies that decrease premiums to reflect reduced exposures.

Within Commercial Lines, workers’ compensation written premium declined year over year in the nine month period and is expected to continue to decline over the remainder of 2020, partly due to declining payrolls as a result of the economic effects of COVID-19.

While the impact of the COVID-19 pandemic on Personal Lines written premium has been less than the effect in Commercial Lines, we expect written premium declines to continue for the remainder of 2020 in part due to increased shopping behaviors, and lower new business levels arising out of the competitive marketplace. In addition, The Hartford provided a 15 percent refund on policyholders’ April, May and June personal automobile insurance premiums which reduced Personal Lines written and earned premiums by $81 in the second quarter of 2020. In Group Benefits, we expect fully insured ongoing premium for 2020 to decline modestly year over year due to the economic downturn causing lower sales of new policies, declining payrolls reducing premiums on existing accounts and the potential that some employers may cancel coverage. Because of the economic stress caused by COVID-19, we also expect a higher amount of uncollectible premiums receivable. As a result, to reflect our higher expectation of credit losses, The Hartford increased its allowance for credit losses ("ACL") on premiums receivable by $55 in the nine months ended September 30, 2020.

Fee revenues

Our Hartford Funds segment revenues are based on average daily assets under management. While fee revenues have also been affected by a continued shift to lower fee generating funds, if daily average assets under management were to decrease due to a decline in markets over the balance of the year, we could experience a larger decrease in 2020 full year net income from our Hartford Funds segment relative to 2019 net income.

Net investment income and realized capital gains (losses)

Reflecting the trend year-to-date, we expect lower net investment income in 2020 than in 2019. In an effort to stimulate the economy, central banks have reduced benchmark interest rates to near zero, impacting our yields on floating rate securities and reinvestment rates. From late March to mid-May, 2020, the Company temporarily reinvested receipts of interest and proceeds from maturing fixed maturity investments in liquid, short-term investments. While the Company resumed investing in fixed maturities in May, 2020, lower interest rates since the pandemic began have generally resulted in lower investment yields on newly invested funds. Income or losses on investments in limited partnerships and other alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. A prolonged period of lower interest rates could depress the Company's net investment income such that to earn the same

level of return on equity we may have to charge higher premiums for the insurance products we sell unless loss costs similarly lessen.

Net realized capital gains (losses) for the three and nine month periods included a total $42 and $(269) respectively, of before tax unrealized mark-to-market gains (losses) on equity securities held and net realized gains (losses) on equity securities sold, net of realized gains on equity derivative hedges. While equity markets in the second and third quarter of 2020 largely recovered the value they lost during the first quarter, economic conditions remain uncertain and if equity markets were to experience similar declines as occurred earlier this year, we may incur more net realized capital losses in future periods; however, the Company reduced its investments in public equity securities during March and April of 2020, with the fair value of equity securities declining from $1.7 billion as of December 31, 2019 to $819 as of September 30, 2020.

Net realized capital losses for the three and nine month periods also included ($4) and $52, respectively, of increases (decreases) in the allowance for credit losses, partially offset by reversals of the allowance due to improvements in market value or sales, and $0 and $5, respectively, of intent-to-sell impairments. The increase (decrease) in the allowance for credit losses in the three and nine month periods included increases of $1 and $33, respectively, on available for sale fixed maturities and increases (decreases) of ($5) and $19, respectively, on commercial mortgage loans. If it takes a prolonged period for the economy to recover or if the impacts of the economic downturn are deeper than anticipated, we could experience further credit losses and intent-to-sell impairments, particularly with highly leveraged companies and issuers in the energy, commercial real estate, and travel and leisure sectors, resulting in further net realized capital losses.

Impact to direct benefits, losses and loss adjustment expenses from COVID-19 claims

For the three and nine months ended September 30, 2020, we recorded direct COVID-19 incurred losses of $72 and $339, respectively, including $37 and $250, respectively, in P&C and $35 and $89, respectively, in Group Benefits, reflecting management’s best estimate of the ultimate cost of settling COVID-19 claims incurred. For the nine months ended September 30, 2020, COVID-19 incurred losses and loss adjustment expenses in P&C primarily included $141 for property claims, $52 for workers’ compensation, net of favorable frequency on other workers' compensation claims, and $57 of incurred losses largely concentrated in financial lines such as D&O and E&O and domestic wholesale. For the three months ended September 30, 2020, P&C incurred COVID-19 losses and loss adjustment expenses included $17 for workers’ compensation, net of favorable frequency, and $20 in financial lines and other.

