The Hartford Financial Services Group, Inc. (HIG) 10-Q 2010 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

OR

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

For the transition period from                    to                    

Commission File Number: 001-13958

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

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

One Hartford Plaza, Hartford, Connecticut 06155
(Address of principal executive offices) (Zip Code)

(860) 547-5000
(Registrant’s telephone number, including area code)

Indicate by check mark 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.Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Noþ

As of July 30, there were outstanding 444,324,287 shares of Common Stock, $0.01 par value per share, of the registrant.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS

Item	Description	Page
	Part I. FINANCIAL INFORMATION
1.	Financial Statements
	Report of Independent Registered Public Accounting Firm		5
	Condensed Consolidated Statements of Operations — For the Three and Six Months Ended June 30, 2010 and 2009		6
	Condensed Consolidated Balance Sheets — As of June 30, 2010 and December 31, 2009		7
	Condensed Consolidated Statements of Changes in Equity — For the Six Months Ended June 30, 2010 and 2009		8
	Condensed Consolidated Statements of Comprehensive Income — For the Three and Six Months Ended June 30, 2010 and 2009		9
	Condensed Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2010 and 2009		10
	Notes to Condensed Consolidated Financial Statements		11
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		60
3.	Quantitative and Qualitative Disclosures About Market Risk		133
4.	Controls and Procedures		133
	Part II. OTHER INFORMATION
1.	Legal Proceedings		134
1A.	Risk Factors		134
2.	Unregistered Sales of Equity Securities and Use of Proceeds		137
6.	Exhibits		137
	Signature		138
	Exhibits Index		139
Exhibit 10.02
Exhibit 10.03
Exhibit 10.04
Exhibit 10.06
Exhibit 15.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

Forward-Looking Statements

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

Forward-looking statements are based on our current expectations and assumptions regarding economic, competitive and legislative developments. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the “Company”). Future developments may not be in line with management’s expectations or have unanticipated effects. Actual results could differ materially from expectations, depending on the evolution of various factors, including those set forth in Part I, Item 1A, Risk Factors in The Hartford’s 2009 Form 10-K Annual Report, Part II, Item 1A, Risk Factors of The Hartford’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as well as in Part II, Item 1A, Risk Factors of this Form 10-Q. These important risks and uncertainties include:

• risks and uncertainties related to the Company’s current operating environment, which reflects continued volatility in financial markets, constrained capital and credit markets and uncertainty about the strength of an economic recovery and the impact of U.S. and other governmental stimulus, budgetary and legislative initiatives, and whether management’s efforts to identify and address these risks will be timely and effective;

• risks associated with our continued execution of steps to realign our business and reposition our investment portfolio, including the potential need to take other actions, such as divestitures;

• market risks associated with our business, including changes in interest rates, credit spreads, equity prices and foreign exchange rates, as well as challenging or deteriorating conditions in key sectors such as the commercial real estate market, that have pressured our results and have continued to do so in 2010;

• volatility in our earnings resulting from our adjustment of our risk management program to emphasize protection of statutory surplus;

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

• risks to our business, financial position, prospects and results associated with negative ratings actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments;

• the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations;

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

• losses due to nonperformance or defaults by others;

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

• the potential for further impairments of our goodwill or the potential for establishing valuation allowances against deferred tax assets;

• the possible occurrence of terrorist attacks and the Company’s ability to contain its exposure, including the effect of the absence or insufficiency of applicable terrorism legislation on coverage;

• the difficulty in predicting the Company’s potential exposure for asbestos and environmental claims;

• the possibility of a pandemic or man-made disaster that may adversely affect the financial condition of the Company’s businesses and cost and availability of reinsurance;

• weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow;

• the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;

• the possibility of unfavorable loss development;

• actions by our competitors, many of which are larger or have greater financial resources than we do;

3

• the restrictions, oversight, costs and other consequences of being a savings and loan holding company, including from the supervision, regulation and examination by the Office of Thrift Supervision (the “OTS”), and in the future, as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), The Federal Reserve and the Office of the Controller of the Currency as regulator of Federal Trust Bank, and arising from our participation in the Capital Purchase Program (the “CPP”), under the Emergency Economic Stabilization Act of 2008, certain elements of which will continue to apply to us for so long as the Treasury holds the warrant or shares of our common stock received on exercise of the warrant that we issued as part of our participation in the CPP;

• the potential effect of domestic and foreign regulatory developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels, including changes to statutory reserves and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products;

• the cost and other effects of increased regulation as a result of the enactment of the Dodd-Frank Act, which will, among other effects, vest a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, and may affect our ability as a savings and loan holding company to manage our general account by limiting or eliminating investments in certain private equity and hedge funds;

• the Company’s ability to distribute its products through distribution channels, both current and future;

• the uncertain effects of emerging claim and coverage issues;

• the ability of the Company to declare and pay dividends is subject to limitations;

• 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;

• the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster or other unanticipated events;

• the risk that our framework for managing business risks may not be effective in mitigating risk and loss to us that could adversely affect our business;

• the potential for difficulties arising from outsourcing relationships;

• the impact of potential changes in federal or state tax laws, including changes affecting the availability of the separate account dividend received deduction;

• the impact of potential changes in accounting principles and related financial reporting requirements;

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

• unfavorable judicial or legislative developments; and

• other factors described in such forward-looking statements.

Any forward-looking statement made by us in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

4

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying Condensed Consolidated Balance Sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the “Company”) as of June 30, 2010, and the related Condensed Consolidated Statements of Operations and Comprehensive Income for the three-month and six-month periods ended June 30, 2010 and 2009 and Statements of Changes in Equity and Cash Flows for the six-month periods ended June 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009, and the related consolidated statements of operations, changes in equity, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2010 (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for other-than-temporary impairments in 2009 and for the fair value measurement of financial instruments in 2008), 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, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP
Hartford, Connecticut
August 4, 2010

5

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Operations

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions, except for per share data)	2010			2009			2010			2009
	(Unaudited)						(Unaudited)
Revenues
Earned premiums	$	3,506		$	3,592		$	7,033		$	7,421
Fee income		1,195			1,062			2,384			2,229
Net investment income (loss):
Securities available-for-sale and other		1,153			1,021			2,213			1,941
Equity securities, trading		(2,649	)		2,523			(1,948	)		1,799
Total net investment income (loss)		(1,496	)		3,544			265			3,740
Net realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(292	)		(562	)		(632	)		(786	)
OTTI losses recognized in other comprehensive income		184			248			372			248
Net OTTI losses recognized in earnings		(108	)		(314	)		(260	)		(538	)
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings		119			(367	)		(5	)		(59	)
Total net realized capital gains (losses)		11			(681	)		(265	)		(597	)
Other revenues		120			120			238			238
Total revenues		3,336			7,637			9,655			13,031
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses		3,592			3,092			6,725			7,729
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities		(2,649	)		2,523			(1,948	)		1,799
Amortization of deferred policy acquisition costs and present value of future profits		938			674			1,589			2,933
Insurance operating costs and expenses		969			959			1,888			1,857
Interest expense		132			119			252			239
Goodwill impairment		153			—			153			32
Other expenses		208			252			468			441
Total benefits, losses and expenses		3,343			7,619			9,127			15,030
Income (loss) before income taxes		(7	)		18			528			(1,999	)
Income tax expense (benefit)		(83	)		33			133			(775	)
Net income (loss)	$	76		$	(15	)	$	395		$	(1,224	)
Preferred stock dividends and accretion of discount		11			3			494			3
Net income (loss) available to common shareholders	$	65		$	(18	)	$	(99	)	$	(1,227	)
Earnings (Loss) per common share
Basic	$	0.15		$	(0.06	)	$	(0.24	)	$	(3.80	)
Diluted	$	0.14		$	(0.06	)	$	(0.24	)	$	(3.80	)
Cash dividends declared per common share	$	0.05		$	0.05		$	0.10		$	0.10

See Notes to Condensed Consolidated Financial Statements.

6

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Balance Sheets

	June 30,			December 31,
(In millions, except for share and per share data)	2010			2009
	(Unaudited)
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost of $78,529 and $76,015) (includes variable interest entity assets, at fair value, of $842 as of June 30, 2010)	$	77,132		$	71,153
Equity securities, trading, at fair value (cost of $32,755 and $33,070)		30,183			32,321
Equity securities, available-for-sale, at fair value (cost of $1,244 and $1,333)		1,103			1,221
Mortgage loans (net of allowances for loan losses of $340 and $366)		4,673			5,938
Policy loans, at outstanding balance		2,182			2,174
Limited partnerships and other alternative investments (includes variable interest entity assets of $22 as of June 30, 2010)		1,774			1,790
Other investments		2,293			602
Short-term investments		8,731			10,357
Total investments		128,071			125,556
Cash		2,998			2,142
Premiums receivable and agents’ balances		3,371			3,404
Reinsurance recoverables		5,485			5,384
Deferred policy acquisition costs and present value of future profits		9,689			10,686
Deferred income taxes, net		2,828			3,940
Goodwill		1,051			1,204
Property and equipment, net		1,150			1,026
Other assets		4,624			3,981
Separate account assets		154,883			150,394
Total assets	$	314,150		$	307,717
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
Property and casualty	$	21,479		$	21,651
Life		18,529			17,980
Other policyholder funds and benefits payable		46,394			45,852
Other policyholder funds and benefits payable — International variable annuities		30,161			32,296
Unearned premiums		5,291			5,221
Short-term debt		—			343
Long-term debt		6,600			5,496
Consumer notes		452			1,136
Other liabilities (includes variable interest entity liabilities of $426 as of June 30, 2010)		11,470			9,454
Separate account liabilities		154,883			150,394
Total liabilities		295,259			289,823
Commitments and Contingencies (Note 9)
Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 575,000 and 3,400,000 shares issued, liquidation preference $1,000 per share		556			2,960
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 469,765,004 and 410,184,182 shares issued		5			4
Additional paid-in capital		10,470			8,985
Retained earnings		11,049			11,164
Treasury stock, at cost — 25,654,189 and 27,177,019 shares		(1,810	)		(1,936	)
Accumulated other comprehensive loss, net of tax		(1,379	)		(3,312	)
Total stockholders’ equity		18,891			17,865
Noncontrolling interest		—			29
Total equity		18,891			17,894
Total liabilities and equity	$	314,150		$	307,717

See Notes to Condensed Consolidated Financial Statements.

7

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Changes in Equity

	Six Months Ended
	June 30,
(In millions, except for share data)	2010			2009
	(Unaudited)
Preferred Stock, at beginning of period	$	2,960		$	—
Issuance of mandatory convertible preferred stock		556			—
Accretion of preferred stock discount on issuance to U.S. Treasury		—			1
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury		440			—
Issuance (redemption) of preferred stock to the U.S. Treasury		(3,400	)		2,920
Preferred Stock, at end of period		556			2,921
Common Stock		5			4
Additional Paid-in Capital, at beginning of period		8,985			7,569
Issuance of warrants to U.S. Treasury		—			480
Issuance of shares under discretionary equity issuance plan		—			16
Issuance of shares under public offering		1,599			—
Issuance of shares under incentive and stock compensation plans		(108	)		(50	)
Reclassification of warrants from other liabilities to equity and extension of warrants’ term		—			186
Tax expense on employee stock options and awards		(6	)		(11	)
Additional Paid-in Capital, at end of period		10,470			8,190
Retained Earnings, at beginning of period, before cumulative effect of accounting change, net of tax		11,164			11,336
Cumulative effect of accounting change, net of tax		26			—
Retained Earnings, at beginning of period, as adjusted		11,190			11,336
Net income (loss)		395			(1,224	)
Cumulative effect of accounting change, net of tax		—			912
Accretion of preferred stock discount on issuance to U.S. Treasury		—			(1	)
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury		(440	)		—
Dividends on preferred stock		(54	)		(2	)
Dividends declared on common stock		(42	)		(30	)
Retained Earnings, at end of period		11,049			10,991
Treasury Stock, at Cost, at beginning of period		(1,936	)		(2,120	)
Issuance of shares under incentive and stock compensation plans from treasury stock		129			69
Return of shares under incentive and stock compensation plans to treasury stock		(3	)		(3	)
Treasury Stock, at Cost, at end of period		(1,810	)		(2,054	)
Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period		(3,312	)		(7,520	)
Cumulative effect of accounting change, net of tax		—			(912	)
Total other comprehensive income		1,933			1,822
Accumulated Other Comprehensive Loss, Net of Tax, at end of period		(1,379	)		(6,610	)
Total Stockholders’ Equity		18,891			13,442
Noncontrolling Interest, at beginning of period (Note 13)		29			92
Change in noncontrolling interest ownership		—			(65	)
Noncontrolling loss		—			(7	)
Recognition of noncontrolling interest in other liabilities		(29	)		—
Noncontrolling Interest, at end of period		—			20
Total Equity	$	18,891		$	13,462
Preferred Shares Outstanding, at beginning of period (in thousands)		3,400			6,048
Conversion of preferred to common shares		—			(6,048	)
Issuance of shares to U.S. Treasury		—			3,400
Issuance of mandatory convertible preferred shares		575			—
Redemption of preferred shares issued to the U.S. Treasury		(3,400	)		—
Preferred Shares Outstanding, at end of period		575			3,400
Common Shares Outstanding, at beginning of period (in thousands)		383,007			300,579
Treasury stock acquired		—			(15	)
Conversion of preferred to common shares		—			24,194
Issuance of shares under discretionary equity issuance plan		—			1,301
Issuance of shares under public offering		59,590			—
Issuance of shares under incentive and stock compensation plans		1,639			854
Return of shares under incentive and stock compensation plans to treasury stock		(125	)		(184	)
Common Shares Outstanding, at end of period		444,111			326,729

See Notes to Condensed Consolidated Financial Statements.

8

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2010		2009			2010		2009
	(Unaudited)					(Unaudited)
Comprehensive Income
Net income (loss)	$	76	$	(15	)	$	395	$	(1,224	)
Other comprehensive income (loss)
Change in net unrealized loss on securities		719		2,373			1,578		2,340
Change in OTTI losses recognized in other comprehensive income		21		(125	)		53		(125	)
Change in net gain (loss) on cash-flow hedging instruments		163		(320	)		229		(368	)
Change in foreign currency translation adjustments		77		164			41		(45	)
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs		18		11			32		20
Total other comprehensive income		998		2,103			1,933		1,822
Total comprehensive income	$	1,074	$	2,088		$	2,328	$	598

See Notes to Condensed Consolidated Financial Statements.

9

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows

	Six Months Ended
	June 30,
(In millions)	2010			2009
	(Unaudited)
Operating Activities
Net income (loss)	$	395		$	(1,224	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Amortization of deferred policy acquisition costs and present value of future profits		1,589			2,933
Additions to deferred policy acquisition costs and present value of future profits		(1,338	)		(1,450	)
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums		200			1,333
Change in reinsurance recoverables		162			(111	)
Change in receivables and other assets		72			249
Change in payables and accruals		(342	)		(389	)
Change in accrued and deferred income taxes		(128	)		(343	)
Net realized capital losses		265			597
Net disbursements from investment contracts related to policyholder funds — International variable annuities		(2,137	)		(892	)
Net decrease in equity securities, trading		2,138			885
Depreciation and amortization		315			259
Goodwill impairment		153			32
Other operating activities, net		(144	)		107
Net cash provided by operating activities		1,200			1,986
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale		23,292			33,229
Equity securities, available-for-sale		158			482
Mortgage loans		1,297			297
Partnerships		249			239
Payments for the purchase of:
Fixed maturities, available-for-sale		(23,796	)		(35,015	)
Equity securities, available-for-sale		(100	)		(251	)
Mortgage loans		(69	)		(214	)
Partnerships		(135	)		(136	)
Proceeds from business sold		130			7
Derivatives, net		584			262
Change in policy loans, net		(8	)		4
Change in payables for collateral under securities lending, net		(46	)		(2,262	)
Other investing activities, net		44			(199	)
Net cash provided by (used for) investing activities		1,600			(3,557	)
Financing Activities
Deposits and other additions to investment and universal life-type contracts		6,410			7,323
Withdrawals and other deductions from investment and universal life-type contracts		(11,183	)		(11,516	)
Net transfers from separate accounts related to investment and universal life-type contracts		4,120			3,646
Proceeds from issuance of long-term debt		1,090			—
Repayments at maturity for long-term debt and payments on capital lease obligations		(343	)		(24	)
Change in commercial paper		—			(375	)
Repayments at maturity or settlement of consumer notes		(684	)		(11	)
Net proceeds from issuance of mandatory convertible preferred stock		556			—
Net proceeds from issuance of shares under public offering		1,600			—
Redemption of preferred stock issued to the U.S. Treasury		(3,400	)		—
Proceeds from issuance of preferred stock and warrants to U.S. Treasury		—			3,400
Net proceeds from issuance of shares under discretionary equity issuance plan		—			14
Proceeds from net issuance of shares under incentive and stock compensation plans and excess tax benefit		14			4
Dividends paid on preferred stock		(64	)		(8	)
Dividends paid on common stock		(40	)		(115	)
Changes in bank deposits and payments on bank advances		(43	)		—
Net cash provided by (used for) financing activities		(1,967	)		2,338
Foreign exchange rate effect on cash		23			(20	)
Net increase in cash		856			747
Cash — beginning of period		2,142			1,811
Cash — end of period	$	2,998		$	2,558
Supplemental Disclosure of Cash Flow Information
Net Cash Paid (Received) During the Period For:
Income taxes	$	248		$	(468	)
Interest	$	233		$	243

See Notes to Condensed Consolidated Financial Statements

10

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 Accounting Policies

Basis of Presentation

The Hartford Financial Services Group, Inc. is a financial holding company for a group of subsidiaries that provide investment products and life and property and casualty insurance to both individual and business customers in the United States (collectively, “The Hartford” or the “Company”). Also, The Hartford continues to administer business previously sold in Japan and the U.K.

The Condensed Consolidated Financial Statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

The accompanying Condensed Consolidated Financial Statements and Notes as of June 30, 2010, and for the three and six months ended June 30, 2010 and 2009 are unaudited. These financial statements reflect all adjustments (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. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in The Hartford’s 2009 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

Consolidation

The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities in which the Company is required to consolidate. Entities in which the Company has significant influence over the operating and financing decisions but are not required to consolidate are reported using the equity method. Material intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated. For further discussions on variable interest entities see Note 5 and Note 13.

Reclassifications

Certain reclassifications have been made to prior period financial information to conform to the current period classifications.

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 reserves, net of reinsurance; life estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; goodwill impairment; valuation of investments and derivative instruments; pension and other postretirement benefit obligations; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report, which should be read in conjunction with these accompanying Condensed Consolidated Financial Statements.

11

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

1. Basis of Presentation and Accounting Policies (continued)

Adoption of New Accounting Standards

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) updated the guidance which amends the consolidation requirements applicable to variable interest entities (“VIE”). Under this new guidance, an entity would consolidate a VIE when the entity has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The FASB also issued an amendment to this guidance in February 2010 which defers application of this guidance to certain entities that apply specialized accounting guidance for investment companies. The Company adopted this guidance on January 1, 2010. As a result of adoption, in addition to those VIEs the Company consolidates under the previous guidance, the Company consolidated a Company sponsored Collateralized Debt Obligation (“CDO”), electing the fair value option, and a Company sponsored Collateralized Loan Obligation, at carrying values carried forward as if the Company had been the primary beneficiary from the date the Company entered into the VIE arrangement. The impact on the Company’s Condensed Consolidated Balance Sheet as a result of adopting this new guidance was an increase in assets of $432, an increase in liabilities of $406, and an increase in January 1, 2010 retained earnings, net of tax, of $26. The Company has investments in mutual funds, limited partnerships and other alternative investments, including hedge funds, mortgage and real estate funds, mezzanine debt funds, and private equity and other funds which may be VIEs. The accounting for these investments will remain unchanged as they fall within the scope of the deferral of this new consolidation guidance. See Note 5 for further discussion.

Future Adoption of New Accounting Standards

Embedded Credit Derivatives

In March 2010, the FASB issued guidance clarifying the scope exception for credit derivatives embedded within structured securities which may result in bifurcation of these credit derivatives. Embedded credit derivatives resulting only from subordination of one financial instrument to another continue to qualify for the exemption. As a result, investments with an embedded credit derivative in a form other than the above mentioned subordination may need to be separately accounted for as an embedded credit derivative meaning that changes in the fair value of the embedded credit derivative are recorded in current period earnings. Upon adoption, an entity may elect the fair value option, with changes in fair value of the investment in its entirety recognized in earnings, rather than bifurcate the embedded credit derivative. The guidance is effective, on a prospective basis only, for fiscal years and interim periods within those fiscal years, beginning on or after June 15, 2010. The Company adopted this guidance on July 1, 2010, and reclassified approximately $200, after-tax, of unrealized capital losses recorded in Accumulated Other Comprehensive Income, to Retained Earnings.

12

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

1. Basis of Presentation and Accounting Policies (continued)

Income Taxes

A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Tax expense (benefit) at U.S. Federal statutory rate	$	(2	)	$	6		$	185		$	(700	)
Tax-exempt interest		(38	)		(38	)		(78	)		(75	)
Dividends received deduction		(40	)		(39	)		(81	)		(79	)
Investment valuation allowance		—			—			86			—
Nondeductible costs associated with warrants		—			103			—			78
Other		(3	)		1			21			1
Income tax expense (benefit)	$	(83	)	$	33		$	133		$	(775	)

The separate account dividends received deduction (“DRD”) is estimated for the current year using information from the prior year-end, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. Given recent financial markets’ volatility, the Company is reviewing its DRD computations on a quarterly basis.

The Company’s unrecognized tax benefits were unchanged during the six months ended June 30, 2010, remaining at $48 as of June 30, 2010. This entire amount, if it were recognized, would affect the effective tax rate for the applicable periods.

The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). Audits have been concluded for all years through 2006. The audit of 2007 and 2008 commenced in the second quarter of 2010. In addition, the Company is working with the IRS on a possible settlement of a DRD issue related to prior periods which, if settled, may result in the booking of tax benefits. Such benefits are not expected to be material to the statement of operations.

The Company’s net deferred tax asset as of June 30, 2010 and December 31, 2009 includes a net deferred tax liability of $1,161 and $849, respectively, for the Company’s International subsidiary in Japan.

The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. The deferred tax asset valuation allowance as of June 30, 2010 was approximately $172, which has not materially changed from the first quarter of 2010. In assessing the need for a valuation allowance, management considered future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and taxable income in prior carry back years, as well as tax planning strategies that include holding debt securities with market value losses until recovery, selling appreciated securities to offset capital losses, and sales of certain corporate assets, including subsidiaries. Such tax planning strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset. An increase in interest rates can adversely impact the Company’s tax planning strategies and in particular the Company’s ability to utilize tax benefits to offset certain previously recognized realized capital losses.

Also, for the three months ended March 31, 2010, the Company incurred a charge of $19 related to a decrease in deferred tax assets as a result of recent federal legislation that will reduce the tax deduction available to the Company related to retiree health care costs beginning in 2013.

13

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

2. Earnings (Loss) Per Share

The following table presents a reconciliation of net income (loss) and shares used in calculating basic earnings (loss) per common share to those used in calculating diluted earnings (loss) per common share.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions, except for per share data)	2010		2009			2010			2009
Income (loss)
Net income (loss)	$	76	$	(15	)	$	395		$	(1,224	)
Less: Preferred stock dividends and accretion of discount		11		3			494			3
Net income (loss) available to common shareholders	$	65	$	(18	)	$	(99	)	$	(1,227	)
Common shares
Basic
Weighted average common shares outstanding		443.9		325.4			418.8			323.1
Diluted
Warrants		35.2		—			—			—
Stock compensation plans		1.1		—			—			—
Weighted average shares outstanding and dilutive potential common shares		480.2		325.4			418.8			323.1
Earnings (loss) per common share
Basic	$	0.15	$	(0.06	)	$	(0.24	)	$	(3.80	)
Diluted	$	0.14	$	(0.06	)	$	(0.24	)	$	(3.80	)

On March 23, 2010, The Hartford issued 23 million depositary shares, each representing a 1/40th interest in The Hartford’s 7.25% mandatory convertible preferred stock, Series F. These shares and the related dividend adjustment are included in diluted earnings per share, if dilutive, using the if converted method. For additional information on the mandatory convertible preferred stock see Note 13.

As a result of the net loss in the three months ended June 30, 2009, the Company is required to use basic weighted average common shares outstanding in the calculation of the three months ended June 30, 2009 diluted loss per share, since the inclusion of 0.7 million shares for stock compensation plans calculation and 0.5 million for warrants would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 326.6 million.

For the three months ended June 30, 2010, 20.8 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. Assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 501.0 million.

As a result of the net loss in the six months ended June 30, 2009, the Company is required to use basic weighted average common shares outstanding in the calculation of the six months ended June 30, 2009 diluted loss per share, since the inclusion of 0.2 million shares for warrants and 0.7 million shares for stock compensation plans would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 324.0 million.

As a result of the net loss available to common shareholders for the six months ended June 30, 2010, the Company is required to use basic weighted average common shares outstanding in the calculation of the six months ended June 30, 2010 diluted loss per share, since the inclusion of 1.2 million shares for stock compensation plans, 34.4 million shares for warrants and 12.1 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. In the absence of the net loss available to common shareholders and assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 466.5 million.

14

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

3. Segment Information

The Hartford is organized into two major operations: Life and Property & Casualty, each containing reporting segments. Within the Life and Property & Casualty operations, The Hartford conducts business principally in eleven reporting segments. Corporate primarily includes the Company’s debt financing and related interest expense, as well as other capital raising activities, banking operations and certain purchase accounting adjustments.

Life

Effective for first quarter 2010 reporting, Life made changes to its segments as described below. Life changed its reporting structure to realign mutual funds businesses into Retirement from Global Annuity — U.S. (formerly the Retail Products Group or “Retail”). In addition, certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries have been moved from Global Annuity — U.S. to Life Other, with no impact on net income in either Global Annuity — U.S. or Life Other. The impact of these changes on the annual periods presented in The Hartford’s 2009 Annual Report on Form 10-K, which annual periods are not contained in the accompanying interim financial statements, is disclosed in the following tables:

	As Reported in the		Realignment of			Movement of
	2009 Annual Report		Mutual Fund			Non-Proprietary			Segment Results,
Revenues	on Form 10-K		Businesses			Product Results			As Revised
For the year ended December 31, 2009
Global Annuity — U.S. (formerly Retail)	$	2,132	$	(517	)	$	(149	)	$	1,466
Retirement		324		517			—			841
Life Other		58		—			149			207
For the year ended December 31, 2008
Global Annuity — U.S. (formerly Retail)	$	2,753	$	(666	)	$	(150	)	$	1,937
Retirement		338		666			—			1,004
Life Other		60		—			150			210
For the year ended December 31, 2007
Global Annuity — U.S. (formerly Retail)	$	3,055	$	(688	)	$	(140	)	$	2,227
Retirement		242		688			—			930
Life Other		67		—			140			207

	As Reported in the			Realignment of
	2009 Annual Report			Mutual Fund			Segment Results,
Net Income (Loss)	on Form 10-K			Businesses			As Revised
For the year ended December 31, 2009
Global Annuity — U.S. (formerly Retail)	$	(410	)	$	(34	)	$	(444	)
Retirement		(222	)		34			(188	)
For the year ended December 31, 2008
Global Annuity — U.S. (formerly Retail)	$	(1,399	)	$	(37	)	$	(1,436	)
Retirement		(157	)		37			(120	)
For the year ended December 31, 2007
Global Annuity — U.S. (formerly Retail)	$	812		$	(65	)	$	747
Retirement		61			65			126

Life is organized into six reporting segments, Global Annuity — U.S., Global Annuity — International, Retirement, Individual Life, Group Benefits and Institutional.

Global Annuity — U.S. offers individual variable, fixed market value adjusted (“MVA”), and single premium immediate annuities.

Global Annuity — International administers investments, retirement savings and other insurance and savings products to individuals and groups outside the United States. The Company’s Japan operation is the largest component of the Global Annuity — International segment.

Retirement provides products and services to corporations pursuant to Section 401(k) and products and services to municipalities and not-for-profit organizations under Section 457 and 403(b) of the IRS code, as well as Retail mutual funds, Insurance Product mutual funds, Investment-Only mutual funds and 529 college savings plans.

Individual Life sells a variety of life insurance products, including variable universal life, universal life, and term life.

15

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

3. Segment Information (continued)

Group Benefits provides employers, associations, affinity groups and financial institutions with group life, accident and disability coverage, along with other products and services, including voluntary benefits, and group retiree health.

Institutional, primarily offers institutional liability products, such as variable Private Placement Life Insurance (“PPLI”) owned by corporations and high net worth individuals and stable value products. Institutional continues to service existing customers of its suspended businesses, which includes Leveraged PPLI, structured settlements and institutional annuities (primarily terminal funding cases).

Life includes within its Other category corporate items not directly allocated to any of its reportable operating segments; inter-segment eliminations; the mark-to-mark adjustment for the Global Annuity — International variable annuity assets that are classified as equity securities, trading, reported in net investment income and the related change in interest credited reported as a component of benefits, losses and loss adjustment expenses; and includes certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries.

Life charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Inter-segment revenues primarily occur between Life’s Other category and the reporting segments. These amounts primarily include interest income on allocated surplus and interest charges on excess separate account surplus.

Property & Casualty

Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively, “Ongoing Operations”); and the Other Operations segment. For the three months ended June 30, 2010 and 2009, AARP members accounted for earned premiums of $716 and $709, respectively, in Personal Lines. For both the six months ended June 30, 2010 and 2009, AARP members accounted for earned premiums of $1.4 billion in Personal Lines.

Through inter-segment arrangements, Specialty Commercial reimburses Personal Lines, Small Commercial and Middle Market for losses incurred from uncollectible reinsurance and losses incurred under certain liability claims. Earned premiums assumed (ceded) under the inter-segment arrangements were as follows:

	Three Months Ended						Six Months Ended
Net assumed (ceded) earned premiums under	June 30,						June 30,
inter-segment arrangements	2010			2009			2010			2009
Personal Lines	$	(2	)	$	(2	)	$	(3	)	$	(3	)
Small Commercial		(4	)		(6	)		(10	)		(12	)
Middle Market		(2	)		(5	)		(7	)		(11	)
Specialty Commercial		8			13			20			26
Total	$	—		$	—		$	—		$	—

16

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

3. Segment Information (continued)

Financial Measures and Other Segment Information

One of the measures of profit or loss used by The Hartford’s management in evaluating the performance of its Life segments is net income. Net income is also a measure of profit or loss used in evaluating the performance of Ongoing Operations and the Other Operations segment. Within Ongoing Operations, the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial are evaluated by The Hartford’s management primarily based upon underwriting results. Underwriting results represent premiums earned less incurred losses, loss adjustment expenses and underwriting expenses. The sum of underwriting results, net servicing income, net investment income, net realized capital gains and losses, other expenses, and related income taxes is net income (loss).

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Revenues by Product Line	2010			2009			2010			2009
Life
Earned premiums, fees, and other considerations
Global Annuity — U.S.
Variable annuity	$	437		$	314		$	839		$	728
Fixed MVA annuity [1]		1			1			4			—
Total Global Annuity — U.S.		438			315			843			728
Global Annuity — International
Variable annuity		191			183			389			351
Fixed MVA annuity		9			7			17			13
Other		3			8			7			16
Total Global Annuity — International		203			198			413			380
Retirement
401(k)		80			71			156			134
403(b)/457		9			9			20			19
Retail mutual funds		142			120			284			226
Other [2]		32			5			63			7
Total Retirement		263			205			523			386
Individual Life
Variable life		101			109			203			273
Universal life		104			97			209			194
Term / Other life		11			12			24			24
Total Individual Life		216			218			436			491
Group Benefits
Group disability		502			484			1,033			1,014
Group life and accident		514			529			1,026			1,072
Other		58			61			117			126
Total Group Benefits		1,074			1,074			2,176			2,212
Institutional
Institutional investment products		4			81			17			295
PPLI [3]		43			31			83			65
Total Institutional		47			112			100			360
Other		47			51			90			98
Total earned premiums, fees, and other considerations		2,288			2,173			4,581			4,655
Net investment income (loss)
Securities available-for-sale and other		807			739			1,551			1,428
Equity securities, trading		(2,649	)		2,523			(1,948	)		1,799
Total net investment income (loss)		(1,842	)		3,262			(397	)		3,227
Net realized capital gains (losses)		(25	)		(329	)		(261	)		36
Total Life	$	421		$	5,106		$	3,923		$	7,918

[1]	Single premium immediate annuities were transferred from Institutional to Global Annuity — U.S. effective January 1, 2010.
[2]	Includes fee income earned on Insurance Product, Investment-Only and Canadian mutual funds and 529 college savings plan assets under management.
[3]	Includes Leveraged PPLI transferred from Life Other effective January 1, 2010.

17

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

3. Segment Information (continued)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
Revenues by Product Line (continued)	2010		2009			2010			2009
Property & Casualty
Earned premiums
Ongoing Operations
Personal Lines
Automobile	$	710	$	711		$	1,422		$	1,415
Homeowners		284		274			567			549
Total Personal Lines		994		985			1,989			1,964
Small Commercial
Workers’ compensation		300		292			592			588
Package business		282		281			561			564
Automobile		66		70			132			143
Total Small Commercial		648		643			1,285			1,295
Middle Market
Workers’ compensation		202		218			414			431
Property		130		139			262			285
Automobile		64		74			129			151
Liability		91		107			183			219
Total Middle Market		487		538			988			1,086
Specialty Commercial
Workers’ compensation		71		66			142			131
Property		7		7			15			23
Automobile		21		21			43			43
Liability		44		52			91			110
Fidelity and surety		57		64			113			131
Professional liability		80		101			163			205
Total Specialty Commercial		280		311			567			643
Total Ongoing Operations		2,409		2,477			4,829			4,988
Other Operations		1		1			1			1
Total earned premiums		2,410		2,478			4,830			4,989
Other revenues [1]		120		120			238			238
Net investment income		340		280			649			505
Net realized capital gains (losses)		36		(78	)		(4	)		(401	)
Total Property & Casualty		2,906		2,800			5,713			5,331
Corporate		9		(269	)		19			(218	)
Total revenues	$	3,336	$	7,637		$	9,655		$	13,031

[1] Represents servicing revenue.

18

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

3. Segment Information (continued)

The following table presents net income (loss) for each of Life’s reporting segments, total Property & Casualty Ongoing Operations, Property & Casualty Other Operations and Corporate, while underwriting results are presented for the Personal Lines, Small Commercial, Middle Market and Specialty Commercial segments.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Net Income (Loss)	2010			2009			2010			2009
Life
Global Annuity — U.S.	$	(107	)	$	188		$	46		$	(558	)
Global Annuity — International		2			119			25			(174	)
Retirement		37			(36	)		57			(122	)
Individual Life		95			16			111			(2	)
Group Benefits		48			14			99			83
Institutional		(1	)		(66	)		(89	)		(240	)
Other		14			(59	)		25			(69	)
Total Life		88			176			274			(1,082	)
Property & Casualty
Ongoing Operations
Underwriting results
Personal Lines		(73	)		(10	)		(19	)		65
Small Commercial		62			74			145			161
Middle Market		(22	)		56			(10	)		125
Specialty Commercial		111			36			163			59
Total Ongoing Operations underwriting results		78			156			279			410
Net servicing income [1]		10			7			17			15
Net investment income		298			239			566			424
Net realized capital gains (losses)		16			(80	)		(20	)		(369	)
Other expenses		(53	)		(48	)		(107	)		(98	)
Income before income taxes		349			274			735			382
Income tax expense		88			52			236			49
Ongoing Operations		261			222			499			333
Other Operations		(73	)		(49	)		(54	)		(48	)
Total Property & Casualty		188			173			445			285
Corporate		(200	)		(364	)		(324	)		(427	)
Net income (loss)	$	76		$	(15	)	$	395		$	(1,224	)

[1] Net of expenses related to service business.

19

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits

The following financial instruments are carried at fair value in the Company’s Condensed Consolidated Financial Statements: fixed maturities and equity securities, available-for-sale (“AFS”), equity securities, trading, short-term investments, freestanding and embedded derivatives, separate account assets and certain other liabilities.

The following section and Note 4a apply the fair value hierarchy and disclosure requirements for the Company’s financial instruments that are carried at fair value. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).

Level 1	Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity securities, open-ended mutual funds reported in separate account assets and derivative securities, including futures and certain option contracts.
Level 2	Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most fixed maturities and preferred stocks, including those reported in separate account assets, are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are derivative instruments that are priced using models with significant observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs.
Level 3	Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as highly structured and/or lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below- prime loans, and private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivative securities, including customized guaranteed minimum withdrawal benefit (“GMWB”) hedging derivatives (see Note 4a for further information on GMWB product related financial instruments), equity derivatives, long dated derivatives, swaps with optionality, certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain unobservable market inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.

In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. Transfers of securities among the levels occur at the beginning of the reporting period. Transfers between Level 1 and Level 2 were not material for the three and six months ended June 30, 2010. In most cases, both observable (e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such as they are primarily priced by independent brokers and/or within illiquid markets (i.e. below-prime RMBS).

20

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements. The following tables present assets and (liabilities) carried at fair value by hierarchy level, excluding those related to the Company’s living benefits and associated hedging programs, which are reported in Note 4a.

	June 30, 2010
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	3,012		$	—	$	2,464		$	548
CDOs		2,824			—		46			2,778
CMBS		8,719			—		8,067			652
Corporate		38,834			—		30,018			8,816
Foreign government/government agencies		1,716			—		1,665			51
States, municipalities and political subdivisions (“Municipal”)		12,516			—		12,199			317
RMBS		4,772			—		3,306			1,466
U.S. Treasuries		4,739			1,410		3,329			—
Total fixed maturities, AFS		77,132			1,410		61,094			14,628
Equity securities, trading		30,183			2,101		28,082			—
Equity securities, AFS		1,103			301		722			80
Derivative assets
Credit derivatives		(30	)		—		2			(32	)
Equity derivatives		(1	)		—		—			(1	)
Foreign exchange derivatives		463			—		463			—
Interest rate derivatives		66			—		82			(16	)
Other derivative contracts		35			—		—			35
Total derivative assets [1]		533			—		547			(14	)
Short-term investments		8,731			1,853		6,878			—
Separate account assets [2]		139,472			103,518		35,017			937
Total assets accounted for at fair value on a recurring basis	$	257,154		$	109,183	$	132,340		$	15,631
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Institutional notes	$	2		$	—	$	—		$	2
Equity linked notes		(7	)		—		—			(7	)
Total other policyholder funds and benefits payable		(5	)		—		—			(5	)
Derivative liabilities
Credit derivatives		(558	)		—		(57	)		(501	)
Equity derivatives		1			—		—			1
Foreign exchange derivatives		(47	)		—		(47	)		—
Interest rate derivatives		(160	)		—		(127	)		(33	)
Total derivative liabilities [3]		(764	)		—		(231	)		(533	)
Other liabilities		(16	)		—		—			(16	)
Consumer notes [4]		(4	)		—		—			(4	)
Total liabilities accounted for at fair value on a recurring basis	$	(789	)	$	--	$	(231	)	$	(558	)

[1]	Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of June 30, 2010, $1.5 billion of a cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities.
[2]	As of June 30, 2010, excludes approximately $15 billion of investment sales receivable that are not subject to fair value accounting.
[3]	Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[4]	Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

21

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

	December 31, 2009
				Quoted Prices
				in Active		Significant		Significant
				Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
	Total			(Level 1)		(Level 2)		(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,523		$	—	$	1,943	$	580
CDOs		2,892			—		57		2,835
CMBS		8,544			—		8,237		307
Corporate		35,243			—		27,216		8,027
Foreign government/government agencies		1,408			—		1,315		93
Municipal		12,065			—		11,803		262
RMBS		4,847			—		3,694		1,153
U.S. Treasuries		3,631			526		3,105		—
Total fixed maturities, AFS		71,153			526		57,370		13,257
Equity securities, trading		32,321			2,443		29,878		—
Equity securities, AFS		1,221			259		904		58
Derivative assets [1]		178			—		97		81
Short-term investments		10,357			6,846		3,511		—
Separate account assets [2]		147,432			112,877		33,593		962
Total assets accounted for at fair value on a recurring basis	$	262,662		$	122,951	$	125,353	$	14,358
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Institutional notes	$	(2	)	$	—	$	—	$	(2	)
Equity linked notes		(10	)		—		—		(10	)
Total other policyholder funds and benefits payable		(12	)		—		—		(12	)
Derivative liabilities [3]		(214	)		—		56		(270	)
Consumer notes [4]		(5	)		—		—		(5	)
Total liabilities accounted for at fair value on a recurring basis	$	(231	)	$	—	$	56	$	(287	)

[1]	Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of December 31, 2009, $149 of a cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities.
[2]	As of December 31, 2009, excludes approximately $3 billion of investment sales receivable that are not subject to fair value accounting.
[3]	Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[4]	Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion reflect market-participant objectives and are based on the application of the fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices where available and where prices represent a reasonable estimate of fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s default spreads, liquidity and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above tables.

22

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

Available-for-Sale Securities, Equity Securities, Trading, and Short-term Investments

The fair value of AFS securities, equity securities, trading, and short-term investments in an active and orderly market (e.g. not distressed or forced liquidation) is determined by management after considering one of three primary sources of information: third-party pricing services, independent broker quotations or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third-party pricing services, the remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services will normally derive the security prices from recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the third-party pricing services and independent brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of ABS and RMBS are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. Actual prepayment experience may vary from these estimates.

Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding. A pricing matrix is used to price securities for which the Company is unable to obtain either a price from a third-party pricing service or an independent broker quotation, by discounting the expected future cash flows from the security by a developed market discount rate utilizing current credit spreads. Credit spreads are developed each month using market based data for public securities adjusted for credit spread differentials between public and private securities which are obtained from a survey of multiple private placement brokers.

The Company performs a monthly analysis of the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. As a part of this analysis, the Company considers trading volume and other factors to determine whether the decline in market activity is significant when compared to normal activity in an active market, and if so, whether transactions may not be orderly considering the weight of available evidence. If the available evidence indicates that pricing is based upon transactions that are stale or not orderly, the Company places little, if any, weight on the transaction price and will estimate fair value utilizing an internal pricing model. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of third-party pricing services’ methodologies, review of pricing statistics and trends, back testing recent trades, and monitoring of trading volumes, new issuance activity and other market activities. In addition, the Company ensures that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company’s internal pricing model utilizes the Company’s best estimate of expected future cash flows discounted at a rate of return that a market participant would require. The significant inputs to the model include, but are not limited to, current market inputs, such as credit loss assumptions, estimated prepayment speeds and market risk premiums.

The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided by third-party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated. Internal matrix priced securities, primarily consisting of certain private placement securities, are also classified as Level 3 due to significant non-observable inputs.

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are fair valued using pricing valuation models; that utilize independent market data inputs, quoted market prices for exchange-traded derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of June 30, 2010 and December 31, 2009, 98% and 97%, respectively, of derivatives, based upon notional values, were priced by valuation models or quoted market prices. The remaining derivatives were priced by broker quotations. The Company performs a monthly analysis on derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include, but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in the market environment, and review of changes in market value for each derivative including those derivatives priced by brokers.

23

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

The Company utilizes 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 assets and liabilities. Therefore the realized and unrealized gains and losses on derivatives reported in Level 3 may not reflect the offsetting impact of the realized and unrealized gains and losses of the associated assets and liabilities.

Valuation techniques and inputs for investments

Generally, the Company determines the estimated fair value of its AFS securities and short-term investments using the market approach. The income approach is used for securities priced using a pricing matrix, as well as for derivative instruments. For Level 1 investments, which are comprised of U.S. Treasuries, equity securities, short-term investments, and exchange traded futures and option contracts, valuations are based on observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.

For most of the Company’s debt securities, the following inputs are typically used in the Company’s pricing methods: reported trades, benchmark yields, bids, offers and/or estimated cash flows. For securities except U.S. Treasuries, inputs also include issuer spreads, which may utilize credit default swaps. Derivative instruments are valued using mid-market inputs that are predominantly observable in the market.

A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:

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

• ABS, CDOs, CMBS and RMBS— Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, credit default swap indices and, for RMBS, estimated prepayment rates.

• Corporates- Primary inputs also include observations of equity and credit default swap curves related to the issuer.

• Foreign government/government agencies- Primary inputs also include observations of equity and credit default swap curves related to the issuer and political events in emerging markets.

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

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

• Equity securities, trading— Consist of investments in mutual funds. Primary inputs include net asset values obtained from third party pricing services.

• Credit derivatives-Significant inputs primarily include the swap yield curve and credit curves.

• Foreign exchange derivatives-Significant inputs primarily include the swap yield curve, currency spot and forward rates, and cross currency basis curves.

• Interest rate derivatives-Significant input is primarily the swap yield curve.

Level 3 Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as bank loans. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but also may include the following:

• Credit derivatives-Significant unobservable inputs may include credit correlation and swap yield curve and credit curve extrapolation beyond observable limits.

• Equity derivatives —Significant unobservable inputs may include equity volatility.

• Interest rate contracts —Significant unobservable inputs may include swap yield curve extrapolation beyond observable limits and interest rate volatility.

Separate Account Assets

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company.

24

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

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

The tables below provide fair value roll forwards for the three and six months ending June 30, 2010 and 2009, for the financial instruments classified as Level 3, excluding those related to the Company’s living benefits and associated hedging programs, which are reported in Note 4a.

