Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

establishing, maintaining and communicating the framework, principles and guidelines of the Company's operational risk management program. Operational risk mitigation strategies include the following:

•	Establishing policies and monitoring risk tolerances and exceptions;

•	Conducting business risk assessments and implementing action plans where necessary;

•	Validating existing crisis management protocols;

•	Identifying and monitoring emerging risks; and

•	Purchasing insurance coverage.

Financial Risk

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

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

Liquidity Risk

Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due.

Sources of Liquidity Risk Sources of liquidity risk include funding risk, company-specific liquidity risk and market liquidity risk resulting from differences in the amount and timing of sources and uses of cash as well as company-specific and general market conditions. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value.

Impact Inadequate capital resources and liquidity could negatively affect the Company’s overall financial strength and its ability to generate cash flows from its businesses, borrow funds at competitive rates, and raise new capital to meet operating and growth needs.

Management The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions. The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability of liquidity. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact liquidity. The Company's CFO has primary responsibility for liquidity risk.

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

Credit Risk

Credit risk is the risk to earnings or capital due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with contractually agreed upon terms. Credit risk is comprised of three major factors: the risk of change in credit quality, or credit migration risk; the risk of default; and the risk of a change in value due to changes in credit spread.

Sources of Credit Risk The majority of the Company’s credit risk is concentrated in its investment holdings, but it is also present in the Company’s reinsurance and insurance portfolios.

Impact A decline in creditworthiness is typically associated with an increase in an investment’s credit spread, potentially resulting in an increase in other-than-temporary impairments and an increased probability of a realized loss upon sale. Premiums receivable and reinsurance recoverables are also subject to credit risk based on the counterparty’s unwillingness or inability to pay.

Management The objective of the Company’s enterprise credit risk management strategy is to identify, quantify, and manage credit risk on an aggregate portfolio basis and to limit potential losses in accordance with an established credit risk management policy. The Company primarily manages its credit risk by holding a diversified mix of investment grade issuers and counterparties across its investment, reinsurance, and insurance portfolios. Potential losses are also limited within portfolios by diversifying across geographic regions, asset types, and sectors.

The Company manages credit risk on an on-going basis through the use of various processes and analyses. Both the investment and reinsurance areas have formulated procedures for counterparty approvals and authorizations, which establish minimum levels of creditworthiness and financial stability. Credits considered for investment are subjected to underwriting reviews. Within the investment portfolio, private securities are subject to committee review for approval. Mitigation strategies vary across the three sources of credit risk, but may include:

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

•	Selling investments subject to credit risk;

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

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

•	Entering into contracts only with strong creditworthy institutions

•	Requiring collateral; and

•	Non-renewing policies/contracts or reinsurance treaties.

The Company has developed credit exposure thresholds which are based upon counterparty ratings. Aggregate counterparty credit quality and exposure are monitored on a daily basis utilizing an enterprise-wide credit exposure information system that contains data on issuers, ratings, exposures, and credit limits. Exposures are tracked on a current and potential basis and aggregated by ultimate parent of the counterparty across investments, reinsurance receivables, insurance products with credit risk, and derivatives.

As of December 31, 2016, the Company had no investment exposure to any credit concentration risk of a single issuer or counterparty greater than 10% of the Company's stockholders' equity, other than the U.S. government and certain U.S. government securities. For further discussion of concentration of credit risk in the investment portfolio, see the Concentration of Credit Risk section in Note 6 - Investments of Notes to Consolidated Financial Statements.

Assets and Liabilities Subject to Credit Risk

Investments Essentially all of the Company's invested assets are subject to credit risk. Credit related impairments on investments were $43 and $29, in 2016 and 2015, respectively. (See the Enterprise Risk Management section of the MD&A under “Other-Than-Temporary Impairments.”)

Reinsurance recoverables Reinsurance recoverables, net of an allowance for uncollectible reinsurance, were $23,311 and $23,189, as of December 31, 2016 and 2015, respectively. (See the Enterprise Risk Management section of the MD&A under “Reinsurance as a Risk Management Strategy.”)

Premiums receivable and agents' balances Premiums receivable and agents’ balances, net of an allowance for doubtful accounts, were $3,731 and $3,537, as of December 31, 2016 and 2015, respectively. (For a discussion regarding collectibility of these balances, see Note 1, Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements under the section labeled “Revenue Recognition.”)

Credit Risk of Derivatives

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

Downgrades to the credit ratings of the Company’s insurance operating companies may have adverse implications for its use of derivatives including those used to hedge benefit guarantees of variable annuities. In some cases, downgrades may give derivative counterparties for over-the-counter ("OTC") derivatives and clearing brokers for OTC-cleared derivatives the right to cancel and settle outstanding derivative trades or require additional collateral to be posted. In addition, downgrades may result in

counterparties and clearing brokers becoming unwilling to engage in or clear additional derivatives or may require collateralization before entering into any new trades. This would restrict the supply of derivative instruments commonly used to hedge variable annuity guarantees, particularly long-dated equity derivatives and interest rate swaps.

Managing the Credit Risk of Counterparties to Derivative Instruments

The Company has derivative counterparty exposure policies which limit the Company’s exposure to credit risk. The Company monitors counterparty exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The Company’s policies with respect to derivative counterparty exposure establishes market-based credit limits, favors long-term financial stability and creditworthiness of the counterparty and typically requires credit enhancement/credit risk reducing agreements, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management.

The Company minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties primarily rated A or better. The Company also generally requires that OTC derivative contracts be governed by an International Swaps and Derivatives Association ("ISDA") Master Agreement, which is structured by legal entity and by counterparty and permits right of offset. The Company enters into credit support annexes in conjunction with the ISDA agreements, which require daily collateral settlement based upon agreed upon thresholds.

The Company has developed credit exposure thresholds which are based upon counterparty ratings. Credit exposures are measured using the market value of the derivatives, resulting in amounts owed to the Company by its counterparties or potential payment obligations from the Company to its counterparties. The notional amounts of derivative contracts represent the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. For purposes of daily derivative collateral maintenance, credit exposures are generally quantified based on the prior business day’s market value and collateral is pledged to and held by, or on behalf of, the Company to the extent the current value of the derivatives exceed the contractual thresholds. In accordance with industry standard and the contractual agreements, collateral is typically settled on the next business day. The Company has exposure to credit risk for amounts below the exposure thresholds which are uncollateralized, as well as for market fluctuations that may occur between contractual settlement periods of collateral movements.

For the company’s derivative programs, the maximum uncollateralized threshold for a derivative counterparty for a single legal entity is $10. The Company currently transacts OTC derivatives in five legal entities that have a threshold greater than zero. The maximum combined threshold for a single counterparty across all legal entities that use derivatives and have a threshold greater than zero is $30. In addition, the Company may have exposure to multiple counterparties in a single corporate family due to a common credit support provider. As of December 31, 2016, the maximum combined threshold for all counterparties under a single credit support provider across all legal entities that use derivatives and have a threshold greater than zero was $60. Based on the contractual terms of the collateral agreements, these thresholds may be immediately reduced due to a

downgrade in either party’s credit rating. For further discussion, see the Derivative Commitments section of Note 14 Commitments and Contingencies of Notes to Consolidated Financial Statements.

For the year ended December 31, 2016, the Company incurred no losses on derivative instruments due to counterparty default.

Use of Credit Derivatives

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

Credit Risk Reduced Through Credit Derivatives

The Company uses credit derivatives to purchase credit protection with respect to a single entity, referenced index, or asset pool. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio. As of December 31, 2016 and 2015, the notional amount related to credit derivatives that purchase credit protection was $209 and $423, respectively, while the fair value was $(4) and $18, respectively. These amounts do not include positions that are in offsetting relationships.

Credit Risk Assumed Through Credit Derivatives

The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. These swaps reference investment grade single corporate issuers and baskets, which include customized diversified portfolios of corporate issuers, which are established within sector concentration limits and may be divided into tranches which possess different credit ratings. As of December 31, 2016 and 2015, the notional amount related to credit derivatives that assume credit risk was $1.3 billion and $2.5 billion, respectively, while the fair value was $10 and $(13), respectively. These amounts do not include positions that are in offsetting relationships.

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

Interest Rate Risk

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

Sources of Interest Rate Risk The Company has exposure to interest rates arising from its fixed maturity securities, interest sensitive liabilities and discount rate assumptions associated with the Company’s pension and other post retirement benefit obligations. In addition, certain product liabilities, including those containing GMWB or GMDB, expose the Company to interest rate risk but also have significant equity risk. These liabilities are discussed as part of the Variable Product Guarantee Risks and Risk Management section. Management also evaluates performance of certain Talcott Resolution

products based on net investment spread which is, in part, influenced by changes in interest rates.

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

Change in Interest Rates	Favorable Effects	Unfavorable Effects
ñ	Additional investment income	Decrease in the fair value of the fixed maturity investment portfolio
Lower cost of the variable annuity hedge program	Policyholder surrenders, requiring the Company to liquidate assets in an unrealized loss position to fund liability surrender value
Lower margin erosion associated with minimum guaranteed crediting rates on certain Talcott Resolution products	Potential impact on Company's tax planning strategies and, in particular, its ability to utilize tax benefits of previously recognized realized capital losses
	Higher interest expense on variable rate debt obligations
ò	Increase in the fair value of the fixed maturity investment portfolio	Lower net investment income due to reinvesting at lower investment yields
Lower interest expense on variable rate debt obligations	Acceleration in paydowns and prepayments or calls of certain mortgage-backed and municipal securities
	Increased cost of variable annuity hedge program
	Potential margin erosion associated with minimum guaranteed crediting rates on certain Talcott Resolution products

Management The Company manages its exposure to interest rate risk by constructing investment portfolios that maintain asset allocation limits and asset/liability duration matching targets which may include the use of derivatives. The Company analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios. Key metrics that the Company uses to quantify its exposure to interest rate risk inherent in its invested assets and interest rate sensitive liabilities include duration, convexity and key rate duration.