Nearly all of our property insurance policies require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses. Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in the nine month period were $101 of losses arising from a small number of property policies that do not require

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direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption. In addition, we recorded a reserve of $40 for legal defense costs. Given the significant business disruptions that have occurred due to the COVID-19 pandemic, the Company has experienced increased property claims, resulting in increased litigation activity and legal expenses. Within Property & Casualty, we incur COVID-19 workers’ compensation losses when it is determined that workers were exposed to COVID-19 out of and in the course of their employment and in other cases where states have passed laws providing for the presumption of coverage for certain industry classes, including health care and other essential workers. While current accident year losses for workers’ compensation in the three and nine months ended September 30, 2020 increased $65 and $140, respectively, due to COVID-19 claims, this has been partially offset by lower claim frequency of non-COVID-19 related workers’ compensation claims due to reduced business activity, resulting in a net increase in incurred losses of $17 and $52, respectively. Favorable non-COVID-19 workers’ compensation claim frequency could continue over the remainder of 2020 though possibly to a lesser extent if more business activity resumes. COVID-19 incurred losses in the three and nine month periods of $35 and $89, respectively, in Group Benefits consisted of $28 and $71, respectively, of losses on group life claims and $7 and $18, respectively, of losses on short-term disability and paid family leave claims. The Company could incur additional COVID-19 direct incurred losses over the remainder of 2020, particularly for workers’ compensation and financial lines within P&C and in group life.

Other impacts from COVID-19 and resulting economic downturn

Apart from impacts on the investment portfolio, net investment income and net realized capital gains (losses), in third quarter 2020, the Company incurred a number of other insurance business impacts from the COVID-19 pandemic and the resulting economic downturn as follows:

•For the three and nine months ended September 30, 2020, we recognized an estimated decrease in current accident incurred losses in Personal Lines automobile of $62 and $173, respectively, due to a significant reduction in miles driven since the pandemic began, though miles driven has begun to increase again. In the second quarter of 2020, Personal Lines written and earned premiums were reduced by $81 due to providing automobile policyholders with premium refunds or credits in recognition of the decrease in miles driven.

•The Company reduced audit premiums receivable by $100 in second quarter 2020 driven by the economic effects of COVID-19 reducing our insured exposures, principally in workers’ compensation. Net of a related reduction in estimated incurred losses and commissions attributable to the reduction in exposure, the net effect in second quarter was a $34 reduction in income before tax. In the third quarter of 2020, there was virtually no change in estimated audit premiums receivable due to COVID-19 though we continue to expect lower audit premiums based on expected lower exposures. Estimated audit premiums receivable could decrease over the remainder of 2020 with the magnitude of

the impact depending on how economic conditions change in the U.S. in the fourth quarter.

•From April through approximately July of 2020, the Company waived late payment fees for a period of time for business and personal insurance customers and temporarily suspended the policy cancellation process for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments with the period of policy cancellations for non-payment varying by state.

•Because of the economic stress caused by COVID-19 and partly due to the extension of billing terms, we expect a higher amount of uncollectible premiums receivable. As a result, to reflect our higher expectation of credit losses, The Hartford increased its ACL on premiums receivable by $55 in the nine months ended September 30, 2020. The allowance on premiums receivable decreased in the third quarter of 2020 as the provision required on premiums written in the quarter was more than offset by write-offs and a $9 reduction in the provision reflecting improved collection experience, largely in Group Benefits.

•Apart from the increase in the premiums receivable allowance, we have experienced a decline in insurance operating costs and other expenses partly due to lower acquisition-related and other operating costs associated with lower earned premium volumes and expect that trend to continue for the remainder of 2020.

•As a result of the effects of COVID-19 on our economy, we evaluated our goodwill and other intangible assets for impairment as of September 30, 2020 and determined that no impairments were necessary. The estimated fair values of reporting units with goodwill and of certain intangible assets are sensitive to changes in discount rates and are based on expected cash flows assuming improvement due to the gradual reopening of the economy continuing into 2021.

For information about additional resources the Company has to manage capital and liquidity during the COVID-19 pandemic and financial crisis, refer to the Capital Resources & Liquidity section of MD&A.