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the three months ended June 30, 2010

																					Changes in unrealized
	Fair value			Total realized/unrealized					Purchases,									Fair value			gains (losses) included in
	as of			gains (losses) included in:					issuances,			Transfers			Transfers			as of			net income related to
	March 31,			Net					and			in to			out of			June 30,			financial instruments still
Asset (Liability)	2010			income [1]			OCI [2]		settlements			Level 3 [3]			Level 3 [3]			2010			held at June 30, 2010 [1]
Assets
Fixed maturities, AFS
ABS	$	533		$	(3	)	$	15	$	(13	)	$	28		$	(12	)	$	548		$	(4	)
CDO		2,749			(22	)		105		(48	)		11			(17	)		2,778			(28	)
CMBS		442			(42	)		189		(17	)		139			(59	)		652			(39	)
Corporate		8,612			6			103		61			174			(140	)		8,816			2
Foreign govt./govt. agencies		59			—			—		(2	)		—			(6	)		51			—
Municipal		322			—			16		(21	)		—			—			317			—
RMBS		1,174			(21	)		75		238			—			—			1,466			(16	)
Total fixed maturities, AFS		13,891			(82	)		503		198			352			(234	)		14,628			(85	)
Equity securities, AFS		65			(1	)		2		8			6			—			80			(4	)
Freestanding derivatives
Credit derivatives		(491	)		(47	)		—		5			—			—			(533	)		(47	)
Equity derivatives		(1	)		1			—		—			—			—			—			1
Interest rate derivatives		(6	)		1			—		(44	)		—			—			(49	)		(20	)
Other derivative contracts		35			—			—		—			—			—			35			—
Total freestanding derivatives [4]		(463	)		(45	)		—		(39	)		—			—			(547	)		(66	)
Separate accounts [5]		955			(2	)		—		5			(2	)		(19	)		937			9
Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(7	)	$	9		$	—	$	—		$	—		$	—		$	2		$	9
Equity linked notes		(9	)		2			—		—			—			—			(7	)		2
Total other policyholder funds and benefits payable		(16	)		11			—		—			—			—			(5	)		11
Other liabilities		(22	)		6			—		—			—			—			(16	)		—
Consumer notes		(5	)		1			—		—			—			—			(4	)		1

[1]	All amounts in these columns are reported in net realized capital gains (losses) except for less than $1, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of deferred policy acquisition costs and present value of future profits (“DAC”).
[2]	OCI refers to “Other comprehensive income” in the Condensed Consolidated Statement of Comprehensive Income. All amounts are before income taxes and amortization of DAC.
[3]	Transfers in and/or (out) of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs.
[4]	Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[5]	The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

25

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the six months ended June 30, 2010

																					Changes in unrealized
	Fair value			Total realized/unrealized					Purchases,									Fair value			gains (losses) included in
	as of			gains (losses) included in:					issuances,			Transfers			Transfers			as of			net income related to
	January 1,			Net					and			in to			out of			June 30,			financial instruments still
Asset (Liability)	2010			income [1]			OCI [2]		settlements			Level 3 [3]			Level 3 [3]			2010			held at June 30, 2010 [1]
Assets
Fixed maturities, AFS
ABS	$	580		$	(3	)	$	43	$	(23	)	$	28		$	(77	)	$	548		$	(4	)
CDO		2,835			(85	)		320		(67	)		27			(252	)		2,778			(91	)
CMBS		307			(114	)		275		(23	)		266			(59	)		652			(110	)
Corporate		8,027			8			232		277			510			(238	)		8,816			2
Foreign govt./govt. agencies		93			—			2		(8	)		6			(42	)		51			—
Municipal		262			—			34		25			—			(4	)		317			—
RMBS		1,153			(34	)		164		206			—			(23	)		1,466			(29	)
Total fixed maturities, AFS		13,257			(228	)		1,070		387			837			(695	)		14,628			(232	)
Equity securities, AFS		58			(2	)		9		9			6			—			80			(5	)
Freestanding derivatives
Credit derivatives		(228	)		(20	)		—		5			(290	)		—			(533	)		(20	)
Equity derivatives		(2	)		2			—		—			—			—			—			2
Interest rate derivatives		5			1			—		(44	)		—			(11	)		(49	)		(20	)
Other derivative contracts		36			(1	)		—		—			—			—			35			(1	)
Total freestanding derivatives [4]		(189	)		(18	)		—		(39	)		(290	)		(11	)		(547	)		(39	)
Separate accounts [5]		962			16			—		82			4			(127	)		937			13
Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(2	)	$	4		$	—	$	—		$	—		$	—		$	2		$	4
Equity linked notes		(10	)		3			—		—			—			—			(7	)		3
Total other policyholder funds and benefits payable		(12	)		7			—		—			—			—			(5	)		7
Other liabilities		—			(5	)		—		—			(11	)		—			(16	)		—
Consumer notes		(5	)		1			—		—			—			—			(4	)		1

[1]	All amounts in these columns are reported in net realized capital gains (losses) except for less than $1, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	Transfers in and/or (out) of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs. Transfers in also include the consolidation of additional VIEs due to the adoption of new accounting guidance on January 1, 2010, as well as the election of fair value option for one of these VIEs.
[4]	Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[5]	The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

26

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the three months ended June 30, 2009

																			Changes in unrealized
																			gains (losses)
	Fair value			Total realized/unrealized						Purchases,									included in net income
	as of			gains (losses) included in:						issuances,			Transfers in			Fair value			related to financial
	March 31,			Net income						and			and/or (out)			as of			instruments still held at
Asset (Liability)	2009			[1]			OCI [2]			settlements			of Level 3 [3]			June 30, 2009			June 30, 2009 [1]
Assets
Fixed maturities, AFS
ABS	$	544		$	(7	)	$	75		$	(29	)	$	(81	)	$	502		$	(8	)
CDO		2,422			(73	)		246			(33	)		—			2,562			(94	)
CMBS		188			(35	)		47			(4	)		2			198			(26	)
Corporate		6,597			6			427			(36	)		(464	)		6,530			(26	)
Foreign govt./govt. agencies		65			—			4			(1	)		—			68			—
Municipal		180			—			—			(13	)		47			214			—
RMBS		1,278			(51	)		(34	)		157			3			1,353			(85	)
Total fixed maturities, AFS		11,274			(160	)		765			41			(493	)		11,427			(239	)
Equity securities, AFS		510			—			74			2			(358	)		228			—
Freestanding derivatives [4]		(380	)		85			(5	)		21			(3	)		(282	)		91
Separate accounts [5]		639			—			—			23			11			673			12
Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(25	)	$	27		$	—		$	—		$	—		$	2		$	27
Equity linked notes		(5	)		(1	)		—			—			—			(6	)		(1	)
Total other policyholder funds and benefits payable		(30	)		26			—			—			—			(4	)		26
Consumer notes		(4	)		—			—			—			—			(4	)		—

[1]	All amounts in these columns are reported in net realized capital gains/losses except for $1 for the three months ended June 30, 2009, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization DAC.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information and re-evaluation of the observability of pricing inputs.
[4]	Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[5]	The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

27

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the six months ended June 30, 2009

																			Changes in unrealized
																			gains (losses)
	Fair value			Total realized/unrealized						Purchases,									included in net income
	as of			gains (losses) included in:						issuances,			Transfers in			Fair value			related to financial
	January 1,			Net income						and			and/or (out)			as of			instruments still held at
Asset (Liability)	2009			[1]			OCI [2]			settlements			of Level 3 [3]			June 30, 2009			June 30, 2009 [1]
Assets
Fixed maturities, AFS
ABS	$	536		$	(9	)	$	36		$	1		$	(62	)	$	502		$	(8	)
CDO		2,612			(95	)		98			(53	)		—			2,562			(94	)
CMBS		341			(48	)		28			(8	)		(115	)		198			(26	)
Corporate		6,396			(60	)		407			198			(411	)		6,530			(26	)
Foreign govt./govt. agencies		100			—			(2	)		(10	)		(20	)		68			—
Municipal		163			—			(7	)		(13	)		71			214			—
RMBS		1,662			(169	)		(244	)		101			3			1,353			(85	)
Total fixed maturities, AFS		11,810			(381	)		316			216			(534	)		11,427			(239	)
Equity securities, AFS		541			(1	)		(1	)		(2	)		(309	)		228			—
Freestanding derivatives [4]		(281	)		(5	)		(10	)		20			(6	)		(282	)		9
Separate accounts [5]		786			(122	)		—			110			(101	)		673			(73	)
Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(41	)	$	43		$	—		$	—		$	—		$	2		$	43
Equity linked notes		(8	)		2			—			—			—			(6	)		2
Total other policyholder funds and benefits payable		(49	)		45			—			—			—			(4	)		45
Other derivative liabilities [6]		(163	)		70			—			93			—			—			—
Consumer notes		(5	)		1			—			—			—			(4	)		1

[1]	All amounts in these columns are reported in net realized capital gains (losses) except for $2 for the six months ended June 30, 2009, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information and re-evaluation of the observability of pricing inputs.
[4]	Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[5]	The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.
[6]	On March 26, 2009, certain of the Allianz warrants were reclassified to equity, at their current fair value, as shareholder approval of the conversion of these warrants to common shares was received. See Note 21 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report for further discussion.

28

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

Fair Value Option

The Company elected the fair value option for one of its consolidated VIEs in order to employ a consistent accounting model for the VIE’s assets and liabilities. The fair value option requires the VIE’s assets and liabilities to be reported in the Company’s Condensed Consolidated Balance Sheets at fair value with the changes in fair value reported in net realized capital gains and losses in the Company’s Condensed Consolidated Statements of Operations. The VIE is an investment vehicle that holds high quality investments, derivative instruments that references third-party corporate credit and issues notes to investors that reflect the credit characteristics of the high quality investments and derivative instruments. The risks and rewards associated with the assets of the VIE inure to the investors. The investors have no recourse against the Company. As a result, there has been no adjustment to the market value of the notes for the Company’s own credit risk.

The following table presents the gains and losses recorded for those assets and liabilities accounted for using the fair value option:

	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010
Assets
Fixed maturities
ABS	$	1		$	2
Corporate		(4	)		(4	)
Other liabilities
Credit-linked notes		6			(5	)
Total realized capital gains (losses)	$	3		$	(7	)

Included in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2010, are high quality investments of $328 in fixed maturities, and other liabilities comprised of derivative instruments of $293 and notes at fair value of $16 with an outstanding principal balance of $243. Electing the fair value option resulted in lowering other liabilities with an offsetting impact to the cumulative effect adjustment to retained earnings of $232, representing the difference between the fair value and outstanding principal of the notes as of January 1, 2010.

Financial Instruments Not Carried at Fair Value

The following table presents carrying amounts and fair values of The Hartford’s financial instruments not carried at fair value and not included in the above fair value discussion as of June 30, 2010 and December 31, 2009.

	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets
Policy loans	$	2,182	$	2,342	$	2,174	$	2,321
Mortgage loans		4,673		4,499		5,938		5,091
Liabilities
Other policyholder funds and benefits payable [1]	$	11,532	$	11,771	$	12,330	$	12,513
Senior notes [2]		4,879		4,906		4,054		4,037
Junior subordinated debentures [2]		1,721		2,225		1,717		2,338
Consumer notes [3]		448		466		1,131		1,194

[1]	Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance.
[2]	Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.
[3]	Excludes amounts carried at fair value and included in disclosures above.

As of June 30, 2010 and December 31, 2009, included in other liabilities in the Condensed Consolidated Balance Sheets are carrying amounts of $248 and $273, respectively, for deposits and $60 and $78, respectively, for Federal Home Loan Bank advances related to Federal Trust Corporation. These carrying amounts approximate fair value.

The Company has not made any changes in its valuation methodologies for the following assets and liabilities since December 31, 2009.

• Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates.

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

• Fair values for other policyholder funds and benefits payable, not carried at fair value, are determined by estimating future cash flows, discounted at the current market rate.

• Fair values for senior notes and junior subordinated debentures are based primarily on market quotations from independent third-party pricing services.

29

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

4a. Fair Value Measurements — Guaranteed Living Benefits

These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments related to variable annuity product guaranteed living benefits and the related variable annuity hedging program and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements. The following tables present assets and (liabilities) related to the guaranteed living benefits program carried at fair value by hierarchy level.

	June 30, 2010
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Variable annuity hedging derivatives	$	870		$	—		$	(48	)	$	918
Macro hedge program		833			4			187			642
Reinsurance recoverable for U.S. GMWB		550			—			—			550
Total assets accounted for at fair value on a recurring basis	$	2,253		$	4		$	139		$	2,110
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. guaranteed withdrawal benefits	$	(3,148	)	$	—		$	—		$	(3,148	)
International guaranteed withdrawal benefits		(72	)		—			—			(72	)
International other guaranteed living benefits		(1	)		—			—			(1	)
Variable annuity hedging derivatives		(33	)		—			(43	)		10
Macro hedge program		20			(1	)		—			21
Total liabilities accounted for at fair value on a recurring basis	$	(3,234	)	$	(1	)	$	(43	)	$	(3,190	)

	December 31, 2009
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Variable annuity hedging derivatives	$	9		$	—		$	—		$	9
Macro hedge program		203			8			16			179
Reinsurance recoverable for U.S. GMWB		347			—			—			347
Total assets accounted for at fair value on a recurring basis	$	559		$	8		$	16		$	535
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. guaranteed withdrawal benefits	$	(1,957	)	$	—		$	—		$	(1,957	)
International guaranteed withdrawal benefits		(45	)		—			—			(45	)
International other guaranteed living benefits		2			—			—			2
Variable annuity hedging derivatives		43			—			(184	)		227
Macro hedge program		115			(2	)		6			111
Total liabilities accounted for at fair value on a recurring basis	$	(1,842	)	$	(2	)	$	(178	)	$	(1,662	)

30

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

Product Derivatives

The Company currently offers certain variable annuity products with GMWB riders in the U.S., and formerly offered such products in the U.K. and Japan. The GMWB represents an embedded derivative in the variable annuity contract. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, is carried at fair value, with changes in fair value reported in net realized capital gains and losses. The Company’s GMWB liability is reported in other policyholder funds and benefits payable in the Condensed Consolidated Balance Sheets.

In valuing the embedded derivative, the Company attributes to the derivative a portion of the expected fees to be collected over the expected life of the contract from the contract holder equal to the present value of future GMWB claims (the “Attributed Fees”). The excess of fees collected from the contract holder in the current period over the current period’s Attributed Fees are associated with the host variable annuity contract and reported in fee income.

U.S. GMWB Reinsurance Derivative

The Company has reinsurance arrangements in place to transfer a portion of its risk of loss due to GMWB. These arrangements are recognized as derivatives and carried at fair value in reinsurance recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses.

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

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

Fair values for GMWB and guaranteed minimum accumulation benefit (“GMAB”) contracts are calculated using the income approach based upon internally developed models because active, observable markets do not exist for those items. The fair value of the Company’s guaranteed benefit liabilities, classified as embedded derivatives, and the related reinsurance and customized freestanding derivatives is calculated as an aggregation of the following components: Best Estimate Claim Payments; Credit Standing Adjustment; and Margins. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer or receive, for an asset, to or from market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. The fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. In the absence of any transfer of the guaranteed benefit liability to a third party, the release of risk margins is likely to be reflected as realized gains in future periods’ net income. Each component described below is unobservable in the marketplace and requires subjectivity by the Company in determining their value.

Best Estimate Claim Payments

The Best Estimate Claim Payments is calculated based on actuarial and capital market assumptions related to projected cash flows, including the present value of benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior such as lapses, fund selection, resets and withdrawal utilization. For the customized derivatives, policyholder behavior is prescribed in the derivative contract. Because of the dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo stochastic process is used in valuation. The Monte Carlo stochastic process involves the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels. Estimating these cash flows involves numerous estimates and subjective judgments regarding a number of variables — including expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and assumptions about policyholder behavior which emerge over time.

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

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

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

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

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

31

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

As many guaranteed benefit obligations are relatively new in the marketplace, actual policyholder behavior experience is limited. As a result, estimates of future policyholder behavior are subjective and based on analogous internal and external data. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model.

On a daily basis, the Company updates capital market assumptions used in the GMWB liability model such as interest rates and equity indices. On a weekly basis, the blend of implied equity index volatilities is updated. The Company continually monitors various aspects of policyholder behavior and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if credible emerging data indicates that changes are warranted. At a minimum, all policyholder behavior assumptions are reviewed and updated, as appropriate, in conjunction with the completion of the Company’s comprehensive study to refine its estimate of future gross profits during the third quarter of each year.

Credit Standing Adjustment

This assumption makes an adjustment that market participants would make, in determining fair value, to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will not be fulfilled (“nonperformance risk”). As a result of sustained volatility in the Company’s credit default spreads, during 2009 the Company changed its estimate of the Credit Standing Adjustment to incorporate a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. Prior to the first quarter of 2009, the Company calculated the Credit Standing Adjustment by using default rates published by rating agencies, adjusted for market recoverability. The credit standing adjustment assumption, net of reinsurance, resulted in pre-tax realized gains of $22 and $11, for the three months ended June 30, 2010 and 2009, respectively, and $29 and $233 for the six months ended June 30, 2010 and 2009, respectively.

Margins

The behavior risk margin adds a margin that market participants would require, in determining fair value, for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions.

Assumption updates, including policyholder behavior assumptions, affected best estimates and margins for a total pre-tax realized gain of $0 and $118 for the three months ended June 30, 2010 and 2009, respectively and $0 and $432 for the six months ended June 30, 2010 and 2009, respectively.

In addition to the non-market-based updates described above, the Company recognized non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in pre-tax realized gains of approximately $15 and $239, for the three months ended June 30, 2010 and 2009, respectively, and $42 and $391 for the six months ended June 30, 2010 and 2009, respectively.

32

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

The tables below provide fair value roll forwards for the three and six months ended June 30, 2010 and 2009, for the financial instruments related to the Guaranteed Living Benefits Program classified as Levels 1, 2 and 3.

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the three months ended June 30, 2010

																				Changes in unrealized
																				gains (losses) included
	Fair value			Total realized/unrealized						Purchases,							Fair value			in net income related to
	as of			gains (losses) included in:						issuances,			Transfers		Transfers		as of			financial instruments
	March 31,			Net income						and			in to		out of		June 30,			still held at
Asset (liability)	2010			[1] [2] [6]			OCI [2]			settlements [3]			Level 3		Level 3		2010			June 30, 2010 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(166	)	$	208		$	—		$	(133	)	$	—	$	—	$	(91	)		[4]
Level 3		311			617			—			—			—		—		928		$	617
Total variable annuity hedging derivatives		145			825			—			(133	)		—		—		837
Reinsurance recoverable for GMWB		295			246			—			9			—		—		550			246
U.S. guaranteed withdrawal benefits — Level 3		(1,655	)		(1,458	)		—			(35	)		—		—		(3,148	)		(1,458	)
International guaranteed withdrawal benefits — Level 3		(31	)		(39	)		(1	)		(1	)		—		—		(72	)		(39	)
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(1,246	)		(426	)		(1	)		(160	)		—		—		(1,833	)
Macro hedge program [5]
Levels 1 and 2		54			117			—			19			—		—		190			[4]
Level 3		151			280			—			232			—		—		663			300
Total macro hedge program		205			397			—			251			—		—		853
International other guaranteed living benefits — Level 3		4			(5	)		—			—			—		—		(1	)		(5	)

[1]	The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.
[4]	Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.
[5]	The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

33

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the six months ended June 30, 2010

																			Changes in unrealized
																			gains (losses) included
	Fair value			Total realized/unrealized					Purchases,							Fair value			in net income related to
	as of			gains (losses) included in:					issuances,			Transfers		Transfers		as of			to financial instruments
	January 1,			Net income					And			in to		out of		June 30,			still held at
Asset (liability)	2010			[1] [2] [6]			OCI [2]		Settlements [3]			Level 3		Level 3		2010			June 30, 2010 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(184	)	$	123		$	—	$	(30	)	$	—	$	—	$	(91	)		[4]
Level 3		236			539			—		153			—		—		928		$	502
Total variable annuity hedging derivatives		52			662			—		123			—		—		837
Reinsurance recoverable for GMWB		347			185			—		18			—		—		550			185
U.S. guaranteed withdrawal benefits — Level 3		(1,957	)		(1,120	)		—		(71	)		—		—		(3,148	)		(1,120	)
International guaranteed withdrawal benefits — Level 3		(45	)		(24	)		—		(3	)		—		—		(72	)		(24	)
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(1,603	)		(297	)		—		67			—		—		(1,833	)
Macro hedge program [5]
Levels 1 and 2		28			92			—		70			—		—		190			[4]
Level 3		290			141			—		232			—		—		663			161
Total macro hedge program		318			233			—		302			—		—		853
International other guaranteed living benefits — Level 3		2			(2	)		—		(1	)		—		—		(1	)		(2	)

[1]	The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.
[4]	Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.
[5]	The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

34

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the three months ended June 30, 2009

																		Changes in unrealized
																		gains (losses)
	Fair value			Total realized/unrealized						Purchases,					Fair value			included in net income
	as of			gains (losses) included in:						issuances,			Transfers in		as of			related to financial
	March 31,			Net income						and			and/or (out)		June 30,			instruments still held at
Asset (Liability)	2009			[1] [2] [6]			OCI [2]			settlements [3]			of Level 3		2009			June 30, 2009 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(57	)	$	(503	)	$	—		$	393		$	—	$	(167	)		[4]
Level 3		2,379			(1,015	)		—			(342	)		—		1,022		$	(947	)
Total variable annuity hedging derivatives		2,322			(1,518	)		—			51			—		855
Reinsurance recoverable for GMWB		1,058			(433	)		—			7			—		632			(433	)
U.S. guaranteed withdrawal benefits — Level 3		(5,829	)		2,572			—			(32	)		—		(3,289	)		2,573
International guaranteed withdrawal benefits — Level 3		(98	)		50			(7	)		(2	)		—		(57	)		52
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(2,547	)		671			(7	)		24			—		(1,859	)
Macro hedge program [5]
Levels 1 and 2		24			(382	)		—			386			—		28			[4]
Level 3		173			(186	)		—			126			—		113			(186	)
Total macro hedge program		197			(568	)		—			512			—		141
International other guaranteed living benefits — Level 3		(3	)		6			—			(1	)		—		2			3

[1]	The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.
[4]	Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.
[5]	The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

35

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the six months ended June 30, 2009

																		Changes in unrealized
																		gains (losses)
	Fair value			Total realized/unrealized						Purchases,					Fair value			included in net income
	as of			gains (losses) included in:						issuances,			Transfers in		as of			related to financial
	January 1,			Net income						and			and/or (out)		June 30,			instruments still held at
Asset (Liability)	2009			[1] [2] [6]			OCI [2]			settlements [3]			of Level 3		2009			June 30, 2009 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	27		$	(514	)	$	—		$	320		$	—	$	(167	)		[4]
Level 3		2,637			(886	)		—			(729	)		—		1,022		$	(835	)
Total variable annuity hedging derivatives		2,664			(1,400	)		—			(409	)		—		855
Reinsurance recoverable for GMWB		1,302			(685	)		—			15			—		632			(685	)
U.S. guaranteed withdrawal benefits — Level 3		(6,526	)		3,300			—			(63	)		—		(3,289	)		3,301
International guaranteed withdrawal benefits — Level 3		(94	)		45			(3	)		(5	)		—		(57	)		47
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(2,654	)		1,260			(3	)		(462	)		—		(1,859	)
Macro hedge program [5]
Levels 1 and 2		—			(157	)		—			185			—		28			[4]
Level 3		137			(207	)		—			183			—		113			(207	)
Total macro hedge program		137			(364	)		—			368			—		141
International other guaranteed living benefits — Level 3		—			4			—			(2	)		—		2			1

[1]	The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]	All amounts are before income taxes and amortization of DAC.
[3]	The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.
[4]	Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.
[5]	The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

36

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

5. Investments and Derivative Instruments

Significant Investment Accounting Policies

Recognition and Presentation of Other-Than-Temporary Impairments

The Company deems debt securities and certain equity securities with debt-like characteristics (collectively “debt securities”) to be other-than-temporarily impaired (“impaired”) if a security meets the following conditions: a) the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, or b) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, a charge is recorded in net realized capital losses equal to the difference between the fair value and amortized cost basis of the security. For those impaired debt securities which do not meet the first condition and for which the Company does not expect to recover the entire amortized cost basis, the difference between the security’s amortized cost basis and the fair value is separated into the portion representing a credit other-than-temporary impairment (“impairment”), which is recorded in net realized capital losses, and the remaining impairment, which is recorded in OCI. Generally, the Company determines a security’s credit impairment as the difference between its amortized cost basis and its best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment. The remaining non-credit impairment, which is recorded in OCI, is the difference between the security’s fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to the impairment, which typically represents current market liquidity and risk premiums. The previous amortized cost basis less the impairment recognized in net realized capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to the estimated future cash flows over the expected remaining life of the security by prospectively adjusting the security’s yield, if necessary. The following table presents the change in non-credit impairments recognized in OCI as disclosed in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2010 and 2009, respectively.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009 [1]			2010			2009 [1]
OTTI losses recognized in OCI	$	(184	)	$	(248	)	$	(372	)	$	(248	)
Changes in fair value and/or sales		223			99			477			99
Tax and deferred acquisition costs		(18	)		24			(52	)		24
Change in non-credit impairments recognized in OCI	$	21		$	(125	)	$	53		$	(125	)

[1] The Company adopted the other-than-temporary impairment guidance as of April 1, 2009.

The Company evaluates whether a credit impairment exists for debt securities by considering primarily the following factors: (a) changes in the financial condition of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the security and (e) the payment structure of the security. The Company’s best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the security. The Company’s best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor re-financing. In addition, for structured securities, the Company considers factors including, but not limited to, average cumulative collateral loss rates that vary by vintage year, commercial and residential property value declines that vary by property type and location and commercial real estate delinquency levels. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral such as changes in the projections of the underlying property value estimates.

For equity securities where the decline in the fair value is deemed to be other-than-temporary, a charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The previous cost basis less the impairment becomes the security’s new cost basis. The Company asserts its intent and ability to retain those equity securities deemed to be temporarily impaired until the price recovers. Once identified, these securities are systematically restricted from trading unless approved by a committee of investment and accounting professionals (“Committee”). The Committee will only authorize the sale of these securities based on predefined criteria that relate to events that could not have been reasonably foreseen. Examples of the criteria include, but are not limited to, the deterioration in the issuer’s financial condition, security price declines, a change in regulatory requirements or a major business combination or major disposition.

The primary factors considered in evaluating whether an impairment exists for an equity security include, but are not limited to: (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated payments and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery.

37

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

5. Investments and Derivative Instruments (continued)

Net Realized Capital Gains (Losses)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Before-tax)	2010			2009			2010			2009
Gross gains on sales	$	343		$	157		$	475		$	365
Gross losses on sales		(94	)		(189	)		(205	)		(909	)
Net OTTI losses recognized in earnings		(108	)		(314	)		(260	)		(538	)
Valuation allowances on mortgage loans		(40	)		(78	)		(152	)		(153	)
Japanese fixed annuity contract hedges, net [1]		27			(6	)		11			35
Periodic net coupon settlements on credit derivatives/Japan		(4	)		(13	)		(11	)		(32	)
Results of variable annuity hedge program
GMWB derivatives, net		(426	)		671			(297	)		1,260
Macro hedge program		397			(568	)		233			(364	)
Total results of variable annuity hedge program		(29	)		103			(64	)		896
Other, net [2]		(84	)		(341	)		(59	)		(261	)
Net realized capital gains (losses)	$	11		$	(681	)	$	(265	)	$	(597	)

[1]	Relates to derivative hedging instruments, excluding periodic net coupon settlements, and is net of the Japanese fixed annuity product liability adjustment for changes in the dollar/yen exchange spot rate.
[2]	Primarily consists of losses on Japan 3Win related foreign currency swaps, changes in fair value on non-qualifying derivatives, and other investment gains and losses.

Net realized capital gains (losses) from investment sales, after deducting the life and pension policyholders’ share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Net realized capital gains (losses) previously reported as unrealized gains (losses) in AOCI were $141 and $10 for the three and six months ended June 30, 2010, respectively, and ($346) and ($1.1) billion for the three and six months ended June 30, 2009, respectively. Proceeds from sales of AFS securities totaled $16.0 billion and $22.1 billion, respectively, for the three and six months ended June 30, 2010, and $8.4 billion and $28.1 billion, respectively, for the three and six months ended June 30, 2009.

Other-Than-Temporary Impairment Losses

The following table presents a roll-forward of the Company’s cumulative credit impairments on debt securities held. The Company adopted the impairment guidance as of April 1, 2009.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010
Balance as of beginning of period	$	(2,341	)	$	(1,320	)	$	(2,200	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired		(52	)		(212	)		(164	)
Securities previously impaired		(52	)		(49	)		(91	)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period		151			—			154
Securities that the Company intends to sell or more likely than not will be required to sell before recovery		—			3			—
Securities due to an increase in expected cash flows		13			—			20
Balance as of end of period	$	(2,281	)	$	(1,578	)	$	(2,281	)

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

38

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

5. Investments and Derivative Instruments (continued)

Available-for-Sale Securities

	June 30, 2010												December 31, 2009
	Cost or		Gross		Gross					Non-			Cost or		Gross		Gross					Non-
	Amortized		Unrealized		Unrealized			Fair		Credit			Amortized		Unrealized		Unrealized			Fair		Credit
	Cost		Gains		Losses			Value		OTTI [1]			Cost		Gains		Losses			Value		OTTI [1]
ABS	$	3,403	$	58	$	(449	)	$	3,012	$	(35	)	$	3,040	$	36	$	(553	)	$	2,523	$	(48	)
CDOs		3,689		43		(908	)		2,824		(144	)		4,054		27		(1,189	)		2,892		(174	)
CMBS		9,786		222		(1,289	)		8,719		(3	)		10,736		114		(2,306	)		8,544		(6	)
Corporate		37,557		2,329		(1,052	)		38,834		(15	)		35,318		1,368		(1,443	)		35,243		(23	)
Foreign govt./govt. agencies		1,671		69		(24	)		1,716		—			1,376		52		(20	)		1,408		—
Municipal		12,401		344		(229	)		12,516		1			12,125		318		(378	)		12,065		(3	)
RMBS		5,201		157		(586	)		4,772		(138	)		5,512		104		(769	)		4,847		(185	)
U.S. Treasuries		4,821		27		(109	)		4,739		—			3,854		14		(237	)		3,631		—
Total fixed maturities		78,529		3,249		(4,646	)		77,132		(334	)		76,015		2,033		(6,895	)		71,153		(439	)
Equity securities		1,244		63		(204	)		1,103		—			1,333		80		(192	)		1,221		—
Total AFS securities	$	79,773	$	3,312	$	(4,850	)	$	78,235	$	(334	)	$	77,348	$	2,113	$	(7,087	)	$	72,374	$	(439	)

[1] Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of June 30, 2010 and December 31, 2009.

	June 30, 2010
Contractual Maturity	Amortized Cost		Fair Value
One year or less	$	1,823	$	1,852
Over one year through five years		16,475		17,061
Over five years through ten years		14,377		15,026
Over ten years		23,775		23,866
Subtotal		56,450		57,805
Mortgage-backed and asset-backed securities		22,079		19,327
Total	$	78,529	$	77,132

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

Security Unrealized Loss Aging

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

	June 30, 2010
	Less Than 12 Months							12 Months or More							Total
	Cost or							Cost or							Cost or
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	391	$	366	$	(25	)	$	1,515	$	1,091	$	(424	)	$	1,906	$	1,457	$	(449	)
CDOs		434		390		(44	)		3,216		2,352		(864	)		3,650		2,742		(908	)
CMBS		558		536		(22	)		5,447		4,180		(1,267	)		6,005		4,716		(1,289	)
Corporate		2,693		2,541		(152	)		5,882		4,982		(900	)		8,575		7,523		(1,052	)
Foreign govt./govt. agencies		260		244		(16	)		52		44		(8	)		312		288		(24	)
Municipal		1,847		1,818		(29	)		2,001		1,801		(200	)		3,848		3,619		(229	)
RMBS		112		90		(22	)		1,854		1,290		(564	)		1,966		1,380		(586	)
U.S. Treasuries		1,437		1,436		(1	)		596		488		(108	)		2,033		1,924		(109	)
Total fixed maturities		7,732		7,421		(311	)		20,563		16,228		(4,335	)		28,295		23,649		(4,646	)
Equity securities		116		108		(8	)		810		614		(196	)		926		722		(204	)
Total securities in an unrealized loss	$	7,848	$	7,529	$	(319	)	$	21,373	$	16,842	$	(4,531	)	$	29,221	$	24,371	$	(4,850	)

39

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

5. Investments and Derivative Instruments (continued)

	December 31, 2009
	Less Than 12 Months							12 Months or More							Total
	Cost or							Cost or							Cost or
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	445	$	376	$	(69	)	$	1,574	$	1,090	$	(484	)	$	2,019	$	1,466	$	(553	)
CDOs		1,649		1,418		(231	)		2,388		1,430		(958	)		4,037		2,848		(1,189	)
CMBS		1,951		1,628		(323	)		6,330		4,347		(1,983	)		8,281		5,975		(2,306	)
Corporate		5,715		5,314		(401	)		6,675		5,633		(1,042	)		12,390		10,947		(1,443	)
Foreign govt./govt. agencies		543		530		(13	)		43		36		(7	)		586		566		(20	)
Municipal		2,339		2,283		(56	)		2,184		1,862		(322	)		4,523		4,145		(378	)
RMBS		855		787		(68	)		1,927		1,226		(701	)		2,782		2,013		(769	)
U.S. Treasuries		2,592		2,538		(54	)		648		465		(183	)		3,240		3,003		(237	)
Total fixed maturities		16,089		14,874		(1,215	)		21,769		16,089		(5,680	)		37,858		30,963		(6,895	)
Equity securities		419		356		(63	)		676		547		(129	)		1,095		903		(192	)
Total securities in an unrealized loss	$	16,508	$	15,230	$	(1,278	)	$	22,445	$	16,636	$	(5,809	)	$	38,953	$	31,866	$	(7,087	)

As of June 30, 2010, AFS securities in an unrealized loss position, comprised of 3,155 securities, primarily related to CMBS, corporate securities primarily within the financial services sector and CDOs which have experienced significant price deterioration. As of June 30, 2010, 72% of these securities were depressed less than 20% of cost or amortized cost. The decline in unrealized losses during 2010 was primarily attributable to declining interest rates. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above.

Mortgage Loans

	June 30, 2010							December 31, 2009
	Amortized		Valuation			Carrying		Amortized		Valuation			Carrying
	Cost [1]		Allowance			Value		Cost [1]		Allowance			Value
Agricultural	$	375	$	(23	)	$	352	$	604	$	(8	)	$	596
Commercial		4,449		(317	)		4,132		5,492		(358	)		5,134
Residential		189		—			189		208		—			208
Total mortgage loans	$	5,013	$	(340	)	$	4,673	$	6,304	$	(366	)	$	5,938

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

Included in the table above, are mortgage loans held for sale with a carrying value and valuation allowance of $226 and $42, respectively, as of June 30, 2010 and $209 and $98, respectively, as of December 31, 2009. The carrying value of these loans is included in mortgage loans in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2010. The following table presents the activity within the Company’s valuation allowance for mortgage loans.

	2010			2009
Balance as of January 1	$	(366	)	$	(26	)
Additions		(152	)		(153	)
Deductions		178			16
Balance as of June 30	$	(340	)	$	(163	)

Mortgage Loans by Region
	June 30, 2010					December 31, 2009
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
East North Central	$	112		2.4	%	$	125		2.1	%
Middle Atlantic		393		8.4	%		689		11.6	%
Mountain		132		2.8	%		138		2.3	%
New England		414		8.9	%		449		7.6	%
Pacific		1,176		25.2	%		1,377		23.2	%
South Atlantic		1,178		25.2	%		1,213		20.4	%
West North Central		40		0.9	%		51		0.9	%
West South Central		243		5.2	%		297		5.0	%
Other [1]		985		21.0	%		1,599		26.9	%
Total mortgage loans	$	4,673		100.0	%	$	5,938		100.0	%

[1] Primarily represents multi-regional properties.

40

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

5. Investments and Derivative Instruments (continued)

Mortgage Loans by Property Type
	June 30, 2010					December 31, 2009
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
Agricultural	$	352		7.5	%	$	596		10.0	%
Industrial		1,062		22.7	%		1,068		18.0	%
Lodging		207		4.4	%		421		7.1	%
Multifamily		811		17.4	%		835		14.1	%
Office		1,066		22.8	%		1,727		29.1	%
Residential		189		4.0	%		208		3.5	%
Retail		625		13.4	%		712		12.0	%
Other		361		7.8	%		371		6.2	%
Total mortgage loans	$	4,673		100.0	%	$	5,938		100.0	%

Variable Interest Entities

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager and as an investor through normal investment activities, as well as a means of accessing capital. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.

The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.

Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its investment management services. As a result of accounting guidance adopted on January 1, 2010, certain CDO VIEs were consolidated in 2010 and are included in the following table, while in prior periods they were reported in the Non-Consolidated VIEs table further below. See Note 1 for further information on the adoption.

	June 30, 2010						December 31, 2009
					Maximum						Maximum
	Total		Total		Exposure		Total		Total		Exposure
	Assets		Liabilities [1]		to Loss [2]		Assets		Liabilities		to Loss [2]
CDOs [3]	$	824	$	421	$	384	$	226	$	32	$	196
Limited partnerships		22		1		21		31		1		30
Other investments [3]		18		4		11		111		20		87
Total	$	864	$	426	$	416	$	368	$	53	$	313

[1]	Included in other liabilities in the Company’s Condensed Consolidated Balance Sheets.
[2]	The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.
[3]	Total assets included in fixed maturities in the Company’s Condensed Consolidated Balance Sheets.

CDOs represent structured investment vehicles for which the Company has a controlling financial interest as it provides collateral management services, earns a fee for those services and also holds investments in the securities issued by these vehicles. Limited partnerships represent a hedge fund for which the Company holds a majority interest in the fund’s securities as an investment. Other investments represent an investment trust for which the Company has a controlling financial interest as it provides investment management services, earns a fee for those services and also holds investments in the securities issued by the trusts. Since December 31, 2009, the Company has received a paydown from this investment trust.

41

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

5. Investments and Derivative Instruments (continued)

Non-Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to significant VIEs for which the Company is not the primary beneficiary. The Company has no implied or unfunded commitments to these VIEs.

	June 30, 2010						December 31, 2009
					Maximum						Maximum
					Exposure						Exposure
	Assets		Liabilities		to Loss		Assets		Liabilities		to Loss
CDOs [1]	$	—	$	—	$	—	$	262	$	—	$	273
Other [2]		35		34		4		36		36		5
Total	$	35	$	34	$	4	$	298	$	36	$	278

[1]	Maximum exposure to loss represents the Company’s investment in securities issued by CDOs at cost.
[2]	Maximum exposure to loss represents issuance costs that were incurred to establish a contingent capital facility.

Other represents the Company’s variable interest in a contingent capital facility (“facility”), which has been held for less than four years. For further information on the facility, see Note 14 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report. The Company does not have a controlling financial interest as it does not manage the assets of the facility nor does it have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the facility, as the asset manager has significant variable interest in the vehicle. The Company’s financial or other support provided to the facility is limited to providing ongoing support to cover the facility’s operating expenses.

In addition, the Company, through normal investment activities, makes passive investments in structured securities issued by VIEs for which the Company is not the manager which are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table. 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.

42

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

5. Investments and Derivative Instruments (continued)

Derivative Instruments

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

Cash flow hedges

Interest rate swaps

Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed maturity securities or interest payments on floating-rate guaranteed investment contracts to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities.

The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the purchase of fixed-rate securities or the anticipated future cash flows of floating-rate fixed maturity securities due to changes in interest rates. These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Forward rate agreements

Forward rate agreements are used to convert interest receipts on floating-rate securities to fixed rates. These derivatives are used to lock in the forward interest rate curve and reduce income volatility that results from changes in interest rates. As of June 30, 2010, the Company does not have any forward rate agreements.

Foreign currency swaps

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

Fair value hedges

Interest rate swaps

Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to fluctuations in interest rates.

Foreign currency swaps

Foreign currency swaps are used to hedge the changes in fair value of certain foreign currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping the fixed foreign payments to floating rate U.S. dollar denominated payments.

Non-qualifying strategies

Interest rate swaps, caps, floors, and futures

The Company uses interest rate swaps, caps, floors, and futures to manage duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of June 30, 2010 and December 31, 2009, the notional amount of interest rate swaps in offsetting relationships was $7.1 billion and $7.3 billion, respectively.

Foreign currency swaps, forwards and options

The Company enters into foreign currency swaps and forwards to convert the foreign currency exposures to U.S. dollars in certain of its foreign currency-denominated fixed maturity investments. The Company also enters into foreign currency forward contracts and options that convert U.S. dollars and Euros to Yen in order to economically hedge portions of the foreign currency risk associated with certain Japanese variable annuity products.

43

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

5. Investments and Derivative Instruments (continued)

Japan 3Win related foreign currency swaps

The Company entered into foreign currency swaps to hedge the foreign currency exposure related to the Japan 3Win product guaranteed minimum income benefit (“GMIB”) fixed liability payments.

Japanese fixed annuity hedging instruments

The Company enters into currency rate swaps and forwards to mitigate the foreign currency exchange rate and Yen interest rate exposures associated with the Yen denominated individual fixed annuity product.

Credit derivatives that purchase credit protection

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 value on fixed maturity securities. These contracts require the Company to pay a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract.

Credit derivatives that assume credit risk

Credit default swaps are used to assume credit risk related to an individual entity, referenced index, or asset pool, as a part of replication transactions. These contracts entitle the Company to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk due to embedded derivatives associated with credit linked notes.

Credit derivatives in offsetting positions

The Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity index swaps, options, and futures

The Company offers certain equity indexed products, which may contain an embedded derivative that requires bifurcation. The Company enters into S&P index swaps, futures and options to economically hedge the equity volatility risk associated with these embedded derivatives. In addition, the Company is exposed to bifurcated options embedded in certain fixed maturity investments.

Warrants

During the fourth quarter of 2008, the Company issued warrants to purchase the Company’s Series C Non-Voting Contingent Convertible Preferred Stock, which were required to be accounted for as a derivative liability at December 31, 2008. As of March 31, 2009, the warrants were no longer required to be accounted for as derivatives and were reclassified to equity.

GMWB product derivatives

The Company offers certain variable annuity products with a GMWB rider in the U.S. and formerly in the U.K. and Japan. The GMWB is a bifurcated embedded derivative that provides the policyholder with a guaranteed remaining balance (“GRB”) if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. The notional value of the embedded derivative is the GRB.

44

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

5. Investments and Derivative Instruments (continued)

GMWB reinsurance contracts

The Company has entered into reinsurance arrangements to offset a portion of its risk exposure to the GMWB for the remaining lives of covered variable annuity contracts. Reinsurance contracts covering GMWB are accounted for as free-standing derivatives. The notional amount of the reinsurance contracts is the GRB amount.

GMWB hedging instruments

The Company enters into derivative contracts to partially hedge exposure associated with the portion of the GMWB liabilities that are not reinsured. These derivative contracts include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index.

The following table represents notional and fair value for GMWB hedging instruments.

	Notional Amount				Fair Value
	June 30,		December 31,		June 30,			December 31,
	2010		2009		2010			2009
Customized swaps	$	9,448	$	10,838	$	483		$	234
Equity swaps, options, and futures		3,701		2,994		445			9
Interest rate swaps and futures		2,621		1,735		(91	)		(191	)
Total	$	15,770	$	15,567	$	837		$	52

Macro hedge program

The Company utilizes equity options, currency options, and equity futures contracts to partially hedge against a decline in the equity markets or changes in foreign currency exchange rates and the resulting statutory surplus and capital impact primarily arising from guaranteed minimum death benefit (“GMDB”), GMIB and GMWB obligations.

The following table represents notional and fair value for the macro hedge program.

	Notional Amount				Fair Value
	June 30,		December 31,		June 30,			December 31,
	2010		2009		2010			2009
Equity options and futures	$	11,358	$	25,373	$	666		$	296
Long currency options		4,938		1,000		256			22
Short currency options		5,934		1,075		(69	)		—
Total	$	22,230	$	27,448	$	853		$	318

GMAB product derivatives

The GMAB rider associated with certain of the Company’s Japanese variable annuity products is accounted for as a bifurcated embedded derivative. The GMAB provides the policyholder with their initial deposit in a lump sum after a specified waiting period. The notional amount of the embedded derivative is the Yen denominated GRB converted to U.S. dollars at the current foreign spot exchange rate as of the reporting period date.

Contingent capital facility put option

The Company entered into a put option agreement that provides the Company the right to require a third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. Under the put option agreement, The Hartford will pay premiums on a periodic basis and will reimburse the trust for certain fees and ordinary expenses.

45

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

5. Investments and Derivative Instruments (continued)

Derivative Balance Sheet Classification

The table below summarizes the balance sheet classification of the Company’s derivative related fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals or cash collateral held amounts, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts are not included because the associated gains and losses accrue directly to policyholders. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the table below. 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.

	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
	Jun. 30,		Dec. 31,		Jun. 30,			Dec. 31,			Jun. 30,		Dec. 31,		Jun. 30,			Dec. 31,
Hedge Designation/ Derivative Type	2010		2009		2010			2009			2010		2009		2010			2009
Cash flow hedges
Interest rate swaps	$	10,407	$	11,170	$	327		$	123		$	333	$	294	$	(6	)	$	(171	)
Forward rate agreements		—		6,355		—			—			—		—		—			—
Foreign currency swaps		346		381		13			(3	)		39		30		(26	)		(33	)
Total cash flow hedges		10,753		17,906		340			120			372		324		(32	)		(204	)
Fair value hedges
Interest rate swaps		1,043		1,745		(66	)		(21	)		1		16		(67	)		(37	)
Foreign currency swaps		696		696		(49	)		(9	)		44		53		(93	)		(62	)
Total fair value hedges		1,739		2,441		(115	)		(30	)		45		69		(160	)		(99	)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps, caps, floors, and futures		8,096		8,355		(355	)		(84	)		316		250		(671	)		(334	)
Foreign exchange contracts
Foreign currency swaps and forwards		643		1,296		44			(21	)		50		14		(6	)		(35	)
Japan 3Win related foreign currency swaps		2,514		2,514		(10	)		(19	)		21		35		(31	)		(54	)
Japanese fixed annuity hedging instruments		2,201		2,271		418			316			418		319		—			(3	)
Credit contracts
Credit derivatives that purchase credit protection		2,953		2,606		45			(50	)		79		45		(34	)		(95	)
Credit derivatives that assume credit risk [1]		1,699		1,158		(552	)		(240	)		3		2		(555	)		(242	)
Credit derivatives in offsetting positions		6,506		6,176		(82	)		(71	)		162		185		(244	)		(256	)
Equity contracts
Equity index swaps, options, and futures		195		220		(11	)		(16	)		3		3		(14	)		(19	)
Variable annuity hedge program
GMWB product derivatives [2]		45,228		47,329		(3,220	)		(2,002	)		—		—		(3,220	)		(2,002	)
GMWB reinsurance contracts		9,517		10,301		550			347			550		347		—			—
GMWB hedging instruments		15,770		15,567		837			52			969		264		(132	)		(212	)
Macro hedge program		22,230		27,448		853			318			923		558		(70	)		(240	)
Other
GMAB product derivatives [2]		230		226		(1	)		2			—		2		(1	)		—
Contingent capital facility put option		500		500		35			36			35		36		—			—
Total non-qualifying strategies		118,282		125,967		(1,449	)		(1,432	)		3,529		2,060		(4,978	)		(3,492	)
Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	130,774	$	146,314	$	(1,224	)	$	(1,342	)	$	3,946	$	2,453	$	(5,170	)	$	(3,795	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	242	$	269	$	(1	)	$	(8	)	$	—	$	—	$	(1	)	$	(8	)
Other investments		54,875		24,006		2,236			390			2,940		492		(704	)		(102	)
Other liabilities		20,584		64,061		(777	)		(56	)		456		1,612		(1,233	)		(1,668	)
Consumer notes		39		64		(4	)		(5	)		—		—		(4	)		(5	)
Reinsurance recoverables		9,517		10,301		550			347			550		347		—			—
Other policyholder funds and benefits payable		45,517		47,613		(3,228	)		(2,010	)		—		2		(3,228	)		(2,012	)
Total derivatives	$	130,774	$	146,314	$	(1,224	)	$	(1,342	)	$	3,946	$	2,453	$	(5,170	)	$	(3,795	)

[1]	The derivative instruments related to these strategies are held for other investment purposes.
[2]	These derivatives are embedded within liabilities and are not held for risk management purposes.

46

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

5. Investments and Derivative Instruments (continued)

Change in Notional Amount

The net decrease in notional amount of derivatives since December 31, 2009, was primarily due to the following:

• The Company terminated $6.4 billion notional of forward rate agreements. The $6.4 billion notional was comprised of a series of one month forward contracts that were hedging the variability of cash flows related to coupon payments on $555 of variable rate securities for consecutive monthly periods during 2010.

• The notional amount related to the macro hedge program declined $5.2 billion primarily due to the expiration of certain equity index options during January of 2010 offset by the extension of the macro hedge program to 2011.

• The GMWB product derivative notional declined $2.1 billion primarily as a result of policyholder lapses and withdrawals.

Change in Fair Value

The change in the total fair value of derivative instruments since December 31, 2009, was primarily related to the following:

• The increase in fair value of the macro hedge program is primarily due to lower equity market valuation, appreciation of the Japanese yen, and purchases made in the first half of the year.

• The decrease in the net fair value of GMWB product, reinsurance, and hedging derivatives was primarily due to higher implied market volatility and the general decrease in long-term interest rates.

• The fair value related to credit derivatives that assume credit risk primarily decreased as a result of the Company adopting new accounting guidance related to the consolidation of VIEs; see Adoption of New Accounting Standards in Note 1. As a result of this new guidance, the Company has consolidated a Company sponsored CDO that included credit default swaps with a notional amount of $353 and a fair value of $(293) as of June 30, 2010. These swaps reference a standard market basket of corporate issuers.

