Item 6. SELECTED FINANCIAL DATA

The following table sets forth the Company's selected consolidated financial data at the dates and for the periods indicated below. The selected financial data should be read in conjunction with Management’s Discussion and Analysis of

Financial Condition and Results of Operations ("MD&A") presented in Item 7 and the Company's Consolidated Financial Statements and the related Notes beginning on page F-1.

in millions, except per share data	2017			2016			2015			2014			2013
Income Statement Data
Total revenues	$	16,974		$	16,107		$	15,997		$	15,713		$	15,966
Income from continuing operations before income taxes	$	723		$	447		$	1,478		$	1,232		$	987
(Loss) Income from continuing operations, net of tax	$	(262	)	$	613		$	1,189		$	925		$	759
(Loss) Income from discontinued operations, net of tax	$	(2,869	)	$	283		$	493		$	(127	)	$	(583	)
Net (loss) income	$	(3,131	)	$	896		$	1,682		$	798		$	176
Balance Sheet Data
Total assets	$	225,260		$	224,576		$	229,616		$	245,566		$	278,339
Short-term debt	$	320		$	416		$	275		$	456		$	438
Total debt (including capital lease obligations)	$	4,998		$	4,910		$	5,216		$	5,966		$	6,401
Total stockholders’ equity	$	13,494		$	16,903		$	18,024		$	19,130		$	19,217
Net (loss) income per common share
Basic	$	(8.61	)	$	2.31		$	4.05		$	1.81		$	0.37
Diluted	$	(8.61	)	$	2.27		$	3.96		$	1.73		$	0.36
Cash dividends declared per common share	$	0.94		$	0.86		$	0.78		$	0.66		$	0.50

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

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The Hartford provides projections and other forward-looking information in the following discussions, which contain many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the cautionary statements set forth on pages 4 and 5 of this Form 10-K. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion and in Part I, Item 1A, Risk Factors, and those identified from time to time in our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

On December 3, 2017, Hartford Holdings, Inc., a wholly owned subsidiary of the Company, entered into a definitive agreement to sell all of the issued and outstanding equity of Hartford Life, Inc. (“HLI”), a holding company, and its life and annuity operating subsidiaries. For discussion of this transaction, see Note 20 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements.

On November 1, 2017, Hartford Life and Accident Insurance Company ("HLA"), a wholly owned subsidiary of the Company, completed the acquisition of Aetna's U.S. group life and disability business through a reinsurance transaction. Aetna's U.S. group life and disability revenue and earnings since the acquisition date are included in the operating results of the Company's Group Benefits reporting segment. For discussion of this transaction, see Note 2 - Business Acquisitions of Notes to Consolidated Financial Statements.

On May 10, 2017, the Company completed the sale of its U.K. property and casualty run-off subsidiaries. The operating results of the Company's U.K. property and casualty run-off subsidiaries are included in the P&C Other Operations reporting segment. For discussion of this transaction, see Note 20 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements.

On July 29, 2016, the Company completed the acquisition of Maxum Specialty Insurance Group and Lattice Strategies LLC. Maxum's revenue and earnings since the acquisition date are included in the operating results of the Company's Commercial Lines reporting segment. Lattice's revenue and earnings since the acquisition date are included in the operating results of the Company's Mutual Funds reporting segment. For discussion of

these transactions, see Note 2 - Business Acquisitions of Notes to Consolidated Financial Statements.

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

Fee income from installment fees reported by the Commercial Lines and Personal Lines reporting segments has been reclassified from underwriting expenses to fee income and included in total revenues. The reclassification of installment fees did not impact previously reported underwriting gain (loss), underwriting ratios, or net income (loss) either in the Commercial Lines or Personal Lines reporting segments and did not impact previously reported consolidated net income or core earnings.

Separately, the flood servicing business has been realigned from specialty commercial within the Commercial Lines reporting segment to the Personal Lines reporting segment. This realignment did not materially impact previously reported Commercial Lines or Personal Lines underwriting results or net income. The realignment of the flood servicing business did not impact previously reported consolidated net income or core earnings.

Assets and liabilities associated with the Company's life and annuity run-off business are now classified as held for sale.

Unpaid losses and loss adjustment expenses and reinsurance recoverables for structured settlements reserves and recoverables due from the Company's life and annuity run-off business now classified as held for sale have been reclassified into the Company's P&C commercial lines business. Annuities purchased from third-party life insurers under structured settlements, including from life and annuity run-off obligations held for sale, are recognized as reinsurance recoverables in cases where the Company has not obtained a release from the claimant. These amounts were previously eliminated in consolidation.

Policy loans have been reclassified to Other investments on the Consolidated Balance Sheets.

Other intangible assets have been reclassified out of Other assets on the Consolidated Balance Sheets into their own line item.

Likewise, amortization of intangible assets has been reclassified out of Insurance operating costs and other expenses on the Consolidated Statements of Operations into their own line item.