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

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

enables the Company to customize contract terms and conditions to desired objectives and manage the duration profile within established tolerances. Interest rate swaps are also used to hedge the variability in the cash flows of a forecasted purchase or sale of fixed rate securities due to changes in interest rates. As of December 31, 2016 and 2015, notional amounts pertaining to derivatives utilized to manage interest rate risk, including offsetting positions, totaled $15.2 billion and $17.8 billion, respectively ($15.1 billion and $17.7 billion, respectively, related to investments and $68 and $89, respectively, related to Talcott Resolution liabilities). The fair value of these derivatives was $(969) and $(796) as of December 31, 2016 and 2015, respectively. These amounts do not include derivatives associated with the Variable Annuity Hedging Program.

Assets and Liabilities Subject to Interest Rate Risk

Fixed maturity investments The fair value of fixed maturity investments was $56.3 billion and $59.7 billion at December 31, 2016 and 2015, respectively. The weighted average duration of the portfolio, including fixed maturities, commercial mortgage loans, certain derivatives, and cash equivalents, was approximately 5.7 years and 5.5 years as of December 31, 2016 and 2015, respectively.

Investment contract liabilities and certain insurance product liabilities (e.g., fixed rate annuities) The Company’s issued investment contracts and certain insurance product liabilities, other than non-guaranteed separate accounts, include asset accumulation vehicles such as fixed annuities, guaranteed investment products, other investment and universal life-type contracts and certain insurance products such as long-term disability. The primary risk associated with these products is that, despite the use of market value adjustment features and surrender charges, the spread between investment return and credited rate may not be sufficient to earn targeted returns.

Asset accumulation vehicles primarily require a fixed rate payment, often for a specified period of time, and fixed rate annuities contain surrender values that are based upon a market value adjustment formula if held for shorter periods. In addition, certain products such as corporate owned life insurance contracts and the general account portion of Talcott Resolution's variable annuity products credit interest to policyholders subject to market conditions and minimum interest rate guarantees. As of December 31, 2016 and 2015, the Company had $5,189 and $5,615, respectively, of liabilities for fixed annuities and $194 and $192, respectively, of liabilities for guaranteed investment products.

Structured settlements and other non-investment type product liabilities The Company’s issued non-investment type contracts include structured settlement contracts, terminal funding agreements, on-benefit annuities (i.e., the annuitant is currently receiving benefits) and short-term and long-term disability contracts. The cash outflows associated with these policy liabilities are not interest rate sensitive but do vary based on timing. Similar to investment-type products, the aggregate cash flow payment streams are relatively predictable. Products in this category may rely upon actuarial pricing assumptions (including mortality and morbidity) and have an element of cash flow uncertainty. As of December 31, 2016 and 2015, the Company had $6,993 and $7,045, respectively, of liabilities for structured settlements and terminal funding agreements, $1,636 and $1,647, respectively, of liabilities for on-benefit payout annuities, and $4,947 and $5,029, respectively of reserves for short-term and long-term disability contracts.

Pension and other post-retirement benefit obligations The Company’s pension and other post-retirement benefit obligations are exposed to interest rate risk based upon the sensitivity of present value obligations to changes in liability discount rates. The discount rate assumption is based upon an interest rate yield curve that reflects high-quality fixed income investments consistent with the maturity profile of the expected liability cash flows. The Company is exposed to the risk of having to make additional plan contributions if the plans’ investment returns are lower than expected. (For further discussion of discounting pension and other postretirement benefit obligations, refer to Note 18 - Employee Benefit Plans of Notes to Consolidated Financial Statements.) As of December 31, 2016 and 2015, the Company had $1,106 and $1,443, respectively, of unfunded liabilities for pension and post-retirement benefit obligations recorded within Other Liabilities in the accompanying Balance Sheets.

Interest Rate Sensitivity

Invested Assets Supporting Fixed Liabilities

Included in the following table is the before-tax change in the net economic value of investment contracts, including structured settlements, fixed annuity contracts and terminal funding agreements issued by the Company’s Talcott Resolution segment, as well as disability contracts issued by the Company’s Group Benefits segment, for which the payment rates are fixed at contract issuance and/or the investment experience is substantially absorbed by the Company’s operations, along with the corresponding invested assets. Also included in this analysis are the interest rate sensitive derivatives used by the Company to hedge its exposure to interest rate risk in the investment portfolios supporting these contracts. This analysis does not include the assets and corresponding liabilities of certain insurance products such as auto, property, term life insurance, and certain life contingent annuities. Certain financial instruments, such as limited partnerships and other alternative investments, have been omitted from the analysis due to the fact that these investments generally lack sensitivity to interest rate changes. Insulated separate account assets and liabilities are excluded from the analysis because gains and losses in separate

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

accounts accrue to policyholders. The calculation of the estimated hypothetical change in net economic value below assumes a 100 basis point upward and downward parallel shift in the yield curve.

Interest Rate Sensitivity of Fixed Liabilities and Invested Assets Supporting Them

	Change in Net Economic Value as of December 31,
	2016						2015
Basis point shift	-100			+100			-100			+100
Increase (decrease) in economic value, before tax	$	(594	)	$	362		$	(420	)	$	261

The carrying value of assets supporting the fixed liabilities related to the businesses included in the table above was $25.0 billion and $25.3 billion, as of December 31, 2016 and 2015, respectively, and included fixed maturities, commercial mortgage loans and short-term investments. The assets supporting the fixed liabilities are monitored and managed within set duration guidelines and are evaluated on a daily basis, as well as annually, using scenario simulation techniques in compliance with regulatory requirements.

Invested Assets not Supporting Fixed Liabilities

The following table provides an analysis showing the estimated before-tax change in the fair value of the Company’s investments and related derivatives, excluding assets supporting fixed liabilities which are included in the table above, assuming 100 basis point upward and downward parallel shifts in the yield curve as of December 31, 2016 and 2015. Certain financial instruments, such as limited partnerships and other alternative investments, have been omitted from the analysis due to the fact that these investments generally lack sensitivity to interest rate changes.

Interest Rate Sensitivity of Invested Assets Not Supporting Fixed Liabilities

	Change in Fair Value as of December 31,
	2016						2015
Basis point shift	-100			+100			-100			+100
Increase (decrease) in fair value, before tax	$	2,204		$	(2,052	)	$	2,186		$	(2,063	)

The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the table above was $40.2 billion and $41.9 billion, as of December 31, 2016 and 2015, respectively. The selection of the 100 basis point parallel shift in the yield curve was made only as an illustration of the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results could differ materially from those illustrated above due to the nature of the estimates and assumptions used in the above analysis. The Company’s sensitivity analysis calculation assumes that the composition of invested assets and liabilities remain materially consistent throughout the year and that the current relationship between short-term and long-term interest rates will remain constant over time. As a result, these calculations may not fully capture the impact of portfolio re-allocations, significant product sales or non-parallel changes in interest rates.

Equity Risk

Equity risk is the risk of financial loss due to changes in the value of global equities or equity indices.

Sources of Equity Risk The Company has exposure to equity risk from general account assets, variable annuity and mutual fund assets under management, embedded derivatives within the Company’s variable annuity products, and assets that support the Company’s pension and other post retirement benefit plans. The Company's variable products are significantly influenced by the U.S. and other equity markets, as discussed below.

Impact Declines in equity markets may result in losses due to sales or impairments that are recognized as realized losses in earnings or in reductions in market value that are recognized as unrealized losses in accumulated other comprehensive income ("AOCI"). Declines in equity markets may also decrease the value of limited partnerships and other alternative investments or result in losses on derivatives, including on embedded product derivatives, thereby negatively impacting our reported earnings.

The Company’s variable annuity contracts and mutual funds are significantly influenced by the U.S. and other equity markets. Generally, declines in equity markets will:

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

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

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

•	increase the Company’s net amount at risk ("NAR"), described below, for GMDB and GMWB;

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

•	decrease the Company’s estimated future gross profits, resulting in a DAC unlock charge. See Estimated Gross Profits within the Critical Accounting Estimates section of the MD&A for further information.

Increases in equity markets will generally have the inverse impact of those listed in the preceding discussion.

Management The Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, reinsurance of product liabilities and hedging of changes in equity indexes.

Equity Risk on the Company’s Variable Annuity products is mitigated through the hedging programs described below, which are primarily focused on mitigating the economic exposure while considering the potential impacts on statutory and GAAP accounting results.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Assets and Liabilities Subject to Equity Risk

Equity investments in the general account portfolio The Company’s general account portfolio is exposed to losses from market declines affecting equity securities, alternative assets, and limited partnerships.

Guaranteed benefits, primarily associated with variable annuity products The Company may experience losses associated with GMDB or GMWB variable annuity guarantees when equity markets decline. (For further discussion, see the Managing equity risk on the Company's variable annuity products section below.)

Assets under management Mutual Funds and variable annuities businesses may experience lower earnings during equity market declines because fee income is earned based upon the value of assets under management.

Assets supporting pension and other post-retirement benefit plans The Company may be required to make additional plan contributions if equity investments in the plan portfolio decline in value. The asset allocation mix is reviewed on a periodic basis. In order to minimize the risk, the pension plans maintain a listing of permissible and prohibited investments and impose

concentration limits and investment quality requirements on permissible investment options. For further discussion of equity risk associated with the pension plans, see Note 18 Employee Benefit Plans of Notes to Consolidated Financial Statements.

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

The NAR is generally defined as the guaranteed minimum benefit amount in excess of the contractholder’s current account value. Variable annuity account values with guarantee features were $40.7 billion and $44.2 billion as of December 31, 2016 and December 31, 2015, respectively.

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

Total Variable Annuity Guarantees as of December 31, 2016

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

Total Variable Annuity Guarantees as of December 31, 2015

($ in billions)	Account Value			Gross Net Amount at Risk			Retained Net Amount at Risk			% of Contracts In the Money [2]		% In the Money [2] [3]
U.S. Variable Annuity [1]
GMDB	$	44.2		$	4.2		$	1.1		55	%	9	%
GMWB	20.2			0.2			0.2			11	%	9	%

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

[2]	Excludes contracts that are fully reinsured.

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

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

The Company expects to incur GMDB payments in the future only if the policyholder has an “in the money” GMDB at their death.

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

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

basis and the “life-time” GMWB payments may exceed the GRB, the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than the Company’s current carried liability. For additional information on the Company’s GMWB liability, see Note 5 - Fair Value Measurements of Notes to Consolidated Financial Statements. For additional information on the Company's GMDB liability, see Note 12 - Reserve for Future Policy Benefits and Separate

Account Liabilities of Notes to Consolidated Financial Statements.