Cash Flow Hedges

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

The following table presents the components of the gain or loss on derivatives that qualify as cash flow hedges:

Derivatives in Cash Flow Hedging Relationships
												Gain (Loss) Recognized in
		Gain (Loss) Recognized in OCI										Income on Derivative
		on Derivative (Effective Portion)										(Ineffective Portion)
		Three Months					Six Months					Three Months					Six Months
		Ended					Ended					Ended					Ended
		June 30,					June 30,					June 30,					June 30,
		2010		2009			2010		2009			2010		2009			2010		2009
Interest rate swaps	Net realized capital gains (losses)	$	260	$	(381	)	$	360	$	(466	)	$	4	$	(2	)	$	3	$	(3	)
Foreign currency swaps	Net realized capital gains (losses)		6		(154	)		15		(139	)		—		25			—		39
Total		$	266	$	(535	)	$	375	$	(605	)	$	4	$	23		$	3	$	36

Derivatives in Cash Flow Hedging Relationships
		Gain (Loss) Reclassified from AOCI into Income
		(Effective Portion)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2010			2009			2010			2009
Interest rate swaps	Net realized capital gains (losses)	$	4		$	1		$	4		$	10
Interest rate swaps	Net investment income (loss)		22			11			34			20
Foreign currency swaps	Net realized capital gains (losses)		(11	)		(53	)		(16	)		(71	)
Foreign currency swaps	Net investment income (loss)		—			1			—			2
Total		$	15		$	(40	)	$	22		$	(39	)

47

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

5. Investments and Derivative Instruments (continued)

For the six months ended June 30, 2010, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $58. 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 interest income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for forecasted transactions, excluding interest payments on existing variable-rate financial instruments) is three years.

During the three and six months ended June 30, 2010, the Company had less than $1 of 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. For the three and six months ended June 30, 2009, the Company had $1 of net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The Company recognized in income gains (losses) representing the ineffective portion of fair value hedges as follows:

Derivatives in Fair Value Hedging Relationships
	Gain (Loss) Recognized in Income [1]
	Three Months Ended											Six Months Ended
	June 30,											June 30,
	2010					2009						2010					2009
				Hedge					Hedge						Hedge					Hedge
	Derivative			Item		Derivative			Item			Derivative			Item		Derivative			Item
Interest rate swaps
Net realized capital gains (losses)	$	(40	)	$	37	$	49		$	(45	)	$	(52	)	$	47	$	66		$	(62	)
Benefits, losses and loss adjustment expenses		(7	)		8		(26	)		27			(2	)		3		(42	)		44
Foreign currency swaps
Net realized capital gains (losses)		(11	)		11		63			(63	)		(40	)		40		47			(47	)
Benefits, losses and loss adjustment expenses		—			—		(5	)		5			(1	)		1		—			—
Total	$	(58	)	$	56	$	81		$	(76	)	$	(95	)	$	91	$	71		$	(65	)

[1] The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item. The net of the amounts presented represents the ineffective portion of the hedge.

48

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

5. Investments and Derivative Instruments (continued)

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 or losses. The following table presents the gain or loss recognized in income on non-qualifying strategies:

Non-qualifying Strategies
Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Interest rate contracts
Interest rate swaps, caps, floors, and forwards	$	(5	)	$	5		$	(5	)	$	20
Foreign exchange contracts
Foreign currency swaps, forwards, and swaptions		55			(40	)		74			(41	)
Japan 3Win hedging derivatives [1]		65			119			9			(110	)
Japanese fixed annuity hedging instruments [2]		160			50			141			(118	)
Credit contracts
Credit derivatives that purchase credit protection		38			(279	)		38			(390	)
Credit derivatives that assume credit risk		(50	)		157			(13	)		77
Equity contracts
Equity index swaps, options, and futures		4			(2	)		5			(5	)
Warrants		—			—			—			70
Variable annuity hedge program
GMWB product derivatives		(1,497	)		2,622			(1,144	)		3,345
GMWB reinsurance contracts		246			(433	)		185			(685	)
GMWB hedging instruments		825			(1,518	)		662			(1,400	)
Macro hedge program		397			(568	)		233			(364	)
Other
GMAB product derivatives		(5	)		6			(2	)		4
Contingent capital facility put option		(1	)		(1	)		(2	)		(5	)
Total	$	232		$	118		$	181		$	398

[1]	The associated liability is adjusted for changes in spot rates through realized capital gains and losses and was $(103) and $(44) for the three months ended June 30, 2010 and 2009, respectively and $(96) and $140 for the six months ended June 30, 2010 and 2009, respectively.
[2]	The associated liability is adjusted for changes in spot rates through realized capital gains and losses and was $(126) and $(54) for the three months ended June 30, 2010 and 2009, respectively, and $(119) and $151 for the six months ended June 30, 2010 and 2009, respectively.

For the three and six months ended June 30, 2010, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The net gain associated with the macro hedge program is primarily due to lower equity market valuation and appreciation of the Japanese yen.

• The net gain on the Japanese fixed annuity hedging instruments is primarily due to the U.S. dollar weakening in comparison to the Japanese yen and the increased demand for the U.S. dollar.

• The net gain for the three months ended June 30, 2010, related to the Japan 3 Win hedging derivatives is primarily due to the strengthening of the Japanese yen in comparison to the U.S. dollar, partially offset by the decrease in long-term interest rates.

• The loss on the net GMWB product, reinsurance, and hedging derivatives is primarily driven by higher implied market volatility and the general decrease in long-term interest rates.

49

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

5. Investments and Derivative Instruments (continued)

For the three and six months ended June 30, 2009, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The gain on the net GMWB product, reinsurance, and hedging derivatives was primarily due to market-based valuation changes, including a decrease in equity volatility levels and an increase in interest rates, as well as policyholder behavior and liability model assumption updates. For further discussion on liability model assumption updates, refer to Note 4a.

• The net gain on the Japanese fixed annuity and Japan 3Win hedging instruments for the three months ended June 30, 2009 was primarily due to weakening of the U.S. dollar against the Japanese yen and an increase in U.S. interest rates. The net loss for the six months ended June 30, 2009 was primarily due to the Japanese yen weakening against the U.S. dollar.

• The net loss on the macro hedge program was primarily the result of an increase in the equity markets and the impact of trading activity.

• The loss on credit derivatives that purchase credit protection and the net gain on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spreads tightening.

Refer to Note 9 for additional disclosures regarding contingent credit related features in derivative agreements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity, referenced index, or asset pool in order to synthetically replicate investment transactions. 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 trades ranging from baskets of up to five corporate issuers to standard and customized diversified portfolios of corporate issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and are typically divided into tranches that possess different credit ratings.

The following tables present the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type and average credit ratings, and offsetting notional amounts and fair value for credit derivatives in which the Company is assuming credit risk as of June 30, 2010 and December 31, 2009.

As of June 30, 2010
						Weighted	Underlying Referenced Credit Obligation(s) [1]
						Average		Average	Offsetting
Credit Derivative type by derivative	Notional		Fair			Years to		Credit	Notional		Offsetting
risk exposure	Amount [2]		Value			Maturity	Type	Rating	Amount [3]		Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,486	$	(27	)	4 years	Corporate Credit/ Foreign Gov.	A+	$	1,415	$	(38	)
Below investment grade risk exposure		161		(8	)	3 years	Corporate Credit	BB-		120		(10	)
Basket credit default swaps [4]
Investment grade risk exposure		1,493		(3	)	4 years	Corporate Credit	BBB+		1,168		1
Investment grade risk exposure		525		(118	)	7 years	CMBS Credit	A-		525		118
Below investment grade risk exposure		1,227		(549	)	4 years	Corporate Credit	BBB		25		1
Credit linked notes
Investment grade risk exposure		60		59		2 years	Corporate Credit	BBB		—		—
Total	$	4,952	$	(646	)				$	3,253	$	72

50

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

5. Investments and Derivative Instruments (continued)

As of December 31, 2009
							Underlying Referenced
						Weighted	Credit Obligation(s) [1])
						Average		Average	Offsetting
Credit Derivative type by derivative	Notional		Fair			Years to		Credit	Notional		Offsetting
risk exposure	Amount [2]		Value			Maturity	Type	Rating	Amount [3]		Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,226	$	4		4 years	Corporate Credit/ Foreign Gov.	AA-	$	1,201	$	(59	)
Below investment grade risk exposure		156		(4	)	3 years	Corporate Credit	B+		85		(12	)
Basket credit default swaps [4]
Investment grade risk exposure		2,052		(54	)	4 years	Corporate Credit	BBB+		1,277		(21	)
Investment grade risk exposure		525		(141	)	7 years	CMBS Credit	A		525		141
Below investment grade risk exposure		200		(157	)	5 years	Corporate Credit	BBB+		—		—
Credit linked notes
Investment grade risk exposure		87		83		2 years	Corporate Credit	BBB+		—		—
Total	$	4,246	$	(269	)				$	3,088	$	49

[1]	The average credit ratings are based on availability and the midpoint of the applicable 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. There is no specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.
[3]	The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.
[4]	Includes $2.6 billion and $2.5 billion as of June 30, 2010 and December 31, 2009, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index. Also includes $678 and $325 as of June 30, 2010 and December 31, 2009, respectively, of customized diversified portfolios of corporate issuers referenced through credit default swaps.

6. Deferred Policy Acquisition Costs and Present Value of Future Profits

Life

Changes in deferred policy acquisition costs and present value of future profits are as follows:

	2010			2009
Balance, January 1	$	9,423		$	11,988
Deferred Costs		317			418
Amortization — DAC		(436	)		(824	)
Amortization — Unlock, pre-tax [1], [2]		(137	)		(1,068	)
Adjustments to unrealized gains and losses on securities available-for-sale and other [3]		(828	)		192
Effect of currency translation		82			(99	)
Effect of new accounting guidance for investments other-than-temporarily impaired [4]		¯			(78	)
Balance, June 30	$	8,421		$	10,529

[1]	The most significant contributor to the Unlock charge recorded during the six months ended June 30, 2010 was actual separate account returns from January 1, 2010 to June 30, 2010 being below the Company’s aggregated estimated return.
[2]	The most significant contributor to the Unlock amounts recorded during the six months ended June 30, 2009 was actual separate account returns from the period ending October 1, 2008 to June 30, 2009 being significantly below the Company’s aggregated estimated return.
[3]	The 2010 adjustment reflects the effect of declining interest rates, resulting in unrealized gains on securities.
[4]	The effect of adopting new accounting guidance for investments other-than-temporarily impaired resulted in an increase to retained earnings and as a result a DAC charge of $78. In addition, an offsetting amount was recorded in unrealized losses as unrealized losses increased upon adoption of new accounting guidance for investments other-than-temporarily impaired.

Property & Casualty

Changes in deferred policy acquisition costs are as follows:

	2010			2009
Balance, January 1	$	1,263		$	1,260
Deferred costs		1,021			1,032
Amortization — DAC		(1,016	)		(1,041	)
Balance, June 30	$	1,268		$	1,251

51

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

7. Separate Accounts, Death Benefits and Other Insurance Benefit Features

U.S. GMDB, Japan GMDB/GMIB, and UL Secondary Guarantee Benefits

Changes in the gross U.S. GMDB, Japan GMDB/GMIB, and UL secondary guarantee benefits are as follows:

							UL Secondary
	U.S. GMDB [1]			Japan GMDB/GMIB [1]			Guarantees [1]
Liability balance as of January 1, 2010	$	1,233		$	580		$	76
Incurred		127			59			20
Paid		(155	)		(58	)		—
Unlock		107			44			—
Currency translation adjustment		—			31			—
Liability balance as of June 30, 2010	$	1,312		$	656		$	96

[1] The reinsurance recoverable asset related to the U.S. GMDB was $832 as of June 30, 2010. The reinsurance recoverable asset related to the Japan GMDB was $40 as of June 30, 2010. The reinsurance recoverable asset related to the UL secondary guarantees was $26 as of June 30, 2010.

							UL Secondary
	U.S. GMDB [1]			Japan GMDB/GMIB [1]			Guarantees [1]
Liability balance as of January 1, 2009	$	870		$	229		$	40
Incurred		185			60			14
Paid		(293	)		(66	)		—
Unlock		742			350			—
Currency translation adjustment		—			(6	)		—
Liability balance as of June 30, 2009	$	1,504		$	567		$	54

[1] The reinsurance recoverable asset related to the U.S. GMDB was $927 as of June 30, 2009. The reinsurance recoverable asset related to the Japan GMDB was $41 as of June 30, 2009. The reinsurance recoverable asset related to the UL secondary guarantees was $19 as of June 30, 2009.

52

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

7. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

The following table provides details concerning GMDB and GMIB exposure as of June 30, 2010:

Breakdown of Individual Variable and Group Annuity Account Value by GMDB/GMIB Type
					Retained Net
			Net Amount		Amount		Weighted Average
	Account		at Risk		at Risk		Attained Age of
Maximum anniversary value (“MAV”) [1]	Value		(“NAR”) [10]		(“RNAR”) [10]		Annuitant
MAV only	$	23,810	$	9,254	$	2,794		66
With 5% rollup [2]		1,633		733		292		67
With Earnings Protection Benefit Rider (“EPB”) [3]		5,940		1,637		150		63
With 5% rollup & EPB		678		253		50		66
Total MAV		32,061		11,877		3,286
Asset Protection Benefit (“APB”) [4]		25,638		6,257		4,052		65
Lifetime Income Benefit (“LIB”) — Death Benefit [5]		1,197		266		266		63
Reset [6] (5-7 years)		3,364		614		608		68
Return of Premium (“ROP”) [7]/Other		20,597		1,869		1,828		64
Subtotal U.S. GMDB [8]		82,857		20,883		10,040		65
Less: General account value subject to U.S. GMDB		6,788
Subtotal Separate Account Liabilities with U.S. GMDB		76,069
Separate Account Liabilities without U.S. GMDB		78,814
Total Separate Account Liabilities	$	154,883
Japan GMDB and GMIB [9]	$	28,888	$	8,870	$	7,597		69

[1]	MAV GMDB is the greatest of current AV, net premiums paid and the highest AV on any anniversary before age 80 (adjusted for withdrawals).
[2]	Rollup GMDB is the greatest of the MAV, current AV, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums.
[3]	EPB GMDB is the greatest of the MAV, current AV, or contract value plus a percentage of the contract’s growth. The contract’s growth is AV less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals.
[4]	APB GMDB is the greater of current AV or MAV, not to exceed current AV plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months).
[5]	LIB GMDB is the greatest of current AV, net premiums paid, or for certain contracts a benefit amount that ratchets over time, generally based on market performance.
[6]	Reset GMDB is the greatest of current AV, net premiums paid and the most recent five to seven year anniversary AV before age 80 (adjusted for withdrawals).
[7]	ROP GMDB is the greater of current AV and net premiums paid.
[8]	AV includes the contract holder’s investment in the separate account and the general account.
[9]	GMDB includes a ROP and MAV (before age 80) paid in a single lump sum. GMIB is a guarantee to return initial investment, adjusted for earnings liquidity, paid through a fixed annuity, after a minimum deferral period of 10, 15 or 20 years. The GRB related to the Japan GMIB was $29.4 billion and $28.6 billion as of June 30, 2010 and December 31, 2009, respectively. The GRB related to the Japan GMAB and GMWB was $664 and $648 as of June 30, 2010 and December 31, 2009, respectively. These liabilities are not included in the Separate Account as they are not legally insulated from the general account liabilities of the insurance enterprise. As of June 30, 2010, 59% of the AV and 55% of RNAR is reinsured to a Hartford affiliate. NAR increased due to lower equity markets during the second quarter, as well as the strengthening of the Yen.
[10]	NAR is defined as the guaranteed benefit in excess of the current AV. RNAR represents NAR reduced for reinsurance. NAR and RNAR are highly sensitive to equity markets movements and increase when equity markets decline.

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

Asset type	As of June 30, 2010		As of December 31, 2009
Equity securities (including mutual funds)	$	67,530	$	75,720
Cash and cash equivalents		8,539		9,298
Total	$	76,069	$	85,018

As of June 30, 2010 and December 31, 2009, approximately 18% and 16%, respectively, of the equity securities above were invested in fixed income securities through these funds and approximately 82% and 84%, respectively, were invested in equity securities.

See Note 4a for a description of the Company’s guaranteed living benefits and variable annuity hedging derivatives that are accounted for at fair value.

53

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

8. Sales Inducements

Changes in deferred sales inducement activity were as follows for the six months ended June 30:

	2010			2009
Balance, January 1	$	438		$	553
Sales inducements deferred		15			34
Amortization		(13	)		(80	)
Amortization — Unlock		(15	)		(57	)
Balance, June 30	$	425		$	450

9. Commitments and Contingencies

Litigation

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

The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, life and inland marine; improper sales practices in connection with the sale of life insurance and other investment products; and improper fee arrangements in connection with investment products. 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. 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, an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated results of operations or cash flows in particular quarterly or annual periods.

Broker Compensation Litigation— Following the New York Attorney General’s filing of a civil complaint against Marsh & McLennan Companies, Inc., and Marsh, Inc. (collectively, “Marsh”) in October 2004 alleging that certain insurance companies, including The Hartford, participated with Marsh in arrangements to submit inflated bids for business insurance and paid contingent commissions to ensure that Marsh would direct business to them, private plaintiffs brought several lawsuits against the Company predicated on the allegations in the Marsh complaint, to which the Company was not party. Among these is a multidistrict litigation in the United States District Court for the District of New Jersey. There are two consolidated amended complaints filed in the multidistrict litigation, one related to conduct in connection with the sale of property-casualty insurance and the other related to alleged conduct in connection with the sale of group benefits products. The Company and various of its subsidiaries are named in both complaints. The complaints assert, on behalf of a putative class of persons who purchased insurance through broker defendants, claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), state law, and in the case of the group benefits complaint, claims under the Employee Retirement Income Security Act of 1974 (“ERISA”). The claims are predicated upon allegedly undisclosed or otherwise improper payments of contingent commissions to the broker defendants to steer business to the insurance company defendants. The district court has dismissed the Sherman Act and RICO claims in both complaints for failure to state a claim and has granted the defendants’ motions for summary judgment on the ERISA claims in the group-benefits products complaint. The district court further has declined to exercise supplemental jurisdiction over the state law claims, has dismissed those state law claims without prejudice, and has closed both cases. The plaintiffs have appealed the dismissal of the claims in both consolidated amended complaints, except the ERISA claims.

In September 2007, the Ohio Attorney General filed a civil action in Ohio state court alleging that certain insurance companies, including The Hartford, conspired with Marsh in violation of Ohio’s antitrust statute. The trial court denied defendants’ motion to dismiss the complaint in July 2008. The Company disputes the allegations and is defending this action vigorously.

54

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

9. Commitments and Contingencies (continued)

Investment and Savings Plan ERISA and Shareholder Securities Class Action Litigation —In November and December 2008, following a decline in the share price of the Company’s common stock, seven putative class action lawsuits were filed in the United States District Court for the District of Connecticut on behalf of certain participants in the Company’s Investment and Savings Plan (the “Plan”), which offers the Company’s common stock as one of many investment options. These lawsuits have been consolidated, and a consolidated amended class-action complaint was filed on March 23, 2009, alleging that the Company and certain of its officers and employees violated ERISA by allowing the Plan’s participants to invest in the Company’s common stock and by failing to disclose to the Plan’s participants information about the Company’s financial condition. The lawsuit seeks restitution or damages for losses arising from the investment of the Plan’s assets in the Company’s common stock during the period from December 10, 2007 to the present. In January 2010, the district court denied the Company’s motion to dismiss the consolidated amended complaint. The Company disputes the allegations and intends to defend this action vigorously.

In March 2010, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of persons who acquired Hartford common stock during the period from December 10, 2007 through February 5, 2009, alleging that the Company and certain of its present or former officers violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, by making false or misleading statements about the Company’s financial performance and investment practices during the alleged class period. The Company disputes the allegations and intends to defend this action vigorously.

Structured Settlement Class Action— In October 2005, a putative nationwide class action was filed in the United States District Court for the District of Connecticut against the Company and several of its subsidiaries on behalf of persons who had asserted claims against an insured of a Hartford property & casualty insurance company that resulted in a settlement in which some or all of the settlement amount was structured to afford a schedule of future payments of specified amounts funded by an annuity from a Hartford life insurance company (“Structured Settlements”). The operative complaint alleges that since 1997 the Company deprived the settling claimants of the value of their damages recoveries by secretly deducting 15% of the annuity premium of every Structured Settlement to cover brokers’ commissions, other fees and costs, taxes, and a profit for the annuity provider, and asserts claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and state law. The district court certified a class for the RICO and fraud claims in March 2009, and the Company’s petition to the United States Court of Appeals for the Second Circuit for permission to file an interlocutory appeal of the class-certification ruling was denied in October 2009. In April 2010, the parties reached an agreement in principle to settle on a nationwide class basis, under which the Company would pay $72.5 in exchange for a full release and dismissal of the litigation. The $72.5 was accrued in the first quarter of 2010. The settlement received preliminary court approval in June 2010 and remains contingent upon final approval of the court.

Fair Credit Reporting Act Class Action— In February 2007, the United States District Court for the District of Oregon gave final approval of the Company’s settlement of a lawsuit brought on behalf of a class of homeowners and automobile policy holders alleging that the Company willfully violated the Fair Credit Reporting Act by failing to send appropriate notices to new customers whose initial rates were higher than they would have been had the customer had a more favorable credit report. The Company paid approximately $84.3 to eligible claimants and their counsel in connection with the settlement, and sought reimbursement from the Company’s Excess Professional Liability Insurance Program for the portion of the settlement in excess of the Company’s $10 self-insured retention. Certain insurance carriers participating in that program disputed coverage for the settlement, and one of the excess insurers commenced an arbitration that resulted in an award in the Company’s favor and payments to the Company of approximately $30.1, thereby exhausting the primary and first-layer excess policies. In June 2009, the second-layer excess carriers commenced an arbitration to resolve the dispute over coverage for the remainder of the amounts paid by the Company. Management believes it is probable that the Company’s coverage position ultimately will be sustained.

Asbestos and Environmental Claims— As discussed in Note 12, Commitments and Contingencies, of the Notes to Consolidated Financial Statements under the caption “Asbestos and Environmental Claims”, included in the Company’s 2009 Form 10-K Annual Report, The Hartford continues to receive asbestos and environmental claims that involve significant uncertainty regarding policy coverage issues. Regarding these claims, The Hartford continually reviews its overall reserve levels and reinsurance coverages, as well as the methodologies it uses to estimate its exposures. Because of the significant uncertainties that limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses, particularly those related to asbestos, the ultimate liabilities may exceed the currently recorded reserves. Any such additional liability cannot be reasonably estimated now but could be material to The Hartford’s consolidated operating results, financial condition and liquidity.

55

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

9. Commitments and Contingencies (continued)

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of June 30, 2010, is $513. Of this $513, the legal entities have posted collateral of $498 in the normal course of business. Based on derivative market values as of June 30, 2010, a downgrade of one level below the current financial strength ratings by either Moody’s or S&P could require approximately an additional $29 to be posted as collateral. Based on derivative market values as of June 30, 2010, a downgrade by either Moody’s or S&P of two levels below the legal entities’ current financial strength ratings could require approximately an additional $42 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we may be required to post is primarily in the form of U.S. Treasury bills and U.S. Treasury notes.

10. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans

Components of Net Periodic Benefit Cost

In the Company’s non-qualified pension plan the amount of lump sum benefit payments exceeded the amount of service and interest cost for the three and six months ended June 30, 2010. As a result, the Company recorded settlement expense of $20 to recognize the actuarial loss associated with the pro-rata portion of the obligation that has been settled.

Total net periodic benefit cost for the three months ended June 30, 2010 and 2009 includes the following components:

	Pension Benefits						Other Postretirement Benefits
	2010			2009			2010			2009
Service cost	$	24		$	26		$	1		$	2
Interest cost		63			61			6			6
Expected return on plan assets		(72	)		(68	)		(3	)		(2	)
Settlement expense		20			—			—			—
Amortization of prior service credit		(3	)		(3	)		—			(1	)
Amortization of actuarial loss		28			19			—			—
Net periodic benefit cost	$	60		$	35		$	4		$	5

Total net periodic benefit cost for the six months ended June 30, 2010 and 2009 include the following components:

	Pension Benefits						Other Postretirement Benefits
	2010			2009			2010			2009
Service cost	$	51		$	52		$	3		$	3
Interest cost		125			121			11			12
Expected return on plan assets		(143	)		(137	)		(6	)		(5	)
Settlement expense		20			—			—			—
Amortization of prior service credit		(5	)		(5	)		—			(1	)
Amortization of actuarial loss		54			37			—			—
Net periodic benefit cost	$	102		$	68		$	8		$	9

56

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

11. Stock Compensation Plans

The Company’s stock-based compensation plans include The Hartford 2005 Incentive Stock Plan, The Hartford Employee Stock Purchase Plan and The Hartford Deferred Stock Unit Plan. For a description of these plans, see Note 18 of Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report.

On May 19, 2010 at the Company’s Annual Meeting of Shareholders, the shareholders of The Hartford approved The Hartford 2010 Incentive Stock Plan (the “2010 Stock Plan”), which supersedes and replaces The Hartford 2005 Incentive Stock Plan. The terms of the 2010 Stock Plan are substantially similar to the terms of the superseded plan. However, the 2010 Stock Plan provides for an increased maximum number of shares that may be awarded to employees of the Company, and also permits awards to be made to third party service providers, and permits additional forms of stock-based awards.

The 2010 Stock Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other form of stock based award. The aggregate number of shares of stock, which may be awarded, is subject to a maximum limit of 18,000,000 shares applicable to all awards for the ten-year duration of the 2010 Stock Plan. If any award under the prior The Hartford Incentive Stock Plan (as approved by the Company’s shareholders in 2000) or under the prior The Hartford 2005 Incentive Stock Plan (as approved by the Company’s shareholders in 2005) that was outstanding as of March 31, 2010, is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof) shall be available for awards under the 2010 Stock Plan and such shares shall be added to the maximum limit to the extent of such forfeiture, termination, expiration, or cash or net settlement of such awards.

Under the 2010 Stock Plan, all options granted have an exercise price at least equal to the market price of the Company’s common stock on the date of grant, and an option’s maximum term is not to exceed ten years. For any year, no individual employee may receive an award of options for more than 2,000,000 shares.

Performance awards of common stock granted under the 2010 Stock Plan become payable upon the attainment of specific performance goals achieved over a period of not less than one nor more than five years, and the restricted stock granted is subject to a restriction period. For any year, the maximum award of performance shares, restricted stock awards, or restricted stock unit awards for any individual employee in any year is 500,000 shares or units.

Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. The Company typically issues shares from treasury in satisfaction of stock-based compensation.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Stock-based compensation plans expense	$	19		$	8		$	41		$	21
Income tax benefit		(7	)		(3	)		(15	)		(7	)
Total stock-based compensation plans expense, after-tax	$	12		$	5		$	26		$	14

The Company did not capitalize any cost of stock-based compensation. As of June 30, 2010, the total compensation cost related to non-vested awards not yet recognized was $120, which is expected to be recognized over a weighted average period of 1.7 years.

12. Debt

Senior Notes

On June 15, 2010, The Hartford repaid its $275, 7.9% senior notes at maturity.

On March 23, 2010, The Hartford issued $1.1 billion aggregate principal amount of its senior notes. The issuance consisted of $300 of 4.0% senior notes due March 30, 2015, $500 of 5.5% senior notes due March 30, 2020 and $300 of 6.625% senior notes due March 30, 2040. The senior notes bear interest at their respective rate, payable semi-annually in arrears on March 30 and September 30 of each year, beginning September 30, 2010.

57

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

13. Equity

Issuance of Common Stock

On March 23, 2010, The Hartford issued approximately 59.6 million shares of common stock at a price to the public of $27.75 per share and received net proceeds of $1.6 billion.

Issuance of Series F Preferred Stock

On March 23, 2010, The Hartford issued 23 million depositary shares, each representing a 1/40th interest in The Hartford’s 7.25% mandatory convertible preferred stock, Series F, at a price of $25 per depositary share and received net proceeds of approximately $556. The Company will pay cumulative dividends on each share of the mandatory convertible preferred stock at a rate of 7.25% per annum on the initial liquidation preference of $1,000 per share. Dividends will accrue and cumulate from the date of issuance and, to the extent that the Company is legally permitted to pay dividends and its board of directors declares a dividend payable, the Company will, from July 1, 2010 until and including January 1, 2013 pay dividends on each January 1, April 1, July 1 and October 1, in cash and (whether or not declared prior to that date) on April 1, 2013 will pay or deliver, as the case may be, dividends in cash, shares of its common stock, or a combination thereof, at its election. Dividends on and repurchases of the Company’s common stock will be subject to restrictions in the event that the Company fails to declare and pay, or set aside for payment, dividends on the Series F preferred stock.

The 575,000 shares of mandatory convertible preferred stock, Series F, will automatically convert into shares of common stock on April 1, 2013, if not earlier converted at the option of the holder, at any time, or upon the occurrence of a fundamental change. The number of shares issuable upon mandatory conversion of each share of mandatory convertible preferred stock will be a variable amount based on the average of the daily volume weighted average price per share of the Company’s common stock during a specified period of 20 consecutive trading days with the number of shares of common stock ranging from 29.536 to 36.036 per share of mandatory convertible preferred stock, subject to anti-dilution adjustments.

Redemption of Series E Preferred Stock issued under the Capital Purchase Program

On March 31, 2010, the Company repurchased all 3.4 million shares of Series E preferred stock issued to the U.S. Treasury (the “Treasury”) for an aggregate purchase price of $3.4 billion and made a final dividend payment of $22 on the Series E preferred stock. The Company recorded a $440 charge to retained earnings representing the acceleration of the accretion of the remaining discount on the Series E preferred stock. Treasury continues to hold warrants to purchase approximately 52 million shares of the Company’s common stock at an exercise price of $9.79 per share. During the Company’s participation in the Capital Purchase Program (“CPP”), the Company was subject to numerous additional regulations, including restrictions on the ability to increase the common stock dividend, limitations on the compensation arrangements for senior executives and additional corporate governance standards. As a result of the redemption of Series E Preferred Stock, the Company believes it is no longer subject to these regulations other than certain reporting and certification obligations to U.S. regulating agencies.

Adjustment to warrants previously issued to Allianz

Additionally, the issuance of common and preferred stock during the first quarter of 2010 triggered an anti-dilution provision in The Hartford’s Investment Agreement with Allianz, which resulted in the adjustment to the warrant exercise price to $25.23 from $25.25 and to the number of shares that may be purchased to 69,351,806 from 69,314,987.

Noncontrolling Interests

Noncontrolling interest includes VIEs in which the Company has concluded that it is the primary beneficiary, see Note 5 for further discussion of the Company’s involvement in VIEs, and general account mutual funds where the Company holds the majority interest due to seed money investments. In 2010, the Company recognized the noncontrolling interest in these entities in other liabilities since these entities represent investment vehicles whereby the noncontrolling interests may redeem these investments at any time.

58

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

14. Goodwill

In 2010, the Company made changes to its Life segments as described in Note 3. Life changed its reporting structure to realign mutual funds businesses into Retirement from Global Annuity — U.S. The goodwill associated with the mutual funds businesses is now reported in Retirement, however, the reporting unit for that goodwill has not changed.

The carrying amount of goodwill allocated to reporting segments as of June 30, 2010 and December 31, 2009 is shown below.

	June 30, 2010							December 31, 2009
			Accumulated			Carrying				Accumulated			Carrying
	Gross		Impairments			Value		Gross		Impairments			Value
Life
Global Annuity — U.S.	$	422	$	(422	)	$	—	$	422	$	(422	)	$	—
Individual Life		224		—			224		224		—			224
Retirement		246		—			246		246		—			246
Total Life		892		(422	)		470		892		(422	)		470
Property & Casualty
Personal Lines		119		—			119		119		—			119
Specialty Commercial		30		—			30		30		—			30
Total Property & Casualty		149		—			149		149		—			149
Corporate		940		(508	)		432		940		(355	)		585
Total Goodwill	$	1,981	$	(930	)	$	1,051	$	1,981	$	(777	)	$	1,204

The Company completed its annual goodwill assessment for Federal Trust Corporation during the second quarter of 2010, resulting in a goodwill impairment of $153, pre-tax.

The Company completed its annual goodwill assessment for the individual reporting units within Life as of January 1, 2010, which resulted in no write-downs of goodwill in 2010. The reporting units passed the first step of their annual impairment tests with a significant margin with the exception of the Individual Life reporting unit. Individual Life completed the second step of the annual goodwill impairment test resulting in an implied goodwill value that was in excess of its carrying value. Even though the fair value of the reporting unit was lower than its carrying value, the implied level of goodwill in Individual Life exceeded the carrying amount of goodwill. In the implied purchase accounting required by the Step 2 goodwill impairment test, the implied present value of future profits was substantially lower than that of the DAC asset removed in purchase accounting. A higher discount rate was used for calculating the present value of fu ture profits as compared to that used for calculating the present value of estimated gross profits for DAC. As a result, in the implied purchase accounting, implied goodwill exceeded the carrying amount of goodwill.

The Company expects to complete the annual impairment test for the Property & Casualty reporting units in the fourth quarter of 2010.

15. Sale of Joint Venture Interest in ICATU Hartford Seguros, S.A.

On November 23, 2009, in keeping with the Company’s June 2009 announcement to return to its historical strengths as a U.S.-centric insurance company, the Company entered into a Share Purchase Agreement to sell its joint venture interest in ICATU Hartford Seguros, S.A. (“IHS”), its Brazilian insurance operation, to its partner, ICATU Holding S.A., for $135. The transaction closed in the second quarter of 2010, and the Company received cash proceeds of $130, which was net of capital gains tax withheld of $5. The investment in IHS was reported as an equity method investment in Other assets.

59

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, “The Hartford” or the “Company”) as of June 30, 2010, compared with December 31, 2009, and its results of operations for the three and six months ended June 30, 2010, compared to the equivalent 2009 periods. This discussion should be read in conjunction with the MD&A in The Hartford’s 2009 Form 10-K Annual Report. Certain reclassifications have been made to prior period financial information to conform to the current period classifications.

INDEX

Description	Page
Consolidated Results of Operations		61
Outlooks		63
Critical Accounting Estimates		68
The Hartford’s Operations Overview		79
Key Performance Measures and Ratios		82
Global Annuity — U.S.		88
Global Annuity — International		90
Retirement		92
Individual Life		94
Group Benefits		96
Institutional		97
Life Other		99
Personal Lines		100
Small Commercial		103
Middle Market		105
Specialty Commercial		107
Other Operations		109
Corporate		110
Property & Casualty Underwriting Risk Management Strategy		111
Investment Credit Risk		111
Capital Markets Risk Management		120
Capital Resources and Liquidity		126
Impact of New Accounting Standards		133

60

CONSOLIDATED RESULTS OF OPERATIONS

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Earned premiums	$	3,506		$	3,592			(2	%)	$	7,033		$	7,421			(5	%)
Fee income		1,195			1,062			13	%		2,384			2,229			7	%
Net investment income (loss):
Securities available-for-sale and other		1,153			1,021			13	%		2,213			1,941			14	%
Equity securities, trading [1]		(2,649	)		2,523			NM			(1,948	)		1,799			NM
Total net investment income (loss)		(1,496	)		3,544			NM			265			3,740			(93	%)
Net realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(292	)		(562	)		48	%		(632	)		(786	)		20	%
OTTI losses recognized in other comprehensive income		184			248			(26	%)		372			248			50	%
Net OTTI losses recognized in earnings		(108	)		(314	)		66	%		(260	)		(538	)		52	%
Net realized capital gains (losses), excluding net OTTI
losses recognized in earnings		119			(367	)		NM			(5	)		(59	)		92	%
Total net realized capital gains (losses)		11			(681	)		NM			(265	)		(597	)		56	%
Other revenues		120			120			—			238			238			—
Total revenues		3,336			7,637			(56	%)		9,655			13,031			(26	%)
Benefits, losses and loss adjustment expenses		3,592			3,092			16	%		6,725			7,729			(13	%)
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities [1]		(2,649	)		2,523			NM			(1,948	)		1,799			NM
Amortization of deferred policy acquisition costs and present value of future profits		938			674			39	%		1,589			2,933			(46	%)
Insurance operating costs and expenses		969			959			1	%		1,888			1,857			2	%
Interest expense		132			119			11	%		252			239			5	%
Goodwill impairment		153			—			—			153			32			NM
Other expenses		208			252			(17	%)		468			441			6	%
Total benefits, losses and expenses		3,343			7,619			(56	%)		9,127			15,030			(39	%)
Income (loss) before income taxes		(7	)		18			NM			528			(1,999	)		NM
Income tax expense (benefit)		(83	)		33			NM			133			(775	)		NM
Net income (loss)	$	76		$	(15	)		NM		$	395		$	(1,224	)		NM
Supplemental Operating Data
Diluted earnings (loss) per common share	$	0.14		$	(0.06	)		NM		$	(0.24	)	$	(3.80	)		94	%
Total revenues, excluding net investment income on equity securities, trading		5,985			5,114			17	%		11,603			11,232			3	%
DAC Unlock benefit (charge), after-tax		(230	)		360			NM			(145	)		(1,134	)		87	%

	June 30,		December 31,
Summary of Financial Condition	2010		2009
Total assets	$	314,150	$	307,717
Total investments, excluding equity securities, trading		97,888		93,235
Total stockholders’ equity		18,891		17,865

[1] Includes investment income and mark-to-market effects of equity securities, trading, supporting the Global Annuity — International variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses.

61

	Three Months Ended									Six Months Ended
	June 30,									June 30,
							Increase									Increase
							(Decrease) From									(Decrease) From
Segment Results	2010			2009			2009 to 2010			2010			2009			2009 to 2010
Life
Global Annuity — U.S.	$	(107	)	$	188		$	(295	)	$	46		$	(558	)	$	604
Global Annuity — International		2			119			(117	)		25			(174	)		199
Retirement		37			(36	)		73			57			(122	)		179
Individual Life		95			16			79			111			(2	)		113
Group Benefits		48			14			34			99			83			16
Institutional		(1	)		(66	)		65			(89	)		(240	)		151
Other		14			(59	)		73			25			(69	)		94
Total Life		88			176			(88	)		274			(1,082	)		1,356
Property & Casualty
Ongoing Operations
Underwriting results
Personal Lines		(73	)		(10	)		(63	)		(19	)		65			(84	)
Small Commercial		62			74			(12	)		145			161			(16	)
Middle Market		(22	)		56			(78	)		(10	)		125			(135	)
Specialty Commercial		111			36			75			163			59			104
Ongoing Operations underwriting results		78			156			(78	)		279			410			(131	)
Net servicing income [1]		10			7			3			17			15			2
Net investment income		298			239			59			566			424			142
Net realized capital gains (losses)		16			(80	)		96			(20	)		(369	)		349
Other expenses		(53	)		(48	)		(5	)		(107	)		(98	)		(9	)
Income before income taxes		349			274			75			735			382			353
Income tax expense		88			52			36			236			49			187
Ongoing Operations		261			222			39			499			333			166
Other Operations		(73	)		(49	)		(24	)		(54	)		(48	)		(6	)
Total Property & Casualty		188			173			15			445			285			160
Corporate		(200	)		(364	)		164			(324	)		(427	)		103
Net income (loss)	$	76		$	(15	)	$	91		$	395		$	(1,224	)	$	1,619

[1] Net of expenses related to service business.

Three months ended June 30, 2010 compared to the three months ended June 30, 2009

The change from consolidated net loss to consolidated net income was primarily due to net realized capital losses of $649, after-tax, in 2009 compared to $15, after-tax, in 2010 and an improvement in Life operation’s earnings, partially offset by a DAC Unlock charge of $230, after-tax, in 2010 compared to a DAC Unlock benefit of $360, after-tax, in 2009 and goodwill impairment of approximately $100, after-tax, in 2010.

Excluding net realized capital gains (losses) and DAC Unlocks, Life operation’s earnings increased approximately $216 and Property & Casualty operation’s earnings decreased approximately $52 from 2009 to 2010. See the segment sections of the MD&A for a discussion on the respective operations’ performance.

Six months ended June 30, 2010 compared to the six months ended June 30, 2009

The change from consolidated net loss to consolidated net income was primarily due to a DAC Unlock charge of $1.1 billion, after-tax, in 2009 compared to a charge of $145, after-tax, in 2010 and net realized capital losses of $695, after-tax, in 2009 compared to $242, after-tax, in 2010.

Excluding net realized capital gains (losses) and DAC Unlocks, Life operation’s earnings increased approximately $372 and Property & Casualty operation’s earnings decreased approximately $69 from 2009 to 2010. See the segment sections of the MD&A for a discussion on the respective operations’ performance.

62

OUTLOOKS

Outlooks

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 precautionary statements set forth on pages 3-4 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in each discussion below and in Part I, Item 1A, Risk Factors in The Hartford’s 2009 Form 10-K Annual Report, Part II, Item 1A, Risk Factors of The Hartford’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as well as in Part II, Item 1A, Risk Factors of this Form 10-Q.

Life

Global Annuity — U.S.

In the long-term, management continues to believe the market for annuities will expand as individuals increasingly save and plan for retirement. Demographic trends suggest that as the “baby boom” generation matures, a significant portion of the United States population will allocate a greater percentage of their disposable incomes to saving for their retirement years due to uncertainty surrounding the Social Security system and increases in average life expectancy. Further, due to continued declines and volatility in the equity markets, the Company is expecting that the majority of “baby boomers” will be looking to provide more stability to the value of their accumulated wealth and focusing more on identifying and creating dependable and certain income streams that can provide known payments throughout their retirement.

Near-term, the Company is continuing to experience lower variable annuity sales as a result of the competitiveness of the Company’s current product offerings. The Company expects these lower sales levels to continue through 2010. The current market conditions and market volatility have resulted in higher claim costs, and have increased the cost and volatility of hedging programs, and the level of capital needed to support living benefit guarantees when compared to historical levels. Many competitors have responded to the market turbulence by increasing the price of their guaranteed living benefits and changing the amount of the guarantee offered. Management believes that the most significant industry de-risking changes have occurred. The Company will continue to evaluate the benefits offered within its variable annuities, and ensure a product portfolio to meet customer needs. Based on changes in economic and demographic landscape, as previously discussed, the Company launched a new variable annuity product in October 2009 that responds to customer needs for growth and income within the risk tolerances of The Hartford. Throughout the first half of 2010, the Company has received regulatory approval to offer the new variable annuity product in many states, and the Company continues to seek approval in remaining states so that this product solution will be available to everyone in the United States. Further, the Company has been working on approval for the new product solution with its various distributors. As the Company and our distribution partners transition to the new product, there will be downward pressure on new deposits, and management expects to continue to be in a net outflow position through 2010.

Continued equity market volatility and the low level of interest rates will continue to impact the cost and effectiveness of our guaranteed minimum withdrawal benefit (“GMWB”) hedging program and could result in material losses in our hedging program. For more information on the GMWB hedging program, see the Life Equity Product Risk Management section within Capital Markets Risk Management.

The Company’s fixed annuity sales have continued to decline as a result of lower interest rates. Management expects fixed annuity sales to continue to be challenged until interest rates increase.

Assets under management are relatively level compared to 2009 which is the result of volatile equity markets and continued consistent net outflows of the variable annuity business. Although the markets have partially recovered over the past year they have not reached their 2008 levels and, as a result, the extent of the scale efficiencies that Global Annuity — U.S. has benefited from in recent years has been reduced. Although the business has improved profitability compared to prior year, the profitability rates are not consistent with historical levels. This condition is expected to persist for the remainder of 2010. Net investment spread has improved recently due to positive returns on limited partnership and other alternative investments partially offset by lower yields on fixed maturities. Management is expecting returns on limited partnerships and other alternative investments to be more favorable in 2010 than 2009 primarily due to improved market performance; however, due to the continued low interest rate environment, management is expecting the lower yields on fixed maturity investments to persist in the second half of 2010. Management has evaluated, and will continue to actively evaluate, its expense structure to ensure the business is controlling costs while maintaining an appropriate level of service to our customers.

63

Global Annuity — International

In the second quarter of 2009, the Company suspended all new sales in Global Annuity — International’s Japan and European operations. Global Annuity — International continues to restructure its operations to maximize profitability and capital efficiency while continuing to focus on risk management and maintaining appropriate service levels.

Profitability depends on the account values of our customers, which are affected by equity, bond and currency markets. Periods of favorable market performance will increase assets under management and thus increase fee income earned on those assets, while unfavorable market performance will have the reverse effect. In addition, higher or lower account value levels will generally reduce or increase, respectively, certain costs for individual annuities to the Company, such as guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and GMWB. Changes in the Yen will also impact costs and profitability. Prudent expense management is also an important component of product profitability. The Company took actions in 2009 that realigned our organization and significantly reduced our expense structure, which we believe will result in improved earnings over time. The Company continues to evaluate opportunities to mitigate the risks associated with Global Annuity — International businesses and manage expenses in order to balance costs and earnings stability.

In the fourth quarter of 2009, Hartford Life International, Ltd., an indirect, wholly-owned subsidiary of Hartford Life Insurance Company, entered into a Share Purchase Agreement with Icatu Holding, S.A, the Company’s joint venture partner, for the sale of all of the Company’s common registered shares and preferred registered shares in Icatu Hartford Seguros S.A, its Brazil operation. The transaction settled as expected in mid June of 2010. The sale of our interests in Icatu Hartford Seguros S.A. will allow the Company to focus on its core U.S. centric businesses and reduce exposure to currency volatility, but will also reduce the expected future earnings of Global Annuity — International.

Retirement

Retirement Plans

The future financial results of this segment will depend on Life’s ability to increase assets under management across all businesses, achieve scale in areas with a high degree of fixed costs and maintain its investment spread earnings on the general account products sold largely in the 403(b)/457 business. Disciplined expense management will continue to be a focus of the Retirement segment as necessary investments in service and technology are made to effect the integration of the acquisitions made in 2008.

The continued improvements and growing stability in the equity markets over the last year, even considering the most recent declines in May and June of 2010, have continued to help improve both quarterly deposits and assets under management. These improvements have been partially offset by a few large case surrenders in 2009; however, assets under management at June 30, 2010 are $43.8 billion representing an increase of 13% from prior year. Assuming no further significant declines in equity markets, due to current sales momentum, management expects assets under management to improve throughout 2010.

Mutual Funds

The partial equity market recovery, and the fact that certain key funds performed strongly relative to the market, has driven an increase in deposits. Assets under management have been adversely affected by the recent market declines. As the mutual fund business continues to evolve, success will be driven by diversifying net sales across the mutual fund platform, delivering superior investment performance and creating new investment solutions for current and future mutual fund shareholders. The increase in assets under management from the prior year has led to an increase in earnings and ROA from 2009 levels.

For the Retail and Investment-Only mutual fund business, net sales can vary significantly depending on market conditions, as we have experienced over the past two years. In addition, underlying fund performance relative to the market and peers can affect investment mandates for the Investment-Only mutual funds.

For Proprietary mutual funds, net flows are affected by the level of net sales in the insurance products that invest in these funds, as well as the relative performance of the underlying fund relative to the other fund offerings of the product. The Proprietary mutual funds have experienced negative net flows as the primary variable annuity products invested in these funds have been in a net outflow position as the block has aged, and management expects that this business will continue producing net outflows throughout 2010. Proprietary mutual funds were formerly reported in Global Annuity — U.S. and were transferred effective January 1, 2010 on a prospective basis.

Individual Life

Future sales for all products will be influenced by active management of current distribution relationships, responding to the negative impact of recent merger and consolidation activity on existing distribution relationships and the development of new sources of distribution, and the Company’s ratings, as published by the various ratings agencies, while offering competitive and innovative products and product features. The current economic environment poses challenges for future sales; while life insurance products respond well to consumer demand for financial security and wealth accumulation solutions, individuals may be reluctant to transfer funds when market volatility has recently resulted in significant declines in investment values. In addition, the availability and terms of capital solutions in the marketplace, as discussed below, to support universal life products with secondary guarantees, may reduce future growth in these products.