For additional information about the potential impacts of the COVID-19 pandemic and resulting economic crisis, see the risk factor "The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity" in Item 1A of Part II.

P&C combined ratios and Group Benefits margin

In 2020, we expect our combined ratio for Commercial Lines to be higher than the outlook range we provided in our 2019 Form 10-K, primarily due to COVID-19 incurred losses and higher than budgeted current accident year catastrophe losses, partially offset by net favorable prior accident year development. We expect the underlying combined ratio for Commercial Lines in 2020 to be higher due to COVID-19 incurred losses. In 2020, we expect our combined ratio for Personal Lines to be lower than the outlook range we provided in our 2019 Form 10-K, primarily due to favorable prior accident year catastrophe reserve development year-to-date, including a $260 subrogation recoverable from PG&E recorded in the second quarter, partially offset by higher than expected current accident year

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catastrophes, and expect the underlying combined ratio for Personal lines to be lower primarily due to favorable automobile claim frequency and lower non-catastrophe homeowners’ claims, partially offset by $81 before tax of premium credits issued to policyholders in the second quarter.

Our net income margin and core earnings margin for Group Benefits has been trending toward the higher end of the outlook ranges we provided in our 2019 Form 10-K and will continue to be influenced by the net effect of COVID-19 group life claims and continued favorable emergence of claim incidence on group disability over the balance of 2020.

Common stockholders’ equity

Apart from the direct loss and premium impacts of COVID-19 on net income, we could also experience a reduction in AOCI within common stockholders’ equity. The net unrealized gain position on our portfolio of fixed maturities, AFS increased by $933 from December 31, 2019 to September 30, 2020, due to an increase in valuations resulting from a decline in interest rates, partially offset by wider credit spreads. If credit spreads widen going forward or if interest rates increase from the level they were at as of September 30, 2020, we would recognize a decline in the fair value of fixed maturities, AFS in future periods through a reduction of AOCI within common stockholders’ equity.

During the nine months ended September 30, 2020, the Company repurchased 2.7 million common shares for $150 under a $1.0 billion share repurchase authorization by the Board of Directors approved in February, 2019. Any repurchase of shares under the remaining equity repurchase authorization of $650 is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

For further information on the Company's reporting segments refer to Part I, Item 1, Business - Reporting Segments in The Hartford’s 2019 Form 10-K Annual Report.

Operational Transformation and Cost Reduction Plan

In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020, the Company announced

an operational transformation and cost reduction plan it refers to as Hartford Next. Through reduction of its headcount, IT investments to further enhance our capabilities, and other activities, relative to 2019, the Company expects to achieve a reduction in annual insurance operating costs and other expenses of approximately $500 by 2022. The Hartford Next program will contribute to our goal of reducing the 2022 P&C expense ratio by about 2.0 to 2.5 points, reducing the 2022 Group Benefits expense ratio by about 1.5 to 2.0 points and reducing our 2022 claim expense ratio by 0.5 point.

To achieve those expected savings, we expect to spend approximately $360, with those costs expected to be approximately $156 over the last six months of 2020, $90 in 2021, $64 in 2022 and $50 after 2022. The estimated costs of approximately $360 includes an expected $60 in capitalized development costs for internal use software to be amortized over the useful life of the software, typically 3 years. Of the estimated costs of $360, approximately $310 would be recognized as an expense through the end of 2022, with $50 of IT asset amortization after 2022. Included in the estimated costs of $360, we expect to incur restructuring costs of approximately $150, including $78 of employee severance, and approximately $72 of other costs, including consulting expenses and the cost to retire certain IT applications. These estimated restructuring and other costs do not include all of the costs associated with a real estate consolidation plan as those plans are not yet sufficiently developed to provide a full estimate of those costs and related savings.

Restructuring costs are reported as a charge to net income but not in core earnings. All other costs of the Hartford Next program will be included in insurance operating costs and other expenses in the Condensed Consolidated Statement of Operations. Relative to 2019 full year actual expenses, the Company estimates a net increase in insurance operating costs and other expenses of approximately $81 over the last six months of 2020 and expects a net expense reduction of approximately $210 in 2021 and approximately $436 in 2022.