Variable Annuity Market Risk Exposures

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

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

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

Variable Annuity Hedging Program

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

Reinsurance

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

GMWB Hedge Program

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

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

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

Macro Hedge Program

The Company’s macro hedging program uses derivative instruments, such as options and futures on equities and interest rates, to provide protection against the statutory tail scenario risk arising from GMWB and GMDB liabilities on the Company’s statutory surplus. These macro hedges cover some of the residual risks not otherwise covered by the dynamic hedging program. Management assesses this residual risk under various scenarios in designing and executing the macro hedge program. The macro hedge program will result in additional U.S. GAAP earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in GAAP liabilities.

Variable Annuity Hedging Program Sensitivities

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

The following table presents our estimates of the potential instantaneous impacts from sudden market stresses related to equity market prices, interest rates, and implied market volatilities. The following sensitivities represent: (1) the net estimated difference between the change in the fair value of GMWB liabilities and the underlying hedge instruments and (2) the estimated change in fair value of the hedge instruments for the macro program, before the impacts of amortization of DAC and taxes. As noted in the preceding discussion, certain hedge assets are used to hedge liabilities that are not carried at fair value and will not have a liability offset in the U.S. GAAP sensitivity analysis. All sensitivities are measured as of December 31, 2016 and are related to the fair value of liabilities and hedge instruments in place at that date for the Company’s variable annuity hedge programs. The impacts presented in the table that follows are estimated individually and measured without consideration of any correlation among market risk factors.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

GAAP Sensitivity Analysis (before tax and DAC) as of December 31, 2016[1]

	GMWB									Macro
Equity Market Return	-20		%	-10		%	10		%	-20		%	-10		%	10		%
Potential Net Fair Value Impact	$	(3	)	$	1		$	(5	)	$	265		$	112		$	(80	)
Interest Rates	-50bps			-25bps			+25bps			-50bps			-25bps			+25bps
Potential Net Fair Value Impact	$	(3	)	$	(1	)	$	(1	)	$	6		$	3		$	(2	)
Implied Volatilities	10		%	2		%	-10		%	10		%	2		%	-10		%
Potential Net Fair Value Impact	$	(69	)	$	(14	)	$	67		$	136		$	27		$	(125	)

[1]	These sensitivities are based on the following key market levels as of December 31, 2016: 1) S&P of 2,239; 2) 10yr US swap rate of 2.38%; and 3) S&P 10yr volatility of 27.06%.

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

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

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

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

Foreign Currency Exchange Risk

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

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

Impact Changes in relative values between currencies can create variability in cash flows and realized or unrealized gains and losses on changes in the fair value of assets and liabilities.

Based on the fair values of the Company’s non-U.S. dollar denominated securities and derivative instruments as of December 31, 2016 and 2015, management estimates that a hypothetical 10% unfavorable change in exchange rates would decrease the fair values by a before-tax total of $11 and $48, respectively, and as of December 31, 2016 excludes the impact of the assets that transferred to held for sale related to the U.K. property and casualty run-off subsidiaries . Actual results could differ materially due to the nature of the estimates and assumptions used in the analysis.

Management The open foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using

currency futures/forwards/swaps. In order to manage the currency risk related to any non-U.S. dollar denominated liability contracts, the Company enters into foreign currency swaps or holds non-U.S. dollar denominated investments.

Assets and Liabilities Subject to Foreign Currency Exchange Risk

Non-U.S. dollar denominated fixed maturities, equities, and cash The fair values of the non-U.S. dollar denominated fixed maturities and equities, excluding assets held for sale, at December 31, 2016 and 2015 were approximately $283 and $921, respectively. Included in these amounts are $121 and $530 at December 31, 2016 and 2015, respectively, related to non-U.S. dollar denominated fixed maturities and equities that directly support liabilities denominated in the same currencies. The currency risk of the remaining non-U.S. dollar denominated fixed maturities and equities are hedged with foreign currency swaps. In addition, the Company holds $726 of yen-denominated cash, of which $520 is hedged with foreign currency forwards and $206 is derivative cash collateral pledged by counterparties and has an offsetting collateral liability.

Yen denominated fixed payout annuities under a reinsurance contract The Company has entered into pay U.S. dollar, receive yen swap contracts to hedge the currency exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.

Investment in a P&C run-off entity in the United Kingdom During 2015, the Company entered into certain foreign currency forwards to hedge the currency impacts on changes in equity of a P&C run-off entity in the United Kingdom. At December 31, 2016 and 2015, the derivatives used to hedge the currency impacts had a total notional amount of $200 and $191, respectively, and a total fair value of $(2) and $6, respectively.

Non-U.S. dollar denominated funding agreement liability contracts The Company hedged the foreign currency risk associated with these liability contracts with currency rate swaps. At December 31, 2016

and 2015, the derivatives used to hedge foreign currency exchange risk related to foreign denominated liability contracts had a total notional amount of $94 and $94, and a total fair value of $(26) and $(26), respectively.

Financial Risk on Statutory Capital

Statutory surplus amounts and risk-based capital (“RBC”) ratios may increase or decrease in any period depending upon a variety of factors and may be compounded in extreme scenarios or if multiple factors occur at the same time. In general, as equity market levels and interest rates decline, the amount and volatility of both our actual or potential obligation, as well as the related statutory surplus and capital margin can be materially negatively affected, sometimes at a greater than linear rate. At times the impact of changes in certain market factors or a combination of multiple factors on RBC ratios can be counterintuitive. Factors include:

•	Differences in performance of variable subaccounts relative to indices and/or realized equity and interest rate volatilities may affect RBC ratios.

•

Rising equity markets will generally result in an increase in statutory surplus and RBC ratios. 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. The Company has reinsured approximately 39% of its risk associated with GMWB and 79% of its risk associated with the aggregate GMDB exposure. These reinsurance agreements reduce the Company’s exposure to changes in the statutory reserves and the related capital and RBC ratios associated with changes in the capital markets.

•	A decrease in the value of certain fixed-income and equity securities in our investment portfolio, due in part to credit spreads widening, may result in a decrease in statutory surplus and RBC ratios.

•

Credit spreads on invested 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, the calculation of statutory reserves for fixed MVA annuities will not substantially offset the change in fair value of the statutory separate account assets resulting in reductions in statutory surplus.

•	Decreases in the value of certain derivative instruments that do not get hedge accounting, may reduce statutory surplus and RBC ratios.

•	Sustained low interest rates with respect to the fixed annuity business may result in a reduction in statutory surplus and an increase in NAIC required capital.

•	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.

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.

Investment Portfolio Risk

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

Fixed Maturities by Credit Quality

	December 31, 2016								December 31, 2015
	Amortized Cost			Fair Value			Percent of Total Fair Value		Amortized Cost			Fair Value			Percent of Total Fair Value
United States Government/Government agencies	$	7,474		$	7,626		13.6	%	$	7,911		$	8,179		13.8	%
AAA	6,733			6,969			12.5	%	6,980			7,195			12.2	%
AA	8,764			9,182			16.4	%	9,943			10,584			17.9	%
A	14,169			14,996			26.8	%	14,297			15,128			25.5	%
BBB	13,399			13,901			24.8	%	14,598			14,918			25.2	%
BB & below	3,266			3,329			5.9	%	3,236			3,192			5.4	%
Total fixed maturities, AFS	$	53,805		$	56,003		100	%	$	56,965		$	59,196		100	%

The fair value of AFS securities decreased, as compared with December 31, 2015, due to the continued run-off of Talcott Resolution and the transfer of assets to assets held for sale related to the U.K. property and casualty run-off subsidiaries. For further discussion on the disposition, see Note 2 - Business Acquisitions, Dispositions and Discontinued Operations of Notes

to Consolidated Financial Statements. In addition, the decline relates to an increase in short-term investments until those assets are reinvested into longer duration asset classes. Fixed maturities, FVO, are not included in the preceding table. For further discussion on FVO securities, see Note 5 - Fair Value Measurements of Notes to Consolidated Financial Statements.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Securities by Type

	December 31, 2016														December 31, 2015
	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Percent of Total Fair Value		Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Percent of Total Fair Value
Asset-backed securities ("ABS")
Consumer loans	$	2,057		$	10		$	(30	)	$	2,037		3.6	%	$	2,183		$	6		$	(40	)	$	2,149		3.6	%
Small business	86			3			(1		)	88			0.2	%	123			12			(4		)	131			0.2	%
Other	253			4			—			257			0.5	%	214			6			(1		)	219			0.4	%
Collateralized debt obligations ("CDOs")
Collateralized loan obligations ("CLOs")	1,597			7			(4		)	1,600			2.9	%	2,514			4			(21		)	2,497			4.2	%
Commercial real estate ("CREs")	18			30			—			48			0.1	%	91			42			(1		)	132			0.2	%
Other [1]	238			30			—			268			0.5	%	384			29			(1		)	409			0.7	%
CMBS
Agency backed [2]	1,439			24			(20		)	1,443			2.6	%	1,224			34			(8		)	1,250			2.1	%
Bonds	2,681			62			(33		)	2,710			4.7	%	2,725			58			(29		)	2,754			4.7	%
Interest only (“IOs”)	787			11			(15		)	783			1.4	%	719			13			(19		)	713			1.2	%
Corporate
Basic industry	1,071			61			(9		)	1,123			2.0	%	1,161			55			(45		)	1,171			2.0	%
Capital goods	1,522			110			(15		)	1,617			2.9	%	1,781			110			(15		)	1,876			3.2	%
Consumer cyclical	1,517			78			(10		)	1,585			2.8	%	1,848			68			(24		)	1,892			3.2	%
Consumer non-cyclical	3,792			206			(45		)	3,953			7.1	%	3,735			196			(24		)	3,907			6.6	%
Energy	2,098			142			(17		)	2,223			4.0	%	2,276			84			(111		)	2,249			3.8	%
Financial services	4,806			262			(32		)	5,036			9.0	%	6,083			246			(63		)	6,266			10.6	%
Tech./comm.	3,385			265			(20		)	3,630			6.5	%	3,553			229			(62		)	3,720			6.3	%
Transportation	896			46			(7		)	935			1.7	%	869			43			(10		)	902			1.5	%
Utilities	5,024			326			(65		)	5,285			9.3	%	4,395			299			(60		)	4,634			7.8	%
Other	269			14			(4		)	279			0.5	%	175			12			(2		)	185			0.3	%
Foreign govt./govt. agencies	1,164			33			(26		)	1,171			2.1	%	1,321			34			(47		)	1,308			2.2	%
Municipal bonds
Taxable	1,497			116			(20		)	1,593			2.8	%	1,315			92			(9		)	1,398			2.4	%
Tax-exempt	9,328			616			(51		)	9,893			17.7	%	9,809			916			(2		)	10,723			18.1	%
RMBS
Agency	2,493			39			(28		)	2,504			4.5	%	2,206			64			(6		)	2,264			3.8	%
Non-agency	178			3			(1		)	180			0.3	%	89			2			—			91			0.2	%
Alt-A	117			2			—			119			0.2	%	68			1			—			69			0.1	%
Sub-prime	1,950			22			(8		)	1,964			3.5	%	1,623			15			(16		)	1,622			2.7	%
U.S. Treasuries	3,542			182			(45		)	3,679			6.6	%	4,481			222			(38		)	4,665			7.9	%
Fixed maturities, AFS	53,805			2,704			(506		)	56,003			100	%	56,965			2,892			(658		)	59,196			100	%
Equity securities
Financial services	203			15			(1		)	217			19.8	%	159			1			(2		)	158			18.8	%
Other	817			81			(18		)	880			80.2	%	683			37			(39		)	681			81.2	%
Equity securities, AFS	1,020			96			(19		)	1,097			100	%	842			38			(41		)	839			100	%
Total AFS securities	$	54,825		$	2,800		$	(525	)	$	57,100				$	57,807		$	2,930		$	(699	)	$	60,035
Fixed maturities, FVO										$	293													$	503
Equity, FVO [3]										$	—													$	282