64

Individual Life reinsured the policy liability related to statutory reserves in universal life with secondary guarantees to a captive reinsurance affiliate. A letter of credit by an unaffiliated standby third-party (“issuer”) supports a portion of the statutory reserves that have been ceded to this subsidiary. The use of the letter of credit enhanced statutory capital but resulted in a decline in net investment income and increased expenses for Individual Life. As of June 30, 2010, the transaction provided approximately $635 of statutory capital relief associated with the Company’s universal life products with secondary guarantees. The issuer terminated the letter of credit for new business effective January 31, 2010. The letter of credit is expected to provide sufficient coverage for the reinsured business through 2028. On July 1, 2010, management launched a competitively priced universal life product with secondary guarantees that meets the Company’s capital efficiency objectives.

Individual Life continues to face uncertainty surrounding estate tax legislation, aggressive competition from other life insurance providers, reduced availability and higher price of reinsurance, and the current regulatory environment related to reserving for term life insurance and universal life products with no-lapse guarantees. Additionally, volatility in the equity markets may reduce the attractiveness of variable universal life products. These risks may have a negative impact on Individual Life’s future sales and earnings. Despite these risks, management believes there are opportunities to increase future sales by implementing strategies to expand distribution capabilities, including utilizing independent agents and continuing to build on the strong relationships within the financial institution marketplace.

Group Benefits

Group Benefits’ sales may fluctuate based on the competitive pricing environment in the marketplace. The Company’s first half 2010 sales declined 19%. The significance of the first half’s sales results combined with the Company’s disciplined underwriting in the competitive pricing environment will likely result in lower sales for 2010 compared to 2009. The Company anticipates relatively stable loss ratios and expense ratios over the long-term based on underlying trends in the in-force business and disciplined new business and renewal underwriting. In 2010, disability incidence has increased and claim terminations have declined compared to 2009 levels. The Company believes a component of this experience is normal volatility in the book of business. However, management has been evaluating the current experience and has begun implementing pricing actions.

The economic downturn, which resulted in rising unemployment, combined with the potential for employees to lessen spending on the Company’s products, has negatively impacted premium levels, which is expected to continue until there is sustained economic expansion and lower unemployment rates compared to the end of 2009 levels. Over time, as employers design benefit strategies to attract and retain employees, while attempting to control their benefit costs, management believes that the need for the Company’s products will continue to expand. This combined with the significant number of employees who currently do not have coverage or adequate levels of coverage, creates continued opportunities for our products and services.

Institutional

The Institutional segment consists of structured settlements, guaranteed investment products, terminal funding institutional annuities, and private placement life insurance. Two of these businesses — structured settlements and terminal funding annuities — suspended sales in 2009.

On a prospective basis effective January 1, 2010, Institutional transferred the following businesses; Single premium immediate annuity (“SPIA”) to Global Annuity — U.S.; Investment-Only mutual funds and Maturity Funding to Retirement and moved Leveraged PPLI from Life Other into Institutional. These changes moved products with ongoing sales to other segments to better serve the customer and align with The Hartford’s overall strategy.

Stable value (guaranteed investment) products experienced net outflows in the second quarter of 2010 as a result of contractual maturities, as well as the Company opting to accelerate the repayment of principal for certain stable value products. A total of $1.2 billion of account value was paid out on stable value contracts during the second quarter of 2010. The Company has the option to accelerate the repayment of principal for certain other stable value products and will continue to evaluate calling these contracts on a contract by contract basis based upon the financial impact to the Company. Institutional will fund these obligations from cash and short-term investments presently held in its investment portfolios along with projected receipts of earned interest and principal maturities from long-term invested assets.

The private placement life insurance industry (including the corporate-owned and bank-owned life insurance markets) has experienced a slowdown in sales due to, among other things, limited availability of stable value wrap providers. The Company believes that the current Private Placement Life Insurance (“PPLI”) assets will experience high persistency, but our ability to grow this business in the future will be affected by near term market and industry challenges.

The net income of this segment depends on Institutional’s ability to retain assets under management and maintain net investment spread. Net investment spread, as discussed in Institutional’s operating section of this MD&A, has been depressed and management expects net investment spread will remain pressured in the intermediate future due to the low level of market short-term interest rates, increased allocation to lower yielding U.S. Treasuries and short-term investments, and anticipated performance of limited partnerships and other alternative investments.

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Property & Casualty

Personal Lines

The Company expects Personal Lines’ written premiums for the 2010 full year will be lower than 2009 as written premium is expected to be relatively flat in AARP and down in Agency. The Company expects personal auto written premiums will be lower in 2010 driven by a decline in new business and policy retention due primarily to the effects of rate increases and underwriting actions to improve profitability and actions to reduce written premiums in certain market segments and territories, partially offset by an increase in the sale of the Company’s Open Road Advantage product. The Company expects homeowners’ written premiums will increase driven by an increase in written pricing and the cross-sell of AARP homeowners’ insurance to auto policyholders, partially offset by the effect of rate and underwriting actions to improve profitability.

While AARP written premium decreased 1% in the first six months of 2010 compared to the first six months of 2009, the Company expects AARP written premium to be flat for the full year driven by an increase in responses from direct marketing spend over the balance of 2010. Also, while Agency written premium increased 2% in the first six months of 2010, the Company expects a decrease in Agency written premium for the 2010 full year as the Company expects new business to decline over the balance of the year as the result of pricing and underwriting actions taken to improve profitability. The Company will continue to use direct marketing to AARP members to drive new business in AARP and will expand the sale of its Open Road Advantage product through independent agents to drive new business in Agency. The Company distributes its discounted AARP Open Road Advantage auto product through those independent agents who are authorized to offer the AARP product. As of June 30, 2010, the Open Road Advantage auto product was available in 20 states and the Company expects the product to be available to authorized agents in 41 states by the end of the first quarter of 2011.

In the first six months of 2010, renewal written pricing increased 6% for auto and 9% for home and management expects that renewal written pricing increases for both auto and homeowners will continue for the remainder of 2010 driven by rate increases in response to rising loss costs relative to average premium. As has been the case for the first six months of the year, for both auto and home, management expects that the increase in average written premium per policy in 2010 will not be as significant as the increase in written pricing due primarily to a continued shift to more preferred market segment business (which has lower average premium) and growth in states and territories with lower average premium.

The combined ratio before catastrophes and prior accident year development for Personal Lines was 92.2 for the first six months of 2010 and management expects the full year ratio will be slightly higher than the 92.0 ratio achieved in 2009 with both the current accident year loss and loss adjustment expense ratio before catastrophes and the expense ratio slightly higher. In 2010, the Company expects the current accident year loss and loss adjustment expense ratio before catastrophes will increase slightly for auto and will remain relatively flat for homeowners. For auto business, the expected increase in the current accident year loss and loss adjustment expense ratio before catastrophes for the 2010 full year is largely driven by experience for the first six months of 2010 as higher auto physical damage emerged frequency and higher expected auto liability loss costs relative to average premium were partially offset by an improvement in physical damage severity. For the balance of 2010, management expects an improvement in the current accident year loss and loss adjustment expense ratio before catastrophes for auto driven by the effect of rate increases and an improvement in claim frequency for both auto physical damage and auto liability coverages, partially offset by an increase in severity that is in line with historical experience. Though, year-to-date, the change in claim frequency has not been as favorable as had been expected, management expects improvement in frequency over the second half of 2010, given the shift to more preferred market segment business and the impact of underwriting actions to improve profitability. While non-catastrophe homeowners’ loss costs increased in the first six months of 2010 due to increased expected ultimate severity and increased frequency of non-catastrophe weather claims, management expects a decrease in the current accident year loss and loss adjustment expense ratio before catastrophes for home during the second half of 2010 driven by the effect of rate increases, underwriting actions and improvements in claim frequency as a result of the shift to more preferred market segment business, partially offset by higher claim severity. Management expects the expense ratio will be slightly higher in 2010 driven by higher amortization of AARP acquisition costs in 2010 and the effect of a reduction in The Texas Windstorm Insurance Association (“TWIA”) assessments in 2009.

Small Commercial

The Company expects Small Commercial’s written premiums to grow in the low single digits during 2010. During the first six months of 2010, the segment experienced single-digit policy growth in the package and workers’ compensation businesses due to improving policy retention and double-digit policy growth in new business. Also during the first six months of 2010, the Company continued to experience a decrease in earned audit premium, primarily as a result of lower payrolls during 2009. This resulted in declining average premium on renewed policies, a trend that is expected to continue through the remainder of 2010. Small Commercial introduced several initiatives in 2009 that continue to support improvements during the first six months of 2010 including: programs aimed at improving policy count retention and the rollout of a new product offering for package business (“Growing Spectrum”). In addition, Small Commercial introduced a new pricing model for commercial auto that is being implemented during 2010. Small Commercial is expected to continue to produce strong policy growth for the remainder of 2010 led by workers’ compensation reflecting: our current market position and capabilities; targeted broadening of underwriting capabilities in selected industries; and leveraging the payroll model to both increase penetration in well-established partners and continue developing opportunities with recently added partners including the marketing relationship with Intuit. Renewal written pricing in Small Commercial increased 2% in the first six months of 2010, and is expected to increase during the remainder of 2010.

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The Small Commercial segment’s combined ratio before catastrophes and prior accident year development was 86.2 in the first six months of 2010 compared to 84.1 in the first six months of 2009. The Company expects the 2010 full year combined ratio before catastrophes and prior accident year development to be higher than the 84.4 achieved in 2009. The increase in the combined ratio results from an expected increase in the current accident year loss and loss adjustment expense ratio, as well as a higher expense ratio. Small Commercial has experienced favorable frequency trends on workers’ compensation and commercial auto claims in recent accident years. Management expects favorable frequency to continue, but at a moderated rate, for the 2010 accident year. Across the Small Commercial lines of business, severity is expected to continue its long-term upward trend. The expense ratio is expected to be higher in 2010 driven by an increase in total underwriting expenses.

Middle Market

Management expects that 2010 written premiums for Middle Market will decline slightly due to the downturn in the economy which has reduced exposures across most lines of business, particularly payroll exposures for workers’ compensation and construction lines in marine, which are partially reflected in lower earned audit premium. Written premiums in Middle Market decreased by 5% in the first six months of 2010 due to the same economic impacts.

The Company continues to take a disciplined approach to evaluating and pricing risks in the face of a challenging pricing environment. While renewal written pricing for Middle Market business decreased in the first six months of 2009, renewal written pricing was flat in the first six months of 2010, and management expects this positive trend to continue in 2010, even though some carriers will continue to price new business more aggressively than renewals. As in the Personal Lines and Small Commercial market segments, current economic conditions (lower payrolls, declines in production, lower sales, etc.) have reduced written premium growth opportunities in Middle Market.

For the remainder of 2010, management will seek to compete for new business and protect renewals in Middle Market by, among other actions, refining its pricing and risk selection models, targeting industries with growth potential and looking to sell other lines of business on existing accounts.

The combined ratio before catastrophes and prior accident year development for Middle Market was 98.0 in the first six months of 2010, and is expected to be higher for the full year than the 95.1 achieved in 2009 due to an expected increase in the current accident year loss and loss adjustment expense ratio and an increase in the expense ratio. Claim cost severity was favorable on property in 2009. However, management expects that claim cost severity for property claims will return to historically normal levels in 2010 and that severity will continue to increase for all other lines.

Specialty Commercial

Within Specialty Commercial, while written premiums were relatively flat in the first six months of 2010, management expects written premiums to be slightly higher for the full year, primarily due to higher casualty premiums, partially offset by the effects of the economic downturn, continued pricing deterioration and changes in a reinsurance arrangement. The reinsurance program for the professional liability lines renewed in July 2009 with a change in structure from primarily an excess of loss program to a variable quota share arrangement. This change was market driven and consistent with the Company’s expectations. This will have the impact of depressing the net written premium growth for professional liability for the full year 2010.

For professional liability business within Specialty Commercial, the Company expects its losses from the fallout of the sub-prime mortgage market and the broader credit crisis to be within its expected loss estimates based on several factors. Principal among them is the diversified nature of the Company’s product and customer portfolio, with a majority of the Company’s total in-force professional liability net written premium derived from policyholders with privately-held ownership and, therefore, relatively low shareholder class action exposure. Reinsurance substantially mitigates the net limits exposed per policy and no single industry segment comprises 20% or more of the Company’s professional liability book of business by net written premium.

The combined ratio before catastrophes and prior accident year development for Specialty Commercial was 100.9 in the first six months of 2010, and is expected to be slightly higher for the full year than the 100.1 experienced in 2009 due to an expected increase in the current accident year loss and loss adjustment expense ratio and the dividend ratio, partially offset by a decrease in the expense ratio.

Investment Income

Property & Casualty net investment income is expected to be more favorable in 2010 than in 2009, primarily due to improved market performance for limited partnerships.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past has differed, from those estimates.

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability: property and casualty reserves, net of reinsurance; life estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; goodwill impairment; valuation of investments and derivative instruments; pension and other postretirement benefit obligations; valuation allowance on deferred tax assets and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements. In developing these estimates management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements. The Hartford’s critical accounting estimates are discussed in Part II, Item 7 MD&A in The Hartford’s 2009 Form 10-K Annual Report. The following discussion updates certain of The Hartford’s critical accounting estimates for June 30, 2010 results.

Property and Casualty Reserves, Net of Reinsurance

Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve estimates are changed after consideration of numerous factors, including but not limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, changes are made more quickly to more mature accident years and less volatile lines of business.

As part of its quarterly reserve review process, the Company is closely monitoring reported loss development in certain lines where the recent emergence of paid losses and case reserves could indicate a trend that may eventually lead the Company to change its estimate of ultimate losses in those lines. If, and when, the emergence of reported losses is determined to be a trend that changes the Company’s estimate of ultimate losses, prior accident years reserves would be adjusted in the period the change in estimate is made. Such adjustments of reserves are referred to as “reserve development”. Reserve development that increases previous estimates of ultimate cost is called “reserve strengthening”. Reserve development that decreases previous estimates of ultimate cost is called “reserve releases”. Reserve development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow.

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Reserve Rollforwards and Development

A roll-forward follows of Property & Casualty liabilities for unpaid losses and loss adjustment expenses by segment for the three and six months ended June 30, 2010:

	Three Months Ended June 30, 2010
	Personal			Small			Middle			Specialty			Other			Total
	Lines			Commercial			Market			Commercial			Operations			P&C
Beginning liabilities for unpaid losses and loss adjustment expenses-gross	$	2,088		$	3,625		$	4,452		$	7,025		$	4,370		$	21,560
Reinsurance and other recoverables		19			121			311			2,124			855			3,430
Beginning liabilities for unpaid losses and loss adjustment expenses-net		2,069			3,504			4,141			4,901			3,515			18,130
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes		685			349			311			193			—			1,538
Current accident year catastrophes		146			45			38			—			—			229
Prior accident years		(5	)		(16	)		(7	)		(121	)		173			24
Total provision for unpaid losses and loss adjustment expenses		826			378			342			72			173			1,791
Payments		(730	)		(347	)		(338	)		(182	)		(102	)		(1,699	)
Ending liabilities for unpaid losses and loss adjustment expenses-net		2,165			3,535			4,145			4,791			3,586			18,222
Reinsurance and other recoverables		16			120			291			2,015			815			3,257
Ending liabilities for unpaid losses and loss adjustment expenses-gross	$	2,181		$	3,655		$	4,436		$	6,806		$	4,401		$	21,479
Earned premiums	$	994		$	648		$	487		$	280		$	1		$	2,410
Loss and loss expense paid ratio [1]		73.5			53.4			69.2			65.9
Loss and loss expense incurred ratio		83.1			58.2			70.3			26.6
Prior accident years development (pts) [2]		(0.4	)		(2.4	)		(1.4	)		(43.6	)

[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]	“Prior accident years development (pts)” represents the ratio of prior accident years development to earned premiums.

	Six Months Ended June 30, 2010
	Personal			Small			Middle			Specialty			Other			Total
	Lines			Commercial			Market			Commercial			Operations			P&C
Beginning liabilities for unpaid losses and loss adjustment expenses-gross	$	2,070		$	3,603		$	4,442		$	7,044		$	4,492		$	21,651
Reinsurance and other recoverables		20			137			305			2,118			861			3,441
Beginning liabilities for unpaid losses and loss adjustment expenses-net		2,050			3,466			4,137			4,926			3,631			18,210
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes		1,351			715			642			390			—			3,098
Current accident year catastrophes		187			66			53			2			—			308
Prior accident years		(12	)		(34	)		(23	)		(170	)		174			(65	)
Total provision for unpaid losses and loss adjustment expenses		1,526			747			672			222			174			3,341
Payments		(1,411	)		(678	)		(664	)		(357	)		(219	)		(3,329	)
Ending liabilities for unpaid losses and loss adjustment expenses-net		2,165			3,535			4,145			4,791			3,586			18,222
Reinsurance and other recoverables		16			120			291			2,015			815			3,257
Ending liabilities for unpaid losses and loss adjustment expenses-gross	$	2,181		$	3,655		$	4,436		$	6,806		$	4,401		$	21,479
Earned premiums	$	1,989		$	1,285		$	988		$	567		$	1		$	4,830
Loss and loss expense paid ratio [1]		70.9			52.7			67.2			63.3
Loss and loss expense incurred ratio		76.7			58.0			68.0			39.6
Prior accident years development (pts) [2]		(0.6	)		(2.6	)		(2.4	)		(29.9	)

[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]	“Prior accident years development (pts)” represents the ratio of prior accident years development to earned premiums.

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Prior accident years development recorded in 2010

Included within prior accident years development for the six months ended June 30, 2010 were the following reserve strengthenings (releases):

	Personal			Small			Middle			Specialty			Other		Total
	Lines			Commercial			Market			Commercial			Operations		P&C
Professional liability	$	—		$	—		$	—		$	(61	)	$	—	$	(61	)
General liability umbrella and high hazard liability		—			—			(27	)		—			—		(27	)
Personal auto liability		(24	)		—			—			—			—		(24	)
Specialty programs		—			—			—			(17	)		—		(17	)
Commercial auto		—			(12	)		—			—			—		(12	)
Net asbestos reserves		—			—			—			—			169		169
General liability (excluding umbrella)		—			—			21			—			—		21
Homeowners		9			—			—			—			—		9
Uncollectible reinsurance		—			—			—			(30	)		—		(30	)
Other reserve re-estimates, net [1]		10			(4	)		(1	)		(13	)		4		(4	)
Total prior accident years development for the three months ended June 30, 2010		(5	)		(16	)		(7	)		(121	)		173		24
Professional liability		—			—			—			(22	)		—		(22	)
General liability umbrella		—			—			(10	)		—			—		(10	)
Personal auto liability		(17	)		—			—			—			—		(17	)
Homeowners		15			—			—			—			—		15
Other reserve re-estimates, net [2] [3]		(5	)		(18	)		(6	)		(27	)		1		(55	)
Total prior accident years development for the three months ended March 31, 2010		(7	)		(18	)		(16	)		(49	)		1		(89	)
Total prior accident years development for the six months ended June 30, 2010	$	(12	)	$	(34	)	$	(23	)	$	(170	)	$	174	$	(65	)

[1]	Includes reserve discount accretion of $6, including $2 in Small Commercial, $2 in Middle Market and $2 in Specialty Commercial.
[2]	Includes reserve discount accretion of $7, including $2 in Small Commercial, $3 in Middle Market and $2 in Specialty Commercial.
[3]	Other reserve re-estimates include a number of reserve changes across multiple lines of business. For the three months ended March 31, 2010, these re-estimates include, among other reserve changes, reserve releases in Small Commercial for package business, general liability and auto liability and in Specialty Commercial for general liability and property.

During the three and six months ended June 30, 2010, the Company’s re-estimates of prior accident years reserves included the following significant reserve changes:

• Released reserves for professional liability claims by $22 in the first quarter of 2010 and by $61 in the second quarter of 2010, primarily related to directors’ and officers’ (“D&O”) claims in accident years 2008 and prior. For these accident years, reported losses for claims under D&O policies have been emerging favorably to initial expectations due to lower than expected claim severity. Any continued favorable emergence of claims under D&O insurance policies for prior accident years could lead the Company to reduce reserves for these liabilities in future quarters.

• Released reserves in Middle Market for general liability umbrella claims by $10 in the first quarter of 2010 and by $12 in the second quarter of 2010. The Company observed that reported losses for general liability umbrella continue to emerge favorably and this caused management to reduce its estimate of the cost of future reported claims. In addition, the Company released reserves related to high hazard liability claims by $15 in the second quarter of 2010, primarily related to accident years 2007 and prior. During 2009 and 2010, the Company recognized that loss emergence for high hazard liability was less than expected, and accordingly, management reduced its reserve estimate.

• Released reserves for Personal Lines auto liability claims by $17 in the first quarter of 2010 and by $24 in the second quarter of 2010. During 2009, the Company recognized that favorable development in reported severity, due in part to changes made to claim handling procedures in 2007, was a sustained trend for accident years 2005 through 2008 and, accordingly, management reduced its reserve estimate. The reserve releases in the first and second quarters of 2010 are in response to a continuation of these same favorable trends, primarily affecting accident years 2005 through 2009.

• Released reserves for specialty programs claims by $17 in the second quarter of 2010, primarily related to accident years 2006 and prior. Over the course of several years, claim activity on prior accident years has been lower than anticipated. Management now believes that this lower level of claim activity will continue into the future and has reduced its reserve estimate.

• Released reserves in Small Commercial for commercial auto claims by $12 in the second quarter of 2010 when the Company lowered its reserve estimate to recognize a lower severity trend during 2009 and 2010 on larger claims in accident years 2002 to 2009.

• Strengthened reserves for Middle Market commercial general liability, excluding umbrella, by $21 in the second quarter of 2010 driven by higher than expected allocated loss adjustment expenses on claims from accident years 2000 and prior.

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• Strengthened reserves for Personal Lines homeowners’ claims by $15 in the first quarter of 2010 and $9 in the second quarter of 2010. During 2010, the Company observed a lengthening of the claim reporting period for homeowners’ claims for prior accident years which resulted in increasing management’s estimate of the ultimate cost to settle these claims.

• The Company reviewed its allowance for uncollectible reinsurance for Ongoing Operations in the second quarter of 2010 and reduced its allowance for Ongoing Operations by $30 driven, in part, by a reduction in gross ceded loss recoverables. The allowance for uncollectible reinsurance for Ongoing Operations is recorded within the Specialty Commercial segment.

• Strengthened net asbestos reserves in Other Operations by $169 in the second quarter of 2010. Refer to the Other Operations Claims section for further discussion.

A roll-forward follows of Property & Casualty liabilities for unpaid losses and loss adjustment expenses by segment for the three and six months ended June 30, 2009:

	Three Months Ended June 30, 2009
	Personal			Small			Middle			Specialty			Other			Total
	Lines			Commercial			Market			Commercial			Operations			P&C
Beginning liabilities for unpaid losses and loss adjustment expenses-gross	$	2,024		$	3,590		$	4,739		$	6,987		$	4,464		$	21,804
Reinsurance and other recoverables		58			170			458			2,063			793			3,542
Beginning liabilities for unpaid losses and loss adjustment expenses-net		1,966			3,420			4,281			4,924			3,671			18,262
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes		649			340			331			214			—			1,534
Current accident year catastrophes		110			23			8			1			—			142
Prior accident years		—			10			(22	)		(47	)		121			62
Total provision for unpaid losses and loss adjustment expenses		759			373			317			168			121			1,738
Payments		(702	)		(335	)		(341	)		(154	)		(71	)		(1,603	)
Ending liabilities for unpaid losses and loss adjustment expenses-net		2,023			3,458			4,257			4,938			3,721			18,397
Reinsurance and other recoverables		54			168			447			2,001			835			3,505
Ending liabilities for unpaid losses and loss adjustment expenses-gross	$	2,077		$	3,626		$	4,704		$	6,939		$	4,556		$	21,902
Earned premiums	$	985		$	643		$	538		$	311		$	1		$	2,478
Loss and loss expense paid ratio [1]		71.2			52.1			63.6			49.9
Loss and loss expense incurred ratio		77.0			58.0			59.1			54.0
Prior accident years development (pts) [2]		—			1.5			(4.2	)		(15.0	)

[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]	“Prior accident years development (pts)” represents the ratio of prior accident years development to earned premiums.

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	Six Months Ended June 30, 2009
	Personal			Small			Middle			Specialty			Other			Total
	Lines			Commercial			Market			Commercial			Operations			P&C
Beginning liabilities for unpaid losses and loss adjustment expenses-gross	$	2,052		$	3,572		$	4,744		$	6,981		$	4,584		$	21,933
Reinsurance and other recoverables		60			176			437			2,110			803			3,586
Beginning liabilities for unpaid losses and loss adjustment expenses-net		1,992			3,396			4,307			4,871			3,781			18,347
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes		1,276			702			690			447			—			3,115
Current accident year catastrophes		152			29			24			2			—			207
Prior accident years		10			15			(80	)		(72	)		121			(6	)
Total provision for unpaid losses and loss adjustment expenses		1,438			746			634			377			121			3,316
Payments		(1,407	)		(684	)		(684	)		(310	)		(181	)		(3,266	)
Ending liabilities for unpaid losses and loss adjustment expenses-net		2,023			3,458			4,257			4,938			3,721			18,397
Reinsurance and other recoverables		54			168			447			2,001			835			3,505
Ending liabilities for unpaid losses and loss adjustment expenses-gross	$	2,077		$	3,626		$	4,704		$	6,939		$	4,556		$	21,902
Earned premiums	$	1,964		$	1,295		$	1,086		$	643		$	1		$	4,989
Loss and loss expense paid ratio [1]		71.7			52.8			63.1			48.0
Loss and loss expense incurred ratio		73.2			57.6			58.4			58.4
Prior accident years development (pts) [2]		0.5			1.2			(7.4	)		(11.3	)

[1]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
[2]	“Prior accident years development (pts)” represents the ratio of prior accident years development to earned premiums.

Prior accident years development recorded in 2009

Included within prior accident years development for the six months ended June 30, 2009 were the following reserve strengthenings (releases):

	Personal			Small			Middle			Specialty			Other			Total
	Lines			Commercial			Market			Commercial			Operations			P&C
General liability	$	—		$	—		$	(33	)	$	—		$	—		$	(33	)
Directors’ and officers’ claims		—			—			—			(30	)		—			(30	)
Personal auto liability		(15	)		—			—			—			—			(15	)
Package business		—			20			—			—			—			20
Surety business		—			—			—			15			—			15
Net asbestos reserves		—			—			—			—			138			138
Uncollectible reinsurance		—			—			—			(20	)		(20	)		(40	)
Other reserve re-estimates, net [1]		15			(10	)		11			(12	)		3			7
Total prior accident years development for the three months ended June 30, 2009		—			10			(22	)		(47	)		121			62
General liability		—			—			(38	)		—			—			(38	)
Workers’ compensation		—			(13	)		(10	)		—			—			(23	)
Directors’ and officers’ claims		—			—			—			(20	)		—			(20	)
Personal auto liability		(18	)		—			—			—			—			(18	)
Homeowners’ claims		18			—			—			—			—			18
Package business		—			16			—			—			—			16
Surety business		—			—			—			10			—			10
Other reserve re-estimates, net [2]		10			2			(10	)		(15	)		—			(13	)
Total prior accident years development for the three months ended March 31, 2009		10			5			(58	)		(25	)		—			(68	)
Total prior accident years development for the six months ended June 30, 2009	$	10		$	15		$	(80	)	$	(72	)	$	121		$	(6	)

[1]	Includes reserve discount accretion of $6, including $2 in Small Commercial, $2 in Middle Market and $2 in Specialty Commercial.
[2]	Includes reserve discount accretion of $6, including $2 in Small Commercial, $2 in Middle Market and $2 in Specialty Commercial.

72

During the three and six months ended June 30, 2009, the Company’s re-estimates of prior accident years reserves included the following significant reserve changes:

• Released reserves for general liability claims by $38 in the first quarter of 2009 and by $33 in the second quarter of 2009. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims, primarily related to the 2001 to 2006 accident years, were emerging favorably and this caused management to reduce its estimate of the cost of future reported claims for these accident years, resulting in a reserve release in each quarter since the third quarter of 2007. During the first and second quarters of 2009, management determined that the lower level of loss emergence was also evident in accident year 2007 and had continued for accident years 2004 to 2006 and, as a result, the Company reduced the reserves.

• Released reserves for professional liability claims by $20 in the first quarter of 2009 related to accident year 2006 and by $30 in the second quarter of 2009 related to accident years 2003 to 2007. Beginning in 2008, the Company observed that claim severity for both D&O and E&O claims for the 2003 to 2006 accident years was developing favorably to previous expectations and the Company released reserves for these accident years in 2008. During the first and second quarters of 2009, the Company’s updated analysis showed that claim severity for directors and officers losses in the 2003 to 2007 accident years continued to develop favorably to previous expectations, resulting in a $20 reduction of reserves in the first quarter and a $30 reduction of reserves in the second quarter.

• Released reserves for Personal Lines auto liability claims by $18 and $15, for the first and second quarters of 2009, respectively, principally related to AARP business for the 2005 through 2007 accident years. Beginning in the first quarter of 2008, management observed an improvement in emerged claim severity for the 2005 through 2007 accident years attributed, in part, to changes made in claim handling procedures in 2007. In the first and second quarters of 2009, the Company recognized that favorable development in reported severity was a sustained trend and, accordingly, management reduced its reserve estimate in each quarter.

• Released workers’ compensation reserves related to allocated loss adjustment expense reserves in accident years 2003 to 2007 by $23 in the first quarter of 2009. During the first quarter of 2009, the Company observed lower than expected expense payments on older accident years. As a result, the Company reduced its estimate for future expense payments on more recent accident years.

• The Company reviewed its allowance for uncollectible reinsurance for Ongoing Operations in the second quarter of 2009 and reduced its allowance for Ongoing Operations by $20 driven, in part, by a reduction in gross ceded loss recoverables. The allowance for uncollectible reinsurance for Ongoing Operations is recorded within the Specialty Commercial segment.

• Strengthened reserves for liability claims under Small Commercial package policies by $16 in the first quarter of 2009, primarily related to allocated loss adjustment expenses for accident years 2000 to 2005 and by $20 in the second quarter of 2009, principally related to allocated loss adjustment expenses for accident years 2007 and 2008. During the first quarter of 2009, the Company identified higher than expected expense payments on older accident years related to the liability coverage. Additional analysis in the second quarter of 2009 showed that this higher level of loss adjustment expense is likely to continue into more recent accident years. As a result, in the second quarter of 2009, the Company increased its estimates for future expense payments for the 2007 and 2008 accident years.

• Strengthened reserves for surety business by a net of $10 in the first quarter of 2009 and by a net of $15 in the second quarter of 2009, primarily related to accident years 2004 to 2007. The net $10 of strengthening in the first quarter of 2009 consisted of $20 strengthening of reserves for customs bonds, partially offset by a $10 release of reserves for contract surety claims. The net $15 of strengthening in the second quarter of 2009 consisted of $25 strengthening of reserves for customs bonds, partially offset by a $10 release of reserves for contract surety claims. During 2008, the Company became aware that there were a large number of late reported surety claims related to customs bonds. Continued high volume of late reported claims during the first and second quarters of 2009 caused the Company to strengthen the reserves in each period.

• Strengthened reserves for homeowners’ claims by $18 in the first quarter of 2009, primarily driven by increased claim settlement costs in recent accident years and increased losses from underground storage tanks in older accident years. In 2008, the Company began to observe increasing claim settlement costs for the 2005 to 2008 accident years and, in the first quarter of 2009, determined that this higher cost level would continue, resulting in a reserve strengthening of $9 for these accident years. In addition, beginning in 2008, the Company observed unfavorable emergence of homeowners’ casualty claims for accident years 2003 and prior, primarily related to underground storage tanks. Following a detailed review of these claims in the first quarter of 2009, management increased its estimate of the magnitude of this exposure and strengthened homeowners’ casualty claim reserves by $9.

• During the second quarter of 2009, the Company completed its annual ground up asbestos reserve evaluation. As part of this evaluation, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts and its London Market exposures for both direct insurance and assumed reinsurance. Based on this evaluation, the Company increased its net asbestos reserves by $138. For certain direct policyholders, the Company experienced increases in claim severity, expense and costs associated with litigating asbestos coverage matters. Increases in severity and expense were most prevalent among certain, peripheral defendant insureds. The Company also experienced unfavorable development on its assumed reinsurance accounts driven largely by the same factors experienced by the direct policyholders.

• During the second quarter of 2009, the Company completed its annual evaluation of the collectibility of the reinsurance recoverables and the adequacy of the allowance for uncollectible reinsurance associated with older, long-term casualty liabilities reported in the Other Operations segment. Based on this evaluation, the Company reduced its allowance for uncollectible reinsurance for Other Operations by $20, principally to reflect decreased reinsurance recoverable dispute exposure and favorable commutation activity since the last evaluation.

73

Other Operations Claims

Reserve Activity

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

The following table presents reserve activity, inclusive of estimates for both reported and incurred but not reported claims, net of reinsurance, for Other Operations, categorized by asbestos, environmental and all other claims, for the three and six months ended June 30, 2010.

Other Operations Losses and Loss Adjustment Expenses

For the Three Months Ended June 30, 2010	Asbestos			Environmental			All Other [1]			Total
Beginning liability — net [2][3]	$	1,822		$	300		$	1,393			$	3,515
Losses and loss adjustment expenses incurred		170			2			1				173
Losses and loss adjustment expenses paid		(48	)		(11	)		(43	)			(102	)
Ending liability — net [2][3]	$	1,944	[4]	$	291		$	1,351			$	3,586

For the Six Months Ended June 30, 2010	Asbestos			Environmental			All Other [1]			Total
Beginning liability — net [2][3]	$	1,892		$	307		$	1,432			$	3,631
Losses and loss adjustment expenses incurred		172			2			—				174
Losses and loss adjustment expenses paid		(120	)		(18	)		(81	)			(219	)
Ending liability — net [2][3]	$	1,944	[4]	$	291		$	1,351			$	3,586

[1]	“All Other” includes unallocated loss adjustment expense reserves. “All Other” also includes The Company’s allowance for uncollectible reinsurance. When the Company commutes a ceded reinsurance contract or settles a ceded reinsurance dispute, the portion of the allowance for uncollectible reinsurance attributable to that commutation or settlement, if any, is reclassified to the appropriate cause of loss.
[2]	Excludes asbestos and environmental net liabilities reported in Ongoing Operations of $10 and $4, respectively, as of June 30, 2010, $10 and $4, respectively, as of March 31, 2010 and $10 and $5, respectively, as of December 31, 2009. Total net losses and loss adjustment expenses incurred in Ongoing Operations for the three months and six months ended June 30, 2010 includes $4 and $6, respectively, related to asbestos and environmental claims. Total net losses and loss adjustment expenses paid in Ongoing Operations for the three and six months ended June 30, 2010 includes $4 and $7, respectively, related to asbestos and environmental claims.
[3]	Gross of reinsurance, asbestos and environmental reserves, including liabilities in Ongoing Operations, were $2,545 and $344, respectively, as of June 30, 2010, $2,412 and $359, respectively, as of March 31, 2010 and $2,484 and $367, respectively, as of December 31, 2009.
[4]	The one year and average three year net paid amounts for asbestos claims, including Ongoing Operations, are $233 and $227, respectively, resulting in a one year net survival ratio of 8.4 and a three year net survival ratio of 8.6. Net survival ratio is the quotient of the net carried reserves divided by the average annual payment amount and is an indication of the number of years that the net carried reserve would last (i.e. survive) if the future annual claim payments were consistent with the calculated historical average.

During the second quarter of 2010, the Company completed its annual ground-up asbestos reserve evaluation. As part of this evaluation, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts and its London Market exposures for both direct insurance and assumed reinsurance. Based on this evaluation, the Company increased its net asbestos reserves by $169. For certain direct policyholders, the Company experienced increases in claim severity and expense. Increases in severity and expense were driven by litigation in certain jurisdictions and, to a lesser extent, development on primarily peripheral accounts. The Company also experienced unfavorable development on its assumed reinsurance accounts driven largely by the same factors experienced by the direct policyholders. The Company currently expects to continue to perform an evaluation of its asbestos liabilities annually.

The Company divides its gross asbestos exposures into Direct, Assumed Reinsurance and London Market. The Company further divides its direct asbestos exposures into the following categories: Major Asbestos Defendants (the “Top 70” accounts in Tillinghast’s published Tiers 1 and 2 and Wellington accounts), which are subdivided further as: Structured Settlements, Wellington, Other Major Asbestos Defendants, Accounts with Future Expected Exposures greater than $2.5, Accounts with Future Expected Exposures less than $2.5, and Unallocated.

• Structured Settlements are those accounts where the Company has reached an agreement with the insured as to the amount and timing of the claim payments to be made to the insured.

• The Wellington subcategory includes insureds that entered into the “Wellington Agreement” dated June 19, 1985. The Wellington Agreement provided terms and conditions for how the signatory asbestos producers would access their coverage from the signatory insurers.

• The Other Major Asbestos Defendants subcategory represents insureds included in Tiers 1 and 2, as defined by Tillinghast that are not Wellington signatories and have not entered into structured settlements with The Hartford. The Tier 1 and 2 classifications are meant to capture the insureds for which there is expected to be significant exposure to asbestos claims.

• Accounts with future expected exposures greater or less than $2.5 include accounts that are not major asbestos defendants.

• The Unallocated category includes an estimate of the reserves necessary for asbestos claims related to direct insureds that have not previously tendered asbestos claims to the Company and exposures related to liability claims that may not be subject to an aggregate limit under the applicable policies.

An account may move between categories from one evaluation to the next. For example, an account with future expected exposure of greater than $2.5 in one evaluation may be reevaluated due to changing conditions and recategorized as less than $2.5 in a subsequent evaluation or vice versa.

74

The following table displays asbestos reserves and other statistics by policyholder category, as of June 30, 2010:

Summary of Gross Asbestos Reserves

	Number of		All Time		Total		All Time
	Accounts [1]		Paid [2]		Reserves		Ultimate [2]
Major asbestos defendants [4]
Structured settlements (includes 4 Wellington accounts) [5]		7	$	312	$	428	$	740
Wellington (direct only)		29		908		44		952
Other major asbestos defendants		29		476		132		608
No known policies (includes 3 Wellington accounts)		5		—		—		—
Accounts with future exposure > $2.5		77		832		585		1,417
Accounts with future exposure < $2.5		1,122		409		133		542
Unallocated [6]				1,766		446		2,212
Total direct				4,703		1,768		6,471
Assumed reinsurance				1,199		469		1,668
London market				605		308		913
Total as of June 30, 2010 [3]			$	6,507	$	2,545	$	9,052

[1]	An account may move between categories from one evaluation to the next. Reclassifications were made as a result of the reserve evaluation completed in the second quarter of 2010.
[2]	“All Time Paid” represents the total payments with respect to the indicated claim type that have already been made by the Company as of the indicated balance sheet date. “All Time Ultimate” represents the Company’s estimate, as of the indicated balance sheet date, of the total payments that are ultimately expected to be made to fully settle the indicated payment type. The amount is the sum of the amounts already paid (e.g., “All Time Paid”) and the estimated future payments (e.g., the amount shown in the column labeled “Total Reserves”).
[3]	Survival ratio is a commonly used industry ratio for comparing reserve levels between companies. While the method is commonly used, it is not a predictive technique. Survival ratios may vary over time for numerous reasons such as large payments due to the final resolution of certain asbestos liabilities, or reserve re-estimates. The survival ratio is computed by dividing the recorded reserves by the average of the past three years of payments. The ratio is the calculated number of years the recorded reserves would survive if future annual payments were equal to the average annual payments for the past three years. The three-year gross survival ratio of 9.1 as of June 30, 2010 is computed based on total paid losses of $843 for the period from July 1, 2007 to June 30, 2010. As of June 30, 2010, the one year gross paid amount for total asbestos claims is $280, resulting in a one year gross survival ratio of 9.1.
[4]	Includes 25 open accounts at June 30, 2010. Included 25 open accounts at June 30, 2009.
[5]	Structured settlements include the Company’s reserves related to PPG Industries, Inc. (“PPG”). In January 2009, the Company, along with approximately three dozen other insurers, entered into a modified agreement in principle with PPG to resolve the Company’s coverage obligations for all of its PPG asbestos liabilities, including principally those arising out of its 50% stock ownership of Pittsburgh Corning Corporation (“PCC”), a joint venture with Corning, Inc. The agreement is contingent on the fulfillment of certain conditions, including the confirmation of a PCC plan of reorganization under Section 524(g) of the Bankruptcy Code, which have not yet been met.
[6]	Includes closed accounts (exclusive of Major Asbestos Defendants) and unallocated IBNR.

For paid and incurred losses and loss adjustment expenses reporting, the Company classifies its asbestos and environmental reserves into three categories: Direct, Assumed Reinsurance and London Market. Direct insurance includes primary and excess coverage. Assumed reinsurance includes both “treaty” reinsurance (covering broad categories of claims or blocks of business) and “facultative” reinsurance (covering specific risks or individual policies of primary or excess insurance companies). London Market business includes the business written by one or more of the Company’s subsidiaries in the United Kingdom, which are no longer active in the insurance or reinsurance business. Such business includes both direct insurance and assumed reinsurance.

Of the three categories of claims (Direct, Assumed Reinsurance and London Market), direct policies tend to have the greatest factual development from which to estimate the Company’s exposures.

Assumed reinsurance exposures are inherently less predictable than direct insurance exposures because the Company may not receive notice of a reinsurance claim until the underlying direct insurance claim is mature. This causes a delay in the receipt of information at the reinsurer level and adds to the uncertainty of estimating related reserves.

London Market exposures are the most uncertain of the three categories of claims. As a participant in the London Market (comprised of both Lloyd’s of London and London Market companies), certain subsidiaries of the Company wrote business on a subscription basis, with those subsidiaries’ involvement being limited to a relatively small percentage of a total contract placement. Claims are reported, via a broker, to the “lead” underwriter and, once agreed to, are presented to the following markets for concurrence. This reporting and claim agreement process makes estimating liabilities for this business the most uncertain of the three categories of claims.

75

The following table sets forth, for the three and six months ended June 30, 2010, paid and incurred loss activity by the three categories of claims for asbestos and environmental.

Paid and Incurred Losses and Loss Adjustment Expenses (“LAE”) Development — Asbestos and
Environmental

	Asbestos [1]						Environmental [1]
	Paid			Incurred			Paid			Incurred
Three Months Ended June 30,2010	Losses & LAE			Losses & LAE			Losses & LAE			Losses & LAE
Gross
Direct	$	38		$	209		$	10		$	—
Assumed Reinsurance		17			—			3			—
London Market		7			(15	)		1			—
Total		62			194			14			—
Ceded		(14	)		(24	)		(3	)		2
Net	$	48		$	170		$	11		$	2
Six Months Ended June 30, 2010
Gross
Direct	$	68		$	209		$	17		$	—
Assumed Reinsurance		50			—			3			—
London Market		15			(15	)		2			—
Total		133			194			22			—
Ceded		(13	)		(22	)		(4	)		2
Net	$	120		$	172		$	18		$	2

[1] Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross losses and LAE incurred in Ongoing Operations for the three and six months ended June 30, 2010 includes $4 and $6, respectively, related to asbestos and environmental claims. Total gross losses and LAE paid in Ongoing Operations for the three and six months ended June 30, 2010 includes $4 and $7, respectively, related to asbestos and environmental claims.

Uncertainties Regarding Adequacy of Asbestos and Environmental Reserves

A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims with no payment and the expense to indemnity ratio. The uncertainty with respect to the underlying reserve assumptions for asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for more traditional exposures. While this variability is reflected in part in the size of the range of reserves developed by the Company, that range may still not be indicative of the potential variance between the ultimate outcome and the recorded reserves. The recorded net reserves as of June 30, 2010 of $2.25 billion ($1.95 billion and $295 for asbestos and environmental, respectively) is within an estimated range, unadjusted for covariance, of $1.79 billion to $2.55 billion. The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in the Company’s 2009 Form 10-K Annual Report. The Company believes that its current asbestos and environmental reserves are appropriate. However, analyses of future developments could cause the Company to change its estimates and ranges of its asbestos and environmental reserves, and the effect of these changes could be material to the Company’s consolidated operating results, financial condition and liquidity.

The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. During the second quarter of 2010, the Company completed its annual evaluation of the collectibility of the reinsurance recoverables and the adequacy of the allowance for uncollectible reinsurance associated with older, long-term casualty liabilities reported in the Other Operations segment. The evaluation resulted in no addition to the allowance for uncollectible reinsurance. In conducting this evaluation, the Company used its most recent detailed evaluations of ceded liabilities reported in the segment. The Company analyzed the overall credit quality of the Company’s reinsurers, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers, and recent developments in commutation activity between reinsurers and cedants. As of June 30, 2010, the allowance for uncollectible reinsurance for Other Operations totals $221. The Company currently expects to perform its regular comprehensive review of Other Operations reinsurance recoverables annually. Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, particularly for older, long-term casualty liabilities, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required.

The Company expects to perform its regular review of environmental liabilities in the third quarter of 2010. Consistent with the Company’s long-standing reserve practices, the Company will continue to review and monitor its reserves in the Other Operations segment regularly, and where future developments indicate, make appropriate adjustments to the reserves. For a discussion of the Company’s reserving practices, see the Critical Accounting Estimates—Property and Casualty Reserves, Net of Reinsurance section of the MD&A included in the Company’s 2009 Form 10-K Annual Report.

76

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

Estimated gross profits (“EGPs”) are used in the amortization of: Life’s deferred policy acquisition cost (“DAC”) asset, which includes the present value of future profits; sales inducement assets (“SIA”); and unearned revenue reserves (“URR”). See Note 6 of the Notes to Condensed Consolidated Financial Statements for additional information on DAC. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information on SIA. Portions of EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and universal life-type contracts. See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information on death and other insurance benefit reserves. See The Hartford’s 2009 Form 10-K Annual Report for additional discussion on the Company’s critical accounting estimates related to EGPs.

The most significant EGP based balances are as follows:

	Individual Variable Annuities -				Individual Variable Annuities -
	U.S.				Japan				Individual Life
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2010		2009		2010		2009		2010		2009
DAC	$	2,962	$	3,378	$	1,554	$	1,566	$	2,442	$	2,528
SIA	$	302	$	324	$	34	$	28	$	43	$	42
URR	$	89	$	85	$	1	$	1	$	1,234	$	1,185
Death and Other Insurance Benefit Reserves	$	1,310	$	1,232	$	656	$	580	$	96	$	76

Unlocks

The after-tax impact on the Company’s assets and liabilities as a result of the Unlock during the three months ended June 30, 2010 was as follows:

						Death and
						Other
						Insurance
Segment						Benefit
After-tax (Charge) Benefit	DAC			URR		Reserves [1]			SIA			Total [2]
Global Annuity — U.S.	$	(125	)	$	4	$	(47	)	$	(12	)	$	(180	)
Global Annuity — International		(4	)		—		(38	)		—			(42	)
Retirement		(5	)		—		—			—			(5	)
Individual Life		(8	)		5		—			—			(3	)
Total	$	(142	)	$	9	$	(85	)	$	(12	)	$	(230	)

[1]	As a result of the Unlock, Global Annuity — U.S. reserves increased $165, pre-tax, offset by an increase in reinsurance recoverables of $92, pre-tax. Global Annuity — International reserves increased $64, pre-tax, offset by an increase in reinsurance recoverables of $6, pre-tax.
[2]	The most significant contributor to the Unlock charge recorded during the second quarter of 2010 was actual separate account returns from March 31, 2010 to June 30, 2010 being below our aggregated estimated return.