The following table shows the expected costs of the Hartford Next program, including restructuring costs, and expected expense savings through 2022:

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

Hartford Next Expected Costs and Expense Savings
	Estimate for Second Half of 2020		Estimate for 2021		Estimate for 2022
Employee severance	$	78	$	—	$	—
IT costs to retire applications	4		10		14
Professional fees and other expenses	34		10		—
Estimated restructuring costs to be expensed and paid	116		20		14
Non-capitalized IT costs to be paid	30		50		30
Other costs to be paid	10		20		10
Amortization of capitalized IT development costs [1]	—		—		10
Estimated costs within core earnings	40		70		50
Total estimated Hartford Next program costs to be expensed [2]	$	156	$	90	$	64
Cumulative savings relative to 2019 beginning July 1, 2020	$	(75)	$	(300)	$	(500)
Net expense (savings) before-tax:	$	81	$	(210)	$	(436)
Net expense (savings) before-tax:
To be accounted for within core earnings	$	(35)	$	(230)	$	(450)
Restructuring costs recognized outside of core earnings	116		20		14
Net expense (savings) before tax	$	81	$	(210)	$	(436)

[1]Does not include approximately $50 of IT asset amortization after 2022.

[2] Includes $87 of restructuring costs incurred through September 30, 2020.

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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 Stockholders Net Income Available to Common Stockholders per Diluted Share Book Value per Diluted Share

Þ	Decreased $71 or 14%	Þ	Decreased $0.17 or 12%	Ý	Increased $4.62 or 11%
-	Higher current accident year catastrophes largely due to losses from wildfires, hurricanes, tropical storms, and other wind and hail events.	-	Decrease in net income	+	Increase in common stockholders' equity largely due to an increase in AOCI, primarily driven by unrealized capital gains on available for sale securities.
		+	Decrease in dilutive shares, and consequently weighted average shares outstanding, principally due to a decrease in the dilutive effect of stock compensation as a result of average market price declines during the period.
-	Restructuring costs related to the Hartford Next initiative, primarily severance costs.			+	Net income in excess of stockholder dividends.
-	Lower net realized capital gains, including a loss on sale of Continental Europe Operations of $32, after tax.			+	Decrease in dilutive shares.
-	$57, after tax, of COVID-19 claims across group life, disability, financial lines and workers’ compensation, net of favorable workers’ compensation frequency.
-	A change from income to loss from the retained interest in Talcott Resolution.
+	Loss on extinguishment of debt in 2019 period.
+	Lower non-COVID-19 current accident year non-catastrophe property losses and lower personal automobile claim frequency.
+	Greater net favorable prior accident year development.
+	Lower insurance operating costs and other expenses, partly driven by lower variable incentive costs and reduced travel expenses.

Investment Yield, After Tax Property & Casualty Combined Ratio Group Benefits Net Income Margin

Þ	Decreased 10 bps	Ý	Increased 0.2 points	Þ	Decreased 1.6 points
-	Lower reinvestment rates and lower yield on variable rate securities due to the decline in interest rates.	+	Higher current accident year catastrophes, largely due to losses from Pacific Coast wildfires, hurricanes and tropical storms.	-	COVID-19 incurred benefits and losses of $28 after tax.
				-	Lower net investment income.
+	Greater income from non-routine income items, including make-whole payments on fixed maturities.	+	Higher current accident year loss ratio in Commercial Lines driven by COVID-19 losses, partially offset by lower non-catastrophe property losses.	-	A decrease in net realized capital gains.
				+	Lower insurance operating costs and other expenses, including lower variable incentive compensation and lower integration costs.
+	Higher income on limited partnerships and other alternative investments in 2020.	-	Lower current accident year loss ratio in Personal Lines, due to lower automobile claim frequency.	+	Excluding COVID-19 impacts, a lower group disability loss ratio, driven by lower claim incidence partially offset by less favorable prior incurral year development.
		-	More favorable prior accident year development
		-	Lower amortization of DAC and lower underwriting expenses, mostly driven by lower variable incentive compensation and travel costs.

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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 7 as well as with the segment operating results sections of MD&A.