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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

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

The fair value of AFS securities decreased, as compared with December 31, 2015, due to the continued run-off of Talcott Resolution and the transfer of $619 in assets to assets held for sale related to the U.K. property and casualty run-off subsidiaries. For further discussion on the disposition, see Note 2 - Business Acquisitions, Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements. The Company also reduced its allocation to financial services and U.S. Treasuries and purchased RMBS.

European Exposure

Certain economies in the European region have experienced adverse economic conditions in recent years, specifically in Europe’s peripheral region (Greece, Ireland, Italy, Portugal and Spain). While some economic conditions have improved, continued slow GDP growth, elevated unemployment levels and increased volatility in the financial markets following the United Kingdom’s referendum to withdraw from the European Union may continue to put pressure on sovereign debt. The Company manages the credit risk associated with the European securities within the investment portfolio on an on-going basis using several processes which are supported by macroeconomic analysis and issuer credit analysis. For additional details regarding the Company’s management of credit risk, see the Credit Risk section of this MD&A.

As of December 31, 2016, the Company’s European investment exposure had an amortized cost and fair value of $3.4 billion and

$3.6 billion, respectively, or 5% of total invested assets; as of December 31, 2015, amortized cost and fair value totaled $4.2 billion and $4.3 billion, respectively. The investment exposure largely relates to corporate entities which are domiciled in or generate a significant portion of their revenue within the United Kingdom, the Netherlands, Germany and Switzerland. The Company does not hold any sovereign exposure to the peripheral region and does not hold any exposure to issuers in Greece. As of both December 31, 2016 and 2015, the weighted average credit quality of European investments was A-. Entities domiciled in the United Kingdom comprise the Company's largest exposure; as of December 31, 2016 and 2015, the U.K. exposure totals less than 2% of total invested assets and largely relates to industrial and financial services corporate securities and has an average credit rating of BBB+. The majority of the European investments are U.S. dollar-denominated, and those securities that are British pound or euro-denominated are hedged to U.S. dollars. For a discussion of foreign currency risks, see the Foreign Currency Exchange Risk section of this MD&A.

Financial Services

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

Financial Services by Credit Quality

	December 31, 2016									December 31, 2015
	Amortized Cost			Fair Value			Net Unrealized Gain/(Loss)			Amortized Cost			Fair Value			Net Unrealized Gain/(Loss)
AAA	$	13		$	15		$	2		$	40		$	42		$	2
AA	583			602			19			747			763			16
A	2,219			2,354			135			2,922			3,025			103
BBB	1,856			1,934			78			2,133			2,188			55
BB & below	338			348			10			400			406			6
Total [1]	$	5,009		$	5,253		$	244		$	6,242		$	6,424		$	182

[1]	Includes equity, AFS securities with an amortized cost and fair value of $203 and $217, respectively as of December 31, 2016 and an amortized cost and fair value of $159 and $158, respectively, as of December 31, 2015 included in the AFS by type table above.

The Company's investment in the financial services sector decreased, as compared to December 31, 2016, due to sales of corporate securities.

Commercial Real Estate

Through December 31, 2016, commercial real estate market conditions, including property prices, occupancies, financial conditions, transaction volume, and delinquencies, continued to improve. In addition, the availability of credit has increased and there is now less concern about the ability of borrowers to refinance as loans come due.

The following table presents the Company’s exposure to CMBS bonds by current credit quality and vintage year included in the preceding Securities by Type table. Credit protection represents the current weighted average percentage of the outstanding capital structure subordinated to the Company’s investment holding that is available to absorb losses before the security incurs the first dollar loss of principal and excludes any equity interest or property value in excess of outstanding debt.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Exposure to CMBS Bonds as of December 31, 2016

	AAA						AA						A						BBB						BB and Below						Total
Vintage Year [1]	Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value
2005 & Prior	$	111		$	120		$	49		$	55		$	3		$	3		$	5		$	5		$	1		$	1		$	169		$	184
2006	10			11			5			5			2			2			4			4			—			—			21			22
2007	122			127			83			83			97			97			5			5			21			21			328			333
2008	35			36			—			—			—			—			—			—			—			—			35			36
2009	11			11			—			—			—			—			—			—			—			—			11			11
2010	18			19			8			8			—			—			—			—			—			—			26			27
2011	55			59			—			—			13			13			2			2			—			—			70			74
2012	40			41			6			6			30			30			20			18			—			—			96			95
2013	16			17			95			99			110			113			4			4			—			—			225			233
2014	301			309			64			65			72			70			1			1			—			—			438			445
2015	210			210			200			198			207			206			87			87			—			—			704			701
2016	132			130			249			242			113			113			64			64			—			—			558			549
Total	$	1,061		$	1,090		$	759		$	761		$	647		$	647		$	192		$	190		$	22		$	22		$	2,681		$	2,710
Credit protection	33.3%						22.4%						18.0%						16.2%						32.5%						25.3%

Exposure to CMBS Bonds as of December 31, 2015

	AAA						AA						A						BBB						BB and Below						Total
Vintage Year [1]	Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value
2005 & Prior	$	110		$	119		$	77		$	83		$	5		$	5		$	5		$	5		$	2		$	2		$	199		$	214
2006	149			151			102			104			140			141			61			62			22			22			474			480
2007	202			206			170			178			81			83			20			20			51			52			524			539
2008	37			38			—			—			—			—			—			—			—			—			37			38
2009	11			11			—			—			—			—			—			—			—			—			11			11
2010	18			19			8			8			—			—			—			—			—			—			26			27
2011	55			59			—			—			—			—			23			23			—			—			78			82
2012	40			40			6			6			26			26			33			32			—			—			105			104
2013	16			16			95			97			79			80			9			10			1			1			200			204
2014	329			335			58			58			69			68			6			6			2			2			464			469
2015	201			197			163			158			172			165			71			66			—			—			607			586
Total	$	1,168		$	1,191		$	679		$	692		$	572		$	568		$	228		$	224		$	78		$	79		$	2,725		$	2,754
Credit protection	32.9%						25.8%						18.4%						16.6%						18.7%						26.3%

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

The Company also has exposure to CRE CDOs with an amortized cost and fair value of $18 and $48, respectively, as of December 31, 2016, and $91 and $132, respectively, as of December 31, 2015. These securities are comprised of pools of commercial mortgage loans or equity positions of other CMBS securitizations.

In addition to CMBS bonds and CRE CDOs, the Company has exposure to commercial mortgage loans as presented in the following table. These loans are collateralized by a variety of commercial properties and are diversified both geographically throughout the United States and by property type. These loans

are primarily in the form of whole loans, where the Company is the sole lender, but may include participations. Loan participations are loans where the Company has purchased or retained a portion of an outstanding loan or package of loans and participates on a pro-rata basis in collecting interest and principal pursuant to the terms of the participation agreement. In general, A-Note participations have senior payment priority, followed by B-Note participations. As of December 31, 2016, loans within the Company’s mortgage loan portfolio that have had extensions or restructurings, other than what is allowable under the original terms of the contract, are immaterial.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Commercial Mortgage Loans

	December 31, 2016									December 31, 2015
	Amortized Cost [1]			Valuation Allowance			Carrying Value			Amortized Cost [1]			Valuation Allowance			Carrying Value
Whole loans	$	5,580		$	(19	)	$	5,561		$	5,491		$	(23	)	$	5,468
A-Note participations	136			—			136			139			—			139
B-Note participations	—			—			—			17			—			17
Total	$	5,716		$	(19	)	$	5,697		$	5,647		$	(23	)	$	5,624

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

During 2016, the Company funded $516 of commercial whole loans with a weighted average loan-to-value (“LTV”) ratio of 63% and a weighted average yield of 3.6%. The Company continues to originate commercial whole loans within primary markets, such as office, industrial and multi-family, focusing on loans with strong LTV ratios and high quality property collateral. There were no mortgage loans held for sale as of December 31, 2016 or December 31, 2015.

Year ended December 31, 2016

•	Valuation allowances on mortgage loans decreased $4, largely driven by paydowns.

Year ended December 31, 2015

•	Valuation allowances on mortgage loans increased $5, largely driven by individual property performance.

Year ended December 31, 2014

•	Valuation allowances on mortgage loans increased $4, largely driven by individual property performance.

Municipal Bonds

The following table presents the Company’s exposure to municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table.