The after-tax impact on the Company’s assets and liabilities as a result of the Unlock during the six months ended June 30, 2010 was as follows:

						Death and
						Other
						Insurance
Segment						Benefit
After-tax (Charge) Benefit	DAC			URR		Reserves [1]			SIA			Total [2]
Global Annuity — U.S.	$	(84	)	$	3	$	(29	)	$	(10	)	$	(120	)
Global Annuity — International		4			—		(25	)		—			(21	)
Retirement		(4	)		—		—			—			(4	)
Individual Life		(6	)		6		—			—			—
Total	$	(90	)	$	9	$	(54	)	$	(10	)	$	(145	)

[1]	As a result of the Unlock, Global Annuity — U.S. reserves increased $107, pre-tax, offset by an increase inreinsurance recoverables of $63, pre-tax. Global Annuity — International reserves increased $32, pre-tax, offset by an increase in reinsurance recoverables of $7, pre-tax.
[2]	The most significant contributors to the Unlock charge recorded during the first half of 2010 was actual separate account returns from January 1, 2010 to June 30, 2010 being below our aggregated estimated return and the impact of increased hedging costs.

77

The after-tax impact on the Company’s assets and liabilities as a result of the Unlock during the three months ended June 30, 2009 was as follows:

							Death and
							Other
							Insurance
Segment							Benefit
After-tax (Charge) Benefit	DAC			URR			Reserves [1]		SIA			Total
Global Annuity — U.S.	$	163		$	(21	)	$	98	$	13		$	253
Global Annuity — International [2]		(11	)		6			117		(8	)		104
Retirement		1			—			—		—			1
Individual Life		3			(1	)		—		—			2
Total	$	156		$	(16	)	$	215	$	5		$	360

[1]	As a result of the Unlock, death benefit reserves, in Global Annuity — U.S., decreased $307, pre-tax, offset by a decrease of $157, pre-tax, in reinsurance recoverables. In Global Annuity — International, death benefit reserves decreased $184, pre-tax, offset by an increase of $4, pre-tax, in reinsurance recoverables.
[2]	Includes $(49) related to DAC recoverability impairment associated with the decision to suspend sales in the U.K. variable annuity business.

The after-tax impact on the Company’s assets and liabilities as a result of the Unlock during the six months ended June 30, 2009 was as follows:

						Death and
						Other
						Insurance
Segment						Benefit
After-tax (Charge) Benefit	DAC			URR		Reserves [1]			SIA			Total [2]
Global Annuity — U.S.	$	(503	)	$	31	$	(230	)	$	(30	)	$	(732	)
Global Annuity — International		(99	)		6		(216	)		(9	)		(318	)
Retirement		(53	)		—		(2	)		(1	)		(56	)
Individual Life		(64	)		40		—			—			(24	)
Corporate		(4	)		—		—			—			(4	)
Total	$	(723	)	$	77	$	(448	)	$	(40	)	$	(1,134	)

[1]	As a result of the Unlock, Global Annuity — U.S. reserves increased $741, pre-tax, offset by an increase in reinsurance recoverables of $386, pre-tax. Global Annuity — International reserves increased $352, pre-tax, offset by a decrease in reinsurance recoverable of $20, pre-tax.
[2]	The most significant contributor to the Unlock amounts recorded during the first half of 2009 was actual separate account returns from the period ending October 1, 2008 to March 31, 2009 being significantly below our aggregated estimated return.

An Unlock revises EGPs, on a quarterly basis, to reflect market updates of policyholder account value and the Company’s current best estimate assumptions. After each quarterly Unlock, the Company also tests the aggregate recoverability of DAC by comparing the DAC balance to the present value of future EGPs. The margin between the DAC balance and the present value of future EGPs for U.S. and Japan individual variable annuities was 24% and 40% as of June 30, 2010, respectively, and 23% and 41% as of December 31, 2009, respectively. If the margin between the DAC asset and the present value of future EGPs is exhausted, further reductions in EGPs would cause portions of DAC to be unrecoverable.

Goodwill Impairment

The Company completed its annual goodwill assessment for Federal Trust Corporation during the second quarter of 2010, resulting in a goodwill impairment of $153, pre-tax.

The Company completed its annual goodwill assessment for the individual reporting units within Life as of January 1, 2010, which resulted in no write-downs of goodwill in 2010. The reporting units passed the first step of their annual impairment tests with a significant margin with the exception of the Individual Life reporting unit. Individual Life completed the second step of the annual goodwill impairment test resulting in an implied goodwill value that was in excess of its carrying value. Even though the fair value of the reporting unit was lower than its carrying value, the implied level of goodwill in Individual Life exceeded the carrying amount of goodwill. In the implied purchase accounting required by the Step 2 goodwill impairment test, the implied present value of future profits was substantially lower than that of the DAC asset removed in purchase accounting. A higher discount rate was used for calculating the present value of future profits as compared to that used for calculating the present value of estimated gross profits for DAC. As a result, in the implied purchase accounting, implied goodwill exceeded the carrying amount of goodwill.

The Company expects to complete the annual impairment test for the Property & Casualty reporting units in the fourth quarter of 2010.

78

THE HARTFORD’S OPERATIONS OVERVIEW

The Hartford is organized into two major operations: Life and Property & Casualty, each containing reporting segments. The following discussions describe the Life and Property & Casualty operations. For additional information, such as certain measures and ratios that the Company considers in assessing the performance of its life and property and casualty underwriting businesses, see MD&A in The Hartford’s 2009 Form 10-K Annual Report.

Life Operations

Life is organized into six reporting segments, Global Annuity — U.S., Global Annuity — International, Retirement, Individual Life, Group Benefits, and Institutional.

Global Annuity — U.S. offers individual variable, fixed market value adjusted (“MVA”), and single premium immediate annuities.

Global Annuity — International administers investments, retirement savings and other insurance and savings products to individuals and groups outside the United States. The Company’s Japan operation is the largest component of the Global Annuity — International segment.

Retirement provides products and services to corporations pursuant to Section 401(k) and products and services to municipalities and not-for-profit organizations under Section 457 and 403(b) of the IRS code, as well as Retail mutual funds, Insurance Product mutual funds, Investment-Only mutual funds and 529 college savings plans.

Individual Life sells a variety of life insurance products, including variable universal life, universal life, and term life.

Group Benefits provides employers, associations, affinity groups and financial institutions with group life, accident and disability coverage, along with other products and services, including voluntary benefits, and group retiree health.

Institutional, primarily offers institutional liability products, such as variable Private Placement Life Insurance (“PPLI”) owned by corporations and high net worth individuals and stable value products. Institutional continues to service existing customers of its suspended businesses, which includes Leveraged PPLI, structured settlements and institutional annuities (primarily terminal funding cases).

Life includes within its Other category corporate items not directly allocated to any of its reportable operating segments; intersegment eliminations; the mark-to-mark adjustment for the Global Annuity — International variable annuity assets that are classified as equity securities, trading, reported in net investment income and the related change in interest credited reported as a component of benefits, losses and loss adjustment expenses; and includes certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries.

In some circumstances, operating and performance results may be discussed at a reporting unit level, where the components of an operating segment constitute a reporting unit for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit. Such is the case for Retirement which is comprised of Retirement Plans, which includes 401(k), 457, 403(b), longevity assurance and income annuities, and Mutual Funds which is comprised of Retail mutual funds, Insurance Product mutual funds, Investment-Only mutual funds and 529 college savings plans.

Definitions of Non-GAAP measures and ratios for Life Operations

After-tax Margin

After-tax margin, excluding realized gains (losses) or DAC Unlock is a non-GAAP financial measure that the Company uses to evaluate, and believes are important measures of, segment operating performance. After-tax margin is the most directly comparable U.S. GAAP measure. The Hartford believes that the measure after-tax margin, excluding realized gains (losses) and DAC Unlock provides investors with a valuable measure of the performance of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of realized gains (losses) or quarterly DAC Unlocks. 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 insurance aspects of our businesses. Accordingly, these non-GAAP measures exclude 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 after-tax margin, excluding the realized gains (losses) and DAC Unlock should include net realized gains and losses on net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income. DAC Unlocks occur when the Company determines based on actual experience or other evidence, that estimates of future gross profits should be revised. As the DAC Unlock is a reflection of the Company’s new best estimates of future gross profits, the result and its impact on the DAC amortization ratio is meaningful; however, it does distort the trend of after-tax margin. After-tax margin, excluding realized gains (losses) and DAC Unlock should not be considered as a substitute for after-tax margin and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both after-tax margin, excluding realized gains (losses) and DAC Unlock and after-tax margin when reviewing the Company’s performance.

79

DAC amortization ratio

DAC amortization ratio, excluding realized gains (losses) and DAC Unlock is a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, segment operating performance. DAC amortization ratio is the most directly comparable U.S. GAAP measure. The Hartford believes that the measure DAC amortization ratio, excluding realized gains (losses) and DAC Unlock provides investors with a valuable measure of the performance of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of realized gains (losses) or quarterly DAC Unlocks. 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 insurance aspects of our businesses. Accordingly, these non-GAAP measures exclude 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 amortization of deferred policy acquisition costs and the present value of future profits (DAC amortization ratio), which is typically expressed as a percentage of pre-tax income before the cost of this amortization (an approximation of actual gross profits) and excludes the effects of realized capital gains and losses, excluding the realized gains (losses) and DAC Unlock should include net realized gains and losses on net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income. DAC Unlocks occur when the Company determines based on actual experience or other evidence, that estimates of future gross profits should be revised. As the DAC Unlock is a reflection of the Company’s new best estimates of future gross profits, the result and its impact on the DAC amortization ratio is meaningful; however, it does distort the trend of DAC amortization ratio. DAC amortization ratio, excluding realized gains (losses) and DAC Unlock should not be considered as a substitute for DAC amortization ratio and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both DAC amortization ratio, excluding realized gains (losses) and DAC Unlock and DAC amortization ratio when reviewing the Company’s performance.

Net Investment Spread

Management evaluates performance of certain products based on net investment spread. These products include those that have insignificant mortality risk, such as fixed annuities, certain general account universal life contracts and certain institutional contracts. Net investment spread is determined by taking the difference between the earned rate, (excluding the effects of realized capital gains and losses, including those related to the Company’s GMWB product and related reinsurance and hedging programs), and the related crediting rates on average general account assets under management. The net investment spreads are for the total portfolio of relevant contracts in each segment and reflect business written at different times. When pricing products, the Company considers current investment yields and not the portfolio average. The determination of credited rates is based upon consideration of current market rates for similar products, portfolio yields and contractually guaranteed minimum credited rates. Net investment spread can be volatile period over period, which can have a significant positive or negative effect on the operating results of each segment. The volatile nature of net investment spread is driven primarily by earnings on limited partnership and other alternative investments and prepayment premiums on securities. Investment earnings can also be influenced by factors such as changes in interest rates, credit spreads and decisions to hold higher levels of short-term investments.

Return on Assets (“ROA”)

ROA, excluding realized gains (losses) or DAC Unlock, is a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, segment operating performance. ROA is the most directly comparable U.S. GAAP measure. The Hartford believes that the measure ROA, excluding realized gains (losses) and DAC Unlock provides investors with a valuable measure of the performance of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of realized gains (losses) or quarterly DAC Unlocks. 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 insurance aspects of our businesses. Accordingly, these non-GAAP measures exclude 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 ROA, excluding the realized gains (losses) and DAC Unlock should include net realized gains and losses on net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income. DAC Unlocks occur when the Company determines based on actual experience or other evidence, that estimates of future gross profits should be revised. As the DAC Unlock is a reflection of the Company’s new best estimates of future gross profits, the result and its impact on the DAC amortization ratio is meaningful; however, it does distort the trend of ROA. ROA, excluding realized gains (losses) and DAC Unlock should not be considered as a substitute for ROA and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both ROA, excluding realized gains (losses) and DAC Unlock and ROA when reviewing the Company’s performance.

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Property & Casualty Operations

Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively “Ongoing Operations”), and the Other Operations segment. Through its Ongoing Operations segment, the Company provides a number of coverages, as well as insurance-related services, to businesses throughout the United States, including workers’ compensation, property, automobile, liability, umbrella, specialty casualty, marine, livestock, fidelity and surety, professional liability and director’s and officer’s liability coverages. Property & Casualty also provides automobile, homeowners, and home-based business coverage to individuals throughout the United States, as well as insurance-related services to businesses. Through its Other Operations segment, Property & Casualty is responsible for managing property and casualty operations of The Hartford that have discontinued writing new or renewal business, as well as managing the claims related to asbestos and environmental exposures.

Property & Casualty derives its revenues principally from premiums earned for insurance coverages provided to insureds, investment income, and, to a lesser extent, from fees earned for services provided to third parties and net realized capital gains and losses. Premiums charged for insurance coverages are earned principally on a pro rata basis over the terms of the related policies in-force.

Service fees principally include revenues from third party claims administration services provided by Specialty Risk Services and revenues from member contact center services provided through the AARP Health program.

Definitions of Non-GAAP measures and ratios for Property & Casualty Operations

Written and earned premiums

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

Underwriting results

Underwriting results is a before-tax measure that represents earned premiums less incurred losses, loss adjustment expenses, underwriting expenses and policyholder dividends. The Hartford believes that underwriting results provides investors with a valuable measure of before-tax profitability derived from underwriting activities, which are managed separately from the Company’s investing activities. Within Ongoing Operations, the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial are evaluated by management primarily based upon underwriting results.

81

KEY PERFORMANCE MEASURES AND RATIOS

Life

Management evaluates the rates of return various businesses can provide as an input in determining where additional capital should be invested to increase net income and shareholder returns. The Company uses the return on assets for the Global Annuity, Retirement and Institutional businesses for evaluating profitability. In Group Benefits and Individual Life, after-tax margin is a key indicator of overall profitability.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Ratios	2010			2009			2010			2009
Global Annuity
U.S. — ROA [1]	(45.9		) bps	89.8		bps	9.9		bps	(128.7		) bps
Effect of net realized gains (losses), net of tax and DAC on ROA	(10.0		) bps	(62.1		) bps	(5.3		) bps	10.5		bps
Effect of DAC Unlock on ROA [2]	(77.2		) bps	120.9		bps	(25.8		) bps	(168.8		) bps
ROA excluding realized gains (losses) and DAC Unlock	41.3		bps	31.0		bps	41.0		bps	29.6		bps
International — Japan ROA	8.2		bps	212.8		bps	20.5		bps	(53.4		) bps
Effect of net realized gains (losses) excluding net periodic settlements, net of tax and DAC on ROA [3]	(14.1		) bps	(54.4		) bps	(34.0		) bps	71.0		bps
Effect of DAC Unlock on ROA [2]	(45.8		) bps	217.7		bps	(10.5		) bps	(142.0		) bps
ROA excluding realized gains (losses) and DAC Unlock	68.1		bps	49.5		bps	65.0		bps	17.6		bps
Retirement [1]
Retirement Plans ROA	12.4		bps	(42.8		) bps	3.6		bps	(67.5		) bps
Effect of net realized gains (losses), net of tax and DAC on ROA	4.8		bps	(51.3		) bps	(5.7		) bps	(42.2		) bps
Effect of DAC Unlock on ROA [2]	(4.4		) bps	1.0		bps	(1.9		) bps	(29.5		) bps
ROA excluding realized gains (losses) and DAC Unlock	12.0		bps	7.5		bps	11.2		bps	4.2		bps
Mutual Funds ROA [4]	9.9		bps	4.9		bps	10.8		bps	3.5		bps
Effect of net realized gains (losses), net of tax and DAC on ROA	0.4		bps	(1.2		) bps	0.2		bps	—		bps
ROA excluding realized gains (losses)	9.5		bps	6.1		bps	10.6		bps	3.5		bps
Individual Life [1]
After-tax margin		24.9	%		6.3	%		16.7	%		(0.3	%)
Effect of net realized gains (losses), net of tax and DAC on after-tax margin		8.8	%		(8.1	%)		1.3	%		(7.1	%)
Effect of DAC Unlock on after-tax margin [2]		(1.3	%)		0.8	%		—			(4.6	%)
After-tax margin excluding realized gains (losses) and DAC Unlock		17.4	%		13.6	%		15.4	%		11.4	%
Group Benefits
After-tax margin (excluding buyouts)		4.0	%		1.2	%		4.2	%		3.5	%
Effect of net realized gains (losses), net of tax on after-tax margin (excluding buyouts)		1.1	%		(2.3	%)		0.6	%		(1.0	%)
After-tax margin (excluding buyouts) excluding realized gains (losses)		2.9	%		3.5	%		3.6	%		4.5	%
Institutional [1]
Institutional ROA	(0.7		) bps	(44.1		) bps	(31.9		) bps	(80.5		) bps
Effect of net realized losses, net of tax and DAC on ROA	(4.1		) bps	(41.4		) bps	(31.4		) bps	(72.8		) bps
ROA excluding realized losses and DAC Unlock	3.4		bps	(2.7		) bps	(0.5		) bps	(7.7		) bps

[1]	Proprietary mutual fund assets are included in Mutual Funds and those same assets are also included in Global Annuity — U.S., Retirement Plans, and Individual Life as those same assets generate earnings for each of these segments.
[2]	See Unlocks within the Critical Accounting Estimates section of the MD&A.
[3]	Included in the net realized capital gain (losses) are amounts that represent the net periodic accruals on currency rate swaps used in the risk management of Japan fixed annuity products.
[4]	Includes assets attributed to the transfer of Proprietary mutual funds, Investment-Only mutual funds, Canada Operations, and 529 college savings plans effective January 1, 2010.

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Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

• Global Annuity — U.S. ROA, excluding realized gains (losses) and DAC Unlock, increased primarily due to improved net investment income on limited partnerships and other alternative investments, a lower DAC amortization rate and improved operating expenses.

• For the three months ended June 30, 2010 the increase in Global Annuity — International’s Japan ROA, excluding realized gains (losses) and DAC Unlock, is driven by reduced DAC amortization and lower expenses associated with the restructuring of Japan’s operations.

• For the six months ended June 30, 2010 Global Annuity — International’s Japan ROA, excluding realized gains (losses) and DAC Unlock, increased primarily due to 3 Win charges recognized in the first quarter of 2009 of $40, after-tax. Excluding the effects of the 3 Win charge, ROA, excluding realized gains (losses) and DAC Unlock, DAC amortization would have been 41.2 bps for the six months ended June 30, 2009. For the six months ended June 30, 2010 the increase in ROA, excluding 3 Win charge, is driven by reduced DAC amortization and lower expenses associated with the restructuring of Japan’s operations.

• The increase in Retirement Plans ROA, excluding realized gains (losses) and DAC Unlock, was primarily driven by improved performance on limited partnerships and other alternative investments.

• The increase in Mutual Funds ROA, excluding realized gains (losses) and DAC Unlock, was driven by improvement in the equity markets, which enabled this business to partially return to scale, and the impact of lower operating expenses, partially offset by the addition of Proprietary mutual fund assets to this line of business which has a lower ROA.

• The increase in Individual Life’s after-tax margin, excluding realized gains (losses) and DAC Unlock, was primarily due to lower DAC amortization in 2010.

• The decrease in Group Benefits after-tax margin, excluding realized gains (losses), was primarily due to a higher loss ratio from unfavorable morbidity for the three months ended June 30, 2010. The decrease for six months ended June 30, 2010 was primarily due to a higher expense ratio from higher commission expense on experience rated financial institution business.

• The increases in Institutional’s ROA, excluding realized losses and DAC Unlock, is primarily due to improved performance on limited partnerships and other alternative investments. For the three and six months ended June 30, 2010, limited partnerships and other alternative investments added 8 bps and 4 bps, respectively, to Institutional’s ROA, while for the same periods in 2009, it decreased ROA by 8 bps and 13 bps, respectively.

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Property & Casualty

The Company considers several measures and ratios to be the key performance indicators for the property and casualty underwriting businesses. The following table and the segment discussions include the more significant ratios and measures of profitability for the three and six months ended June 30, 2010 and 2009. Management believes that these ratios and measures are useful in understanding the underlying trends in The Hartford’s property and casualty insurance underwriting business. However, these key performance indicators should only be used in conjunction with, and not in lieu of, underwriting income for the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial and net income for the Property & Casualty business as a whole, Ongoing Operations and Other Operations. These ratios and measures may not be comparable to other performance measures used by the Company’s competitors.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Ongoing Operations earned premium growth
Personal Lines		1	%		1	%		1	%		—
Small Commercial		1	%		(6	%)		(1	%)		(5	%)
Middle Market		(9	%)		(6	%)		(9	%)		(7	%)
Specialty Commercial		(10	%)		(10	%)		(12	%)		(8	%)
Total Ongoing Operations		(3	%)		(4	%)		(3	%)		(4	%)
Ongoing Operations combined ratio
Combined ratio before catastrophes and prior year development		93.5			90.4			92.8			90.2
Catastrophe ratio
Current year		9.5			5.8			6.4			4.2
Prior years		0.3			(0.2	)		0.1			—
Total catastrophe ratio		9.8			5.6			6.4			4.2
Non-catastrophe prior year development		(6.5	)		(2.3	)		(5.0	)		(2.6	)
Combined ratio		96.8			93.7			94.2			91.8
Other Operations net loss	$	(73	)	$	(49	)	$	(54	)	$	(48	)

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Ongoing Operations earned premium growth

Personal Lines	•     The 1% earned premium growth for both the three- and six-month periods in 2010 was primarily due to new business growth on both AARP and Agency, partially offset by lower average renewal earned premium on Agency auto business.
Small Commercial	•     The change from a 6% earned premium decline in the three months ended June 30, 2009 to 1% growth in the three months ended June 30, 2010 and the smaller earned premium decline for the six-month period was primarily attributable to a smaller year-over-year decrease in earned audit premiums for the three and six months ended June 30, 2010.
Middle Market	•     The steeper earned premium decline in 2010 for both the three- and six-month periods was primarily driven by the effect of non-renewals outpacing new business over the last twelve months in all lines of business and a decrease in earned audit premiums.
Specialty Commercial	•     The steeper earned premium decline in 2010 for the six-month period was primarily due to the effects of the economic slowdown, reinsurance program changes and earned pricing decreases in professional liability, fidelity and surety.

84

Ongoing Operations combined ratio

Combined ratio before catastrophes and prior accident years development	•     For the three-month period, the 3.1 point increase in the combined ratio before catastrophes and prior accident year development was primarily due to a 2.0 point increase in the current accident year loss and loss adjustment expense ratio before catastrophes and a 1.2 point increase in the expense ratio. For the six-month period, the 2.6 point increase in the combined ratio before catastrophes and prior accident year development was primarily due to a 1.7 point increase in the current accident year loss and loss adjustment expense ratio before catastrophes and a 1.2 point increase in the expense ratio.
	•     Among other factors, the increase in the current accident year loss and loss adjustment expense ratio before catastrophes for the three- and six-month periods was driven by an increase for Personal Lines auto and homeowners business.
	•     The increase in the expense ratio for the three- and six-month periods includes the effects of the decrease in earned premiums, increased IT and compensation-related costs and, for the six-month period, includes the effect of a $14 reduction in TWIA assessments recognized in 2009 related to hurricane Ike.
Catastrophes	•     The catastrophe ratio increased 4.2 points and 2.2 points for the three- and six-month periods, respectively, due to more severe windstorm events, particularly from hail.
Non-catastrophe prior accident years development	•     Favorable reserve development for the three- and six-month periods in 2010 included, among other reserve changes, the release of reserves for directors’ and officers’ claims, the release of reserves for Personal Lines auto liability claims and the release of reserves for general liability umbrella claims. See “Reserve Rollforwards and Development” in the Critical Accounting Estimates Section of the MD&A for a discussion of prior accident year reserve development in 2010.

Other Operations net income (loss)

• Other Operations reported lower net income for the three and six months ended June 30, 2010 as compared to the respective prior year periods, primarily due to an increase in net unfavorable prior accident year reserve development, partially offset by an increase in net realized capital gains for the three-month period and a change from net realized capital losses to net realized capital gains for the six-month period.

85

Investment Results

Composition of Invested Assets

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

	June 30, 2010					December 31, 2009
	Amount		Percent			Amount		Percent
Fixed maturities, AFS, at fair value	$	77,132		78.8	%	$	71,153		76.3	%
Equity securities, AFS, at fair value		1,103		1.1	%		1,221		1.3	%
Mortgage loans		4,673		4.8	%		5,938		6.4	%
Policy loans, at outstanding balance		2,182		2.2	%		2,174		2.3	%
Limited partnerships and other alternative investments		1,774		1.8	%		1,790		1.9	%
Other investments [1]		2,293		2.4	%		602		0.7	%
Short-term investments		8,731		8.9	%		10,357		11.1	%
Total investments excluding equity securities, trading		97,888		100.0	%		93,235		100.0	%
Equity securities, trading, at fair value [2]		30,183					32,321
Total investments	$	128,071				$	125,556

[1]	Primarily relates to derivative instruments.
[2]	These assets primarily support the Global Annuity-International variable annuity business. Changes in these balances are also reflected in the respective liabilities.

Total investments increased since December 31, 2009 primarily due to increases in fixed maturities and other investments, partially offset by declines in equity securities, trading, short-term investments and mortgage loans. The increase in fixed maturities was largely the result of improved security valuations due to declining interest rates, as well as the reinvestment of short-term investment proceeds, which contributed to the decline in short-term investments. The increase in other investments primarily related to increases in value related to derivatives. The decline in equity securities, trading, was the result of an increase of net outflows and deteriorations in market performance of the underlying investment funds supporting the Japanese variable annuity product, partially offset by exchange rates. The decline in mortgage loans resulted primarily from sales.

Net Investment Income (Loss)

	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2010						2009						2010						2009
(Before-tax)	Amount			Yield [1]			Amount			Yield [1]			Amount			Yield [1]			Amount			Yield [1]
Fixed maturities [2]	$	887			4.5	%	$	929			4.6	%	$	1,761			4.4	%	$	1,882			4.6	%
Equity securities, AFS		13			4.3	%		25			7.4	%		27			4.3	%		52			7.3	%
Mortgage loans		67			5.4	%		79			4.9	%		138			5.2	%		158			4.9	%
Policy loans		35			6.4	%		36			6.6	%		68			6.2	%		72			6.5	%
Limited partnerships and other alternative investments		86			20.0	%		(93	)		(17.5	%)		92			10.5	%		(302	)		(27.1	%)
Other [3]		91						70						176						128
Investment expense		(26	)					(25	)					(49	)					(49	)
Total net investment income excl. equity securities, trading		1,153			4.8	%		1,021			4.2	%		2,213			4.5	%		1,941			3.9	%
Equity securities, trading		(2,649	)					2,523						(1,948	)					1,799
Total net investment income (loss)	$	(1,496	)				$	3,544					$	265					$	3,740

[1]	Yields calculated using annualized investment income before investment expenses divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding securities lending collateral and consolidated variable interest entity noncontrolling interests. Included in the fixed maturity yield is Other, which primarily relates to fixed maturities (see footnote [3] below). Included in the total net investment income yield is investment expense.
[2]	Includes net investment income on short-term investments.
[3]	Includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Total net investment income decreased largely due to equity securities, trading, resulting from deteriorations in market performance of the underlying investment funds supporting the Japanese variable annuity product. Total net investment income, excluding equity securities, trading, increased primarily due to improved performance of limited partnerships and other alternative investments primarily within real estate and private equity funds, partially offset by lower income on fixed maturities resulting from a decline in average short-term interest rates.

86

Net Realized Capital Gains (Losses)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Before-tax)	2010			2009			2010			2009
Gross gains on sales	$	343		$	157		$	475		$	365
Gross losses on sales		(94	)		(189	)		(205	)		(909	)
Net OTTI losses recognized in earnings		(108	)		(314	)		(260	)		(538	)
Valuation allowances on mortgage loans		(40	)		(78	)		(152	)		(153	)
Japanese fixed annuity contract hedges, net [1]		27			(6	)		11			35
Periodic net coupon settlements on credit derivatives/Japan		(4	)		(13	)		(11	)		(32	)
Results of variable annuity hedge program GMWB derivatives, net		(426	)		671			(297	)		1,260
Macro hedge program		397			(568	)		233			(364	)
Total results of variable annuity hedge program		(29	)		103			(64	)		896
Other, net		(84	)		(341	)		(59	)		(261	)
Net realized capital gains (losses)	$	11		$	(681	)	$	(265	)	$	(597	)

[1] Relates to derivative hedging instruments, excluding periodic net coupon settlements, and is net of the Japanese fixed annuity product liability adjustment for changes in the dollar/yen exchange spot rate.

The circumstances giving rise to the Company’s net realized capital gains and losses are as follows:

Gross gains and losses on sales	•     Gross gains on sales for the three and six months ended June 30, 2010 were predominantly from investment grade corporate securities and U.S. Treasuries in order to take advantage of attractive market opportunities. Gross losses on sales resulted from real estate related and subordinated financial investments due to efforts to reduce portfolio risk.
	•     Gross gains and losses on sales for the three and six months June 30, 2009 were predominantly within financial services, structured and government securities due to efforts to reduce portfolio risk while simultaneously reallocating the portfolio to securities with more favorable risk/return profiles.
Net OTTI losses	•     For further information, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A.
Valuation allowances on mortgage loans	•     For further information, see Valuation Allowances on Mortgage Loans within the Investment Credit Risk section of the MD&A.
Variable annuity hedge program	•     The loss on GMWB derivatives, net, for the three and six months ended June 30, 2010 was primarily due to losses on higher implied market volatility of $196 and $82, respectively, and losses due to a general decrease in long-term interest rates of $192 and $214, respectively. The net gain on the macro hedge program was primarily the result of lower equity market valuation and appreciation of the Japanese yen.
	•     The gain on GMWB derivatives, net, for the three months ended June 30, 2009 was primarily due to the relative outperformance of the underlying actively managed funds as compared to their respective indices of $239, lower implied market volatility of $232, an increase on long-term interest rates of $185, and liability model changes and assumption updates of $118. The gain on GMWB derivatives, net, for the six months ended June 30, 2009 was primarily due to liability model changes and assumption updates of $631, outperformance of the underlying actively managed funds as compared to their respective indices of $391, lower implied market volatility of $216, and an increase in long-term interest rates of $164. For more information, see Note 4a of the Notes to Condensed Consolidated Financial Statements. The net losses on the macro hedge program for the three and six months ended June 30, 2009 were primarily the result of a higher equity market valuation, lower implied market volatility and time decay.
Other, net	•     Other, net losses for the three and six months ended June 30, 2010 were primarily due to losses of $121 and $117, respectively, from a change in spot rates related to transactional foreign currency adjustments predominantly on the internal reinsurance of the Japan variable annuity business, which is offset in AOCI. Also included are losses of $38 and $87, respectively, related to the Japan 3Win foreign currency swaps driven by a decrease in U.S. interest rates. These losses are partially offset by gains of $56 and $74, respectively, related to other foreign currency strategies. Additional net gains of $48 for the six months ended June 30, 2010, were related to credit derivatives due to credit spreads widening.
	•     Other, net losses for the three and six months ended June 30, 2009 primarily resulted from net losses of approximately $300 related to contingent obligations associated with the Allianz transaction and losses of $106 and $283, respectively, on credit derivatives. Also included for the six months ended June 30, 2009 were gains of $180 from the change in spot rates related to transactional foreign currency adjustments and $70 related to the change in value of the Allianz warrants.

87

GLOBAL ANNUITY — U.S.

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income and other	$	382		$	319			20	%	$	758		$	730			4	%
Earned premiums		56			(4	)	NM				85			(2	)	NM
Net investment income		216			184			17	%		416			368			13	%
Net realized capital gains (losses)		(83	)		(8	)	NM				(131	)		462		NM
Total revenues		571			491			16	%		1,128			1,558			(28	%)
Benefits, losses and loss adjustment expenses		385			90		NM				616			946			(35	%)
Insurance operating costs and other expenses		132			124			6	%		263			247			6	%
Amortization of deferred policy acquisition costs and present value of future profits		264			39		NM				266			1,326			(80	%)
Total benefits, losses and expenses		781			253		NM				1,145			2,519			(55	%)
Income (loss) before income taxes		(210	)		238		NM				(17	)		(961	)		98	%
Income tax expense (benefit)		(103	)		50		NM				(63	)		(403	)		84	%
Net income (loss)	$	(107	)	$	188		NM			$	46		$	(558	)	NM
Assets Under Management
Variable annuity account values										$	75,961		$	75,613			—
Fixed MVA annuity and other account values [4]											12,579			11,949			5	%
Total account values [1]										$	88,540		$	87,562			1	%
Account Value and Assets Under Management Roll Forward
Variable Annuities
Account value, beginning of period	$	85,320		$	68,166					$	84,679		$	74,578
Net flows		(2,454	)		(1,596	)					(4,773	)		(3,560	)
Change in market value and other		(6,905	)		9,043						(3,945	)		4,595
Account value, end of period	$	75,961		$	75,613					$	75,961		$	75,613
Net Investment Spread	56		bps	22		bps				48		bps	2		bps
Expense Ratios
Individual Annuities
General insurance expense ratio	20.6		bps	23.4		bps				19.6		bps	22.6		bps
DAC amortization ratio [2]		236.1	%		14.0	%					97.1	%		363.3	%
DAC amortization ratio, excluding realized gains (losses) and DAC Unlocks [2] [3]		52.6	%		71.0	%					53.8	%		68.0	%

[1]	Includes policyholders’ balances for investment contracts and reserves for future policy benefits for insurance contracts.
[2]	Excludes the effects of realized gains and losses.
[3]	See Critical Accounting Estimates in the MD&A.
[4]	Includes $683 attributed to the transfer of Single Premium Immediate Annuity from Institutional effective January 1, 2010.

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net income declined for the three months ended June 30, 2010 primarily related to the second quarter 2010 DAC Unlock charge of $180, after-tax, compared to a benefit of $253, after-tax, in second quarter 2009. The 2010 DAC Unlock charge was driven by equity market declines in the later half of the quarter compared to market improvements in the second quarter of 2009 and the impact of increased hedging costs in 2010.

Net income improved significantly for the six months ended June 30, 2010 driven by first quarter improvements in equity markets which resulted in a DAC Unlock benefit compared to a significant Unlock charge in the first quarter 2009. The 2010 improvement was partially offset by net realized capital losses, compared to gains in the first half of 2009, primarily as a result of the Company’s hedging activities.

88

For further discussion of the 2010 and 2009 Unlocks, see Unlocks within the Critical Accounting Estimates section of the MD&A. The following other factors contributed to the changes in net income (loss):

Fee income and other	•     Fee income and other increased as a result of higher average account values year over year. Average variable annuity account values increased by approximately $8.2 billion for the three months ended June 30, 2010, and $10.3 billion for the six months ended June 30, 2010 as compared to the respective prior year periods driven by improvements in equity markets partially offset by net outflows which remain high as deposit activity has declined driven by increased competition, particularly competition related to guaranteed living benefits.
Net investment income	•     For the three and six month periods ended June 30, 2010, net investment income increased primarily as a result of improved performance on limited partnership and other alternative investments of $35 and $68, respectively, in 2010 partially offset by a decrease in income on fixed maturities of $5 and $18, respectively due to a decline in short-term interest rates.
Net investment spread	•     Net investment spread increased primarily as a result of higher earned rates driven primarily by improved performance on limited partnerships and other alternative investments in 2010 which added 75 bps of return for the three months ended June 30, 2010, and 72 bps of return for the six months ended June 30, 2010 as compared to the prior year, partially offset by lower returns on fixed maturities of 35 bps for the three months ended June 30, 2010, and 20 bps for the six months ended June 30, 2010 as compared to the prior year and lower returns on mortgage loans of 13 bps for the three months ended June 30, 2010, and 10 bps for the six months ended June 30, 2010 as compared to the prior year.
Net realized capital gains (losses)	•     For the three month period ended June 30, 2010, the change in net realized capital gains (losses) is primarily related to GMWB dynamic hedging program losses of $387, as compared to gains of $621 in the comparable prior year period, offset by gains in the macro hedge program in 2010, as compared to losses in 2009.
	•     For the six month period ended June 30, 2010, the change in net realized capital gains (losses) is primarily related to GMWB dynamic hedging program losses of $273, as compared to gains of $1,215 in the comparable prior year period, offset by gains in the macro hedge program in 2010, as compared to losses in 2009. Partially offsetting these losses were net realized gains on sales of securities of $71 in 2010 compared with net losses on sales of securities of $238 in 2009.
Benefits, losses and loss adjustment expenses	•     For the three month period ended June 30, 2010, benefits, losses and loss adjustment expenses increased as a result of the impact of the 2010 and 2009 Unlocks which resulted in a charge of $90 in 2010 compared with a benefit of $179 in 2009.
	•     For the six month period ended June 30, 2010, benefits, losses and loss adjustment expenses declined as a result of the impact of the 2010 and 2009 Unlocks which resulted in a charge of $59 in 2010 compared with a charge of $399 in 2009.
Insurance operating costs and other expenses	•     For the three and six months ended June 30, 2010, insurance operating costs and other expenses have increased as compared to 2009 as an increase in trail commissions driven by increases in assets under management as a result of improved equity markets was largely offset by lower operating and wholesaling expenses driven by management’s active efforts to reduce expenses and lower sales levels.
General insurance expense ratio	•     The general insurance expense ratio declined as a result of management’s efforts to reduce expenses while the improving equity markets compared to 2009 have driven an increase in the average asset base.
Amortization of DAC	•     For the three and six months ended June 30, 2010, amortization of DAC changed on a comparative period basis primarily as a result of the Unlocks.
DAC amortization ratio, excluding realized gains (losses) and DAC Unlocks	•     For the three and six months ended June 30, 2010, the DAC amortization ratio decreased due to rising gross profits driven by equity market appreciation, and improved returns from limited partnerships and other alternative investments, as previously discussed.
Income tax expense (benefit)	•     For the three and six months ended June 30, 2010, the effective tax rate differs from the statutory rate of 35% primarily due to permanent differences for the separate account DRD. The six months ended June 30, 2010 and 2009 include separate account DRD benefits of $60 and $61, respectively. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

89

GLOBAL ANNUITY — INTERNATIONAL

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income	$	205		$	199			3	%	$	417		$	383			9	%
Earned premiums		(2	)		(1	)		(100	%)		(4	)		(3	)		(33	%)
Net investment income		48			52			(8	%)		81			96			(16	%)
Net realized capital gains (losses)		(18	)		(28	)		36	%		(91	)		218		NM
Total revenues		233			222			5	%		403			694			(42	%)
Benefits, losses and loss adjustment expenses		115			(115	)	NM				149			515			(71	%)
Insurance operating costs and other expenses		50			81			(38	%)		100			165			(39	%)
Amortization of deferred policy acquisition costs and present value of future profits		65			49			33	%		115			245			(53	%)
Total benefits, losses and expenses		230			15		NM				364			925			(61	%)
Income (loss) before income taxes		3			207			(99	%)		39			(231	)	NM
Income tax expense (benefit)		1			88			(99	%)		14			(57	)	NM
Net income (loss)	$	2		$	119			(98	%)	$	25		$	(174	)	NM
Assets Under Management — Japan
Japan variable annuity account values										$	28,888		$	29,272			(1	%)
Japan fixed annuity and other account values											4,488			4,437			1	%
Total assets under management — Japan										$	33,376		$	33,709			(1	%)
Account Value and Assets Under Management Roll Forward
Japan Annuities
Account value, beginning of period	$	34,673		$	30,946					$	34,886		$	34,495
Net flows		(420	)		(228	)					(935	)		(357	)
Change in market value and other		(2,704	)		2,230						(2,271	)		1,508
Effect of currency translation		1,827			761						1,696			(1,937	)
Account value, end of period	$	33,376		$	33,709					$	33,376		$	33,709
Expense Ratios
Global Annuity — International — Japan
General insurance expense ratio	29.4		bps	45.8		bps				28.7		bps	44.6		bps
DAC amortization ratio [1]		80.6	%		(11.8	%)					64.8	%		736.4	%
DAC amortization ratio excluding realized gains (losses) and DAC Unlocks [1] [2]		38.4	%		44.2	%					40.1	%		48.1	%

[1]	Excludes the effects of realized gains and losses except for net periodic settlements. Included in the net realized capital gain (losses) are amounts that represent the net periodic accruals on currency rate swaps used in the risk management of Japan fixed annuity products.
[2]	Excludes the effects of 3 Wins related charges for the six months ended June 30, 2009, of $62, pre-tax, on net income. Including the effects of 3 Wins related charges DAC amortization ratio would have been 68.9%.

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net income declined for the three months ended June 30, 2010 as a result of a second quarter Unlock charge in 2010 compared to an Unlock benefit in 2009, partially offset by favorable expenses due to realignment of the organization and reduction of expense structure.

Net income increased for the six months ended June 30, 2010 on a comparable period basis primarily driven by larger Unlock charges in 2009 as compared to 2010, and by favorable expenses due to realignment of the organization and reduction of expense structure. The 2010 improvement was partially offset by net realized capital losses, compared to gains in the first half of 2009.

90

For further discussion on the Unlocks, see Unlocks within the Critical Accounting Estimates section of the MD&A. The following other factors contributed to the changes in net income (loss):

Fee income	•     For the three and six months ended June 30, 2010 fee income increased primarily as a result of an increase of Japan’s average variable annuity account values. Average variable annuity account value increased due to yen appreciation partially offset by net outflows, due to the suspension of new sales in the second quarter of 2009, and market depreciation.
Net realized capital gains (losses)	•     For the three months ended June 30, 2010 the decrease in net realized capital losses is related to a number of drivers, including; favorable change in Macro hedges and currency gains predominantly on the internal reinsurance of the Japan variable annuity business, which is entirely offset in AOCI, partially offset increases in the fair value of the Company’s GMWB derivatives and Japan 3Win contract hedges.
	•     For the six months ended June 30, 2010 the change in net realized capital gains (losses) is related to a numbers of drivers, including; unfavorable change in currency losses predominantly on the internal reinsurance of the Japan variable annuity business, which is entirely offset in AOCI, increases in the fair value of the Company’s GMWB derivatives and hedges related to the fixed annuity business partially offset by favorable change in Macro and the Japan 3Win contract hedges.
Benefits, losses and loss adjustment expenses	•     For the three months ended June 30, 2010, benefits, losses and loss adjustment expense increased as a result of Unlock charges of $58 recognized in 2010 compared to an Unlock benefit of $180 in 2009.
	•     For the six months ended June 30, 2010, benefits, losses and loss adjustment expense decreased because of financial impacts associated with the improvement of the equity markets since the first quarter of 2009. In the first quarter of 2009, depressed equity markets caused a higher GMDB net amount at risk, higher claims costs and 3 Win related charges of $60. Additionally, in 2010 there was an Unlock charge of $38 compared to an Unlock charge in 2009 of $332.
Insurance operating costs and other expenses	•     For the three and six months ended June 30, 2010 insurance operating costs and other expenses decreased due to expense savings associated with the restructuring of the Global Annuity — International operations.
General insurance expense ratio	•     For the three and six months ended June 30, 2010 Japan general insurance expense ratio decreased due to the restructuring of Japan’s operations and active expense management.
Amortization of DAC	•     For the three and six months ended June 30, 2010, amortization of DAC changed on a comparative period basis primarily as a result of the Unlocks.
DAC amortization ratio, excluding realized gains (losses) and DAC Unlocks	•     For the three and six months ended June 30, 2010, the DAC amortization ratio decreased due to rising gross profits driven by equity market appreciation and expense management.
Income tax expense (benefit)	•     The effective tax rate in 2010 differs from the statutory rate of 35% primarily due to varying tax rates by country. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

91

RETIREMENT

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income and other	$	261		$	204			28	%	$	519		$	384			35	%
Earned premiums		2			1			100	%		4			2			100	%
Net investment income		91			74			23	%		170			147			16	%
Net realized capital gains (losses)		6			(80	)	NM				(9	)		(139	)		94	%
Total revenues		360			199			81	%		684			394			74	%
Benefits, losses and loss adjustment expenses		70			68			3	%		133			142			(6	%)
Insurance operating costs and other expenses		202			180			12	%		403			347			16	%
Amortization of deferred policy acquisition costs and present value of future profits		37			10		NM				57			105			(46	%)
Total benefits, losses and expenses		309			258			20	%		593			594			—
Income (loss) before income taxes		51			(59	)	NM				91			(200	)	NM
Income tax expense (benefit)		14			(23	)	NM				34			(78	)	NM
Net income (loss)	$	37		$	(36	)	NM			$	57		$	(122	)	NM
Assets Under Management
Retirement Plans
403(b)/457 account values										$	11,017		$	9,955			11	%
401(k) account values											16,926			13,535			25	%
401(k)/403(b) mutual funds											15,848			15,342			3	%
Total Retirement Plans assets under management											43,791			38,832			13	%
Mutual Funds
Mutual fund assets under management [1] [2]											88,161			35,693			147	%
Total assets under management										$	131,952		$	74,525			77	%
Total assets under administration — 401(k)										$	5,348		$	5,372			—
Account Value and Assets Under Management Roll Forward
Retirement Plans Group Annuities
Account value, beginning of period	$	29,278		$	21,852					$	27,258		$	22,198
Net flows		539			(585	)					1,469			46
Transfers in of Maturity Funding		—			—						194			—
Change in market value and other		(1,874	)		2,223						(978	)		1,246
Account value, end of period [3]	$	27,943		$	23,490					$	27,943		$	23,490
401(k) / 403(b) Mutual Funds
Assets under management, beginning of period	$	17,186		$	14,144					$	16,704		$	14,838
Net sales/(redemptions)		(300	)		(697	)					(535	)		(640	)
Change in market value and other		(1,038	)		1,895						(321	)		1,144
Assets under management, end of period	$	15,848		$	15,342					$	15,848		$	15,342
Non Proprietary Mutual Funds [4]
Assets under management, beginning of period	$	53,299		$	29,543					$	44,031		$	32,710
Transfer in of Investment-Only and Canadian mutual funds		—			—						5,617			—
Net sales		896			1,157						2,362			690
Change in market value and other [1]		(5,436	)		4,993						(3,251	)		2,293
Assets under management, end of period [1]	$	48,759		$	35,693					$	48,759		$	35,693
Proprietary Mutual Funds [5]
Assets under management, beginning of period	$	44,403		$	—					$	—		$	—
Transfers in of insurance product mutual funds		—			—						43,890			—
Net sales		(1,140	)		—						(2,464	)		—
Change in market value and other		(3,861	)		—						(2,024	)		—
Assets under management, end of period	$	39,402		$	—					$	39,402		$	—
Net Investment Spread
Retirement Plans	135		bps	59		bps				128		bps	53		bps

[1]	Includes amount attributed to the transfer of Investment-Only mutual funds and Canada Operations effective January 1, 2010.
[2]	Includes Proprietary mutual funds effective January 1, 2010.
[3]	Includes policyholder balances for investment contracts and reserves for future policy benefits for insurance contracts.
[4]	Includes Retail mutual funds, Investment-Only mutual funds, Canadian mutual funds and 529 college savings plan assets.
[5]	Includes mutual funds sponsored by the Company which are owned by the separate accounts of the Company to support insurance and investment products sold by the Company.

92

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

For the three month period ended June 30, 2010 as compared to 2009, net income in Retirement increased due to increases in fee income, and net realized capital gains compared to net realized capital losses.

For the six month period ended June 30, 2010 as compared to 2009, net income increased due to increases in fee income, lower net realized capital losses and lower DAC amortization as a result of the first quarter 2009 unlock.