Consolidated Results of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		Change		2020		2019		Change
Earned premiums	$	4,347	$	4,394	(1	%)	$	12,972	$	12,500	4	%
Fee income	323		330		(2	%)	941		970		(3	%)
Net investment income	492		490		—	%	1,290		1,448		(11	%)
Net realized capital gains (losses)	6		89		(93	%)	(116)		332		(135	%)
Other revenues	3		44		(93	%)	108		129		(16	%)
Total revenues	5,171		5,347		(3	%)	15,195		15,379		(1	%)
Benefits, losses and loss adjustment expenses	2,962		2,914		2	%	8,725		8,533		2	%
Amortization of deferred policy acquisition costs	421		437		(4	%)	1,287		1,184		9	%
Insurance operating costs and other expenses	1,093		1,167		(6	%)	3,394		3,356		1	%
Loss on extinguishment of debt	—		90		(100	%)	—		90		(100	%)
Loss on reinsurance transaction	—		—		—	%	—		91		(100	%)
Interest expense	58		67		(13	%)	179		194		(8	%)
Amortization of other intangible assets	18		19		(5	%)	55		47		17	%
Restructuring and other costs	87		—		NM		87		—		NM
Total benefits, losses and expenses	4,639		4,694		(1	%)	13,727		13,495		2	%
Income, before tax	532		653		(19	%)	1,468		1,884		(22	%)
Income tax expense	73		118		(38	%)	268		347		(23	%)
Net income	459		535		(14	%)	1,200		1,537		(22	%)
Preferred stock dividends	6		11		(45	%)	16		16		—	%
Net income available to common stockholders	$	453	$	524	(14	%)	$	1,184	$	1,521	(22	%)

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Net income available to common stockholders decreased by $71, primarily driven by a $123 before tax increase in current accident year catastrophes, $87 before tax of restructuring costs in third quarter 2020, an $83 before tax decrease in net realized gains, $72 before tax in COVID-19 claims and a change from income to losses from the retained Talcott Resolution investment, partially offset by a $90 before tax loss on debt extinguishment in third quarter 2019, lower Personal Lines auto claim frequency, lower non-

catastrophe property losses in Commercial Lines, more favorable net prior accident year development and lower insurance operating costs across all segments.For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

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

Revenue

Earned Premiums

[1] For the three months ended September 30, 2019, there was $4 in earned premiums recorded Corporate other revenue.

Earned premiums decreased primarily due to:

•A decline in P&C resulting from a decline of 3% in Personal Lines.

•Relatively flat earned premiums in Commercial Lines as the impact of the COVID-19 pandemic, including declines in new business, lower estimated audit premiums, endorsements reducing insured exposures and declines in policy retention, were offset by continued written pricing increases in all lines except workers' compensation.

•A decline in Group Benefits due to a 4% decline in group life.

Fee income decreased primarily due to lower fee income in Hartford Funds as a result of a shift in mix of assets to lower fee generating funds.

Other revenues decreased primarily due to a change from income to loss on the Talcott Resolution investment, the retained interest in the legal entity that acquired the life and annuity business sold in 2018.

Net Investment Income

Net investment income increased primarily due to:

•Higher income on limited partnerships and other alternative investments due to improved performance of certain equity and credit funds. Income (loss) from limited partnerships is generally reported on a three-month delay.

•Higher non-routine income in 2020, primarily make-whole payments on fixed maturities, and a higher level of invested assets.

•Partially offset by a lower yield on fixed maturity investments resulting from reinvesting at lower rates and a lower yield on floating rate investments.

Net realized capital gains decreased primarily driven by:

•Lower net gains on sales of fixed maturities

•A loss of $51, before tax, on sale of the Company’s Continental Europe Operations which the Company agreed to sell in September of 2020.

•Partially offset by greater gains on equity securities due to appreciation in valuation driven by an increase in equity market levels in third quarter 2020.

For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains and MD&A - Investment Results, Net Investment Income.

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

Benefits, losses and expenses

Losses and LAE Incurred for P&C

Benefits, losses and loss adjustment expenses increased due to:

•An increase in incurred losses for Property & Casualty, driven by:

–An increase in current accident year catastrophe losses of $123, before tax. Catastrophe losses in the third quarter of 2020 were primarily from wildfires in California and Oregon, hurricane Laura on the Gulf Coast, tropical storm Isaias on the East Coast, a Midwest derecho and other wind and hail events, mostly in the Central Plains. Catastrophe losses in 2019 were primarily from tornado, wind and hail events in various areas of the Midwest and Mountain West as well as losses from hurricanes and tropical storms in the Southeast. For additional information, see MD&A - Critical Accounting Estimates, Property & Cas