Available For Sale Investments in Municipal Bonds

	December 31, 2016										December 31, 2015
	Amortized Cost				Fair Value				Weighted Average Credit Quality		Amortized Cost				Fair Value				Weighted Average Credit Quality
General Obligation	$	1,809			$	1,907			AA		$	2,069			$	2,243			AA
Pre-refunded [1]	1,590				1,693				AAA		850				903				AAA
Revenue
Transportation	1,591				1,724				A+		1,566				1,744				A+
Health Care	1,216				1,285				AA-		1,371				1,499				AA-
Water & Sewer	1,019				1,066				AA		1,228				1,324				AA
Education	988				1,023				AA		1,109				1,205				AA
Sales Tax	574				627				AA		692				779				AA-
Leasing [2]	681				734				AA-		728				803				AA-
Power	571				605				A+		658				709				A+
Housing	136				140				A		91				94				AA
Other	650				682				AA-		762				818				AA-
Total Revenue	7,426				7,886				AA-		8,205				8,975				AA-
Total Municipal	$	10,825			$	11,486			AA		$	11,124			$	12,121			AA-

[1]	Pre-Refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest.

[2]

Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.

As of December 31, 2016 and December 31, 2015, the largest issuer concentrations were the state of California, the Commonwealth of Massachusetts, and the New York Dormitory Authority, which each comprised less than 3% of the municipal

bond portfolio and were primarily comprised of general obligation and revenue bonds.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Limited Partnerships and Other Alternative Investments

The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity and other funds. Since December 31, 2015, the Company has reduced

the allocation to hedge funds. Real estate funds consist of investments primarily in real estate equity funds, including some funds with public market exposure, and real estate joint ventures. Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small to mid-sized non-public businesses with high growth potential as well as limited exposure to public markets.

Investments in Limited Partnerships and Other Alternative Investments

	December 31, 2016					December 31, 2015
	Amount			Percent		Amount			Percent
Hedge funds	$	536		21.8	%	$	1,034		36.0	%
Real estate funds	629			25.6	%	576			20.0	%
Private equity and other funds	1,291			52.6	%	1,264			44.0	%
Total	$	2,456		100	%	$	2,874		100	%

Available-for-sale Securities — Unrealized Loss Aging

The total gross unrealized losses were $525 as of December 31, 2016, and have decreased $174, or 25%, from December 31, 2015, due to tighter credit spreads, partially offset by higher interest rates. As of December 31, 2016, $502 of the gross unrealized losses were associated with securities depressed less than 20% of cost or amortized cost. The remaining $23 of gross unrealized losses were associated with securities depressed greater than 20%. The securities depressed more than 20% are primarily securities with exposure to commercial real estate and corporate securities which are depressed primarily due to wider credit spreads since the securities were purchased.

As part of the Company’s ongoing security monitoring process, the Company has reviewed its AFS securities in an unrealized loss position and concluded that these securities are temporarily depressed and are expected to recover in value as the securities approach maturity or as market spreads tighten. For these securities in an unrealized loss position where a credit impairment has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities. For further information regarding the Company’s impairment analysis, see Other-Than-Temporary Impairments in the Investment Portfolio Risks and Risk Management section of this MD&A.

Unrealized Loss Aging for AFS Securities

	December 31, 2016											December 31, 2015
Consecutive Months	Items		Cost or Amortized Cost			Fair Value			Unrealized Loss [1]			Items		Cost or Amortized Cost			Fair Value			Unrealized Loss [1]
Three months or less	2,119		$	11,299		$	11,037		$	(262	)	2,094		$	10,535		$	10,398		$	(137	)
Greater than three to six months	1,109		2,039			1,934			(105		)	819		2,837			2,735			(102		)
Greater than six to nine months	151		484			456			(28		)	933		4,421			4,194			(227		)
Greater than nine to eleven months	151		452			441			(11		)	329		1,302			1,242			(60		)
Twelve months or more	657		2,565			2,446			(119		)	675		3,072			2,896			(173		)
Total	4,187		$	16,839		$	16,314		$	(525	)	4,850		$	22,167		$	21,465		$	(699	)

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

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unrealized Loss Aging for AFS Securities Continuously Depressed Over 20%

	December 31, 2016											December 31, 2015
Consecutive Months	Items		Cost or Amortized Cost			Fair Value			Unrealized Loss [1]			Items		Cost or Amortized Cost			Fair Value			Unrealized Loss [1]
Three months or less	83		$	24		$	18		$	(6	)	240		$	288		$	212		$	(76	)
Greater than three to six months	38		13			9			(4		)	130		77			51			(26		)
Greater than six to nine months	21		14			10			(4		)	5		3			2			(1		)
Greater than nine to eleven months	11		1			—			(1		)	6		12			8			(4		)
Twelve months or more	56		19			11			(8		)	50		28			18			(10		)
Total	209		$	71		$	48		$	(23	)	431		$	408		$	291		$	(117	)

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

Other-than-temporary Impairments Recognized in Earnings by Security Type

	For the years ended December 31,
	2016			2015			2014
CRE CDOs	—			1			—
CMBS	2			3			3
Corporate	46			71			35
Equity	7			16			11
Municipal	—			2			3
RMBS	—			1			4
Foreign government	—			5			—
U.S. Treasuries	1			—			—
Other	—			3			3
Total	$	56		$	102		$	59

Year ended December 31, 2016

For the year ended December 31, 2016, impairments recognized in earnings were comprised of credit impairments of $43, impairments on equity securities of $7, and securities that the Company intends to sell ("intent-to-sell impairments") of $6.

For the year ended December 31, 2016, credit impairments were primarily related to corporate securities and were identified through security specific reviews and resulted from changes in the financial condition of the issuer. The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific trends, as well as our expectations with respect to security specific developments. Impairments on equity securities were comprised of securities in an unrealized loss position that the Company does not believe will recover in the foreseeable future. Intent-to-sell impairments for the year ended December 31, 2016 were primarily comprised of securities in the corporate sector.

Non-credit impairments recognized in other comprehensive income were $8 for the year ended December 31, 2016. These non-credit impairments represent the excess of the Company’s best estimate of the discounted expected future cash flows over the fair value.

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

Year ended December 31, 2015

For the year ended December 31, 2015, impairments recognized in earnings were comprised of intent-to-sell impairments of $54 and credit impairments of $29, both of which were primarily concentrated in corporate securities. Also, impairments recognized in earnings included impairments on equity securities of $16 that were in an unrealized loss position and the Company no longer believed the securities would recover in the foreseeable future, as well as $3 of other impairments.

Year ended December 31, 2014

For the year ended December 31, 2014, impairments recognized in earnings were comprised of credit impairments of $37, primarily concentrated in corporate securities. Also, included were impairments on debt securities for which the Company had the intent-to-sell of $17, primarily related to equity, AFS securities. In addition, impairments recognized in earnings included impairments on equity securities of $2 that were in an unrealized loss position and the Company no longer believed the securities would recover in the foreseeable future.

CAPITAL RESOURCES AND LIQUIDITY

The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY

Capital available at the holding company as of December 31, 2016:

•	$1.2 billion in fixed maturities, short-term investments and cash at HFSG Holding Company

•	$500 in contingent capital facility. In February of 2017, the Company issued $500 of junior subordinated notes under the facility

•	Borrowings available under a commercial paper program to a maximum of $1 billion. As of December 31, 2016 there was no commercial paper outstanding

•	A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to $1 billion of unsecured credit through October 31, 2019. No borrowings were outstanding as of December 31, 2016

Expected liquidity requirements for the next twelve months as of December 31, 2016:

•	$650 reinsurance premium which was paid on January 6, 2017

•	$416 maturing debt payment due in March of 2017

•	$320 interest on debt

•	$340 common stockholders dividends, subject to the discretion of the Board of Directors

Equity repurchase program:

•	Authorization for equity repurchases of up to $1.3 billion for the period October 31, 2016 through December 31, 2017.

• $1.3 billion remaining as of December 31, 2016

2017 subsidiary dividend capacity:

•	Dividend capacity of $1.5 billion for property and casualty subsidiaries with $850 net dividends expected in 2017.

•	Dividend capacity of $207 for Hartford Life and Accident Insurance Company ("HLA") with $250 of dividends expected in 2017, subject to regulatory approval.

•	Dividend capacity of $1.0 billion for Hartford Life Insurance Company. On January 30, 2017, Hartford Life Insurance Company ("HLIC") paid a dividend of $300. HFSG Holding Company anticipates receiving an additional $300 of dividends from HLIC during 2017.

Liquidity Requirements and Sources of Capital

The Hartford Financial Services Group, Inc. (Holding Company)

The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. (“HFSG Holding Company”) have been and will continue to be met by HFSG Holding Company’s fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities, as needed.

As of December 31, 2016, HFSG Holding Company held fixed maturities, short-term investments and cash of $1.2 billion. Expected liquidity requirements of the HFSG Holding Company for the next twelve months include payments of 5.375% Notes, due 2017 of $416 at maturity, interest payments on debt of approximately $320 and common stockholder dividends, subject to discretion of the Board of Directors, of approximately $340.

The Hartford has an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2 billion for liquidity and other general corporate purposes. The Connecticut Insurance Department ("CTDOI") granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including the HFSG Holding Company, as admitted assets for statutory accounting purposes. As of December 31, 2016, there were no amounts outstanding from the HFSG Holding Company.

Debt

On October 17, 2016, the Company repaid its $275, 5.5% senior notes at maturity.

On February 15, 2017, pursuant to the put option agreement with the Glen Meadow ABC Trust, the Company issued $500 junior subordinated notes with a scheduled maturity of February 12, 2047, and a final maturity of February 12, 2067. The junior subordinated notes bear interest at an annual rate of three-month LIBOR plus 2.125%, payable quarterly. The Hartford will have the right, on one or more occasions, to defer interest payments due on the junior subordinated notes under specified circumstances. The Company expects to use the proceeds to fund the call of $500 in 8.125% junior subordinated debentures that are due 2068 and that are first callable in June 2018. As such, the proceeds of the $500 of junior subordinated notes issued under the contingent capital facility will be held at the holding company until June of 2018, resulting in an increase in debt to capital ratios during that time.

For further information regarding debt, see Note 13 - Debt of Notes to Consolidated Financial Statements.