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

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

Index

Description	Page
Key Performance Measures and Ratios	33
The Hartford's Operations	36
Consolidated Results of Operations	39
Investment Results	42
Critical Accounting Estimates	44
Commercial Lines	65
Personal Lines	69
Property & Casualty Other Operations	73
Group Benefits	75
Mutual Funds	77
Corporate	79
Enterprise Risk Management	81
Capital Resources and Liquidity	97
Impact of New Accounting Standards	107

KEY PERFORMANCE MEASURES AND RATIOS

The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these ratios and measures are useful in understanding the underlying trends in The Hartford’s businesses. However, these key performance indicators should only be used in conjunction with, and not in lieu of, the results presented in the segment discussions that follow in this MD&A. These ratios and measures may not be comparable to other performance measures used by the Company’s competitors.

Definitions of Non-GAAP and Other Measures and Ratios

Assets Under Management (“AUM”)- include mutual fund and ETP assets. AUM is a measure used by the Company because a significant portion of the Company’s mutual fund revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

Book Value per Diluted Share- excluding AOCI, is calculated based upon a non-GAAP financial measure. It is calculated by dividing (a) total stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes it is useful to investors

because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates.

Catastrophe Ratio- (a component of the loss and loss adjustment expense ratio) represents the ratio of catastrophe losses incurred in the current calendar year (net of reinsurance) to earned premiums and includes catastrophe losses incurred for both the current and prior accident years. A catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers, as defined by the Property Claim Service office of Verisk. The catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums.

Combined Ratio- the sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses.

Core Earnings- a non-GAAP measure, is an important measure of the Company’s operating performance. The Company believes that core earnings provides investors with a valuable measure of the underlying performance of the Company’s businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain realized capital gains and losses, certain restructuring and other costs, integration and transaction costs in connection with an acquired business, pension settlements, loss on extinguishment of debt, gains and losses on reinsurance transactions, income tax benefit from a reduction in deferred income tax valuation allowance, impact of tax reform on net deferred tax assets, and results of discontinued operations. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be variable from period to period based on capital market conditions. The Company believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Net income (loss) is the most directly comparable U.S. GAAP measure. Core earnings should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of the Company’s business. Therefore, the Company believes that it is useful for investors to evaluate both net income (loss) and core earnings when reviewing the Company’s performance.

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

Reconciliation of Net Income to Core Earnings

	For the years ended December 31,
	2017			2016			2015
Net income	$	(3,131	)	$	896		$	1,682
Less: Net realized capital gains (losses) excluded from core earnings, before tax	160			(112		)	(15		)
Less: Restructuring and other costs, before tax	—			—			(20		)
Less: Loss on extinguishment of debt, before tax	—			—			(21		)
Less: Loss on reinsurance transactions, before tax	—			(650		)	—
Less: Pension settlement, before tax	(750		)	—			—
Less: Integration and transaction costs associated with acquired business, before tax	(17		)	—			—
Less: Income tax (expense) benefit [1]	(669		)	463			114
Less: (Loss) income from discontinued operations,after-tax	(2,869		)	283			493
Core earnings	$	1,014		$	912		$	1,131

[1]	Includes income tax benefit on items not included in core earnings and other federal income tax benefits and charges, including an $877 charge in 2017 primarily due to a reduction in net deferred tax assets as a result of the decrease in the Federal income tax rate from 35% to 21%.

Core Earnings Margin- a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, the Group Benefits segment’s operating performance. Core earnings margin is calculated by dividing core earnings by revenues excluding buyouts and realized gains (losses). Net income margin is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses). Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin for the years ended December 31, 2017, 2016 and 2015 is set forth in the Results of Operations section within MD&A - Group Benefits.

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

The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses including amortization of intangibles and amortization of deferred policy acquisition costs, to premiums and other considerations, excluding buyout premiums. The expense ratio does not include integration and other transaction costs associated with acquired business.

Fee Income- largely driven from amounts earned as a result of contractually defined percentages of assets under management. These fees are generally earned on a daily basis. Therefore, the growth in assets under management either through positive net flows or favorable market performance will have a favorable impact on fee income. Conversely, either

negative net flows or unfavorable market performance will reduce fee income.

Loss and Loss Adjustment Expense Ratio- a measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses incurred for both the current and prior accident years. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment.

The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the ratemaking process, adjust the assumption as appropriate for the particular state, product or coverage.

Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- a measure of the cost of non-catastrophe claims incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year development.

Loss Ratio, excluding Buyouts- utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses to premiums and other

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

considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the underwriting results of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts.

Mutual Fund and Exchange-Traded Product Assets- are owned by the shareholders of those products and not by the Company and therefore are not reflected in the Company’s consolidated financial statements. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

New Business Written Premium- represents the amount of premiums charged for policies issued to customers who were not insured with the Company in the previous policy term. New business written premium plus renewal policy written premium equals total written premium.