For further discussion of the Unlock, see Unlocks within the Critical Accounting Estimates section of the MD&A. The following other factors contributed to the changes in net income:

Fee income and other	•     For the three month period ended June 30, 2010, the increase in fee income and other is primarily due to the inclusion of the Investment-Only and Proprietary mutual funds and Canadian Operations, which have contributed $27 of fee income, along with the improvements in equity markets on a year-over-year basis and increased deposit activity.
	•     For the six month period ended June 30, 2010, fee income and other increased primarily due to increases in average assets under management resulting from improvements in equity markets and increased deposit activity as equity market improvements created an environment where investors were willing to re-enter the capital markets. Over the past 12 months, $2.6 billion of net flows and $4.2 billion of market activity have increased retail mutual funds fee income by $57 over the prior year. In addition, the inclusion of the Investment-Only and Proprietary mutual funds and Canadian Operations has contributed $55 of fee income.
Net investment income	•     For the three and six month periods ended June 30, 2010, net investment income increased primarily due to improved performance on limited partnerships and other alternative investments.
Net investment spread	•     Net investment spread increased primarily as a result of higher earned rates driven primarily by improved performance on limited partnerships and other alternative investments in 2010 which added 55 bps of return for the three months ended June 30, 2010, and 60 bps of return for the six months ended June 30, 2010 as compared to the prior year along with lower crediting rates of 20 bps for the three months ended June 30, 2010, and 17 bps for the six months ended June 30, 2010 as compared to the prior year.
Net realized capital gains (losses)	•     The change in net realized capital gains (losses) for the three months ended June 30, 2010 is driven by higher losses on derivatives and impairments in the second quarter of 2009.
	•     For the six months ended June 30, 2010, net realized capital losses were lower due to higher losses on derivatives, trading losses and impairments in the first and second quarter of 2009.
Insurance operating costs and other expenses	•     For the three and six months ended June 30, 2010, insurance operating costs and other expenses increased primarily due to higher trail commissions driven by higher average account value as a result of improvements in equity markets, and the inclusion of expenses of $15 and $32, respectively, associated with Investment-Only and Proprietary mutual funds and Canadian Operations.
Amortization of DAC	•     For the three months ended June 30, 2010, amortization of DAC increased due to higher gross profits in the second quarter of 2010 compared to 2009.
	•     For the six months ended June 30, 2010 amortization of DAC decreased on a comparative period prior year basis as a result of the DAC Unlock in the first quarter of 2009 partially offset by higher gross profits in the first half of 2010.
Income tax expense (benefit)	•     The effective tax rate for 2010 differs from the statutory rate of 35% primarily due to permanent tax differences for DRD that are partially offset by a valuation allowance on deferred tax benefits related to certain realized losses recorded in the six months ended June 30, 2010. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

93

INDIVIDUAL LIFE

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income and other	$	239		$	238			—		$	481		$	530			(9	%)
Earned premiums		(23	)		(20	)		(15	%)		(45	)		(39	)		(15	%)
Net investment income		104			84			24	%		197			163			21	%
Net realized capital gains (losses)		61			(47	)	NM				33			(80	)	NM
Total revenues		381			255			49	%		666			574			16	%
Benefits, losses and loss adjustment expenses		152			147			3	%		317			311			2	%
Insurance operating costs and other expenses		46			46			—			92			94			(2	%)
Amortization of deferred policy acquisition costs and present value of future profits		42			41			2	%		89			180			(51	%)
Total benefits, losses and expenses		240			234			3	%		498			585			(15	%)
Income (loss) before income taxes		141			21		NM				168			(11	)	NM
Income tax expense (benefit)		46			5		NM				57			(9	)	NM
Net income (loss)	$	95		$	16		NM			$	111		$	(2	)	NM
Account Values
Variable universal life insurance										$	5,507		$	5,049			9	%
Universal life insurance [1]											5,873			5,510			7	%
Total account values										$	11,380		$	10,559			8	%
Life Insurance In-Force
Variable universal life insurance										$	76,445		$	76,946			(1	%)
Universal life insurance [1]											56,571			54,084			5	%
Term life											72,625			67,010			8	%
Total life insurance in-force										$	205,641		$	198,040			4	%
Net Investment Spread	176		bps	88		bps				153		bps	77		bps
Death Benefits	$	82		$	78					$	175		$	172

[1] Includes Universal Life, Interest Sensitive Whole Life, Modified Guaranteed Life Insurance and other.

94

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net income increased as a result of net realized capital gains, improved net investment income and the impacts of the DAC Unlocks. For further discussion of the DAC Unlock, see Unlocks within the Critical Accounting Estimates section of the MD&A. The following other factors contributed to the changes in net income (loss):

Fee income and other	•     Fee income and other decreased for the six months ended June 30, 2010 primarily due to the impact of the DAC Unlock in the first six months of 2009.
Earned premiums	•     Earned premiums, which include premiums for ceded reinsurance, decreased compared to the prior year periods primarily due to higher ceded reinsurance premiums due to the aging of the life insurance in-force.
Net investment income	•     Net investment income increased primarily due to improved performance of limited partnerships and other alternative investments and fixed maturities.
Net investment spread	•     Net investment spread increased for the three and six months ended June 30, 2010 primarily related to improved performance of limited partnerships and other alternative investments of 59 bps and 62 bps, respectively, improved performance of fixed maturities of 42 bps and 33 bps, respectively, and lower average credited rates of 22 bps and 18 bps, respectively.
Amortization of DAC	•     Amortization of DAC decreased for the six months ended June 30, 2010 primarily as a result of the Unlock charge of $98 in the first six months of 2009. DAC amortization had a partial offset in amortization of deferred revenues, which drove the decrease in fee income noted above.
Income tax expense (benefit)	•     The effective tax rate for 2010 differs from the statutory rate of 35% primarily due to the recognition of separate account DRD partially offset by a valuation allowance on deferred tax benefits related to certain realized losses recorded in the six months ended June 30, 2010. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

95

GROUP BENEFITS

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Premiums and other considerations	$	1,074		$	1,074			—		$	2,176		$	2,212			(2	%)
Net investment income		110			102			8	%		217			193			12	%
Net realized capital gains (losses)		23			(41	)	NM				32			(38	)	NM
Total revenues		1,207			1,135			6	%		2,425			2,367			2	%
Benefits, losses and loss adjustment expenses		846			822			3	%		1,689			1,682			—
Insurance operating costs and other expenses		281			287			(2	%)		564			551			2	%
Amortization of deferred policy acquisition costs		15			15			—			31			29			7	%
Total benefits, losses and expenses		1,142			1,124			2	%		2,284			2,262			1	%
Income before income taxes		65			11		NM				141			105			34	%
Income tax expense (benefit)		17			(3	)	NM				42			22			91	%
Net income	$	48		$	14		NM			$	99		$	83			19	%
Earned Premiums and Other
Fully insured — ongoing premiums	$	1,041		$	1,066			(2	%)	$	2,093		$	2,192			(5	%)
Buyout premiums		21			—			—			58			—			—
Other		12			8			50	%		25			20			25	%
Total earned premiums and other	$	1,074		$	1,074			—		$	2,176		$	2,212			(2	%)
Fully insured ongoing sales, excluding buyouts	$	101		$	89					$	397		$	489
Ratios, excluding buyouts
Loss ratio		78.3	%		76.5	%					77.0	%		76.0	%
Loss ratio, excluding financial institutions		84.1	%		81.8	%					82.6	%		80.2	%
Expense ratio		28.1	%		28.1	%					28.1	%		26.2	%
Expense ratio, excluding financial institutions		23.5	%		23.4	%					23.3	%		22.4	%

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net income increased as a result of net realized capital gains and improved net investment income, partially offset by higher claim costs.

The following factors contributed to the changes in net income:

Premiums and other considerations	•     Premiums and other considerations decreased for the six months ended June 30, 2010 due to lower sales and reductions in covered lives within our customer base.
Net investment income	•     Net investment income increased due to higher weighted average portfolio yields primarily due to improved performance on limited partnerships and other alternative investments.
Benefits, losses and loss adjustment expenses/Loss ratio	•     The segment’s loss ratio (defined as benefits, losses and loss adjustment expenses as a percentage of premiums and other considerations excluding buyouts) was higher compared to the prior year periods due primarily to unfavorable morbidity experience from higher incidence and lower claim terminations.
Expense ratio and insurance operating costs and other expenses	•     The segment’s expense ratio, excluding buyouts, increased for the six months ended June 30, 2010 compared to the prior year period primarily due to higher commission expense on the experience rated financial institution business and higher acquisition costs.
Income tax expense (benefit)	•     The effective tax rate for 2010 differs from the statutory rate of 35% primarily due to permanent differences related to investments in tax exempt securities. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

96

INSTITUTIONAL

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income and other	$	44		$	38			16	%	$	87		$	78			12	%
Earned premiums		3			74			(96	%)		13			282			(95	%)
Net investment income		234			220			6	%		455			414			10	%
Net realized capital losses		(8	)		(95	)		92	%		(84	)		(334	)		75	%
Total revenues		273			237			15	%		471			440			7	%
Benefits, losses and loss adjustment expenses		253			323			(22	%)		519			770			(33	%)
Insurance operating costs and other expenses		16			17			(6	%)		29			44			(34	%)
Amortization of deferred policy acquisition costs		8			2		NM				16			7			129	%
Total benefits, losses and expenses		277			342			(19	%)		564			821			(31	%)
Loss before income taxes		(4	)		(105	)		96	%		(93	)		(381	)		76	%
Income tax benefit		(3	)		(39	)		92	%		(4	)		(141	)		97	%
Net loss	$	(1	)	$	(66	)		98	%	$	(89	)	$	(240	)		63	%
Assets Under Management
Institutional account values [1][2]										$	19,950		$	23,928			(17	%)
Private Placement Life Insurance account values [2][3]											35,049			32,594			8	%
Mutual fund assets under management [4]											—			3,654			(100	%)
Total assets under management										$	54,999		$	60,176			(9	%)
Net Investment Spread
Stable Value (GICs, Funding Agreements, Funding Agreement Backed Notes and Consumer Notes)	(24		) bps	(31		) bps				(50		) bps	(54		) bps
Expense Ratios
General insurance expense ratio	7.9		bps	10.7		bps				7.5		bps	10.7		bps

[1]	Single Premium Immediate Annuity and Maturity Funding were transferred to Global Annuity — U.S. and Retirement, respectively, from Institutional effective January 1, 2010.
[2]	Includes policyholder balances for investment contracts and reserves for future policy benefits for insurance contracts.
[3]	Includes Leveraged PPLI amounts transferred from Other effective January 1, 2010.
[4]	Investment-Only mutual funds were transferred to Retirement effective January 1, 2010.

97

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

For the three and six month periods ending June 30, 2010, the net loss in Institutional decreased primarily due to lower net realized capital losses and improved net investment spread due to improved performances on limited partnerships and other alternative investments, as compared to prior periods. Further discussion of the net loss is presented below:

Fee income and other	•     Fee income and other, for the three and six months ended June 30, 2010, increased as a result of the net transfers of the Leveraged PPLI and Investment-Only mutual funds.
Earned premiums	•     Earned premiums, for the three and six months ended June 30, 2010, decreased compared to the prior year due to management’s decision to suspend sales. The decrease in earned premiums was offset by a decrease in benefits, losses and loss adjustment expenses.
Net investment income	•     Net investment income, for the three and six months ended June 30, 2010, increased primarily due to the improved performance on limited partnerships and other alternative investments, and the inclusion of net investment income associated with the transfer of Leveraged PPLI from Life Other effective January 1, 2010. This increase is partially offset by lower yield on fixed maturity assets driven by the decline in short term interest rates.
Net investment spread	•     Stable Value net investment spreads, for the three and six months ended June 30, 2010, were less unfavorable due to improved performance on limited partnership and other alternative investments of 72 bps and 85 bps, respectively, and a decline in interest credited due to the Company opting to accelerate the repayment of principal for certain stable value products of 75 bps and 44 bps, respectively. The variance is partially offset by a decline in yields on fixed maturity assets of 140 bps and 125 bps, respectively.
Net realized capital losses	•     Net realized capital losses, for the three and six months ended June 30, 2010, were lower due to significantly less impairments on investment securities.
Benefits, losses and loss adjustment expenses	•     Benefits, losses and loss adjustment expenses, for the three and six months ended June 30, 2010, were lower driven by the Company’s execution on its call and buyback strategy associated with stable value products, which reduced the related liabilities, and a decrease in earned premiums associated with management’s decision to suspend sales.
Insurance operating costs and expenses and general insurance expense ratio	•     Insurance operating costs and other expenses decreased, for the three and six months ended June 30, 2010, primarily due to active expense management efforts and the transition of expenses associated with products aligned to other segments.
Income tax benefit	•     The effective tax rate for the six months ended June 30, 2010 differs from the statutory rate of 35% primarily due to a 2010 valuation allowance on deferred tax benefits related to certain realized losses. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

98

LIFE OTHER

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income and other [1]	$	47		$	51			(8	%)	$	90		$	98			(8	%)
Net investment income (loss):
Securities available-for sale and other		4			23			(83	%)		15			47			(68	%)
Equity securities, trading [2]		(2,649	)		2,523		NM				(1,948	)		1,799		NM
Total net investment income (loss)		(2,645	)		2,546		NM				(1,933	)		1,846		NM
Net realized capital losses		(6	)		(30	)		80	%		(11	)		(53	)		79	%
Total revenues		(2,604	)		2,567		NM				(1,854	)		1,891		NM
Benefits, losses and loss adjustment expenses		(20	)		19		NM				(39	)		47		NM
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities [2]		(2,649	)		2,523		NM				(1,948	)		1,799		NM
Insurance operating costs and other expenses [1]		49			109			(55	%)		91			148			(39	%)
Amortization of deferred policy acquisition costs and present value of future profits		(1	)		—			—			(1	)		—			—
Total benefits, losses and expenses		(2,621	)		2,651		NM				(1,897	)		1,994		NM
Income (loss) before income taxes		17			(84	)	NM				43			(103	)	NM
Income tax expense (benefit)		3			(25	)	NM				18			(34	)	NM
Net income (loss)	$	14		$	(59	)	NM			$	25		$	(69	)	NM

[1]	Includes the fee income and commission expense associated with the sales of non-proprietary insurance products in the Company’s broker-dealer subsidiaries.
[2]	Includes investment income and mark-to-market effects of equity securities, trading, supporting the Global Annuity — International variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses.

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net realized capital losses	•     Net realized capital losses were lower due to less impairments on investment securities on a three and six month comparative basis.
Net investment income (loss) — securities available for sale and other	•     Declines in net investment income are reflective of the transfer of Leveraged PPLI to the Institutional segment effective January 1, 2010, partially offset by higher earnings on limited partnerships and other alternative investments.
Benefits losses and loss adjustment expenses	•     Benefits losses and loss adjustment expense declined from the comparable prior period due to the transfer of Leveraged PPLI. The 2010 amounts are reflective of intersegment eliminations.
Insurance operating costs and other expenses	•     Lower insurance operating costs and other expenses for the three and six months ended June 30, 2010 are due to restructuring costs, such as severance benefits and other costs associated with the suspension of sales in International’s Japan and European operations, recognized in the second quarter of 2009. See Note 17 of the Notes to Consolidated Financial Statements in The Hartford’s 2009 Form 10-K Annual Report for further details on the Company’s restructuring, severance and other costs.
Income tax expense (benefit)	•     For the six months ended June 30, 2010, the effective rate differs from the statutory rate of 35% primarily due to the recognition of a deferred tax benefit valuation allowance related to certain realized losses. For further discussion, see Income Taxes within Note 1 of the Notes to Condensed Consolidated Financial Statements.

99

PERSONAL LINES

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Underwriting Summary	2010			2009			Change			2010			2009			Change
Written premiums	$	1,033		$	1,045			(1	%)	$	1,974		$	1,989			(1	%)
Change in unearned premium reserve		39			60			(35	%)		(15	)		25		NM
Earned premiums		994			985			1	%		1,989			1,964			1	%
Losses and loss adjustment expenses
Current accident year before catastrophes		685			649			6	%		1,351			1,276			6	%
Current accident year catastrophes		146			110			33	%		187			152			23	%
Prior accident years		(5	)		—			—			(12	)		10		NM
Total losses and loss adjustment expenses		826			759			9	%		1,526			1,438			6	%
Amortization of deferred policy acquisition costs		168			168			—			336			334			1	%
Insurance operating costs and expenses		73			68			7	%		146			127			15	%
Underwriting results	$	(73	)	$	(10	)	NM			$	(19	)	$	65		NM
	Three Months Ended									Six Months Ended
	June 30,									June 30,
Written Premiums	2010			2009			Change			2010			2009			Change
Business Unit
AARP	$	752		$	763			(1	%)	$	1,423		$	1,444			(1	%)
Agency		267			268			—			525			517			2	%
Other		14			14			—			26			28			(7	%)
Total	$	1,033		$	1,045			(1	%)	$	1,974		$	1,989			(1	%)
Product Line
Automobile	$	719		$	742			(3	%)	$	1,413		$	1,449			(2	%)
Homeowners		314			303			4	%		561			540			4	%
Total	$	1,033		$	1,045			(1	%)	$	1,974		$	1,989			(1	%)
Earned Premiums
Business Unit
AARP	$	716		$	709			1	%	$	1,431		$	1,412			1	%
Agency		264			261			1	%		530			522			2	%
Other		14			15			(7	%)		28			30			(7	%)
Total	$	994		$	985			1	%	$	1,989		$	1,964			1	%
Product Line
Automobile	$	710		$	711			—		$	1,422		$	1,415			—
Homeowners		284			274			4	%		567			549			3	%
Total	$	994		$	985			1	%	$	1,989		$	1,964			1	%
Premium Measures	2010			2009						2010			2009
Policies in-force end of period
Automobile											2,341,594			2,375,240
Homeowners											1,479,749			1,471,287
Total policies in-force end of period											3,821,343			3,846,527
New business written premium
Automobile	$	82		$	124					$	175		$	239
Homeowners	$	30		$	40					$	60		$	71
Policy count retention
Automobile		84	%		86	%					84	%		86	%
Homeowners		85	%		86	%					85	%		86	%
Renewal written pricing increase
Automobile		6	%		3	%					6	%		3	%
Homeowners		9	%		5	%					9	%		5	%
Renewal earned pricing increase
Automobile		4	%		4	%					4	%		4	%
Homeowners		7	%		6	%					6	%		6	%

100

	Three Months Ended								Six Months Ended
	June 30,								June 30,
Ratios and Supplemental Data	2010			2009		Change			2010			2009		Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes		68.9			65.9		(3.0	)		67.9			65.0		(2.9	)
Current accident year catastrophes		14.6			11.2		(3.4	)		9.4			7.7		(1.7	)
Prior accident years		(0.4	)		—		0.4			(0.6	)		0.5		1.1
Total loss and loss adjustment expense ratio		83.1			77.0		(6.1	)		76.7			73.2		(3.5	)
Expense ratio		24.3			24.0		(0.3	)		24.2			23.5		(0.7	)
Combined ratio		107.4			101.0		(6.4	)		100.9			96.7		(4.2	)
Catastrophe ratio
Current year		14.6			11.2		(3.4	)		9.4			7.7		(1.7	)
Prior years		0.5			0.8		0.3			0.2			1.0		0.8
Total catastrophe ratio		15.1			12.0		(3.1	)		9.5			8.7		(0.8	)
Combined ratio before catastrophes		92.3			89.0		(3.3	)		91.4			88.0		(3.4	)
Combined ratio before catastrophes and prior accident years development		93.2			89.8		(3.4	)		92.2			88.4		(3.8	)
Other revenues [1]	$	41		$	35		17	%	$	83		$	72		15	%

[1] Represents servicing revenues.

	Three Months Ended							Six Months Ended
	June 30,							June 30,
Combined Ratios	2010		2009		Change			2010		2009		Change
Automobile		98.7		95.6		(3.1	)		96.2		92.4		(3.8	)
Homeowners		128.8		114.9		(13.9	)		112.9		107.6		(5.3	)
Total		107.4		101.0		(6.4	)		100.9		96.7		(4.2	)

Underwriting results, premium measures and ratios

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

For the three- and six-month periods, underwriting results decreased by $63 and $84, respectively, with a corresponding increase in the combined ratio of 6.4 points and 4.2 points, respectively.

Earned premiums

Earned premiums grew by $9 and $25 for the three- and six-month periods, respectively, with earned premium growth in both AARP and Agency.

• AARP earned premiums grew $7 and $19, respectively, for the three- and six-month periods, due primarily to new business written premium growth through the third quarter of 2009 driven by increased direct marketing spend, higher auto policy conversion rates and cross-selling homeowners’ insurance to insureds who have auto policies. Partly offsetting the growth was the effect of a decrease in new business and policy count retention since the third quarter of 2009 for both auto and homeowners.

• Agency earned premiums increased by $3 and $8, respectively, for the three- and six-month periods, due primarily to new business written premium growth through the first quarter of 2010 driven by an increase in the number of agency appointments and the number of policy quotes. Partly offsetting the growth was the effect of a decrease in average renewal earned premium per policy for auto business.

Auto earned premiums were relatively flat for the three-month period and increased by $7 for the six-month period as new business written premium growth through the fourth quarter of 2009 was largely offset by a decrease in average renewal earned premium per policy and a decrease in new business and policy count retention in the first six months of 2010. Despite 4% auto earned pricing increases for the three- and six-month periods, average renewal earned premium per policy for auto declined in the first six months of 2010 due to a shift to more preferred market segment business and a greater concentration of business in states and territories with lower average premium. Homeowners’ earned premiums grew by $10 and $18, respectively, for the three- and six-month periods due primarily to new business written premium growth through the fourth quarter of 2009 and the effect of increases in earned pricing, partially offset by a decrease in new business and policy count retention in the first six months of 2010.

101

New business written premium	•     Auto new business written premium decreased by $42, or 34%, and by $64, or 27%, for the three- and six-month periods respectively, due primarily to the effect of written pricing increases and underwriting actions that lowered the policy issue rate on direct marketing responses and agency business quotes. Homeowners’ new business written premium decreased by $10, or 25%, and by $11, or 15%, for the three- and six- month periods respectively, as the effect of pricing and underwriting actions lowering the policy issue rate on direct marketing responses and agency business quotes was partially offset by an increase in the cross-sale of homeowners’ insurance to insureds who have auto policies.
Policy count retention	•     Policy count retention for auto decreased by 2% in both the three and six months ended June 30, 2010 driven by the effect of 6% renewal written pricing increases and underwriting actions. Policy count retention for homeowners decreased 1% in both the three and six months ended June 30, 2010, driven by the effect of 9% renewal written pricing increases and underwriting actions, partially offset by the effect of the Company’s non-renewal of Florida homeowners’ Agency business in 2009.
Renewal earned pricing increase	•     For both the three and six months ended June 30, 2010, auto renewal earned pricing increased 4% due to rate increases and the effect of policyholders purchasing newer vehicle models in place of older models. Homeowners’ renewal earned pricing increased by 7% in the three-month period and by 6% in the six-month period due to rate increases and increased coverage amounts reflecting higher rebuilding costs. For both auto and home, the Company has increased rates in certain states for certain classes of business to maintain profitability in the face of rising loss costs.
Policies in-force	•     Compared to June 30, 2009, the number of policies in-force as of June 30, 2010 decreased by 1% in auto, driven by a decrease in AARP policy retention, and was relatively flat for homeowners.

Losses and loss adjustment expenses

Current accident year losses and loss adjustment expenses before catastrophes

For the three- and six-month periods, Personal Lines current accident year losses and loss adjustment expenses before catastrophes increased by $36 and $75, respectively, primarily due to the increase in the current accident year loss and loss adjustment expense ratio before catastrophes and, to a lesser extent for the six-month period, the increase in earned premium.

The current accident year loss and loss adjustment expense ratio before catastrophes increased by 3.0 points for the three-month period, driven by a 2.8 point increase for auto and a 4.2 point increase for home, and by 2.9 points for the six-month period, driven by a 3.5 point increase for auto and a 1.9 point increase for home. The increase for auto was primarily due to higher auto physical damage emerged frequency and higher expected auto liability loss costs relative to average premium per policy. The increase for home was due to increased expected ultimate severity and, for the six-month period, increased frequency of non-catastrophe weather claims. While claim frequency for home would typically be lower given the shift to more preferred market segment business and a greater concentration of business in states and territories with lower average premium, frequency was up in the six-month period and was flat in the three-month period given an increase in non-catastrophe weather claims.

Current accident year catastrophes

Current accident year catastrophes were up $36 and $35, respectively, for the three- and six-month periods due to more severe windstorm events in the second quarter of 2010, particularly from hail. Catastrophe losses in the three- and six-month periods in 2010 primarily included losses from tornadoes, thunderstorms and hail events in the Midwest, plains states and the Southeast and, in the six-month period, losses from winter storms in the Mid-Atlantic and Northeast. Catastrophe losses in the three- and six-month periods in 2009 primarily included losses from windstorms in Texas and the Midwest.

Prior accident year reserve development

For the three-month period, prior accident year reserve development improved from no prior accident year reserve development in 2009 to a net favorable $5 of prior accident year reserve development in 2010. For the six-month period, prior accident year reserve development improved from $10 of net unfavorable prior accident year reserve development in 2009 to $12 of net favorable prior accident year reserve development in 2010. Net favorable reserve development in 2010 included, among other reserve changes, releases of AARP and Agency auto liability reserves of $24 and $41 for the three- and six-month periods, respectively, primarily related to the 2007 through 2009 accident years, largely offset by strengthening of AARP and Agency homeowners reserves of $9 and $24, respectively. Net unfavorable reserve development in 2009 included $43 of reserve strengthenings, including an $18 strengthening of reserves for homeowners’ business, largely offset by $33 of releases of reserves for auto liability claims, primarily related to accident years 2005 to 2007.

Operating expenses

For the three-month period, the expense ratio increased by 0.3 points due largely to an increase in IT costs. For the six-month period, the expense ratio increased by 0.7 points due largely to a $7 reduction of TWIA assessments recognized in 2009, a $4 legal settlement in 2010 and an increase in IT and compensation-related costs.

102

SMALL COMMERCIAL

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Underwriting Summary	2010			2009			Change			2010			2009			Change
Written premiums	$	662		$	643			3	%	$	1,356		$	1,336			1	%
Change in unearned premium reserve		14			—			—			71			41			73	%
Earned premiums		648			643			1	%		1,285			1,295			(1	%)
Losses and loss adjustment expenses
Current accident year before catastrophes		349			340			3	%		715			702			2	%
Current accident year catastrophes		45			23			96	%		66			29			128	%
Prior accident years		(16	)		10		NM				(34	)		15		NM
Total losses and loss adjustment expenses		378			373			1	%		747			746			—
Amortization of deferred policy acquisition costs		156			155			1	%		310			312			(1	%)
Insurance operating costs and expenses		52			41			27	%		83			76			9	%
Underwriting results	$	62		$	74			(16	%)	$	145		$	161			(10	%)
Premium Measures	2010			2009						2010			2009
New business premium	$	126		$	120					$	256		$	239
Policy count retention		83	%		81	%					84	%		81	%
Renewal written pricing increase		3	%		—						2	%		—
Renewal earned pricing decrease		—			—						—			—
Policies in-force end of period											1,107,779			1,060,482
	Three Months Ended									Six Months Ended
	June 30,									June 30,
Ratios	2010			2009			Change			2010			2009			Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes		53.7			52.8			(0.9	)		55.6			54.2			(1.4	)
Current accident year catastrophes		6.9			3.6			(3.3	)		5.1			2.3			(2.8	)
Prior accident years		(2.4	)		1.5			3.9			(2.6	)		1.2			3.8
Total loss and loss adjustment expense ratio		58.2			58.0			(0.2	)		58.0			57.6			(0.4	)
Expense ratio		32.1			30.4			(1.7	)		31.5			29.8			(1.7	)
Policyholder dividend ratio		0.1			0.2			0.1			(0.8	)		0.1			0.9
Combined ratio		90.4			88.6			(1.8	)		88.7			87.6			(1.1	)
Catastrophe ratio
Current year		6.9			3.6			(3.3	)		5.1			2.3			(2.8	)
Prior years		—			(0.3	)		(0.3	)		(0.2	)		(0.1	)		0.1
Total catastrophe ratio		6.9			3.3			(3.6	)		4.9			2.2			(2.7	)
Combined ratio before catastrophes		83.5			85.3			1.8			83.7			85.4			1.7
Combined ratio before catastrophes and prior accident years development		85.9			83.4			(2.5	)		86.2			84.1			(2.1	)

Underwriting results, premium measures and ratios

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Underwriting results decreased by $12 and $16, with a corresponding 1.8 point and 1.1 point increase in the combined ratio for the three and six months ended June 30, 2010, respectively.

Earned premiums

Earned premiums for the Small Commercial segment increased by $5 for the three-month period and decreased by $10 for the six-month period. The increase in earned premiums for the three-month period was primarily due to an increase in earned premiums for workers’ compensation business. For the six-month period, the decrease in earned premium was primarily due to lower earned audit premium on workers’ compensation business and the effect of non-renewals outpacing new business over the last twelve months for all lines of business. While the Company has focused on increasing new business from its agents and expanding writings in certain territories, the effects of the economic downturn have contributed to the decrease in earned premiums in the first six months of 2010.

103

New business premium	•    New business written premium was up $6, or 5%, and $17 or 7% for the three and six months ended June 30, 2010, respectively, primarily driven by an increase in package business and the impact from the rollout of a new business owners policy product during 2009.
Policy count retention	•    Policy count retention increased in both the three-and six-month periods in all lines of business, as the trend in mid-term cancellations improved in 2010.
Renewal earned pricing decrease	•    For both the three-and six-month periods, renewal earned pricing was flat as an increase in renewal earned pricing for package business was offset by a decrease for workers’ compensation. The earned pricing changes were primarily a reflection of written pricing changes over the last year. In addition to the effect of written pricing decreases in workers’ compensation in 2009, average premium per policy in Small Commercial has declined due to a reduction in the payrolls of workers’ compensation insureds.
Policies in-force	•    The number of policies-in-force increased by 4% from June 30, 2009 to June 30, 2010. While earned premiums have increased by 1% for the three-month period, earned premiums have decreased by 1% for the six-month period, reflecting the decrease in average premium per policy. The growth in policies in-force does not correspond directly with the change in earned premiums due to the effect of changes in earned pricing and changes in the average premium per policy.

Losses and loss adjustment expenses

Current accident year losses and loss adjustment expenses before catastrophes

Small Commercial’s current accident year losses and loss adjustment expenses before catastrophes increased by $9 and $13, respectively, for three and six months ended June 30, 2010, primarily due to an increase in the current accident year loss and loss adjustment expense ratio before catastrophes. The increase in the current accident year loss and loss adjustment expense ratio before catastrophes for both the three- and six-month periods was primarily due to a higher loss and loss adjustment expense ratio on package business and workers’ compensation. The higher loss and loss adjustment expense ratio for package business and workers’ compensation was primarily driven by less favorable expected loss costs due to less favorable expected claim severity for package business and less favorable expected claim frequency for workers’ compensation.

Current accident year catastrophes

Current accident year catastrophe losses increased by $22 and $37, respectively, for the three and six months ended June 30, 2010, as losses in 2010 from tornadoes, thunderstorms and hail events in the Midwest, plains states and the Southeast were higher than catastrophe losses in 2009 from windstorms and tornadoes in the Midwest.

Prior accident year reserve development

Prior accident year development changed from net unfavorable development of $10 and $15, respectively, for the three and six months ended June 30, 2009 to net favorable development of $16 and $34, respectively, for the three and six months ended June 30, 2010. There were no significant prior accident year reserve developments in the first quarter of 2010. Net favorable prior accident year development of $16 and $34, respectively, for the three and six months ended June 30, 2010 included, among other reserve changes, a $12 release of reserves for commercial auto claims.

Net unfavorable prior accident year development of $10 for the three months ended June 30, 2009 included a $20 strengthening of reserves for package business related to accident years 2007 and 2008. Net unfavorable prior accident year development of $15 for the six months ended June 30, 2009 included $36 of strengthening of reserves for package business, partially offset by a $13 release of workers’ compensation reserves.

Operating expenses

Insurance operating costs and expenses increased by $11 and $7, respectively, for the three and six months ended June 30, 2010. The increase in the three-month period was primarily due to an increase in taxes, licenses and fees driven by $9 of reserve strengthening for other state funds and taxes. The increase in the six-month period was primarily driven by $9 of reserve strengthening for other state funds and taxes, a $5 reduction in TWIA assessments recognized in 2009 and an increase in compensation-related costs, largely offset by a $12 decrease in the estimated amount of dividends payable to certain workers’ compensation policyholders as a result of fewer dividend policies being sold.

104

MIDDLE MARKET

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Underwriting Summary	2010			2009			Change			2010			2009			Change
Written premiums	$	446		$	482			(7	%)	$	956		$	1,008			(5	%)
Change in unearned premium reserve		(41	)		(56	)		27	%		(32	)		(78	)		59	%
Earned premiums		487			538			(9	%)		988			1,086			(9	%)
Losses and loss adjustment expenses
Current accident year before catastrophes		311			331			(6	%)		642			690			(7	%)
Current accident year catastrophes		38			8		NM				53			24			121	%
Prior accident years		(7	)		(22	)		68	%		(23	)		(80	)		71	%
Total losses and loss adjustment expenses		342			317			8	%		672			634			6	%
Amortization of deferred policy acquisition costs		116			123			(6	%)		233			248			(6	%)
Insurance operating costs and expenses		51			42			21	%		93			79			18	%
Underwriting results	$	(22	)	$	56		NM			$	(10	)	$	125		NM
Premium Measures	2010			2009						2010			2009
New business premium	$	99			106					$	218		$	221
Policy count retention		78	%		76	%					80	%		77	%
Renewal written pricing decrease		—			(1	%)					—			(2	%)
Renewal earned pricing decrease		(1	%)		(4	%)					(1	%)		(5	%)
Policies in-force as of end of period											96,535			96,574
	Three Months Ended									Six Months Ended
	June 30,									June 30,
Ratios	2010			2009			Change			2010			2009			Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes		63.9			61.6			(2.3	)		65.0			63.6			(1.4	)
Current accident year catastrophes		7.8			1.6			(6.2	)		5.4			2.2			(3.2	)
Prior accident years		(1.4	)		(4.2	)		(2.8	)		(2.4	)		(7.4	)		(5.0	)
Total loss and loss adjustment expense ratio		70.3			59.1			(11.2	)		68.0			58.4			(9.6	)
Expense ratio		33.9			29.8			(4.1	)		32.6			29.5			(3.1	)
Policyholder dividend ratio		0.4			0.6			0.2			0.4			0.5			0.1
Combined ratio		104.6			89.5			(15.1	)		101.0			88.5			(12.5	)
Catastrophe ratio
Current year		7.8			1.6			(6.2	)		5.4			2.2			(3.2	)
Prior years		0.8			(0.8	)		(1.6	)		0.2			(0.9	)		(1.1	)
Total catastrophe ratio		8.6			0.8			(7.8	)		5.6			1.3			(4.3	)
Combined ratio before catastrophes		96.0			88.7			(7.3	)		95.5			87.2			(8.3	)
Combined ratio before catastrophes and prior accident years development		98.2			92.1			(6.1	)		98.0			93.7			(4.3	)

Underwriting results, premium measures and ratios

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Underwriting results decreased by $78 and $135 with corresponding increases in the combined ratio of 15.1 points and 12.5 points for the three and six months ended June 30, 2010, respectively.

Earned premiums

Earned premiums for the Middle Market segment decreased by $51 and $98, respectively for the three- and six-month periods, primarily driven by the effect of non-renewals outpacing new business over the last twelve months in all lines of business, a decrease in audit premiums and a decrease in earned pricing in general liability, workers’ compensation and marine.

105

New business premium	•    New business written premium decreased by $7 and $3 for the three- and six-month periods, respectively. The decrease in new business written premium for the three-month period was primarily due to a decrease in new business written premium for workers’ compensation and marine. For the six-month period, a decrease in new business written premium for marine and general liability was partially offset by an increase in new business for workers’ compensation. Despite continued pricing competition, the Company has increased new business for workers’ compensation for the six-month period by targeting business in selected industries and regions of the country where attractive new business opportunities remain.
Policy count retention	•    For the three-month period, policy count retention increased in all lines of business except for workers’ compensation. For the six-month period, policy count retention increased in all lines of business.
Renewal earned pricing decrease	•    For the three- and six-month periods, earned pricing decreased in all lines of business except for property. The earned pricing changes were primarily a reflection of written pricing changes over the last year. A number of carriers have continued to compete fairly aggressively on price, particularly on larger accounts within Middle Market. Beginning in the second quarter of 2009, however, written pricing decreases moderated for all lines of business with workers’ compensation and property trending flat to slightly positive.
Policies in-force	•    The number of policies in-force remained flat, while earned premiums declined by 9% for both the three- and six-month periods.

Losses and loss adjustment expenses

Current accident year losses and loss adjustment expenses before catastrophes

Middle Market current accident year losses and loss adjustment expenses before catastrophes decreased by $20 and $48 for the three- and six-month periods, respectively, primarily due to a decrease in earned premium, partially offset by an increase in the current accident year loss and loss adjustment expense ratio before catastrophes. The current accident year loss and loss adjustment expense ratio before catastrophes increased, primarily due to a higher loss and loss adjustment expense ratio on property, general liability and workers’ compensation business. For the three- and six-month periods, the higher loss and loss adjustment expense ratio on property was driven by higher severity while the higher ratio on general liability and workers’ compensation business was primarily due to higher frequency.

Current accident year catastrophes

Current accident year catastrophe losses increased by $30 and $29 for the three- and six-month periods, respectively, due to more severe windstorm events, particularly from hail. Catastrophe losses in 2010 included losses from tornadoes, thunderstorms and hail events in the Midwest, plains states and the Southeast and from winter storms in the Mid-Atlantic and Northeast. Catastrophe losses in 2009 included losses from ice storms, windstorms and tornadoes across many states.

Prior accident year reserve development

Net favorable prior accident year reserve development decreased by $15 and $57 for the three and six months ended June 30, 2010, respectively. Net favorable prior accident year reserve development of $7 and $23 for the three and six months ended June 30, 2010, respectively, included general liability reserve releases of $27 and $37, respectively, and $21 of reserve strengthening for general liability allocated loss adjustment expenses. Net favorable reserve development of $22 and $80 for the three and six months ended June 30, 2009, respectively included general liability reserve releases of $33 and $71, respectively, primarily related to accident years 2004 to 2007.

Operating expenses

Insurance operating costs and expenses increased by $9 and $14 for the three- and six-month periods, respectively, primarily due to an increase in taxes, licenses and fees driven by $9 of reserve strengthening for other state funds and taxes in the second quarter of 2010. Amortization of deferred policy acquisition costs decreased by $7 and $15 for the three- and six-month periods, respectively, largely due to the decrease in earned premiums. For the three- and six-month periods, the expense ratio increased by 4.1 points and 3.1 points, respectively, as insurance operating costs and expenses other than dividends to policyholders did not decrease commensurate with the decrease in earned premiums.

106

SPECIALTY COMMERCIAL

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Underwriting Summary	2010			2009			Change			2010			2009			Change
Written premiums	$	280		$	292			(4	%)	$	589		$	587			—
Change in unearned premium reserve		—			(19	)		100	%		22			(56	)	NM
Earned premiums		280			311			(10	%)		567			643			(12	%)
Losses and loss adjustment expenses
Current accident year before catastrophes		193			214			(10	%)		390			447			(13	%)
Current accident year catastrophes		—			1			(100	%)		2			2			—
Prior accident years		(121	)		(47	)		(157	%)		(170	)		(72	)		(136	%)
Total losses and loss adjustment expenses		72			168			(57	%)		222			377			(41	%)
Amortization of deferred policy acquisition costs		68			72			(6	%)		137			147			(7	%)
Insurance operating costs and expenses		29			35			(17	%)		45			60			(25	%)
Underwriting results	$	111		$	36		NM			$	163		$	59			176	%

	Three Months Ended							Six Months Ended
	June 30,							June 30,
Written Premiums	2010		2009		Change			2010		2009			Change
Property	$	—	$	—		—		$	—	$	(16	)		100	%
Casualty		137		128		7	%		311		278			12	%
Professional Liability, Fidelity and Surety		133		148		(10	%)		253		291			(13	%)
Other		10		16		(38	%)		25		34			(26	%)
Total	$	280	$	292		(4	%)	$	589	$	587			—
							��
Earned Premiums
Property	$	—	$	3		(100	%)	$	—	$	16			(100	%)
Casualty		131		124		6	%		265		254			4	%
Professional Liability, Fidelity and Surety		137		165		(17	%)		276		336			(18	%)
Other		12		19		(37	%)		26		37			(30	%)
Total	$	280	$	311		(10	%)	$	567	$	643			(12	%)

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Ratios	2010			2009			Change			2010			2009			Change
Loss and loss adjustment expense ratio
Current accident year before catastrophes		69.9			68.7			(1.2	)		69.1			69.5			0.4
Current accident year catastrophes		0.4			0.3			(0.1	)		0.4			0.2			(0.2	)
Prior accident years		(43.6	)		(15.0	)		28.6			(29.9	)		(11.3	)		18.6
Total loss and loss adjustment expense ratio		26.6			54.0			27.4			39.6			58.4			18.8
Expense ratio		33.5			34.5			1.0			31.3			31.9			0.6
Policyholder dividend ratio		0.5			0.1			(0.4	)		0.5			0.4			(0.1	)
Combined ratio		60.6			88.7			28.1			71.4			90.8			19.4
Catastrophe ratio
Current year		0.4			0.3			(0.1	)		0.4			0.2			(0.2	)
Prior years		—			(1.7	)		(1.7	)		0.1			(1.0	)		(1.1	)
Total catastrophe ratio		0.3			(1.4	)		(1.7	)		0.5			(0.7	)		(1.2	)
Combined ratio before catastrophes		60.3			90.1			29.8			70.9			91.5			20.6
Combined ratio before catastrophes and prior accident years development		103.8			103.4			(0.4	)		100.9			101.9			1.0
Other revenues [1]	$	79		$	86			(8	%)	$	155		$	166			(7	%)

[1] Represents servicing revenue

107

Underwriting results and ratios

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Underwriting results increased by $75 and $104, respectively, with a corresponding decrease in the combined ratio of 28.1 points and 19.4 points, respectively for the three and six months ended June 30, 2010.

Earned premiums

Earned premiums for the Specialty Commercial segment decreased by $31 and $76 for the three- and six-month periods, respectively due primarily to decreases in property and professional liability, fidelity and surety.

• Property earned premiums decreased by $3 for the three-month period and by $16 for the six-month period, primarily due to the sale of the Company’s core excess and surplus lines property business on March 31, 2009 to Beazley Group PLC. Concurrent with the sale, the in-force book of business was ceded to Beazley under a separate reinsurance agreement, whereby the Company ceded $26 of unearned premium, net of $10 in ceding commission. The ceding of the unearned premium was reflected as a reduction of written premium in the six months ended June 30, 2009.

• Casualty earned premiums increased by $7 and $11, respectively, for the three-and six-month periods, primarily due to strong renewal retention in national accounts and new business growth in specialty programs. Also contributing to the increase for the six-month period was the effect of a reduction in earned audit premiums in the first quarter of 2009.

• Professional liability, fidelity and surety earned premium decreased by $28 and $60, respectively, for the three-and six-month periods, primarily due to the economic slowdown of 2009, reinsurance program changes and earned pricing decreases. Increased market capacity, driven largely by favorable loss performance, is driving significant pricing deterioration leading to the reduction in new business and renewal pricing.

• Within the “Other” category, earned premium decreased by $7 and $11, respectively, for the three- and six-month periods. The “Other” category of earned premiums includes premiums assumed under inter-segment arrangements.

Losses and loss adjustment expenses

Current accident year losses and loss adjustment expenses before catastrophes

For the three-and six-month periods, current accident year losses and loss adjustment expenses before catastrophes decreased by $21 and $57, respectively, primarily due to a decrease in earned premiums.

Prior accident year reserve development

Net favorable prior accident year reserve development of $121 and $170, respectively, for the three-and six-month periods in 2010 included, among other reserve changes, a release of reserves for professional liability claims of $61 and $83, respectively, primarily related to D&O claims, a $30 reduction in the allowance for uncollectible reinsurance for Ongoing Operations in the second quarter of 2010 and a $17 release of reserves for specialty programs claims in the second quarter of 2010. Net favorable prior accident year reserve development of $47 and $72, respectively for the three and six months ended June 30, 2009 included a release of reserves for D&O insurance claims of $30 and $50, respectively, related to accident years 2003 to 2007, and a $20 release of reserves for uncollectible reinsurance.

Operating expenses

The expense ratio decreased for the three- and six-month periods by 1.0 point and 0.6 point, respectively, due to the decreases in insurance operating costs and expenses and amortization of deferred policy acquisition costs, partially offset by the decrease in earned premiums. Insurance operating costs and expenses decreased by $6 and $15, respectively for the three- and six-month periods, primarily due to a $23 increase in taxes, licenses and fees recognized in the second quarter of 2009 due to a $6 increase in the assessment for a second injury fund and $17 reserve strengthening for other state funds and taxes, largely offset by lower ceded commissions and increased compensation-related costs. Amortization of deferred policy acquisition costs decreased by $4 and $10, respectively for the three- and six-month periods, primarily due to the decrease in earned premiums.

108

OTHER OPERATIONS

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Written premiums	$	1		$	1			—		$	2		$	2			—
Change in unearned premium reserve		—			—			—			1			1			—
Earned premiums		1			1			—			1			1			—
Losses and loss adjustment expenses — prior years		173			121			43	%		174			121			44	%
Insurance operating costs and expenses		6			4			50	%		13			9			44	%
Underwriting results		(178	)		(124	)		(44	%)		(186	)		(129	)		(44	%)
Net investment income		42			41			2	%		83			81			2	%
Net realized capital gains (losses)		20			2		NM				16			(32	)	NM
Other expenses		—			(2	)		100	%		1			(1	)	NM
Loss before income taxes		(116	)		(83	)		(40	%)		(86	)		(81	)		(6	%)
Income tax benefit		(43	)		(34	)		(26	%)		(32	)		(33	)		3	%
Net loss	$	(73	)	$	(49	)		(49	%)	$	(54	)	$	(48	)		(13	%)

Three months ended June 30, 2010 compared to the three months ended June 30, 2009

Net loss for the three months ended June 30, 2010 increased $24 compared to the prior year period primarily due to the following:

• A $54 decrease in underwriting results, primarily due to a $52 increase in unfavorable prior year loss development. Reserve development in the three months ended June 30, 2010 included $169 of asbestos reserve strengthening as a result of the Company’s annual asbestos evaluation. For the comparable three month period ended June 30, 2009, reserve development included $138 of asbestos reserve strengthening as a result of the Company’s annual asbestos evaluation, partially offset by a decrease of $20 in the allowance for uncollectible reinsurance as a result of the Company’s annual evaluation of reinsurance recoverables.

Partially offsetting the increase in Other Operations’ net loss were the following:

• An $18 increase in realized gains, as a result of fewer impairments and stabilizing market and credit conditions.

Six months ended June 30, 2010 compared to the six months ended June 30, 2009

Net loss for the six months ended June 30, 2010 increased $6 compared to the prior year period, driven primarily by the following:

• A $57 decrease in underwriting results, primarily due to a $53 increase in unfavorable prior year loss development. Reserve development in the six months ended June 30, 2010 included $169 of asbestos reserve strengthening as a result of the Company’s annual asbestos reserve evaluation. For the comparable six month period ended June 30, 2009, reserve development included $138 of asbestos reserve strengthening as a result of the Company’s annual asbestos reserve evaluation, partially offset by a decrease of $20 in the allowance for uncollectible reinsurance as a result of the Company’s annual evaluation of reinsurance recoverables.

Partially offsetting the increase in Other Operations’ net loss were the following:

• A $48 increase in realized gains as a result of fewer impairments and stabilizing market and credit conditions.