Intercompany Liquidity Agreements

On January 5, 2017, Hartford Fire Insurance Company, a subsidiary of the Company, issued a Revolving Note (the "Note") in the principal amount of $230 to Hartford Accident and Indemnity Company, an indirectly wholly-owned subsidiary of the Company, under the intercompany liquidity agreement. The note was issued to fund the liquidity needs associated with the $650

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

ceded premium paid in January 2017 for the adverse development cover with NICO. The Note bears interest at 1.85% and matures on December 29, 2017.

Equity

In October 2016, the Board of Directors authorized a new equity repurchase program for $1.3 billion for the period commencing October 31, 2016 through December 31, 2017. The $1.3 billion authorization is in addition to the Company's prior authorization for $4.375 billion, which was completed by December 31, 2016. As of December 31, 2016, the Company had $1.3 billion remaining under its new equity repurchase program. Any repurchase of shares under the equity repurchase program is dependent on market conditions and other factors.

During the year ended December 31, 2016, the Company repurchased 30.8 million common shares for $1,330. During the period January 1, 2017 through February 22, 2017, the Company repurchased 4.0 million common shares for $192.

Dividends

On February 23, 2017, The Hartford’s Board of Directors declared a quarterly dividend of $0.23 per common share payable on April 3, 2017 to common shareholders of record as of March 6, 2017. There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its shareholders. For a discussion of restrictions on dividends to the HFSG Holding Company from its insurance subsidiaries, see "Dividends from Insurance Subsidiaries" below. For a discussion of potential limitations on the HFSG Holding Company's ability to pay dividends, see Part I, Item 1A, — Risk Factors for the risk factor "Our ability to declare and pay dividends is subject to limitations" .

Pension Plans and Other Postretirement Benefits

While the Company has significant discretion in making voluntary contributions to the U. S. qualified defined benefit pension plan, minimum contributions are mandated in certain circumstances pursuant to the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, the Worker, Retiree, and Employer Recovery Act of 2008, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) and Internal Revenue Code regulations. The Company made contributions to the U. S. qualified defined benefit pension plan of approximately $300, $100 and $100 in 2016, 2015 and 2014, respectively. No contributions were made to the other postretirement plans in 2016, 2015 and 2014. The Company’s 2016, 2015 and 2014 required minimum funding contributions were immaterial. The Company does not have a 2017 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. The Company has not determined whether, and to what extent, contributions may be made to the U. S. qualified defined benefit pension plan in 2017. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2017 to make this determination.

Beginning in 2017, the Company will use a full yield-curve approach in the estimation of the interest cost component of net periodic benefit costs for its qualified and non-qualified pension plans and the postretirement benefit plan. The full yield curve

approach applies the specific spot rates along the yield curve that are used in its determination of the projected benefit obligation at the beginning of the year. The change is being made to provide a better estimate of the interest cost component of net periodic benefit cost by better aligning projected benefit cash flows with corresponding spot rates on the yield curve rather than using a single weighted average discount rate derived from the yield curve as had been done historically.

This change does not affect the measurement of the Company's total benefit obligations as the change in the interest cost in net income is completely offset in the actuarial (gain) loss reported for the period in other comprehensive income. The change will result in a reduction of the interest cost component of net periodic benefit cost for 2017 of $37 before tax. The discount rate that will be used to measure interest cost during 2017 is 3.58%, 3.55% and 3.13% for the qualified pension plan, non-qualified pension plan and postretirement benefit plan, respectively. Under the Company's historical estimation approach, the weighted average discount rate for the interest cost component would have been 4.22%, 4.19% and 3.97% for the qualified pension plan, non-qualified pension plan and postretirement benefit plan, respectively. The Company will account for the change in estimation approach as a change in estimate, and accordingly, will recognize the effect prospectively beginning in 2017.

Dividends from Insurance Subsidiaries

Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are domiciled or deemed commercially domiciled under applicable state insurance laws contain similar or in certain state(s) more restrictive limitations on the payment of dividends. In addition, if any dividend of a domiciled insurer exceeds the insurer's earned surplus or certain other thresholds as calculated under applicable state insurance law, the dividend requires the prior approval of the domestic regulator. Dividends paid to HFSG Holding Company by its life insurance subsidiaries are further dependent on cash requirements of Hartford Life, Inc. ("HLI") and other factors. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to, expected earnings and capitalization of the subsidiary, regulatory capital requirements and liquidity requirements of the individual operating company.

During 2016, HFSG Holding Company received approximately $1.2 billion in dividends from its property and casualty insurance subsidiaries. Dividends received from its property-casualty subsidiaries included approximately $440 funded through principal and interest payments on an intercompany note paid by

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company. In addition to the property and casualty insurance subsidiaries dividends, HFSG Holding Company received approximately $1 billion through a series of transactions with HLI’s life insurance subsidiaries.

2017 Dividend Capacity

•	P&C - The Company’s property and casualty insurance subsidiaries are permitted to pay up to a maximum of approximately $1.5 billion in dividends to HFSG Holding Company without prior approval from the applicable insurance commissioner. In 2017, HFSG Holding Company anticipates receiving net dividends of approximately $850 from its property and casualty insurance subsidiaries.

•	Group Benefits - Hartford Life and Accident Insurance Company ("HLA") is permitted to pay up to a maximum of $207 in dividends without prior approval from the insurance commissioner. In 2017, HFSG Holding Company anticipates receiving dividends of approximately $250 from HLA, subject to regulatory approval.

•

Talcott Resolution - Hartford Life Insurance Company ("HLIC") is permitted to pay up to a maximum of $1 billion in dividends to HFSG Holding Company without prior approval from the insurance commissioner. However, to meet the liquidity needed to pay dividends up to the HFSG Holding Company, HLIC may require receiving regulatory approval for extraordinary dividends from HLIC's wholly-owned subsidiary, Hartford Life and Annuity Insurance Company. On January 30, 2017, Hartford Life Insurance Company paid a dividend of $300. HFSG Holding Company anticipates receiving an additional $300 of dividends from HLIC during 2017.

Other Sources of Capital for the HFSG Holding Company

The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support its competitive position in the financial services marketplace (see the “Ratings” section below for further discussion), and shareholder returns. As a result, the Company may from time to time raise capital from the issuance of equity, equity-related debt or other capital securities and is continuously evaluating strategic opportunities. The issuance of debt, common equity, equity-related debt or other capital securities could result in the dilution of shareholder interests or reduced net income due to additional interest expense.

Shelf Registrations

On July 29, 2016, The Hartford filed with the Securities and Exchange Commission (the “SEC”) an automatic shelf registration statement (Registration No. 333-212778) for the potential offering and sale of debt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration

statement during the three-year life of the registration statement.

Contingent Capital Facility

The Hartford is party to a put option agreement that provides The Hartford with the right to require the Glen Meadow ABC Trust, a Delaware statutory trust, at any time and from time to time, to purchase The Hartford’s junior subordinated notes in a maximum aggregate principal amount not to exceed $500. On February 8, 2017, The Hartford exercised the put option resulting in the issuance of $500 in junior subordinated notes with proceeds received on February 15, 2017. Under the Put Option Agreement, The Hartford had been paying the Glen Meadow ABC Trust premiums on a periodic basis, calculated with respect to the aggregate principal amount of notes that The Hartford had the right to put to the Glen Meadow ABC Trust for such period. The Hartford has agreed to reimburse the Glen Meadow ABC Trust for certain fees and ordinary expenses. The Company holds a variable interest in the Glen Meadow ABC Trust where the Company is not the primary beneficiary. As a result, the Company does not consolidate the Glen Meadow ABC Trust.

The junior subordinated notes have a scheduled maturity of February 12, 2047, and a final maturity of February 12, 2067. The Company is required to use reasonable efforts to sell certain qualifying replacement securities in order to repay the debentures at the scheduled maturity date. The junior subordinated notes bear interest at an annual rate of three-month LIBOR plus 2.125%, payable quarterly, and are unsecured, subordinated indebtedness of The Hartford. The Hartford will have the right, on one or more occasions, to defer interest payments due on the junior subordinated notes under specified circumstances.

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

Commercial Paper and Revolving Credit Facility

Commercial Paper

The Hartford’s maximum borrowings available under its commercial paper program are $1 billion. The Company is dependent upon market conditions to access short-term financing through the issuance of commercial paper to investors. As of December 31, 2016 there was no commercial paper outstanding.

Revolving Credit Facilities

The Company has a senior unsecured five-year revolving credit facility (the “Credit Facility”) that provides for borrowing capacity up to $1 billion of unsecured credit through October 31, 2019 available in U.S. dollars, Euro, Sterling, Canadian dollars and Japanese Yen. As of December 31, 2016, no borrowings were outstanding under the Credit Facility. As of December 31, 2016, the Company was in compliance with all financial covenants within the Credit Facility.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of December 31, 2016 was $1.4 billion. Of this $1.4 billion, the legal entities have posted collateral of $1.7 billion in the normal course of business. In addition, the Company has posted collateral of $31 associated with a customized GMWB derivative. Based on derivative market values as of December 31, 2016, a downgrade of one level below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. Based on derivative market values as of December 31, 2016, a downgrade of two levels below the current financial strength ratings by either Moody’s or S&P would require additional $10 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.

As of December 31, 2016, the aggregate notional amount and fair value of derivative relationships that could be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings was $1.1 billion and $23, respectively. These amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated.

Insurance Operations

While subject to variability period to period, claim frequency and severity patterns and the level of policy surrenders continue to be within historical norms and, therefore, the Company’s insurance operations’ current liquidity position is considered to be sufficient to meet anticipated demands over the next twelve months. For a discussion and tabular presentation of the Company’s current contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A.

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, taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company.

The Company’s insurance operations consist of property and casualty insurance products (collectively referred to as “Property & Casualty Operations”) and life insurance and legacy annuity products (collectively referred to as “Life Operations”).

Property & Casualty Operations

Property & Casualty Operations holds fixed maturity securities including a significant short-term investment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs.

Property & Casualty

	As of
	December 31, 2016
Fixed maturities	$	24,488
Short-term investments	1,162
Cash	298
Less: Derivative collateral	218
Total	$	25,730

Liquidity requirements that are unable to be funded by Property & Casualty Operation’s short-term investments would be satisfied with current operating funds, including premiums received or through the sale of invested assets. A sale of invested assets could result in significant realized capital losses.