109

CORPORATE

	Three Months Ended									Six Months Ended
	June 30,									June 30,
Operating Summary	2010			2009			Change			2010			2009			Change
Fee income	$	3		$	3			—		$	6		$	6			—
Net investment income		6			2		NM				13			8			63	%
Net realized capital losses		—			(274	)		100	%		—			(232	)		100	%
Total revenues		9			(269	)	NM				19			(218	)	NM
Interest expense		132			119			11	%		252			239			5	%
Goodwill impairment		153			—			—			153			32		NM
Other expenses		27			14			93	%		107			29		NM
Total expenses		312			133			135	%		512			300			71	%
Loss before income taxes		(303	)		(402	)		25	%		(493	)		(518	)		5	%
Income tax benefit		(103	)		(38	)		(171	%)		(169	)		(91	)		(86	%)
Net loss	$	(200	)	$	(364	)		45	%	$	(324	)	$	(427	)		24	%

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009

Net realized capital losses	•    The three and six months ended June 30, 2009 consisted of a net realized capital loss of approximately $300 as a result of the contingency payment made to Allianz due to the Company’s participation in the Capital Purchase Program. The loss in the three months ended June 30, 2009 was offset by a $20 reversal in valuation allowances, and the loss in the six months ended June 30, 2009 was offset by a net realized capital gain of $70 recorded in the first quarter of 2009 on the change in fair value of the liability related to warrants issued to Allianz.
Goodwill impairment	•    The Company’s goodwill impairment test performed during the three months ended June 30, 2010 relating to Federal Trust Corporation resulted in a write-down of $153. For further information, see Note 14 in the Notes to Condensed Consolidated Financial Statements.
	•    The Company’s goodwill impairment test performed during the three months ended March 31, 2009 resulted in a write-down of $32 in Corporate related to the Institutional segment.
Other expenses	•    The change for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was primarily due to an accrual for a litigation settlement of $73 in 2010, for further information, see Structured Settlement Class Action within Note 9 of the Notes to Condensed Consolidated Financial Statements.

A reconciliation of Corporate’s tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Tax provision at U.S. Federal statutory rate	$	(106	)	$	(141	)	$	(173	)	$	(181	)
Nondeductible costs associated with contingency payment to Allianz and warrants		—			103			—			78
Goodwill impairments		—			—			—			11
Other		3			—			4			1
Provision for income taxes	$	(103	)	$	(38	)	$	(169	)	$	(91	)

110

PROPERTY & CASUALTY UNDERWRITING RISK MANAGEMENT STRATEGY

Use of Reinsurance

The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers’ compensation losses aggregating from single catastrophe events. The following table summarizes the primary catastrophe treaty reinsurance coverages that the Company has in place as of July 1, 2010:

		% of layer(s)
Coverage	Treaty term	reinsured			Per occurrence limit		Retention
Principal property catastrophe program covering property catastrophe losses from a single event	1/1/2010 to 1/1/2011	Varies by layer, but averages 81% across all layers			Aggregates to $690 across all layers		$	250
Reinsurance with the Florida Hurricane Catastrophe Fund (“FHCF”) covering Florida Personal Lines property catastrophe losses from a single event	6/1/2010 to 6/1/2011		90	%	$	170 [1]		64
Workers’ compensation losses arising from a single catastrophe event	7/1/2010 to 7/1/2011		95	%		300 [2]		50

[1]	The estimated per occurrence limit on the FHCF treaty is $170 for the 6/1/2010 to 6/1/2011 treaty year based on the Company’s election to purchase the required coverage from the FHCF. For the 6/1/2010 to 6/1/2011 treaty year, the Company elected not to purchase additional limits under the Temporary Increase in Coverage Limit (“TICL”) statutory provision.
[2]	In addition to the limit shown above, the workers’ compensation reinsurance treaty includes a non-catastrophe, industrial accident layer of $30 excess of a $20 retention.

Refer to the MD&A in The Hartford’s 2009 Form 10-K Annual Report for further explanation of Property & Casualty’s underwriting risk management strategy.

INVESTMENT CREDIT RISK

The Company has established investment credit policies that focus on the credit quality of obligors and counterparties, limit credit concentrations, encourage diversification and require frequent creditworthiness reviews. Investment activity, including setting of policy and defining acceptable risk levels, is subject to regular review and approval by senior management.

The Company primarily invests in securities which are rated investment grade and has established exposure limits, diversification standards and review procedures for all credit risks including borrower, issuer and counterparty. Creditworthiness of specific obligors is determined by consideration of external determinants of creditworthiness, typically ratings assigned by nationally recognized ratings agencies and is supplemented by an internal credit evaluation. Obligor, asset sector and industry concentrations are subject to established Company limits and are monitored on a regular basis.

The Company is not exposed to any credit concentration risk of a single issuer greater than 10% of the Company’s stockholders’ equity other than U.S. government and government agencies backed by the full faith and credit of the U.S. government. For further discussion of concentration of credit risk, see the Concentration of Credit Risk section in Note 5 of the Notes to Consolidated Financial Statements in The Hartford’s 2009 Form 10-K Annual Report.

Derivative Instruments

In the normal course of business, the Company uses various derivative counterparties in executing its derivative transactions. The use of counterparties creates credit risk that the counterparty may not perform in accordance with the terms of the derivative transaction. The Company has developed exposure policies which limit the Company’s exposure to credit risk.

The derivative counterparty exposure policy establishes market-based credit limits, favors long-term financial stability and creditworthiness of the counterparty and typically requires credit enhancement/credit risk reducing agreements.

The Company minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties rated A2/A or better, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The Company also generally requires that derivative contracts, other than exchange traded contracts, certain forward contracts, and certain embedded and reinsurance derivatives, be governed by an International Swaps and Derivatives Association Master Agreement which is structured by legal entity and by counterparty and permits right of offset.

111

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

The maximum uncollateralized threshold for a derivative counterparty for a single legal entity is $10. The Company currently transacts over-the-counter derivatives in five legal entities and therefore the maximum combined threshold for a single counterparty over all legal entities that use derivatives is $50. In addition, the Company may have exposure to multiple counterparties in a single corporate family due to a common credit support provider. As of June 30, 2010, the maximum combined threshold for all counterparties under a single credit support provider over all legal entities that use derivatives is $100. Based on the contractual terms of the collateral agreements, these thresholds may be immediately reduced due to a downgrade in a counterparty’s credit rating. For further discussion, see the Derivative Commitments section of Note 9 of the Notes to Condensed Consolidated Financial Statements.

For the three and six months ended June 30, 2010, the Company has incurred no losses on derivative instruments due to counterparty default.

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

The Company uses credit derivatives to purchase credit protection and, to a lesser extent, assume credit risk with respect to a single entity, referenced index, or asset pool. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio. The Company has also entered into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would otherwise be permissible investments under the Company’s investment policies. These swaps reference investment grade single corporate issuers and baskets, which include trades ranging from baskets of up to five corporate issuers to standard and customized diversified portfolios of corporate issuers, which are established within sector concentration limits and are typically divided into tranches which possess different credit ratings ranging from AAA through the CCC rated first loss position.

Investments

The following table presents the Company’s fixed maturities by credit quality. The ratings referenced below are based on the ratings of a nationally recognized rating organization or, if not rated, assigned based on the Company’s internal analysis of such securities.

Fixed Maturities by Credit Quality

	June 30, 2010							December 31, 2009
					Percent of							Percent of
	Amortized				Total Fair			Amortized				Total Fair
	Cost		Fair Value		Value			Cost		Fair Value		Value
United States Government/Government agencies	$	8,355	$	8,428		10.9	%	$	7,299	$	7,172		10.1	%
AAA		11,525		11,406		14.8	%		11,974		11,188		15.7	%
AA		15,622		15,357		19.9	%		14,845		13,932		19.6	%
A		19,095		19,150		24.8	%		19,822		18,664		26.2	%
BBB		19,215		19,018		24.7	%		17,886		17,071		24.0	%
BB & below		4,717		3,773		4.9	%		4,189		3,126		4.4	%
Total fixed maturities	$	78,529	$	77,132		100.0	%	$	76,015	$	71,153		100.0	%

The movement within the Company’s investment ratings was primarily attributable to purchases predominantly of investment grade corporate securities and U.S. Treasuries, partially offset by rating agency downgrades across multiple sectors. Downgrades associated with commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”) and residential mortgage-backed securities (“RMBS”) may continue to impact the portfolio pending further collateral deterioration.

112

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

Available-for-Sale Securities by Type

	June 30, 2010												December 31, 2009
										Percent												Percent
	Cost or		Gross		Gross					of Total			Cost or		Gross		Gross					of Total
	Amortized		Unrealized		Unrealized			Fair		Fair			Amortized		Unrealized		Unrealized			Fair		Fair
	Cost		Gains		Losses			Value		Value			Cost		Gains		Losses			Value		Value
Asset-backed securities (“ABS”)
Consumer loans	$	2,543	$	27	$	(227	)	$	2,343		3.0	%	$	2,087	$	15	$	(277	)	$	1,825		2.6	%
Small business		508		—		(192	)		316		0.4	%		548		1		(232	)		317		0.4	%
Other		352		31		(30	)		353		0.5	%		405		20		(44	)		381		0.5	%
CDOs
CLOs		2,462		1		(238	)		2,225		2.9	%		2,727		—		(288	)		2,439		3.5	%
CREs		1,206		38		(670	)		574		0.8	%		1,319		21		(901	)		439		0.6	%
Other		21		4		—			25		—			8		6		—			14		—
CMBS
Agency backed [1]		311		16		—			327		0.4	%		62		3		—			65		0.1	%
Bonds		8,553		125		(1,255	)		7,423		9.6	%		9,600		52		(2,241	)		7,411		10.4	%
Interest only (“IOs”)		922		81		(34	)		969		1.3	%		1,074		59		(65	)		1,068		1.5	%
Corporate
Basic industry		2,950		179		(20	)		3,109		4.1	%		2,642		112		(56	)		2,698		3.8	%
Capital goods		3,173		263		(32	)		3,404		4.4	%		3,085		140		(51	)		3,174		4.5	%
Consumer cyclical		1,907		132		(21	)		2,018		2.6	%		1,946		75		(45	)		1,976		2.8	%
Consumer non-cyclical		5,799		488		(12	)		6,275		8.1	%		4,737		281		(22	)		4,996		7.0	%
Energy		3,161		226		(54	)		3,333		4.3	%		3,070		163		(18	)		3,215		4.5	%
Financial services		8,023		238		(674	)		7,587		9.8	%		8,059		118		(917	)		7,260		10.1	%
Tech./comm.		4,097		289		(80	)		4,306		5.6	%		3,984		205		(75	)		4,114		5.8	%
Transportation		839		58		(5	)		892		1.2	%		698		22		(23	)		697		1.0	%
Utilities		6,589		442		(42	)		6,989		9.1	%		5,755		230		(85	)		5,900		8.3	%
Other		1,019		14		(112	)		921		1.2	%		1,342		22		(151	)		1,213		1.7	%
Foreign govt./govt. agencies		1,671		69		(24	)		1,716		2.2	%		1,376		52		(20	)		1,408		2.0	%
Municipal
Taxable		1,200		17		(116	)		1,101		1.4	%		1,176		4		(205	)		975		1.4	%
Tax-exempt		11,201		327		(113	)		11,415		14.8	%		10,949		314		(173	)		11,090		15.6	%
RMBS
Agency		3,223		139		—			3,362		4.3	%		3,383		99		(6	)		3,476		4.9	%
Non-agency		131		—		(11	)		120		0.2	%		143		—		(16	)		127		0.2	%
Alt-A		188		4		(33	)		159		0.2	%		218		—		(58	)		160		0.2	%
Sub-prime		1,659		14		(542	)		1,131		1.5	%		1,768		5		(689	)		1,084		1.5	%
U.S. Treasuries		4,821		27		(109	)		4,739		6.1	%		3,854		14		(237	)		3,631		5.1	%
Total fixed maturities		78,529		3,249		(4,646	)		77,132		100.0	%		76,015		2,033		(6,895	)		71,153		100.0	%
Equity securities
Financial services		726		7		(190	)		543					836		7		(164	)		679
Other		518		56		(14	)		560					497		73		(28	)		542
Total equity securities		1,244		63		(204	)		1,103					1,333		80		(192	)		1,221
Total AFS securities	$	79,773	$	3,312	$	(4,850	)	$	78,235				$	77,348	$	2,113	$	(7,087	)	$	72,374

[1] Represents securities with pools of loans by the Small Business Administration whose issued loans are backed by the full faith and credit of the U.S. government.

The Company continues to reallocate its AFS investment portfolio to securities with more favorable risk/return profiles, in particular investment grade corporate securities and U.S. Treasuries, while reducing its exposure to real estate related securities. The Company’s AFS net unrealized loss position decreased primarily as a result of improved security valuations due to declining interest rates. The following sections highlight the Company’s significant investment sectors.

113

Financial Services

While financial services companies generally continued to exhibit modest signs of stabilization, with improved earnings performance and positive asset quality trends, financial results remain significantly weaker than historical norms. Market conditions have become increasingly volatile as uncertainty surrounding the pace of a recovery, as well as concerns around the potential impact of European sovereign and bank issues have weighed on the market. Additionally, the industry is facing heightened regulatory oversight and costs as a result of the regulatory reform law. Costs related to financial reform may potentially be a significant headwind to financial services companies’ future earnings.

The Company has exposure to the financial services sector predominantly through banking and insurance firms. The following table presents the Company’s exposure to the financial services sector included in the AFS Securities by Type table above.

	June 30, 2010							December 31, 2009
					Percent of							Percent of
	Amortized				Total Fair			Amortized				Total Fair
	Cost		Fair Value		Value			Cost		Fair Value		Value
AAA	$	325	$	318		3.9	%	$	299	$	290		3.7	%
AA		2,229		2,226		27.4	%		1,913		1,867		23.5	%
A		3,932		3,646		44.8	%		4,510		3,987		50.2	%
BBB		1,831		1,585		19.5	%		1,664		1,379		17.4	%
BB & below		432		355		4.4	%		509		416		5.2	%
Total	$	8,749	$	8,130		100.0	%	$	8,895	$	7,939		100.0	%

Commercial Mortgage Loans

The following tables present the Company’s exposure to CMBS bonds, CRE CDOs and CMBS IOs by current credit quality and vintage year, included in the AFS Securities by Type table above. This sector continues to face pressure from commercial real estate market fundamentals including lower rent rates in certain markets and increased delinquencies. Credit protection represents the current weighted average percentage of the outstanding capital structure subordinated to the Company’s investment holding that is available to absorb losses before the security incurs the first dollar loss of principal and excludes any equity interest or property value in excess of outstanding debt.

CMBS — Bonds [1]

June 30, 2010

	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	1,084	$	1,102		$	285	$	274		$	138	$	121		$	15	$	12		$	27	$	26		$	1,549	$	1,535
2004		550		568			49		40			60		49			33		22			6		5			698		684
2005		786		789			231		186			203		137			210		143			132		94			1,562		1,349
2006		1,790		1,659			433		354			456		329			336		216			417		300			3,432		2,858
2007		366		326			166		143			89		71			326		195			310		206			1,257		941
2008		55		56			—		—			—		—			—		—			—		—			55		56
Total	$	4,631	$	4,500		$	1,164	$	997		$	946	$	707		$	920	$	588		$	892	$	631		$	8,553	$	7,423
Credit protection				26.8	%				23.3	%				12.2	%				12.3	%				9.9	%				21.8	%

December 31, 2009

	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	1,732	$	1,716		$	297	$	230		$	150	$	113		$	20	$	17		$	11	$	7		$	2,210	$	2,083
2004		639		626			82		52			52		34			15		7			—		—			788		719
2005		1,011		930			356		230			228		123			100		64			89		54			1,784		1,401
2006		1,945		1,636			430		275			536		247			323		132			231		83			3,465		2,373
2007		498		408			139		101			169		68			346		160			201		98			1,353		835
Total	$	5,825	$	5,316		$	1,304	$	888		$	1,135	$	585		$	804	$	380		$	532	$	242		$	9,600	$	7,411
Credit protection				26.5	%				21.2	%				13.1	%				11.6	%				8.7	%				22.0	%

[1] The vintage year represents the year the pool of loans was originated.

114

CRE CDOs [1] [2]

June 30, 2010

	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	42	$	35		$	13	$	9		$	82	$	41		$	166	$	69		$	96	$	21		$	399	$	175
2004		1		1			7		4			33		14			101		35			26		11			168		65
2005		—		—			36		12			12		6			79		33			43		21			170		72
2006		—		—			94		50			32		16			92		36			57		37			275		139
2007		—		—			12		6			41		22			29		21			37		31			119		80
2008		—		—			—		—			10		5			11		9			23		12			44		26
2009		—		—			—		—			7		4			7		5			13		5			27		14
2010		—		—			—		—			1		1			2		1			1		1			4		3
Total	$	43	$	36		$	162	$	81		$	218	$	109		$	487	$	209		$	296	$	139		$	1,206	$	574
Credit protection				52.5	%				9.2	%				40.8	%				25.4	%				29.8	%				28.5	%

December 31, 2009

	AAA					AA					A					BBB					BB and Below					Total
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value			Cost		Value
2003 & Prior	$	60	$	41		$	30	$	15		$	69	$	26		$	165	$	44		$	95	$	14		$	419	$	140
2004		19		11			70		22			37		11			27		4			23		4			176		52
2005		17		8			72		12			35		14			49		8			26		6			199		48
2006		23		13			108		33			82		28			69		22			23		12			305		108
2007		62		33			12		3			20		5			26		9			15		10			135		60
2008		22		12			—		—			5		1			15		4			13		3			55		20
2009		15		8			—		—			2		—			4		1			9		2			30		11
Total	$	218	$	126		$	292	$	85		$	250	$	85		$	355	$	92		$	204	$	51		$	1,319	$	439
Credit protection				40.0	%				10.5	%				25.5	%				34.9	%				31.6	%				28.1	%

[1]	The vintage year represents the year that the underlying collateral in the pool was originated. Individual CRE CDO fair value is allocated by the proportion of collateral within each vintage year.
[2]	For certain CRE CDOs, the collateral manager has the ability to reinvest proceeds that become available, primarily from collateral maturities. The increase in recent vintage years represents reinvestment under these CRE CDOs.

CMBS — IOs [1]

June 30, 2010

	AAA				A				BBB				BB and Below				Total
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value		Cost		Value
2003 & Prior	$	262	$	285	$	—	$	—	$	—	$	—	$	—	$	—	$	262	$	285
2004		179		200		—		—		—		—		—		—		179		200
2005		252		265		—		—		1		1		—		—		253		266
2006		127		119		—		—		—		—		—		—		127		119
2007		101		99		—		—		—		—		—		—		101		99
Total	$	921	$	968	$	—	$	—	$	1	$	1	$	—	$	—	$	922	$	969

December 31, 2009

	AAA				A				BBB				BB and Below				Total
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value		Cost		Value
2003 & Prior	$	331	$	352	$	—	$	—	$	—	$	—	$	—	$	—	$	331	$	352
2004		207		217		—		—		—		—		—		—		207		217
2005		284		275		—		—		1		2		—		—		285		277
2006		137		120		3		1		—		—		1		2		141		123
2007		110		99		—		—		—		—		—		—		110		99
Total	$	1,069	$	1,063	$	3	$	1	$	1	$	2	$	1	$	2	$	1,074	$	1,068

[1] The vintage year represents the year the pool of loans was originated.

115

In addition to CMBS, the Company has exposure to commercial mortgage loans as presented in the following table. These loans are collateralized by a variety of commercial properties and are diversified both geographically throughout the United States and by property type. These loans may be either in the form of a whole loan, where the Company is the sole lender, or a loan participation. Loan participations are loans where the Company has purchased or retained a portion of an outstanding loan or package of loans and participates on a pro-rata basis in collecting interest and principal pursuant to the terms of the participation agreement. In general, A-Note participations have senior payment priority, followed by B-Note participations and then mezzanine loan participations. As of June 30, 2010, loans within the Company’s mortgage loan portfolio have had minimal extension or restructurings. The ongoing deterioration in the global real estate market, as evidenced by declining market rents and increases in property vacancy rates and delinquencies, has negatively impacted property values. Should these trends continue, additional valuation allowances may result.

Commercial Mortgage Loans

	June 30, 2010							December 31, 2009
	Amortized		Valuation			Carrying		Amortized		Valuation			Carrying
	Cost [1]		Allowance			Value		Cost [1]		Allowance			Value
Whole loans	$	3,279	$	(40	)	$	3,239	$	3,319	$	(40	)	$	3,279
A-Note participations		356		—			356		391		—			391
B-Note participations		478		(133	)		345		701		(176	)		525
Mezzanine loans		336		(144	)		192		1,081		(142	)		939
Total [2]	$	4,449	$	(317	)	$	4,132	$	5,492	$	(358	)	$	5,134

[1]	Amortized cost represents carrying value prior to valuation allowances, if any.
[2]	Excludes agricultural and residential mortgage loans. For further information on the total mortgage loan portfolio, see Note 5 of the Notes to Condensed Consolidated Financial Statements.

Since December 31, 2009, the Company significantly reduced its exposure to B-Note participations and mezzanine loans primarily through sales and as of June 30, 2010, the Company has identified an additional $114 of carrying value as held-for-sale, with valuation allowances of $32. These loans are included in the table above.

At origination, the weighted average loan-to-value (“LTV”) ratio of the Company’s commercial mortgage loan portfolio was approximately 64%. As of June 30, 2010, the current weighted average LTV ratio was approximately 83%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan values are updated periodically through property level reviews of the portfolio. Factors considered in the property valuation include, but are not limited to, actual and expected property cash flows, geographic market data and capitalization rates.

Municipal Bonds

The Company holds investments in securities backed by states, municipalities and political subdivisions (“municipal”) with an amortized cost and fair value of $12.4 billion and $12.5 billion, respectively, as of June 30, 2010 and $12.1 billion and $12.1 billion, respectively, as of December 31, 2009. The Company’s municipal bond portfolio is diversified across the United States and primarily consists of revenue bonds, primarily issued for essential services, and general obligation bonds. As of June 30, 2010, the largest concentrations were in California, Georgia and Massachusetts, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation securities. As of December 31, 2009, the largest concentrations were in California, Georgia and Illinois, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation securities. Certain of the Company’s municipal bonds contained third-party insurance for the payment of principal and interest in the event of an issuer default.

Limited Partnerships and Other Alternative Investments

The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, mortgage and real estate funds, mezzanine debt funds, and private equity and other funds. Hedge funds include investments in funds of funds and direct funds. Mortgage and real estate funds consist of investments in funds whose assets consist of mortgage loans, mortgage loan participations, mezzanine loans or other notes which may be below investment grade, as well as equity real estate and real estate joint ventures. Mezzanine debt funds include investments in funds whose assets consist of subordinated debt that often incorporates equity-based options such as warrants and a limited amount of direct equity investments. Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small non-public businesses with high growth potential.

	June 30, 2010					December 31, 2009
	Carrying					Carrying
	Value		Percent			Value		Percent
Hedge funds	$	472		26.6	%	$	596		33.3	%
Mortgage and real estate funds		304		17.1	%		302		16.9	%
Mezzanine debt funds		142		8.0	%		133		7.4	%
Private equity and other funds		856		48.3	%		759		42.4	%
Total	$	1,774		100.0	%	$	1,790		100.0	%

The decline in hedge funds since December 31, 2009 was primarily attributable to redemptions, while private equity and other funds increased primarily due to the funding of prior commitments, as well as market value appreciation.

116

Security Unrealized Loss Aging

As part of the Company’s ongoing security monitoring process, the Company has reviewed its AFS securities in an unrealized loss position and concluded that there were no additional impairments as of June 30, 2010 and that these securities have sufficient expected future cash flows to recover the entire amortized cost basis, are temporarily depressed and are expected to recover in value as the securities approach maturity or as real estate related market spreads return to more normalized levels.

Most of the securities depressed over 20% for greater than nine months or more are real estate backed and financial services sector securities and have a weighted average current rating of BBB+. Current market spreads continue to be significantly wider for real estate backed securities, as compared to spreads at the security’s respective purchase date, largely due to the continued effects of the recession and the economic and market uncertainties regarding future performance of commercial and residential real estate. The Company reviewed these securities as part of its impairment analysis. The Company’s best estimate of future cash flows utilized in its impairment analysis involves both macroeconomic and security specific assumptions that may differ based on asset class, vintage year and property location including, but not limited to, historical and projected default and recovery rates, current and expected future delinquency rates, property value declines and the impact of obligor re-financing. For these securities in an unrealized loss position where a credit impairment has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security.

The same market conditions noted above also apply to AFS securities depressed over 50% for greater than twelve months, which consist primarily of CMBS bonds and CRE CDOs. Based upon the Company’s cash flow modeling and current market and collateral performance assumptions, these CMBS bonds and CRE CDOs have sufficient credit protection levels to receive contractually obligated principal and interest payments, and accordingly the Company has concluded that no credit impairment exists on these securities. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities.

For the CMBS bonds and CRE CDOs which primarily comprise the AFS securities depressed over 50% for greater than twelve months, current market pricing reflects market illiquidity and risk premiums, and for a majority of the securities, a floating coupon rate. The illiquidity and risk premiums are the result of the underlying collateral performance to-date and the potential uncertainty in the securities’ future cash flows. Because of the uncertainty surrounding the future performance of commercial real estate, market participants are requiring substantially greater returns, in comparison to the securities’ stated coupon rate, to assume the associated securities’ credit risk. If the securities’ collateral underperforms the macroeconomic and collateral assumptions in the future, the loss severity may be significant mainly due to the securities’ structure. In addition, coupon amounts associated with floating rate coupon securities are typically based upon a market based rate such as LIBOR. When the floating rate on which the coupon is based declines, the valuation of the respective security may also decline. LIBOR rates have declined subsequent to the date the CMBS bonds and CRE CDOs were purchased. For further information regarding the Company’s security valuation process, see Note 4 of the Notes to Condensed Consolidated Financial Statements. For further information regarding the future collateral cash flows assumptions included in the Company’s impairment analysis, see Other-Than-Temporary Impairments in the Investment Credit Risk section of this MD&A. For further discussion on the Company’s ongoing security monitoring process and the factors considered in determining whether a credit impairment exists, see the Recognition and Presentation of Other-Than-Temporary Impairments section in Note 5 of the Notes to Condensed Consolidated Financial Statements.

117

The following table presents the Company’s unrealized loss aging for AFS securities by length of time the security was in a continuous unrealized loss position.

	June 30, 2010									December 31, 2009
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
	Items		Cost		Value		Loss			Items		Cost		Value		Loss
Three months or less		1,019	$	4,975	$	4,854	$	(121	)		1,237	$	11,197	$	10,838	$	(359	)
Greater than three to six months		174		931		886		(45	)		105		317		289		(28	)
Greater than six to nine months		207		1,790		1,652		(138	)		311		2,940		2,429		(511	)
Greater than nine to twelve months		29		152		137		(15	)		134		2,054		1,674		(380	)
Greater than twelve months		1,726		21,373		16,842		(4,531	)		2,020		22,445		16,636		(5,809	)
Total		3,155	$	29,221	$	24,371	$	(4,850	)		3,807	$	38,953	$	31,866	$	(7,087	)

The following tables present the Company’s unrealized loss aging for AFS securities continuously depressed over 20% by length of time (included in the table above).

	June 30, 2010									December 31, 2009
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
Consecutive Months	Items		Cost		Value		Loss			Items		Cost		Value		Loss
Three months or less		190	$	1,825	$	1,380	$	(445	)		161	$	951	$	672	$	(279	)
Greater than three to six months		33		157		117		(40	)		51		55		38		(17	)
Greater than six to nine months		48		253		168		(85	)		159		2,046		1,397		(649	)
Greater than nine to twelve months		16		26		17		(9	)		86		1,398		913		(485	)
Greater than twelve months		586		6,548		3,800		(2,748	)		715		8,146		4,228		(3,918	)
Total		873	$	8,809	$	5,482	$	(3,327	)		1,172	$	12,596	$	7,248	$	(5,348	)

The following tables present the Company’s unrealized loss aging for AFS securities continuously depressed over 50% by length of time (included in the tables above).

	June 30, 2010									December 31, 2009
			Cost or									Cost or
			Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
Consecutive Months	Items		Cost		Value		Loss			Items		Cost		Value		Loss
Three months or less		39	$	196	$	93	$	(103	)		62	$	169	$	61	$	(108	)
Greater than three to six months		12		7		3		(4	)		28		5		2		(3	)
Greater than six to nine months		18		31		10		(21	)		54		190		74		(116	)
Greater than nine to twelve months		9		2		1		(1	)		58		592		210		(382	)
Greater than twelve months		175		1,620		515		(1,105	)		220		2,553		735		(1,818	)
Total		253	$	1,856	$	622	$	(1,234	)		422	$	3,509	$	1,082	$	(2,427	)

Other-Than-Temporary Impairments

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
ABS	$	5	$	6	$	5	$	9
CDOs
CREs		29		83		93		105
Other		—		1		—		2
CMBS
Bonds		39		69		111		70
IOs		1		22		1		25
Corporate		6		13		6		120
Equity		4		45		5		93
Municipal		—		16		—		17
RMBS
Non-agency		1		1		1		1
Alt-A		7		1		9		1
Sub-prime		16		55		29		93
U.S. Treasuries		—		2		—		2
Total	$	108	$	314	$	260	$	538

118

Three and six months ended June 30, 2010

For the three and six months ended June 30, 2010, impairments recognized in earnings were comprised of credit impairments of $104 and $255, respectively, and impairments on equity securities of $4 and $5, respectively.

Credit impairments were primarily concentrated in structured securities associated with commercial and residential real estate which were impaired primarily due to continued property-specific deterioration of the underlying collateral and increased delinquencies. The Company calculated these impairments utilizing both a top down modeling approach and, for certain commercial real estate backed securities, a loan by loan collateral review. The top down modeling approach used discounted cash flow models that considered losses under current and expected future economic conditions. Assumptions used over the current recessionary period included macroeconomic factors, such as a high unemployment rate, as well as sector specific factors such as property value declines, commercial real estate delinquency levels and changes in net operating income. Those assumptions included CMBS peak-to-trough property value declines, on average, of 40% and RMBS peak-to-trough property value declines, on average, of 35%. The macroeconomic assumptions considered by the Company did not materially change from the previous several quarters and, as such, the credit impairments recognized for the three and six months ended June 30, 2010 were largely driven by actual or expected collateral deterioration, largely as a result of the Company’s loan-by-loan collateral review.

The loan-by-loan collateral review is performed to estimate potential future losses. This review incorporates assumptions about expected future collateral cash flows, including projected rental rates and occupancy levels that varied based on property type and sub-market. The results of the loan by loan collateral review allowed the Company to estimate the expected timing of a security’s first loss, if any, and the probability and severity of potential ultimate losses. The Company then discounted these anticipated future cash flows at the security’s book yield prior to impairment. The results of cash flow modeling utilized by the Company result in cumulative collateral loss rates that vary by vintage year. For the 2007 vintage year, the Company’s cash flow modeling resulted in cumulative collateral loss rates for CMBS and sub-prime RMBS of approximately 13% and 42%, respectively.

In addition to the credit impairments recognized in earnings, the Company recognized non-credit impairments in other comprehensive income of $184 and $372, respectively, for the three and six months ended June 30, 2010, predominantly concentrated in RMBS and CRE CDOs. These non-credit impairments represent the difference between fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment, rather than at current market implied credit spreads. These non-credit impairments primarily represent increases in market liquidity premiums and credit spread widening that occurred after the securities were purchased. In general, larger liquidity premiums and wider credit spreads are the result of deterioration of the underlying collateral performance of the securities, as well as the risk premium required to reflect future uncertainty in the real estate market.

Future impairments may develop as the result of changes in intent to sell of specific securities or if actual results underperform current modeling assumptions, which may be the result of, but are not limited to, macroeconomic factors, changes in assumptions used and property performance below current expectations.

Three and six months ended June 30, 2009

For the three and six months ended June 30, 2009, the Company recognized $314 and $538, respectively, of impairments recognized in earnings. Of these losses, $261 and $345, respectively, represented credit impairments primarily concentrated in CRE CDOs, CMBS bonds and sub-prime RMBS. Also included were impairments on equity securities of $45 and $93, respectively, largely related to affiliated mutual funds, as well as debt securities for which the Company intended to sell of $8 and $100, respectively, mainly comprised of corporate financial services securities.

Valuation Allowances on Mortgage Loans

The following table presents additions to valuation allowances on mortgage loans.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Credit-related concerns	$	34	$	78	$	68	$	153
Held for sale
B-note participations		—		—		22		—
Mezzanine loans		1		—		52		—
Agricultural loans		5		—		10		—
Total	$	40	$	78	$	152	$	153

119

CAPITAL MARKETS RISK MANAGEMENT

The Company has a disciplined approach to managing risks associated with its capital markets and asset/liability management activities. Investment portfolio management is organized to focus investment management expertise on the specific classes of investments, while asset/liability management is the responsibility of a dedicated risk management unit supporting Life and Property & Casualty operations. Derivative instruments are utilized in compliance with established Company policy and regulatory requirements and are monitored internally and reviewed by senior management.

The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a part of its overall risk management strategy, as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would otherwise be permissible investments under the Company’s investment policies. For further information, see Note 5 of the Notes to Condensed Consolidated Financial Statements.

Derivative activities are monitored and evaluated by the Company’s risk management team and reviewed by senior management. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The notional amounts of derivative contracts represent the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. For further information on the Company’s use of derivatives, see Note 5 of the Notes to Condensed Consolidated Financial Statements.

Market Risk

The Company is exposed to market risk, primarily relating to the market price and/or cash flow variability associated with changes in interest rates, credit spreads including issuer defaults, equity prices or market indices and the related volatility, and foreign currency exchange rates. The Company is also exposed to credit and counterparty repayment risk. For further discussion of market risk, see the Capital Markets Risk Management section of the MD&A in The Hartford’s 2009 Form 10-K Annual Report.

Interest Rate Risk

The Company’s exposure to interest rate risk relates to the market price and/or cash flow variability associated with changes in market interest rates. The Company manages its exposure to interest rate risk by constructing investment portfolios that maintain asset allocation limits and asset/liability duration matching targets which include the use of derivatives. For further discussion of interest rate risk, see the Interest Rate Risk discussion within the Capital Markets Risk Management section of the MD&A in The Hartford’s 2009 Form 10-K Annual Report.

The Company is also exposed to interest rate risk based upon the discount rate assumption associated with the Company’s pension and other postretirement benefit obligations. The discount rate assumption is based upon an interest rate yield curve comprised of bonds rated Aa with maturities primarily between zero and thirty years. For further discussion of interest rate risk associated with the benefit obligations, see the Critical Accounting Estimates section of the MD&A under Pension and Other Postretirement Benefit Obligations and Note 17 of the Notes to Consolidated Financial Statements in The Hartford’s 2009 Form 10-K Annual Report.

In addition, management evaluates performance of certain Life products based on net investment spread which is, in part, influenced by changes in interest rates. For further discussion, see the Global Annuity — U.S., Individual Life, Retirement, and Institutional sections of the MD&A.

As interest rates decline, certain mortgage-backed securities are more susceptible to paydowns and prepayments. During such periods, the Company generally will not be able to reinvest the proceeds at comparable yields. Lower interest rates will also likely result in lower net investment income, increased hedging costs associated with variable annuities and, if declines are sustained for a long period of time, it may subject the Company to reinvestment risks, higher pension costs expense, higher ultimate claim costs on our living benefit guarantee programs, particularly in Japan, and possibly reduced profit margins associated with guaranteed crediting rates on certain Life products. Conversely, the fair value of the investment portfolio will increase when interest rates decline and the Company’s interest expense will be lower on its variable rate debt obligations.

Credit Risk

The Company is exposed to credit risk within our investment portfolio and through counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. The Company manages credit risk through established investment credit policies which address quality of obligors and counterparties, credit concentration limits, diversification requirements and acceptable risk levels under expected and stressed scenarios. For further discussion of credit risk, see the Credit Risk section of the MD&A in The Hartford’s 2009 Form 10-K Annual Report.

For further information on credit risk associated with derivatives, see the Investment Credit Risk section of the MD&A.

The Company is also exposed to credit spread risk related to security market price and cash flows associated with changes in credit spreads. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities and increase the fair value of the investment portfolio resulting in lower impairment losses. Credit spread widening will reduce the fair value of the investment portfolio and increase net investment income for new purchases. For a discussion of the movement of credit spread impacts on the Company’s statutory financial results as it relates to the accounting and reporting for market value fixed annuities, see the Capital Resources & Liquidity section of the MD&A.

120

Foreign Currency Exchange Risk

The Company’s foreign currency exchange risk is related to non-U.S. dollar denominated investments, which primarily consist of fixed maturity investments, the investment in and net income of the Japanese Life and U.K. Life operations, and non-U.S. dollar denominated liability contracts, including its GMDB, GMAB, GMWB and GMIB benefits associated with its Japanese and U.K. variable annuities, and a yen denominated individual fixed annuity product. A portion of the Company’s foreign currency exposure is mitigated through the use of derivatives.

For further information on foreign currency exchange risk, see Foreign Currency Exchange Risk within the Capital Markets Risk Management section of the MD&A included in The Hartford’s 2009 Annual Report on Form 10-K, as well as Life’s Equity Product Risk discussion below.

Life’s Equity Product Risk

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

Generally, declines in equity markets will:

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

• reduce the value of equity securities, trading, supporting the international variable annuities, the related policyholder funds and benefits payable, and the amount of fee income generated from those variable annuities;

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

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

• increases the costs of the hedging instruments we use in our hedging program;

• increase the Company’s net amount at risk for GMDB and GMIB benefits;

• decrease the Company’s actual gross profits, resulting in increased DAC amortization;

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

• adversely affect customer sentiment toward equity-linked products, causing a decline in sales; and

• decrease the Company’s estimated future gross profits. See Life Estimated Gross Profits Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity and Other Universal Life-Type Contracts within the Critical Accounting Estimates section of the MD&A for further information.

Generally, increases in equity markets will reduce the value of derivative assets used to provide a macro hedge on statutory surplus, resulting in realized capital losses during periods of market appreciation.

GMWB

The majority of the Company’s U.S. and U.K. variable annuities, and a small portion of Japan’s variable annuities, include a GMWB rider. In the second quarter of 2009, the Company suspended all new sales in the U.K. and Japan. The Company’s new variable annuity product, launched in the U.S. in October 2009 does not offer a GMWB. Declines in equity markets will generally increase the Company’s liability for the in-force GMWB riders. A GMWB contract is “in the money” if the contract holder’s guaranteed remaining benefit (“GRB”) is greater than their current account value. As of June 30, 2010 and December 31, 2009, 60% and 48%, respectively, of all unreinsured U.S. GMWB contracts were “in the money”. For U.S., U.K., and Japan GMWB contracts that were “in the money”, the Company’s exposure to the GRB, after reinsurance, as of June 30, 2010 and December 31, 2009, was $3.5 billion and $2.7 billion, respectively. However, the Company expects to incur these payments in the future only if the policyholder has an “in the money” GMWB at their death or their account value is reduced to a specified level, through contractually permitted withdrawals and/or market declines. If the account value is reduced to the specified level, the contract holder will receive an annuity equal to the remaining GRB. For the Company’s “life-time” GMWB products, this annuity can continue beyond the GRB. As the account value fluctuates with equity market returns on a daily basis and the “life-time” GMWB payments can exceed the GRB, the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than $3.5 billion. For additional information on the Company’s GMWB liability, see Note 4a of Notes to Condensed Consolidated Financial Statements.

121

GMDB and GMIB

The majority of the Company’s U.S. variable annuity contracts include a GMDB rider. Declines in the equity markets will increase the Company’s liability for GMDB riders. The Company’s total gross exposure (i.e., before reinsurance) to U.S. GMDB as of June 30, 2010 and December 31, 2009 is $20.9 billion and $18.4 billion, respectively. However, the Company will incur these payments in the future only if the policyholder has an “in the money” GMDB at their death. As of June 30, 2010 and December 31, 2009, 77% and 72%, respectively, of all unreinsured U.S. GMDB contracts were “in the money”. The Company reinsured 52% and 53% of these death benefit guarantees as of June 30, 2010 and December 31, 2009, respectively. Under certain of these reinsurance agreements, the reinsurers’ exposure is subject to an annual cap. The Company’s net exposure (i.e., after reinsurance), is $10.0 billion and $8.5 billion, as of June 30, 2010 and December 31, 2009, respectively.

In the second quarter of 2009, the Company suspended all new product sales in Japan. Prior to that, the Company offered variable annuity products in Japan with both a GMDB and a GMIB. For the in-force block of Japan business, declines in equity markets, as well as a strengthening of the Japanese yen in comparison to the U.S. dollar, the Euro and other currencies will increase the Company’s liability for GMDB and GMIB riders. This increase may be significant in extreme market scenarios. The Company’s total gross exposure (i.e., before reinsurance) to the GMDB and GMIB offered in Japan is $8.9 billion and $6.3 billion as of June 30, 2010 and December 31, 2009, respectively. In general, the GMDB riders entitle the policyholder to receive the original investment value at the date of death. For GMIB contracts, the policyholder has the right to elect to annuitize benefits, beginning (for certain products) on the tenth anniversary of contract commencement. As a result, a small percentage of the contracts will first become eligible to elect annuitization beginning in 2013. The remainder of the contracts will first become eligible to elect annuitization from 2014 to 2022. Because policyholders have various contractual rights to defer their annuitization election, the period over which annuitization election can take place is subject to policyholder behavior and therefore indeterminate. For the large majority of GMIB contracts, the policyholder is entitled to receive the original investment value over a 10- to 15-year annuitization period, even if the policyholder’s account value is lower than the original investment value at the date of annuitization. In addition, upon annuitization the contractholder surrenders access to the account value. For a small percentage of GMIB contracts, the policyholder can withdraw the account value after annuitization and the Company continues to be obligated to pay the policyholder the difference between the original investment value and the account value at annuitization over the annuitization period. If the original investment value exceeds the account value upon annuitization or death then the contract is “in the money”. As of June 30, 2010 and December 31, 2009, 99% and 98%, respectively, of all unreinsured Japan GMDB and GMIB contracts were “in the money”. The Company reinsured 14% and 17% of the GMDB to a third party reinsurer as of June 30, 2010 and December 31, 2009, respectively. Under certain of these reinsurance agreements, the reinsurers’ exposure is subject to an annual cap. The Company’s net exposure (i.e., after reinsurance) is $7.6 billion and $5.2 billion as of June 30, 2010 and December 31, 2009, respectively. In addition, as of June 30, 2010, 59% of account value and 55% of retained net amount at risk is reinsured to a Hartford affiliate. For additional information on the Company’s GMDB and GMIB liability, see Note 7 of the Notes to Condensed Consolidated Financial Statements.

Life’s Equity Product Risk Management

Market Risk Exposures

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

Variable Annuity Guarantee [1]	U.S. GAAP Treatment [1]	Primary Market Risk Exposures [1]
U.S. GMDB	Accumulation of fees received less accumulation of claims paid	Equity Market Levels
Japan GMDB	Accumulation of fees received less accumulation of claims paid	Equity Market Levels / Interest Rates / Foreign Currency
GMWB	Fair Value	Equity Market Levels / Implied Volatility / Interest Rates
For Life Component of GMWB	Accumulation of fees received less accumulation of claims paid	Equity Market Levels
Japan GMIB	Accumulation of fees received less accumulation of claims paid	Equity Market Levels / Interest Rate / Foreign Currency
GMAB	Fair Value	Equity Market Levels / Implied Volatility / Interest Rates

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

Risk Management

The Company carefully analyzes market risk exposures arising from: GMDB, GMWB, GMIB, GMAB; equity market, interest rate risks, implied volatility, foreign currency exchange risk and correlation between these market risk exposures. The Company evaluates these risks both individually and, in the aggregate, to determine the financial risk of its products and to judge their potential impacts on U.S. GAAP earnings and statutory surplus. The Company manages the equity market, interest rate, implied volatility and foreign currency exchange risks embedded in its products through reinsurance, customized derivatives, and dynamic hedging and macro hedging programs. In addition, the Company recently launched a new variable annuity product with reduced equity risk and has increased GMWB rider fees on new sales of the Company’s legacy variable annuities and the related in-force policies, as contractually permitted. Depending upon competitors’ reactions with respect to products and related rider charges, the Company’s strategy of reducing product risk and increasing fees has and may continue to result in a decline in market share.

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The following table depicts the type of risk management strategy being used by the Company to either partially or fully mitigate market risk exposures, displayed above, by variable annuity guarantee as of June 30, 2010:

Variable Annuity Guarantee	Reinsurance		Customized Derivative		Dynamic Hedging [1]		Macro Hedging [2]
GMDB		ü						ü
GMWB		ü		ü		ü		ü
For Life Component of GMWB								ü
GMIB								ü
GMAB								ü

[1]

Through the second quarter of 2010, the Company continued to maintain a reduced level of dynamic hedge protection on U.S. GAAP earnings while placing a greater relative emphasis on the protection of statutory surplus through the inclusion of a macro hedging program. This portion of the GMWB hedge strategy may include derivatives with maturities of up to 10 years. U.S. GAAP fair value volatility will be driven by a reduced level of dynamic hedge protection and macro program positions.

[2]

As described below, the Company’s macro hedging program is not designed to provide protection against any one variable annuity guarantee program, but rather is a broad based hedge designed to provide protection against multiple guarantees and market risks, primarily focused on statutory liability and surplus volatility.

Reinsurance

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

Derivative Hedging Strategies

The Company maintains derivative hedging strategies for its product guarantee risk to meet multiple, and in some cases, competing risk management objectives, including providing protection against tail scenario market events, providing resources to pay product guarantee claims, and minimizing U.S. GAAP earnings volatility, statutory surplus volatility and other economic metrics.

Customized Derivatives

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

Dynamic Hedging

The Company’s dynamic hedging program uses derivative instruments to provide protection against the U.S. GAAP earnings volatility associated with variable annuity product guarantees including equity market declines, equity implied volatility, and declines in interest rates (See Market Risk on Statutory Capital below). The Company uses hedging instruments including: interest rate futures and swaps, variance swaps, S&P 500, NASDAQ and EAFE index put options and futures contracts. During the first quarter and early in the second quarter of 2010, the Company added additional volatility protection. While the Company actively manages this dynamic hedging program, increased U.S. GAAP earnings volatility may result from factors including, but not limited to: policyholder behavior, capital markets, divergence between the performance of the underlying funds and the hedging indices, changes in hedging positions and the relative emphasis placed on various risk management objectives.

Macro Hedging

The Company’s macro hedging program uses derivative instruments like options, futures, and forwards that may exist on equities, interest rates, and currencies to provide protection against the statutory tail scenario risk arising from U.S., U.K. and Japan GMWB, GMDB, GMIB and GMAB liabilities, on the Company’s statutory surplus and the associated target RBC ratios (see Capital Resources and Liquidity). During the second quarter, the Company extended its equity macro hedge coverage through 2011, while maintaining the 2010 coverage, as well as added additional currency protection. The macro hedge program will result in additional U.S. GAAP earnings volatility in times of market increases as changes in the value of the macro hedge derivatives, which is designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in U.S. GAAP liabilities.