Life Operations

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

Life Operations

	As of
	December 31, 2016
Fixed maturities	$	30,956
Short-term investments	1,751
Cash	584
Less: Derivative collateral	1,239
Total	$	32,052

Capital resources available to fund liquidity upon contractholder surrender or termination are a function of the legal entity in which the liquidity requirement resides. Generally, obligations of Group Benefits will be funded by Hartford Life and Accident Insurance Company. Obligations of Talcott Resolution will generally be funded by Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company.

HLIC, an indirect wholly-owned subsidiary, is a member of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows HLIC access to collateralized advances, which may be used to support various spread-based businesses and enhance liquidity management. FHLBB membership requires the company to own member stock and advances require the purchase of activity stock. The amount of advances that can be taken are dependent on the asset types pledged to secure the advances. The CTDOI will permit HLIC to pledge up to $1.1 billion in qualifying assets to

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

secure FHLBB advances for 2017. The pledge limit is recalculated annually based on statutory admitted assets and capital and surplus. HLIC would need to seek the prior approval of the

CTDOI in order to exceed these limits. As of December 31, 2016, HLIC had no advances outstanding under the FHLBB facility.

Contractholder Obligations

	As of
	December 31, 2016
Total Life contractholder obligations	$	166,563
Less: Separate account assets [1]	115,665
General account contractholder obligations	$	50,898
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]	$	24,672
U.S. Fixed MVA annuities [3]	5,153
Other [4]	21,073
General account contractholder obligations	$	50,898

[1]

In the event customers elect to surrender separate account assets, Life Operations will use the proceeds from the sale of the assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In some instances Life Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life Operations’ liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see the following) will decrease Life Operations’ obligation for payments on guaranteed living and death benefits.

[2]	Relates to contracts such as payout annuities, institutional notes, term life, group benefit contracts, or death and living benefit reserves, which cannot be surrendered for cash.

[3]

Relates to annuities that are recorded in the general account under U.S. GAAP as the contractholders are subject to the Company's credit risk, although these annuities are held in a statutory separate account. In the statutory separate account, Life Operations is required to maintain invested assets with a fair value greater than or equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life Operations is required to contribute additional capital to the statutory separate account. Life Operations will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are at least equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life Operations.

[4]

Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Life Operations' individual variable annuities and the variable life contracts of the former Individual Life business, the general account option for annuities of the former Retirement Plans business and universal life contracts sold by the former Individual Life business, may be funded through operating cash flows of Life Operations, available short-term investments, or Life Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. The Company has ceded reinsurance in connection with the sales of its Retirement Plans and Individual Life businesses to MassMutual and Prudential, respectively. These reinsurance transactions do not extinguish the Company's primary liability on the insurance policies issued under these businesses.

Off-balance Sheet Arrangements and Aggregate Contractual Obligations

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company, except for the contingent capital facility described

above, as well as unfunded commitments to purchase investments in limited partnerships and other alternative investments, private placements, and mortgage loans as disclosed in Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements.

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Aggregate Contractual Obligations as of December 31, 2016

	Payments due by period
	Total			Less than 1 year			1-3 years			3-5 years			More than 5 years
Property and casualty obligations [1]	$	22,316		$	5,071		$	5,294		$	2,579		$	9,372
Life, annuity and disability obligations [2]	249,730			17,318			30,398			24,466			177,548
Operating lease obligations [3]	163			42			63			30			28
Long-term debt obligations [4]	10,501			726			1,270			942			7,563
Purchase obligations [5]	3,188			2,379			576			208			25
Other liabilities reflected on the balance sheet [6]	1,687			1,297			389			1			—
Total	$	287,585		$	26,833		$	37,990		$	28,226		$	194,536

[1]	The following points are significant to understanding the cash flows estimated for obligations (gross of reinsurance) under property and casualty contracts:

•

Reserves for Property & Casualty unpaid losses and loss adjustment expenses include IBNR and case reserves. While payments due on claim reserves are considered contractual obligations because they relate to insurance policies issued by the Company, the ultimate amount to be paid to settle both case reserves and IBNR is an estimate, subject to significant uncertainty. The actual amount to be paid is not finally determined until the Company reaches a settlement with the claimant. Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future.

•

In estimating the timing of future payments by year, the Company has assumed that its historical payment patterns will continue. However, the actual timing of future payments could vary materially from these estimates due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. In particular, there is significant uncertainty over the claim payment patterns of asbestos and environmental claims. In addition, the table does not include future cash flows related to the receipt of premiums that may be used, in part, to fund loss payments.

•

Under U.S. GAAP, the Company is only permitted to discount reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis. For the Company, these include claim settlements with permanently disabled claimants. As of December 31, 2016, the total property and casualty reserves in the above table are gross of a reserve discount of $483.

[2]

Estimated life, annuity and disability obligations (gross of reinsurance) include death and disability claims, policy surrenders, policyholder dividends and trail commissions offset by expected future deposits and premiums on in-force contracts. Estimated life, annuity and disability obligations are based on mortality, morbidity and lapse assumptions comparable with the Company’s historical experience, modified for recent observed trends. The Company has also assumed market growth and interest crediting consistent with other assumptions. In contrast to this table, the majority of the Company’s obligations are recorded on the balance sheet at the current account values and do not incorporate an expectation of future market growth, interest crediting, or future deposits. Therefore, the estimated obligations presented in this table significantly exceed the liabilities recorded in reserve for future policy benefits and unpaid losses and loss adjustment expenses, other policyholder funds and benefits payable, and separate account liabilities. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results.

[3]	Includes future minimum lease payments on operating lease agreements. See Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements for additional discussion on lease commitments.

[4]	Includes contractual principal and interest payments. See Note 13 - Debt of Notes to Consolidated Financial Statements for additional discussion of long-term debt obligations.

[5]

Includes $1.6 billion in commitments to purchase investments including approximately $1.2 billion of limited partnership and other alternative investments, $313 of private placements, and $95 of mortgage loans. Outstanding commitments under these limited partnerships and mortgage loans are included in payments due in less than 1 year since the timing of funding these commitments cannot be reliably estimated. The remaining commitments to purchase investments primarily represent payables for securities purchased which are reflected on the Company’s Consolidated Balance Sheets. Also included in purchase obligations is $962 relating to contractual commitments to purchase various goods and services such as maintenance, human resources, and information technology in the normal course of business. Purchase obligations exclude contracts that are cancelable without penalty or contracts that do not specify minimum levels of goods or services to be purchased.

[6]

Includes cash collateral of $387 which the Company has accepted in connection with the Company’s derivative instruments. Since the timing of the return of the collateral is uncertain, the return of the collateral has been included in the payments due in less than 1 year. Also included in other long-term liabilities are net unrecognized tax benefits of $12, retained yen denominated fixed payout annuity liabilities of $540, and consumer notes of $21. Consumer notes include principal payments and contractual interest for fixed rate notes and interest based on current rates for floating rate notes.

Capitalization

Capital Structure

	December 31, 2016			December 31, 2015			Change
Short-term debt (includes current maturities of long-term debt)	$	416		$	275		51	%
Long-term debt	4,636			5,084			(9	)%
Total debt [1]	5,052			5,359			(6	)%
Stockholders’ equity excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	17,240			17,971			(4	)%
AOCI, net of tax	(337		)	(329		)	2	%
Total stockholders’ equity	$	16,903		$	17,642		(4	)%
Total capitalization including AOCI	$	21,955		$	23,001		(5	)%
Debt to stockholders’ equity	30		%	30		%
Debt to capitalization	23		%	23		%

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

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Total stockholders' equity decreased in 2016 primarily due to share repurchases and common stockholder dividends in excess of net income. Total capitalization decreased $1,046, or 5%, as of December 31, 2016 compared with December 31, 2015 primarily due to decreases in both stockholders' equity and total debt.

For additional information regarding AOCI, net of tax, see Note 17 - Changes in and Reclassifications From Accumulated Other Comprehensive Income (Loss) of Notes to Consolidated Financial Statements.

Cash Flow

	2016			2015			2014
Net cash provided by operating activities	$	2,066		$	2,756		$	1,886
Net cash provided by investing activities	$	949		$	485		$	1,696
Net cash used for financing activities	$	(2,541	)	$	(3,144	)	$	(4,476	)
Cash — end of year	$	882		$	448		$	399

Year ended December 31, 2016 compared to the year ended December 31, 2015

Cash provided by operating activities decreased in 2016 as compared to the prior year period primarily due to an increase in claims paid, including the Company's payment of $315 related to the settlement of PPG asbestos liabilities. In addition, the Company contributed $300 to its U.S. qualified pension plan in 2016 versus a contribution of $100 in 2015.

Cash provided by investing activities in 2016 primarily related to net proceeds from available-for-sale securities of $2.7 billion, partially offset by net payments for short-term investments of $1.4 billion. Cash provided by investing activities in 2015 primarily relates to net proceeds from short-term investments of $3.1 billion, partially offset by net payments for available-for-sale securities of $1.9 billion and additions to property and equipment of $307.

Cash used for financing activities in 2016 consisted primarily of acquisition of treasury stock of $1.3 billion, net payments for deposits, transfers and withdrawals for investments and universal life products of $782 and repayment of debt of $275. Cash used for financing activities in 2015 consists primarily of net payments for deposits, transfers and withdrawals for investments and universal life products of $1.3 billion and acquisition of treasury stock of $1.3 billion and repayment of debt of $773, partially offset by $507 in proceeds from securities sold under repurchase agreements.

Year ended December 31, 2015 compared to the year ended December 31, 2014

Cash provided by operating activities increased in 2015 as compared to the prior year period primarily due to an increase in premiums collected and reinsurance claim recoveries, as well as decreases in claims and operating expenses paid.

Cash provided by investing activities in 2015 primarily relates to net proceeds from short-term investments of $3.1 billion, partially offset by net payments for available-for-sale securities of $1.9 billion and additions to property and equipment of $307. Cash provided by investing activities in 2014 primarily relates to net proceeds from available-for-sale securities of $2.8 billion, and proceeds from the business sold of $963, partially offset by net payments for short-term investments of $1.9 billion.

Cash used for financing activities in 2015 consists

primarily of net payments for deposits, transfers and withdrawals for investments and universal life products of $1.3 billion, acquisition of treasury stock of $1.3 billion and repayment of debt of $773, partially offset by $507 in proceeds from securities sold under repurchase agreements. Cash used for financing activities in 2014 consists primarily of $2.2 billion related to net activity for investment and universal life-type contracts, and acquisition of treasury stock of $1.8 billion.

Equity Markets

For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk on Statutory Capital and Liquidity Risk section in this MD&A.

Ratings

Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the Company's ability to access financing and its cost of borrowing. There can be no assurance that the Company’s ratings will continue for any given period of time, or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s competitive position, ability to access financing, and its cost of borrowing, may be adversely impacted.

Insurance Financial Strength Ratings

	As of	February 22, 2017
	A.M. Best	Standard & Poor's	Moody's
Hartford Fire Insurance Company	A+	A+	A1
Hartford Life and Accident Insurance Company	A	A	A2
Hartford Life Insurance Company	A-	BBB+	Baa2
Hartford Life and Annuity Insurance Company	A-	BBB+	Baa2
Other Ratings:
The Hartford Financial Services Group, Inc.:
Senior debt	a-	BBB +	Baa2
Commercial paper	AMB-1	A-2	P-2

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

These ratings are not a recommendation to buy or hold any of The Hartford’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

The agencies consider many factors in determining the final rating of an insurance company. One consideration is the relative level of statutory capital and surplus (referred to collectively as "statutory capital") necessary to support the business written and is reported in accordance with accounting practices prescribed by the applicable state insurance department. See Part I, Item 1A. Risk Factors — “Downgrades in our financial strength or credit ratings may make our products less attractive, increase our cost of capital and inhibit our ability to refinance our debt.”

Statutory Capital

Statutory Capital for the Company’s Insurance Subsidiaries

	As of December 31,
	2016			2015
Life insurance subsidiaries	$	6,022		$	6,591
Property & casualty insurance subsidiaries	8,261			8,563
Total	$	14,283		$	15,154

Life insurance subsidiaries - Statutory ("STAT") capital for the life insurance subsidiaries decreased by $569, primarily due to dividends of approximately $1 billion, and decreases in admitted deferred income tax of $213, partially offset by non-variable annuity net income of $215 as well as variable annuity net income and surplus impacts of $342 and $(89), respectively, included in Talcott Resolution, and other increases in surplus of $165.

P&C insurance subsidiaries - Statutory capital for the property and casualty insurance subsidiaries decreased by $302, primarily due to dividends to the HFSG Holding Company of $1.2 billion, partially offset by an increase in net unrealized gains on investments of $530, statutory net income of $304 and an increase in deferred tax assets of $147.

Stat to GAAP Differences

Significant differences between U.S. GAAP stockholders’ equity and aggregate statutory capital prepared in accordance with U.S. STAT include the following:

•	U.S. STAT excludes equity of non-insurance and foreign insurance subsidiaries not held by U.S. insurance subsidiaries.

•	Costs incurred by the Company to acquire insurance policies are deferred under U.S. GAAP while those costs are expensed immediately under U.S. STAT.

•	Temporary differences between the book and tax basis of an asset or liability which are recorded as deferred tax assets are evaluated for recoverability under U.S. GAAP while those amounts deferred are subject to limitations under U.S. STAT.

•	The assumptions used in the determination of Life benefit reserves are prescribed under U.S. STAT, while the assumptions used under U.S. GAAP are generally the Company’s best estimates. The methodologies for determining life insurance reserve amounts are also different. For example, reserving for living benefit reserves

under U.S. STAT is generally addressed by the Commissioners’ Annuity Reserving Valuation Methodology and the related Actuarial Guidelines, while under U.S. GAAP, those same living benefits are either embedded derivatives recorded at fair value or are recorded as additional minimum guarantee benefit reserves. The sensitivity of these life insurance reserves to changes in equity markets, as applicable, will be different between U.S. GAAP and U.S. STAT.

•

The difference between the amortized cost and fair value of fixed maturity and other investments, net of tax, is recorded as an increase or decrease to the carrying value of the related asset and to equity under U.S. GAAP, while U.S. STAT only records certain securities at fair value, such as equity securities and certain lower rated bonds required by the NAIC to be recorded at the lower of amortized cost or fair value.

•

U.S. STAT for life insurance companies establishes a formula reserve for realized and unrealized losses due to default and equity risks associated with certain invested assets (the Asset Valuation Reserve), while U.S. GAAP does not. Also, for those realized gains and losses caused by changes in interest rates, U.S. STAT for life insurance companies defers and amortizes the gains and losses, caused by changes in interest rates, into income over the original life to maturity of the asset sold (the Interest Maintenance Reserve) while U.S. GAAP does not.

•	Goodwill arising from the acquisition of a business is tested for recoverability on an annual basis (or more frequently, as necessary) for U.S. GAAP, while under U.S. STAT goodwill is amortized over a period not to exceed 10 years and the amount of goodwill admitted as an asset is limited.

In addition, certain assets, including a portion of premiums receivable and fixed assets, are non-admitted (recorded at zero value and charged against surplus) under U.S. STAT. U.S. GAAP generally evaluates assets based on their recoverability.

Risk-Based Capital

The Company's U.S. insurance companies' states of domicile impose RBC requirements. The requirements provide a means of measuring the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations based on its size and risk profile. Regulatory compliance is determined by a ratio of a company's total adjusted capital (“TAC”) to its authorized control level RBC (“ACL RBC”). Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences (“Company Action Level”) is two times the ACL RBC. The adequacy of a company's capital is determined by the ratio of a company's TAC to its Company Action Level, known as the "RBC ratio". All of the Company's operating insurance subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations. On an aggregate basis, The Company's U.S. property and casualty insurance companies' RBC ratio was in excess of 200% of its Company Action Level as of December 31, 2016 and 2015. The RBC ratios for the Company's principal life insurance operating subsidiaries were all in excess of 400% of their respective Company Action Levels as of December 31, 2016 and 2015. The reporting of RBC ratios is not intended for the purpose of ranking any insurance company, or for use in

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

connection with any marketing, advertising or promotional activities.

Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which The Company operates generally establish minimum solvency requirements for insurance companies. All of The Hartford's international insurance subsidiaries have solvency margins in excess of the minimum levels required by the applicable regulatory authorities.

Sensitivity

In any particular year, statutory capital amounts and RBC ratios may increase or decrease depending upon a variety of factors. The amount of change in the statutory capital or RBC ratios can vary based on individual 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. For further discussion on these factors and the potential impacts to the life insurance subsidiaries, see MD&A - Enterprise Risk Management, Financial Risk on Statutory Capital.

Statutory capital at the property and casualty subsidiaries has historically been maintained at or above the capital level required to meet “AA level” ratings from rating agencies. Statutory capital generated by the property and casualty subsidiaries in excess of the capital level required to meet “AA level” ratings is available for use by the enterprise or for corporate purposes. The amount of statutory capital can increase or decrease depending on a number of factors affecting property and casualty results including, among other factors, the level of catastrophe claims incurred, the amount of reserve development, the effect of changes in interest rates on investment income and the discounting of loss reserves, and the effect of realized gains and losses on investments.

Contingencies

Legal Proceedings

For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” and “Asbestos and Environmental Claims,” in Note 14 - Commitments and Contingencies of the Notes to Consolidated Financial Statements and Part II, Item 1 Legal Proceedings, which are incorporated herein by reference.

Legislative and Regulatory Developments

Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act") The outcome of the new Administration’s stated intention to repeal and replace the Affordable Care Act may have an impact on various aspects of our business, including our insurance businesses. It is unclear what a replacement of the Affordable Care Act would entail, and to what extent there may be a transition period for the phase out of the Affordable Care Act. The impact to The Hartford as an employer is consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business. We will continue to monitor the impact of the Affordable Care Act and any reforms on consumer, broker and medical provider behavior for leading indicators of changes in medical costs or loss

payments primarily on the Company's workers' compensation and disability liabilities.

United States Department of Labor Fiduciary Rule On April 6, 2016, the U.S. Department of Labor ("DOL") issued a final regulation that expands the range of activities considered to be fiduciary investment advice under the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code. Implementation will be phased in, with the regulation in full effect by January 1, 2018. The impact of the new regulation on our mutual funds business is difficult to assess because the regulation is new and is still being studied. While we continue to analyze the regulation, we believe the regulation may impact the compensation paid to the financial intermediaries who sell our mutual funds to their retirement clients and could negatively impact our mutual funds business.

In 2016, several plaintiffs, including insurers and industry groups such as the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association ("SIFMA"), filed lawsuits against the DOL challenging the constitutionality of the fiduciary rule and the DOL’s rulemaking authority. In most cases, the district courts have entered a summary judgment in favor of the DOL. It is unclear whether the plaintiffs will appeal. We continue to monitor the potential effects of case law and the regulatory landscape on our mutual funds business.

Tax Reform Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the United States Treasury Department could have a material effect on the company and its insurance businesses. These proposals and initiatives include, or could include, changes pertaining to the income tax treatment of insurance companies and life insurance products and annuities, repeal or reform of the estate tax and comprehensive federal tax reform, and changes to the regulatory structure for financial institutions. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. For additional information on risks to the Company related to tax reform, please see the risk factor entitled "Changes in federal or state tax laws could adversely affect our business, financial condition, results of operations and liquidity" under "Risk Factors" in Part I.

Guaranty Fund and Other Insurance-related Assessments

For a discussion regarding Guaranty Fund and Other Insurance-related Assessments, see Note 14 Commitments and Contingencies of Notes to Consolidated Financial Statements.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements.

Part II - Item 9A. Controls and Procedures

Item 9A. 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 December 31, 2016.

Management’s annual report on internal control over financial reporting

The management of The Hartford Financial Services Group, Inc. and its subsidiaries (“The Hartford”) is responsible for establishing and maintaining adequate internal control over financial reporting for The Hartford as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. A company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Hartford's management assessed its internal controls over financial reporting as of December 31, 2016 in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment under those criteria, The Hartford's management concluded that its internal control over financial reporting was effective as of December 31, 2016.

Changes in internal control over financial reporting

There were no changes in the Company's internal control over financial reporting that occurred during the Company's fourth fiscal quarter of 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Attestation report of the Company’s registered public accounting firm

The Hartford's independent registered public accounting firm, Deloitte & Touche LLP, has issued their attestation report on the Company's internal control over financial reporting which is set forth below.