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Based on the construction of the Company’s derivative hedging program (both dynamic and macro hedge), which can change based on capital market conditions, notional amounts and other factors, an independent change in the following capital market factors is likely to have the following impacts. These sensitivities do not capture the impact of elapsed time on liabilities or hedge assets. Additionally, since duration varies by hedging strategy, due to the impact of non parallel shifts in capital market factors and since the Company continues to maintain a reduced level of dynamic hedging protection U.S. GAAP volatility will increase. Each of the sensitivities set forth below is estimated individually under the indicated level of market movement and from the market levels at March 31, and June 30, 2010, and without consideration of any correlation among the key assumptions. Therefore, it would be inappropriate to take each of the sensitivities below and assume different levels of market movement, or add them together in an attempt to estimate the volatility in our variable annuity hedging program. In addition, there are other factors, including policyholder behavior and variation in underlying fund performance relative to the hedged index, which could materially impact the GMWB liability. As a result, actual net changes in the value of the GMWB liability, the related dynamic hedging program derivative assets and the macro hedge program derivative assets may vary materially from those calculated using only the sensitivities disclosed below:

	��
		Net Impact on Net GMWB Liability
		and Hedging Program
		Pre-Tax/DAC Gain (Loss)
		Expected for second quarter		Expected for third quarter
Capital Market Factor		based on March 31, 2010		based on June 30, 2010
Equity markets increase / decrease 1% [1] [2]		$	(10) / 10	$	(17) / 17
Volatility increases / decreases 1% [3] [4]			(10) / 10		(22) / 22
Interest rates increase / decrease 1 basis point [4] [5]			2 / (2)		3 / (3)
Yen strengthens / weakens 1% vs. all other currencies [6]			7 / (7)		17 / (17)

[1]	Represents the aggregate net impact of a 1% increase or decrease in broadly traded global equity indices.
[2]	Due to the structure of the macro hedging program, its sensitivity to equity markets increased as markets fell during the second quarter of 2010.
[3]	Represents the aggregate net impact of a 1% increase or decrease in blended implied volatility that is generally skewed towards longer durations for broadly traded global equity indices.
[4]	The Company has been and continues to be under hedged with respect to volatility in its dynamic hedging program. As a result, as volatility increased during the second quarter of 2010 the Company’s sensitivity to volatility also increased.
[5]	Represents the aggregate net impact of a 1 basis point parallel shift on the global LIBOR yield curve.
[6]	Represents the aggregate net impact of a 1% strengthening or weakening in the yen compared to all other currencies. The increase in currency sensitivity was primarily due to a strengthened Yen and additional purchases of currency protection during the quarter.

During the quarter ended June 30, 2010, the Company incurred a net realized pre-tax loss of $29 on GMWB liabilities, net of reinsurance and the dynamic and macro hedging programs, driven primarily by decreases in interest rates of approximately 82 basis points and increases in volatility of approximately 7%, partially offset by decreases in U.S. equity markets of approximately 12%, a strengthened Yen of approximately 5% and 14% against USD and Euro, respectively, favorable in-force composition and a deterioration in The Hartford’s own credit, as measured by market debt and credit default swap movements. The table below provides a pre-tax net realized loss calculated using the Company’s sensitivities expected for the second quarter disclosed above, as compared to the actual net changes:

	Earnings Impact
	Three Months Ended
U.S. GMWB Net Liability and Dynamic and Global Macro Programs	June 30, 2010
Equity markets decreased approximately 12%	$	120
Volatility increased approximately 7%		(70	)
Interest rates decreased approximately 82 basis points		(164	)
Yen strengthened approximately 5% and 14% against USD and Euro		60
Total implied pre-tax net realized loss [1]	$	(54	)
Actual reported pre-tax net realized loss [1]	$	(29	)

[1] The difference between actual reported result and the implied pre-tax net realized gain/(loss) represents the aggregate net impact of the following factors: (i) non-parallel shifts in capital market factors, (ii) shifts that are not equal in size to those assumed in the calculation of the sensitivities, and (iii) other factors, including policyholder behavior, variation in underlying fund performance relative to the hedged indices, changes in the Hartford’s own credit and changes in Non-U.S. GMWB fair value liabilities. This difference may vary materially from quarter-to-quarter.

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Market Risk on Statutory Capital

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

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

• Similarly, for guaranteed benefits (GMDB and GMIB) reinsured from our Japanese operations to our U.S. insurance subsidiaries, the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin can be materially affected by a variety of factors, both market and non-market. Market factors include declines in various equity market indices and interest rates, changes in value of the Yen versus other global currencies, difference in the performance of variable subaccounts relative to indices, and increases in implied and/or realized equity, interest rate, and currency volatilities. Non-market factors include actual and estimated policyholder behavior experience as it pertains to lapsation, withdrawals, mortality, and annuitization. Risk mitigation activities, such as hedging, may also result in material and sometimes counterintuitive impacts on statutory surplus and capital margin. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can increase or decrease at a greater than linear rate.

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

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

• The Life company’s exposure to foreign currency exchange risk exists with respect to non-U.S. dollar denominated assets and liabilities. Assets and liabilities denominated in foreign currencies are accounted for at their U.S. dollar equivalent values using exchange rates at the balance sheet date. As foreign currency exchange rates vary in comparison to the U.S. dollar, the remeasured value of those non-dollar denominated assets or liabilities will also vary, causing an increase or decrease to statutory surplus.

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

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

Derivative Instruments

The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards, futures and options through one of four Company-approved objectives: to hedge risk arising from interest rate, equity market, credit spread including issuer default, price or currency exchange rate risk or volatility; to manage liquidity; to control transaction costs; or to enter into replication transactions.

Further downgrades to the credit ratings of The Hartford’s insurance operating companies may have adverse implications for its use of derivatives including those used to hedge benefit guarantees of variable annuities. In some cases, further downgrades may give derivative counterparties the unilateral contractual right to cancel and settle outstanding derivative trades or require additional collateral to be posted. In addition, further downgrades may result in counterparties becoming unwilling to engage in additional over-the-counter (“OTC”) derivatives or may require collateralization before entering into any new trades. This will restrict the supply of derivative instruments commonly used to hedge variable annuity guarantees, particularly long-dated equity derivatives and interest rate swaps. Under these circumstances, The Hartford’s operating subsidiaries could conduct hedging activity using available OTC derivatives, as well as a combination of cash and exchange-traded instruments.

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CAPITAL RESOURCES AND LIQUIDITY

Capital resources and liquidity represent the overall financial strength of The Hartford and the Life and Property & Casualty insurance operations and their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months.

Liquidity Requirements and Sources of Capital

The Hartford Financial Services Group, Inc. (Holding Company)

The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. (“HFSG Holding Company”) have been and will continue to be met by HFSG Holding Company’s fixed maturities, short-term investments and cash of $2.1 billion at June 30, 2010, dividends from the Life and Property & Casualty insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities. Expected liquidity requirements of the HFSG Holding Company for the next twelve months include interest on debt of approximately $500, common stockholder dividends, subject to the discretion of the Board of Directors, of approximately $90, and preferred stock dividends of approximately $42.

Debt

On June 15, 2010, The Hartford repaid its $275, 7.9% senior notes at maturity with funds from its capital raise in the first quarter of 2010.

On March 23, 2010, The Hartford issued $1.1 billion aggregate principal amount of its senior notes. The issuance consisted of $300 of 4.0% senior notes due March 30, 2015, $500 of 5.5% senior notes due March 30, 2020 and $300 of 6.625% senior notes due March 30, 2040. The senior notes bear interest at their respective rate, payable semi-annually in arrears on March 30 and September 30 of each year, beginning September 30, 2010. The issuance was made pursuant to the Company’s shelf registration statement (Registration No. 333-142044). The Hartford used approximately $425 of the net proceeds from the debt issuances to repurchase the Series E Preferred Stock issued to the U.S. Treasury as a part of its participation in the Capital Purchase Program, $275 to repay senior notes at maturity in 2010, and intends to use the remaining proceeds to repay senior notes at maturity in 2011. For further discussion on the repurchase see the discussion below.

For additional information regarding debt, see Notes 12 and 14 of the Notes to Consolidated Financial Statements in The Hartford’s 2009 Form 10-K Annual Report.

Common Stock Issuance

On March 23, 2010, The Hartford issued approximately 59.6 million shares of common stock at a price to the public of $27.75 per share and received net proceeds of $1.6 billion. The Hartford used the net proceeds from the common stock issuance to repurchase the Series E Preferred Stock issued to the U.S. Treasury as a part of its participation in the Capital Purchase Program. For further discussion on the repurchase see the discussion below.

Preferred Stock

On March 23, 2010, The Hartford issued 23 million depositary shares, each representing 1/40^th interest in the Series F Preferred Stock, at a price of $25 per depositary share and received net proceeds of $556 under the program. The Hartford used the net proceeds from the preferred stock issuance to repurchase the Series E Preferred Stock issued to the U.S. Treasury as a part of its participation in the Capital Purchase Program. For further discussion on the repurchase see the discussion below.

Dividends

On May 20, 2010, The Hartford’s Board of Directors declared a quarterly dividend of $0.05 per common share payable on July 1, 2010 to common shareholders of record as of June 1, 2010 and a dividend of $19.7361 on each share of Series F preferred stock payable on July 1, 2010 to shareholders of record as of June 15, 2010.

On July 22, 2010, The Hartford’s Board of Directors declared a quarterly dividend of $0.05 per common share payable on October 1, 2010 to common shareholders of record as of September 1, 2010 and a dividend of $18.125 on each share of Series F preferred stock payable on October 1, 2010 to shareholders of record as of September 15, 2010.

Pension Plans and Other Postretirement Benefits

While the Company has significant discretion in making voluntary contributions to its U. S. qualified defined benefit pension plan (the “Plan”), the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree, and Employer Recovery Act of 2008, and Internal Revenue Code regulations mandate minimum contributions in certain circumstances. The Company does not have a required minimum funding contribution for the U.S. qualified defined benefit pension plan for 2010 and the funding requirements for all of the pension plans are expected to be immaterial. The Company contributed approximately $120 to its pension plans and other postretirement plans in July 2010, and presently anticipates contributing approximately $80 during the remainder of 2010, based upon certain economic and business assumptions. These assumptions include, but are not limited to, equity market performance, changes in interest rates and the Company’s other capital requirements.

126

Dividends from Insurance Subsidiaries

Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment of dividends. Dividends paid to HFSG Holding Company by its insurance subsidiaries are further dependent on cash requirements of HLI and other factors. The Company’s property-casualty insurance subsidiaries are permitted to pay up to a maximum of approximately $1.4 billion in dividends to HFSG Holding Company in 2010 without prior approval from the applicable insurance commissioner. Statutory dividends from the Company’s life insurance subsidiaries in 2010 require prior approval from the applicable insurance commissioner. The aggregate of these amounts, net of amounts required by HLI, is the maximum the insurance subsidiaries could pay to HFSG Holding Company in 2010. For the six months ended June 30, 2010, HFSG Holding Company and HLI received no dividends from the life insurance subsidiaries. For the six months ended June 30, 2010, HFSG Holding Company received $626 in dividends from its property-casualty insurance subsidiaries.

Other Sources of Capital for the HFSG Holding Company

The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support its competitive position in the financial services marketplace (see the “Ratings” section below for further discussion), and shareholder returns. As a result, the Company may from time to time raise capital from the issuance of stock, debt or other capital securities and is continuously evaluating strategic opportunities. The issuance of common stock, debt or other capital securities could result in the dilution of shareholder interests or reduced net income due to additional interest expense.

Capital Purchase Program

On March 31, 2010, the Company repurchased all 3.4 million shares of Series E Preferred Stock issued to the U.S. Treasury (the “Treasury”) for an aggregate purchase price of $3.4 billion. The Hartford used approximately $425 of the net proceeds from the debt issuance, $1.6 billion from the common stock issuance, $556 from the preferred stock issuance together with available funds at the HFSG Holding Company to repurchase the Series E Preferred Stock. The Company recorded a $440 charge to retained earnings representing the acceleration of the accretion of the remaining discount on the preferred stock. Treasury continues to hold warrants to purchase approximately 52 million shares of the Company’s common stock at an exercise price of $9.79 per share. During the Company’s participation in the Capital Purchase Program (“CPP”), the Company was subject to numerous additional regulations, including restrictions on the ability to increase the common stock dividend, limitations on the compensation arrangements for senior executives and additional corporate governance standards. As a result of the redemption of Series E Preferred Stock, the Company believes it is no longer subject to these regulations other than certain reporting and certification obligations to U.S. regulating agencies.

Shelf Registrations

The Hartford’s automatic shelf registration statement (Registration No. 333-142044) expired on April 11, 2010, and the Company intends to file for a new automatic shelf registration with the Securities and Exchange Commission in 2010.

Contingent Capital Facility

On February 12, 2007, The Hartford entered into a put option agreement (the “Put Option Agreement”) with Glen Meadow ABC Trust, a Delaware statutory trust (the “ABC Trust”), and LaSalle Bank National Association, as put option calculation agent. The Put Option Agreement provides The Hartford with the right to require the ABC Trust, at any time and from time to time, to purchase The Hartford’s junior subordinated notes in a maximum aggregate principal amount not to exceed $500.

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Commercial Paper and Revolving Credit Facility

The table below details the Company’s short-term debt programs and the applicable balances outstanding.

					Maximum Available As of				Outstanding As of
	Effective		Expiration		June 30,		December 31,		June 30,		December 31,
Description	Date		Date		2010		2009		2010		2009
Commercial Paper
The Hartford		11/10/86		N/A	$	2,000	$	2,000	$	—	$	—
Revolving Credit Facility
5-year revolving credit facility		8/9/07		8/9/12		1,900		1,900		—		—
Total Commercial Paper and Revolving Credit Facility					$	3,900	$	3,900	$	—	$	—

While The Hartford’s maximum borrowings available under its commercial paper program are $2.0 billion, the Company is dependent upon market conditions to access short-term financing through the issuance of commercial paper to investors. As of June 30, 2010, the Company has no commercial paper outstanding.

The revolving credit facility provides for up to $1.9 billion of unsecured credit through August 9, 2012, which excludes a $100 commitment from an affiliate of Lehman Brothers. Of the total availability under the revolving credit facility, up to $100 is available to support letters of credit issued on behalf of The Hartford or other subsidiaries of The Hartford. Under the revolving credit facility, the Company must maintain a minimum level of consolidated net worth of $12.5 billion. At June 30, 2010, the consolidated net worth of the Company as calculated in accordance with the terms of the credit facility was $22.0 billion. The definition of consolidated net worth under the terms of the credit facility, excludes AOCI and includes the Company’s outstanding junior subordinated debentures and perpetual preferred securities, net of discount. In addition, the Company must not exceed a maximum ratio of debt to capitalization of 40%. At June 30, 2010, as calculated in accordance with the terms of the credit facility, the Company’s debt to capitalization ratio was 18%. Quarterly, the Company certifies compliance with the financial covenants for the syndicate of participating financial institutions. As of June 30, 2010, the Company was in compliance with all such covenants.

The Hartford’s Life Japan operations also maintain a line of credit in the amount of $57, or ¥5 billion, which expires January 4, 2011 in support of the subsidiary operations.

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of June 30, 2010, is $513. Of this $513, the legal entities have posted collateral of $498 in the normal course of business. Based on derivative market values as of June 30, 2010, a downgrade of one level below the current financial strength ratings by either Moody’s or S&P could require approximately an additional $29 to be posted as collateral. Based on derivative market values as of June 30, 2010, a downgrade by either Moody’s or S&P of two levels below the legal entities’ current financial strength ratings could require approximately an additional $42 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we may be required to post is primarily in the form of U.S. Treasury bills and U.S. Treasury notes.

The table below presents the aggregate notional amount and fair value of derivative relationships that could be subject to immediate termination in the event of further rating agency downgrades.

	As of June 30, 2010
Ratings levels	Notional Amount		Fair Value
Either BBB+ or Baa1[1]	$	14,825	$	803

[1] The notional and fair value amounts include a customized GMWB derivative with a notional amount of $4.7 billion and a fair value of $258, for which the Company has a contractual right to make a collateral payment in the amount of approximately $52 to prevent its termination.

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Insurance Operations

Current and expected patterns of claim frequency and severity or surrenders may change from period to period but continue to be within historical norms and, therefore, the Company’s insurance operations’ current liquidity position is considered to be sufficient to meet anticipated demands over the next twelve months. For a discussion and tabular presentation of the Company’s contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A included in The Hartford’s 2009 Form 10-K Annual Report.

The principal sources of operating funds are premiums, fees earned from assets under management and investment income, while investing cash flows originate from maturities and sales of invested assets. The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting expenses, to purchase new investments and to make dividend payments to the HFSG Holding Company.

Property & Casualty

Property & Casualty holds fixed maturity securities, short-term investments (securities with maturities of one year or less at the time of purchase) and cash, as depicted below, to meet liquidity needs.

	As of
	June 30, 2010
Fixed maturities [1]	$	24,196
Short-term investments		1,548
Cash		363
Less: Derivative collateral		(124	)
Total	$	25,983

[1] Includes $440 of U.S. Treasuries.

Liquidity requirements that are unable to be funded by Property & Casualty’s short-term investments would be satisfied with current operating funds, including premiums received or through the sale of invested assets. A sale of invested assets could result in significant realized losses.

Life

Life’s total general account contractholder obligations are supported by Life’s total general account invested assets and cash of $70.4 billion, which includes fixed maturities, short-term investments, as depicted below, to meet liquidity needs.

	As of
	June 30, 2010
Fixed maturities [1]	$	52,652
Short-term investments		5,356
Cash		2,632
Less: Derivative collateral		(1,978	)
Cash associated with Japan variable annuities		(803	)
Total	$	57,859

[1] Includes $4.0 billion of U.S. Treasuries.

Capital resources available to fund liquidity, upon contract holder surrender, are a function of the legal entity in which the liquidity requirement resides. Generally, obligations of Group Benefits will be funded by Hartford Life and Accident Insurance Company; Global Annuity — U.S. and Individual Life obligations will be generally funded by both Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company; obligations of Retirement and Institutional will be generally funded by Hartford Life Insurance Company; and obligations of Global Annuity — International will be generally funded by the legal entity in the country in which the obligation was generated.

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	As of
Contractholder Obligations	June 30, 2010
Total Life contractholder obligations	$	250,419
Less: Separate account assets [1]		(154,883	)
International statutory separate accounts [1]		(30,161	)
General account contractholder obligations	$	65,375
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]	$	31,348
Global Annuity — U.S. fixed MVA annuities [3]		10,859
Global Annuity — International fixed MVA annuities		2,610
Guaranteed investment contracts (“GIC”) [4]		1,108
Other [5]		19,450
General account contractholder obligations	$	65,375

[1]	In the event customers elect to surrender separate account assets or international statutory separate accounts, Life will use the proceeds from the sale of the assets to fund the surrender, and Life’s liquidity position will not be impacted. In many instances Life will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see below) will decrease Life’s obligation for payments on guaranteed living and death benefits.
[2]	Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed below) or surrenders of term life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on Life’s liquidity requirements.
[3]	Relates to annuities that are held in a statutory separate account, but under U.S. GAAP are recorded in the general account as Fixed MVA annuity contract holders are subject to the Company’s credit risk. In the statutory separate account, Life is required to maintain invested assets with a fair value equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life is required to contribute additional capital to the statutory separate account. Life will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are generally equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life.
[4]	GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser of the book value or market value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the market value adjustment feature in the GIC serves to protect the Company from interest rate risks and limit Life’s liquidity requirements in the event of a surrender.
[5]	Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Global Annuity — U.S.’s individual variable annuities and Individual Life’s variable life contracts, the general account option for Retirement’s annuities and universal life contracts sold by Individual Life may be funded through operating cash flows of Life, available short-term investments, or Life may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of significant realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts.

Consolidated Liquidity Position

The following table summarizes the liquidity available to The Hartford:

	As of June 30, 2010
	Property & Casualty			Life			Corporate		Consolidated
Short-term investments	$	1,548		$	5,356		$	1,827	$	8,731
U.S. Treasuries		440			4,046			253		4,739
Cash		363			2,632			3		2,998
Less: Derivative collateral		(124	)		(1,978	)		—		(2,102	)
Cash associated with Japan variable annuities		—			(803	)		—		(803	)
Total available liquidity	$	2,227		$	9,253		$	2,083	$	13,563

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements

There have been no material changes to the Company’s off-balance sheet arrangements since the filing of the Company’s 2009 Form 10-K Annual Report.

Aggregate Contractual Obligations

Since December 31, 2009, the Company issued $1.1 billion aggregate principal amount of its senior notes. For additional information, see Note 12 of the Notes to Condensed Consolidated Financial Statements.

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Capitalization

The capital structure of The Hartford as of June 30, 2010 and December 31, 2009 consisted of debt and stockholders’ equity, summarized as follows:

	June 30,			December 31,
	2010			2009			Change
Short-term debt (includes current maturities of long-term debt and capital lease obligations)	$	—		$	343			(100	%)
Long-term debt		6,600			5,496			20	%
Total debt [1]		6,600			5,839			13	%
Stockholders’ equity excluding accumulated other comprehensive loss, net of tax (“AOCI”)		20,270			21,177			(4	%)
AOCI, net of tax		(1,379	)		(3,312	)		58	%
Total stockholders’ equity	$	18,891		$	17,865			6	%
Total capitalization including AOCI	$	25,491		$	23,704			8	%
Debt to stockholders’ equity		35	%		33	%
Debt to capitalization		26	%		25	%

[1] Total debt of the Company excludes $452 and $1.1 billion of consumer notes as of June 30, 2010 and December 31, 2009, respectively, and $60 and $78 of Federal Home Loan Bank advances recorded in other liabilities as of June 30, 2010 and December 31, 2009, respectively.

The Hartford’s total capitalization increased $1.8 billion, or 8%, from December 31, 2009 to June 30, 2010 primarily due to the following:

Total debt	•	Total debt increased primarily due to the issuance of $1.1 billion in senior notes in March 2010 partially offset by the repayment of $275 in senior notes in June 2010 and payment of the capital lease obligations in January 2010.
AOCI, net of tax	•	AOCI, net of tax, improved primarily due to decreases in unrealized losses on available-for-sale securities of $1.6 billion primarily as a result of improved security valuations due to declining interest rates and an increase of $229 in cash flow hedging instruments.

Partially offsetting these increases was a decrease in stockholders’ equity, excluding AOCI, which decreased primarily due to the redemption of $3.4 billion in preferred stock issued to the U.S. Treasury offset by issuance of common shares under public offering of $1.6 billion, issuance of mandatory convertible preferred stock of $556 and net income of $395. See Note 13 of the Notes to Condensed Consolidated Financial Statements for additional information on the redemption of the preferred stock and issuances of stock in 2010.

For additional information on debt, equity and AOCI, see Notes 14, 15 and 16, respectively, of the Notes to the Consolidated Financial Statements in The Hartford’s 2009 Form 10-K Annual Report.

Cash Flows

	Six Months Ended
	June 30,
	2010			2009
Net cash provided by operating activities	$	1,200		$	1,986
Net cash provided by (used for) investing activities	$	1,600		$	(3,557	)
Net cash provided by (used for) financing activities	$	(1,967	)	$	2,338
Cash — end of period	$	2,998		$	2,558

The decrease in cash from operating activities compared to the prior year period was primarily the result of tax refunds of $468 received in 2009 compared to tax payments of $248 in 2010. Additionally, operating activities in 2010 decreased due to lower premiums, and lower net investment income, excluding equity securities, trading, and limited partnerships and other alternative investments.

Cash provided by investing activities in 2010 primarily relates to $1.2 billion of net proceeds from sales of mortgage loans and net receipts on derivatives of $584 partially offset by $446 of net purchases of available-for-sale securities. Cash used for investing activity in 2009 consisted of net outflows of $2.3 billion from changes in payables on securities lending and $1.6 of net purchases of available-for-sale securities, partially offset by net receipts on derivatives of $262.

Cash from financing activities decreased primarily due to the redemption of preferred stock issued to the U.S. Treasury of $3.4 billion, repayments of consumer notes of $684 in 2010, repayment of $275 in senior notes in June 2010 and net outflows on investment and universal life-type contracts in 2010. Partially offsetting the decreases were proceeds from the issuance of $1.1 billion in aggregate senior notes, issuance of common stock under a public offering of $1.6 billion and issuance of mandatory convertible preferred stock of $556.

Operating cash flows for the six months ended June 30, 2010 and 2009 have been adequate to meet liquidity requirements.

Equity Markets

For a discussion of the potential impact of the equity markets on capital and liquidity, see the Capital Markets Risk Management section of the MD&A under Market Risk above.

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Ratings

Ratings impact the Company’s cost of borrowing and its ability to access financing and are an important factor in establishing competitive position in the insurance and financial services marketplace. There can be no assurance that the Company’s ratings will continue for any given period of time or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s cost of borrowing and ability to access financing, as well as the level of revenues or the persistency of its business may be adversely impacted.

The following table summarizes The Hartford’s significant member companies’ financial ratings from the major independent rating organizations as of July 30, 2010.

Insurance Financial Strength Ratings:	A.M. Best		Fitch		Standard & Poor’s		Moody’s
Hartford Fire Insurance Company		A		A+		A		A2
Hartford Life Insurance Company		A		A-		A		A3
Hartford Life and Accident Insurance Company		A		A-		A		A3
Hartford Life and Annuity Insurance Company		A		A-		A		A3
Other Ratings:
The Hartford Financial Services Group, Inc.:
Senior debt	bbb+		BBB-		BBB		Baa3
Commercial paper	AMB-2			F2		A-2		P-3

These ratings are not a recommendation to buy or hold any of The Hartford’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

The agencies consider many factors in determining the final rating of an insurance company. One consideration is the relative level of statutory surplus necessary to support the business written. Statutory surplus represents the capital of the insurance company reported in accordance with accounting practices prescribed by the applicable state insurance department.

Statutory Surplus

The table below sets forth statutory surplus for the Company’s insurance companies. The statutory surplus amount as of December 31, 2009 in the table below is based on actual statutory filings with the applicable regulatory authorities. The statutory surplus amount as of June 30, 2010 is an estimate, as the second quarter 2010 statutory filings have not yet been made.

	June 30,		December 31,
	2010		2009
U.S. Life Operations, includes domestic captive insurance subsidiaries	$	7,141	$	7,287
Property & Casualty Operations, excluding non-Property & Casualty subsidiaries		7,388		7,364
Total	$	14,529	$	14,651

The Company also holds regulatory capital and surplus for its operations in Japan. Using the investment in subsidiary accounting requirements defined in the U.S. National Association of Insurance Commissioners Statements of Statutory Accounting Practices, the Company’s statutory capital and surplus attributed to the Japan operations was $944 and $1.3 billion as of June 30, 2010 and December 31, 2009, respectively. However, under the accounting practices and procedures governed by Japanese regulatory authorities, the Company’s statutory capital and surplus was $1.2 billion and $1.1 billion as of June 30, 2010 and December 31, 2009, respectively.

Contingencies

Legal Proceedings— For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” in Note 9 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Legislative Developments

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted into law on July 21, 2010, and will introduce sweeping changes to the regulation of the financial services industry. Most of these will not become effective immediately, and many will require further regulatory action before they become effective. Nonetheless, we anticipate that the Dodd-Frank Act may affect our operations and governance in ways that could significantly affect our financial condition and results of operations.

In particular, the Dodd-Frank Act vests a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, which will be subject to special regulatory supervision and other provisions intended to prevent, or mitigate the impact of, future disruptions in the U.S. financial system. If we are designated as a systemically important institution, we will be subject to heightened prudential standards imposed by The Federal Reserve, as well as to post-event assessments imposed by the FDIC to recoup the costs associated with the orderly resolution of systemically important institutions in the event one or more such institutions fails. The Dodd-Frank Act creates a new resolution authority for systemically important institutions. Although insurance companies will not be subject to the special liquidation procedures in the Dodd-Frank Act, it contains back-up authority for the FDIC to force insurance companies into liquidation under state law if their state regulators fail to act. Other provisions will require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, which we expect will increase the costs of our hedging program.

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A number of provisions of the Dodd-Frank Act affect us solely due to our status as a savings & loan holding company. For example, under the Dodd-Frank Act, the OTS will be dissolved. The Federal Reserve will assume regulatory authority over our holding company, and our thrift subsidiary, Federal Trust Bank, will be regulated by the OCC. The Dodd-Frank Act may also restrict us as a savings and loan holding company or systemically important institution from sponsoring and investing in private equity and hedge funds, which will limit our discretion in managing our general account. In addition, the Dodd-Frank Act prohibits proprietary trading by any entity in our holding company structure that is not a licensed insurance company. The Dodd-Frank Act will also impose new minimum capital standards on a consolidated basis for holding companies that, like us, control insured depository institutions.

Other changes in the Dodd-Frank Act include: the possibility that regulators could break up firms that are considered “too big to fail” or mandate certain barriers between their activities in order to allow for the orderly resolution of failing financial institutions; a new “Federal Insurance Office” within Treasury to, among other things, conduct a study of how to improve insurance regulation in the United States; new means for regulators to limit the activities of financial firms; discretionary authority for the SEC to impose a harmonized standard of care for investment advisers and broker-dealers who provide personalized advice about securities to retail customers; additional regulation of compensation in the financial services industry; and enhancements to corporate governance, especially regarding risk management.

Given the significance of the changes and the additional regulatory action required for many of the new provisions, we cannot predict all of the ways or the degree to which our business, financial condition and results of operations may be affected by the Dodd-Frank Act, once it is fully implemented.

FY 2011, Budget of the United States Government

On February 1, 2010, the Obama Administration released its “FY 2011, Budget of the United States Government” (the “Budget”). Although the Administration has not released proposed statutory language, the Budget includes proposals which if enacted, would affect the taxation of life insurance companies and certain life insurance products. In particular, the proposals would affect the treatment of corporate owned life insurance (“COLI”) policies by limiting the availability of certain interest deductions for companies that purchase those policies. The proposals would also change the method used to determine the amount of dividend income received by a life insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity contracts, that are eligible for the dividends received deduction (“DRD”). The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between the Company’s actual tax expense and expected amount determined using the federal statutory tax rate of 35%. If proposals of this type were enacted, the Company’s sale of COLI, variable annuities, and variable life products could be adversely affected and the Company’s actual tax expense could increase, reducing earnings. The Budget also included a proposal to levy a $90 billion “Financial Crisis Responsibility Fee” on large financial institutions, including The Hartford.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 of Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report and Note 1 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in the Capital Markets Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company’s disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of June 30, 2010.

Changes in internal control over financial reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s second fiscal quarter of 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Litigation” under Note 9 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Item 1A. RISK FACTORS

Investing in The Hartford involves risk. In deciding whether to invest in The Hartford, you should carefully consider the following risk factors, any of which could have a significant or material adverse effect on the business, financial condition, operating results or liquidity of The Hartford. This information should be considered carefully together with the other information contained in this report and the other reports and materials filed by The Hartford with the SEC.

The risk factors set forth below update the risk factors section previously disclosed in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and in Item 1A of Part II of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

Our operating environment remains challenging in light of uncertainty about the timing and strength of an economic recovery and the impact of governmental budgetary and regulatory initiatives. The steps we have taken to realign our businesses and strengthen our capital position may not be adequate to mitigate the financial, competitive and other risks associated with our operating environment, particularly if economic conditions deteriorate from their current levels or regulatory requirements change significantly, and we may be required to or we may seek to raise additional capital or take other strategic or financial actions that could adversely affect our business and results or trading prices for our capital stock.

Persistent volatility in financial markets and uncertainty about the timing and strength of a recovery in the global economy adversely affected our business and results in 2009, and these conditions have continued to affect our operating environment in 2010. High unemployment, lower family income, lower business investment and lower consumer spending in most geographic markets we serve have adversely affected the demand for financial and insurance products, as well as their profitability in some cases. Our results, financial condition and statutory capital remain sensitive to equity and credit market performance, and we expect that market volatility will continue to pressure returns in our life and property and casualty investment portfolios and that our hedging costs will remain high. Until economic conditions become more stable and improve, we also expect to experience realized and unrealized investment losses, particularly in the commercial real estate sector where significant market illiquidity and risk premiums exist that reflect the current uncertainty in the real estate market. Lower interest rates are also likely to continue to adversely impact our fixed annuity sales and the cost and effectiveness of our GMWB hedging program. Deterioration or negative rating agency actions with respect to our investments could also indirectly adversely affect our statutory capital and risk-based capital (“RBC”) ratios, which could in turn have other negative consequences for our business and results.

The steps we have taken to realign our businesses and strengthen our capital position may not be adequate if economic conditions do not stabilize in line with our forecasts or if they experience a significant deterioration. These steps include ongoing initiatives, particularly the execution risk relating to the repositioning of our investment portfolios. In addition, we modified our variable annuity product offerings and, in October 2009, launched a new variable annuity product. However, the future success of this new variable annuity product will be dependent on market acceptance. The level of market acceptance of this new product will directly affect the level of variable annuity sales of the Company in the future. In addition, as the Company and our distribution partners transition to the new product, there will be downward pressure on new deposits, and management expects to continue to be in a net outflow position through 2010. If our actions are not adequate, our ability to support the scale of our business and to absorb operating losses and liabilities under our customer contracts could be impaired, which would in turn adversely affect our overall competitiveness. We could be required to raise additional capital or consider other actions to manage our capital position and liquidity or further reduce our exposure to market and financial risks. We may also be forced to sell assets on unfavorable terms that could cause us to incur charges or lose the potential for market upside on those assets in a market recovery. We could also face other pressures, such as employee recruitment and retention issues and potential loss of distributors for our products. Finally, trading prices for our common stock could decline as a result or in anticipation of sales of our common stock or equity-linked instruments.

Even if the measures we have taken (or take in the future) are effective to mitigate the risks associated with our current operating environment, they may have unintended consequences. For example, rebalancing our hedging program may better protect our statutory surplus, but also result in greater U.S. GAAP earnings volatility. Actions we take may also entail impairment or other charges or adversely affect our ability to compete successfully in an increasingly difficult consumer market.

Regulatory developments relating to the recent financial crisis may also significantly affect our operations and prospects in ways that we cannot predict. U.S. and overseas governmental and regulatory authorities, including the SEC, the OTS, The Federal Reserve, the OCC, the New York Stock Exchange, or NYSE, or the Financial Industry Regulatory Authority are considering enhanced or new regulatory requirements intended to prevent future crises or otherwise stabilize the institutions under their supervision. Such measures are likely to lead to stricter regulation of financial institutions generally, and heightened prudential requirements for systemically important companies in particular. Such measures could include taxation of financial transactions, liabilities and employee compensation.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted into law on July 21, 2010, and will introduce sweeping changes to the regulation of the financial services industry. Most of these will not become effective immediately, and many will require further regulatory action before they become effective. Nonetheless, we anticipate that the Dodd-Frank Act may affect our operations and governance in ways that could significantly affect our financial condition and results of operations.

In particular, the Dodd-Frank Act vests a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, which will be subject to special regulatory supervision and other provisions intended to prevent, or mitigate the impact of, future disruptions in the U.S. financial system. If we are designated as a systemically important institution, we will be subject to heightened prudential standards imposed by The Federal Reserve, as well as to post-event assessments imposed by the FDIC to recoup the costs associated with the orderly resolution of systemically important institutions in the event one or more such institutions fails. The Dodd-Frank Act creates a new resolution authority for systemically important institutions. Although insurance companies will not be subject to the special liquidation procedures in the Dodd-Frank Act, it contains back-up authority for the FDIC to force insurance companies into liquidation under state law if their state regulators fail to act. Other provisions will require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, which we expect will increase the costs of our hedging program.

A number of provisions of the Dodd-Frank Act affect us solely due to our status as a savings & loan holding company. For example, under the Dodd-Frank Act, the OTS will be dissolved. The Federal Reserve will assume regulatory authority over our holding company, and our thrift subsidiary, Federal Trust Bank, will be regulated by the OCC. The Dodd-Frank Act may also restrict us as a savings and loan holding company or systemically important institution from sponsoring and investing in private equity and hedge funds, which will limit our discretion in managing our general account. In addition, the Dodd-Frank Act prohibits proprietary trading by any entity in our holding company structure that is not a licensed insurance company. The Dodd-Frank Act will also impose new minimum capital standards on a consolidated basis for holding companies that, like us, control insured depository institutions.

Other changes in the Dodd-Frank Act include: the possibility that regulators could break up firms that are considered “too big to fail” or mandate certain barriers between their activities in order to allow for the orderly resolution of failing financial institutions; a new “Federal Insurance Office” within Treasury to, among other things, conduct a study of how to improve insurance regulation in the United States; new means for regulators to limit the activities of financial firms; discretionary authority for the SEC to impose a harmonized standard of care for investment advisers and broker-dealers who provide personalized advice about securities to retail customers; additional regulation of compensation in the financial services industry; and enhancements to corporate governance, especially regarding risk management.

Given the significance of the changes and the additional regulatory action required for many of the new provisions, we cannot predict all of the ways or the degree to which our business, financial condition and results of operations may be affected by the Dodd-Frank Act, once it is fully implemented.

Although we repurchased our Series E Preferred Stock issued to Treasury in the CPP, we remain subject to certain restrictions, oversight and costs relating to our receipt of federal assistance and our status as a savings and loan holding company that could materially affect our business, results and prospects.

Although we repurchased our Series E Preferred Stock issued to Treasury in the CPP, provisions of our agreement with Treasury relating to the CPP will remain in effect for so long as Treasury continues to hold the warrant or shares of our common stock received upon exercising the warrant, and we will continue to be a savings and loan holding company by virtue of our ownership of Federal Trust Bank (“FTB”), a federally chartered, FDIC-insured thrift, the acquisition of which was a condition to our participation in the CPP. We will therefore remain subject to various restrictions, oversight and costs and other potential consequences that could materially affect our business, results and prospects, including the following:

• As a savings and loan holding company, we are subject to regulation, supervision and examination by the OTS, including with respect to required capital, cash flow, organizational structure, risk management and earnings at the parent company level, and to the OTS reporting requirements. All of our activities must be financially-related activities as defined by federal law (which includes insurance activities), and the OTS has enforcement authority over us, including the right to pursue administrative orders or penalties and the right to restrict or prohibit activities determined by the OTS to be a serious risk to FTB. We must also be a source of strength to FTB, which could require further capital contributions. We will be subject to similar, potentially stricter, requirements when regulatory authority over us transfers to The Federal Reserve (for our holding company) and the OCC (for FTB).

• We believe that the limitations on the amount and form of bonus, retention and other incentive compensation that we may pay to executive officers and senior management do not apply to us with respect to services rendered from and after the date we repurchased all of the Series E Preferred Stock. Nevertheless, recipients of federal assistance continue to be subject to intense scrutiny, and future regulatory initiatives could be adopted at the federal or state level that have the effect of constraining the business or management of those enterprises. The Obama administration has proposed a financial crisis responsibility tax that would be levied on the largest financial institutions in terms of assets. We cannot predict the scope or impact of future regulatory initiatives or the effect that they may have on our ability to attract and retain key personnel, the cost and complexity of our compliance programs or on required levels of regulatory capital.

• Future federal statutes may adversely affect the terms of the CPP that remain applicable to us, and Treasury may amend the terms of our agreement unilaterally if required by future statutes, including in a manner materially adverse to us.

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Our ability to declare and pay dividends is subject to limitations.

The payment of future dividends on our capital stock is subject to the discretion of our board of directors, which considers, among other factors our operating results, overall financial condition, credit-risk considerations and capital requirements, as well as general business and market conditions.

Moreover, as a holding company that is separate and distinct from our insurance subsidiaries, we have no significant business operations of our own. Therefore, we rely on dividends from our insurance company subsidiaries and other subsidiaries as the principal source of cash flow to meet our obligations. These obligations include payments on our debt securities and the payment of dividends on our capital stock. The Connecticut insurance holding company laws limit the payment of dividends by Connecticut-domiciled insurers. In addition, these laws require notice to and approval by the state insurance commissioner for the declaration or payment by those subsidiaries of any dividend if the dividend and other dividends or distributions made within the preceding 12 months exceeds the greater of:

• 10% of the insurer’s policyholder surplus as of December 31 of the preceding year, and

• net income, or net gain from operations if the subsidiary is a life insurance company, for the previous calendar year, in each case determined under statutory insurance accounting principles.

In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner.

The insurance holding company laws of the other jurisdictions in which our insurance subsidiaries are incorporated, or deemed commercially domiciled, generally contain similar, and in some instances more restrictive, limitations on the payment of dividends. Our property-casualty insurance subsidiaries are permitted to pay up to a maximum of approximately $1.4 billion in dividends to us in 2010 without prior approval from the applicable insurance commissioner. Statutory dividends from our life insurance subsidiaries in 2010 require prior approval from the applicable insurance commissioner. The aggregate of these amounts, net of amounts required by our subsidiary Hartford Life, Inc., or HLI, is the maximum our insurance subsidiaries could pay to us in 2010. In 2009, we and HLI received $700 in dividends from our life insurance subsidiaries representing the movement of a life subsidiary to us, and we received $251 in dividends from our property-casualty insurance subsidiaries. For the six months ended June 30, 2010, neither we nor HLI received dividends from the life insurance subsidiaries. For the six months ended June 30, 2010, we received $626 in dividends from our property-casualty insurance subsidiaries.

Our rights to participate in any distribution of the assets of any of our subsidiaries, for example, upon their liquidation or reorganization, and the ability of holders of our common stock to benefit indirectly from a distribution, are subject to the prior claims of creditors of the applicable subsidiary, except to the extent that we may be a creditor of that subsidiary. Claims on these subsidiaries by persons other than us include, as of June 30, 2010, claims by policyholders for benefits payable amounting to $116.6 billion, claims by separate account holders of $154.9 billion, and other liabilities including claims of trade creditors, claims from guaranty associations and claims from holders of debt obligations, amounting to $16.3 billion.

In addition, as a savings and loan holding company, we are subject to regulation, supervision and examination by the OTS, including with respect to required capital, cash flow, organization structure, risk management and earnings at the parent company level. We will be subject to similar, potentially stricter, requirements when regulatory authority over us transfers to The Federal Reserve (for our holding company) and the OCC (for FTB).

Holders of our capital stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. Moreover, our common stockholders are subject to the prior dividend rights of any holders of our preferred stock or depositary shares representing such preferred stock then outstanding. As of June 30, 2010, there were 575,000 shares of our Series F Preferred Stock issued and outstanding. Under the terms of the Series F Preferred Stock, our ability to declare and pay dividends on or repurchase our common stock will be subject to restrictions in the event we fail to declare and pay (or set aside for payment) full dividends on the Series F Preferred Stock.

The terms of our outstanding junior subordinated debt securities also prohibit us from declaring or paying any dividends or distributions on our capital stock or purchasing, acquiring, or making a liquidation payment on such stock, if we have given notice of our election to defer interest payments but the related deferral period has not yet commenced or a deferral period is continuing.

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We are particularly vulnerable to losses from catastrophes, both natural and man-made, which could materially and adversely affect our financial condition, results of operations and liquidity.

We are particularly vulnerable to losses from catastrophes, both natural and man-made. Depending on their incidence and severity, these losses could materially and adversely affect our financial condition, results of operations and liquidity.

Natural catastrophes can be caused by various unpredictable events, including earthquakes, hurricanes, hailstorms, severe winter weather, fires, tornadoes, and disease pandemics. The geographic distribution of our business subjects us to catastrophe exposure for natural events occurring in a number of areas, including, but not limited to, hurricanes in Florida, the Gulf Coast, the Northeast and the Atlantic coast regions of the United States, and earthquakes in California and the New Madrid region of the United States. We expect that increases in the values and concentrations of insured property in these areas will continue to increase the severity of catastrophic events in the future. Starting in 2004 and 2005, third-party catastrophe loss models for hurricane loss events have incorporated medium-term forecasts of increased hurricane frequency and severity — reflecting the potential influence of multi-decadal climate patterns within the Atlantic. In addition, changing climate conditions across longer time scales, including the potential risk of broader climate change, may be increasing, or may in the future increase, the frequency and severity of certain natural catastrophe losses across various geographic regions. In addition, changing climate conditions, primarily rising global temperatures, may be increasing, or may in the future increase, the frequency and severity of natural catastrophes such as hurricanes. Potential examples of the impact of climate change on catastrophe exposure include, but are not limited to the following: an increase in the frequency or severity of wind and thunderstorm and tornado/hailstorm events due to increased convection in the atmosphere, more frequent brush fires in certain geographies due to prolonged periods of drought, higher incidence of deluge flooding, and the potential for an increase in severity of the largest hurricane events due to higher sea surface temperatures. Our life insurance operations are also exposed to risk of loss from catastrophes. For example, natural or man-made disasters or a disease pandemic such as could arise from avian flu, could significantly increase our mortality and morbidity experience. Policyholders may be unable to meet their obligations to pay premiums on our insurance policies or make deposits on our investment products.

We are also exposed to losses resulting from man-made disaster, including explosion, acts of terrorism and political instability. For example, in April 2010, the drilling rig Deepwater Horizon caught fire and sank, resulting in a massive oil spill in the Gulf of Mexico. We believe that under the terms of our insurance policies, we do not have material exposure to damage resulting directly from the Deepwater Horizon spill. However, we could experience significant indirect losses if the presence of oil exacerbates otherwise covered losses in a manner that satisfies all the terms and conditions of coverage and we are unable to recoup the cost of oil-related damage from the parties responsible for the spill.

Our liquidity could be constrained by a catastrophe, or multiple catastrophes, which could result in extraordinary losses. In addition, in part because accounting rules do not permit insurers to reserve for such catastrophic events until they occur, claims from catastrophic events could have a material adverse effect on our financial condition, consolidated results of operations and cash flows. To the extent that loss experience unfolds or models improve, we will seek to reflect any increased risk in the design and pricing of our products. However, the Company may be exposed to regulatory or legislative actions that prevent a full accounting of loss expectations in the design or price of our products or result in additional risk-shifting to the insurance industry.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

The following table summarizes the Company’s repurchases of its common stock for the three months ended June 30, 2010:

					Total Number of		Approximate Dollar
					Shares Purchased as		Value of Shares that
	Total Number		Average Price		Part of Publicly		May Yet Be
	of Shares		Paid Per		Announced Plans or		Purchased Under
Period	Purchased [1]		Share		Programs		the Plans or Programs
							(in millions)
April 1, 2010 — April 30, 2010		305	$	27.58		—	$	807
May 1, 2010 — May 31, 2010		470	$	28.57		—	$	807
June 1, 2010 — June 30, 2010		—	$	—		—	$	807
Total		775	$	28.18		—		N/A

[1] Represents shares acquired from employees of the Company for tax withholding purposes in connection with the Company’s stock compensation plans.

The Hartford’s Board of Directors has authorized a $1 billion stock repurchase program. The Company’s repurchase authorization permits purchases of common stock, which may be in the open market or through privately negotiated transactions. The Company also may enter into derivative transactions to facilitate future repurchases of common stock. The timing of any future repurchases will be dependent upon several factors, including the market price of the Company’s securities, the Company’s capital position, consideration of the effect of any repurchases on the Company’s financial strength or credit ratings, and other corporate considerations. The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

Item 6. EXHIBITS

See Exhibits Index on page 139.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Hartford Financial Services Group, Inc. (Registrant)
Date: August 4, 2010	/s/ Beth A. Bombara
	Beth A. Bombara
	Senior Vice President and Controller (Chief accounting officer and duly authorized signatory)

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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2010
FORM 10-Q

EXHIBITS INDEX

Exhibit No.		Description
	10.01	2010 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on May 25, 2010).
	10.02	The Hartford 2010 Incentive Stock Plan Administrative Rules Related to Awards for Key Employees.
	10.03	The Hartford 2010 Incentive Stock Plan Administrative Rules Related to Awards for Non-Employee Directors.
	10.04	The Hartford 2010 Incentive Stock Plan Forms of Individual Award Agreements.
	10.05	Summary of Annual Executive Bonus Program (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed on May 25, 2010).
	10.06	Loss on Sale Reimbursement Payback Agreement between the Company and Gregory McGreevey dated July 22, 2010.
	15.01	Deloitte & Touche LLP Letter of Awareness.
	31.01	Certification of Liam E. McGee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.02	Certification of Christopher J. Swift pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.01	Certification of Liam E. McGee pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.02	Certification of Christopher J. Swift pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	XBRL Instance Document. [1]
	101.SCH	XBRL Taxonomy Extension Schema.
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
	101.DEF	XBRL Taxonomy Extension Definition Linkbase.
	101.LAB	XBRL Taxonomy Extension Label Linkbase.
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

[1] Includes the following materials contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 formatted in XBRL (eXtensible Business Reporting Language) (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Statements of Comprehensive Income (Loss), (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, which is tagged as blocks of text.

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