Policies in Force- represent the number of policies with coverage in effect as of the end of the period. The number of policies in force is a growth measure used for Personal Lines and standard commercial lines within Commercial Lines and is affected by both new business growth and policy count retention.

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

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

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

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

Renewal Earned Price Increase (Decrease)- Written premiums are earned over the policy term, which is six months for certain Personal Lines automobile business and twelve months for substantially all of the remainder of the Company’s Property and Casualty business. Since the Company earns premiums over the six to twelve month term of the policies,

renewal earned price increases (decreases) lag renewal written price increases (decreases) by six to twelve months.

Renewal Written Price Increase (Decrease)-for Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance carriers increases. Renewal written price statistics are subject to change from period to period, based on a number of factors, including changes in actuarial estimates and the effect of subsequent cancellations and non-renewals, and modifications made to better reflect ultimate pricing achieved.

Return on Assets (“ROA”), Core Earnings- a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of the Mutual Funds segment’s operating performance. ROA is the most directly comparable U.S. GAAP measure. The Company believes that ROA, core earnings, provides investors with a valuable measure of the performance of the Mutual Funds segment because it reveals trends in our business that may be obscured by the effect of realized gains (losses). ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our Mutual Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, core earnings, and ROA when reviewing the Mutual Funds segment performance. ROA, core earnings is calculated by dividing core earnings by a daily average AUM. A reconciliation of ROA to ROA, core earnings for the years ended December 31, 2017, 2016 and 2015, is set forth in the Results of Operations section within MD&A - Mutual Funds.

Underlying Combined Ratio- a non-GAAP financial measure, represents the combined ratio before catastrophes and prior accident year development. Combined ratio is the most directly comparable U.S. GAAP measure. The Company believes the underlying combined ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. A reconciliation of

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

combined ratio to underlying combined ratio for the years ended December 31, 2017, 2016 and 2015 is set forth in the Results of Operations section within MD&A - Commercial Lines and Personal Lines.

Underwriting Gain (Loss)- The Company's management evaluates profitability of the P&C businesses primarily on the basis of underwriting gain (loss). Underwriting gain (loss) is a before-tax measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of the Company's pricing. Underwriting profitability over time is also greatly influenced by the Company's pricing and underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. The Company believes that underwriting gain (loss) provides investors with a valuable measure of before-tax profitability derived from underwriting activities, which are managed separately from the Company's investing activities. A reconciliation of underwriting gain (loss) to net income (loss) for Commercial Lines, Personal Lines and Property & Casualty Other Operations is set forth in segment sections of MD&A.

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

Traditional life insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums together with net investment income earned from the overall investment strategy are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of policies remaining in-force from year-to-year.

THE HARTFORD'S OPERATIONS

Overview

The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property &

Casualty Other Operations, Group Benefits, and Mutual Funds, as well as a Corporate category. The Hartford includes in its Corporate category discontinued operations of the Company's life and annuity run-off business accounted for as held for sale, reserves for structured settlement and terminal funding agreement liabilities retained, capital raising activities (including debt financing and related interest expense), purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments.

The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) asset management fees on mutual fund and ETP assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force.

The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments.

Similar to Property & Casualty, profitability of the Group Benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss trends emerge adversely during the rate guarantee period. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly from expected investment yields, affecting profitability of the

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

business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies.

The financial results in the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management on which it earns fees and the level of fees charged. Changes in assets under management are driven by two main factors: net flows, and the market return of the funds, which is heavily influenced by the return realized in the equity markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis.

The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are

priced with the assumption that premiums received can be invested for a period of time before benefits, loss and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, equities, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities and asset-backed securities and collateralized debt obligations.

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

For further information on the Company's reporting segments, refer to Part I, Item 1, Business — Reporting Segments.

Financial Highlights

Net (Loss) Income	Net Income (Loss) per Diluted Share	Book Value per Diluted Share

Net Loss of $3,131, or $8.61 per basic and diluted share, compared with prior year net income of $896, or $2.31 per basic share and $2.27 per diluted share. The change from net income in 2016 to a net loss in 2017 was mostly due to a loss on discontinued operations of $2.9 billion related to the pending sale of the life and annuity run-off business, a charge to income tax expense of $877 arising primarily from the reduction of net deferred tax assets due to the enactment of lower Federal income tax rates and a pension settlement charge of $488 after-tax.

Common share repurchases during 2017 totaled $1,028 million, or 20.2 million shares and $341 of dividends were paid to shareholders.

Book value per diluted common share decreased to $37.11 from $44.35 as of December 31, 2016 as a result of a $3.4 billion, or 20%, decrease in shareholders' equity largely due to a $3.3 billion loss on the pending sale of the life and annuity run-off business, partially offset by the effect of a 5% decrease in common shares outstanding and dilutive potential common shares.

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

Net Investment Income	Investment Yield After-tax

Net investment income increased 2% to $1,603 compared with the prior year primarily due to higher income from limited partnerships and other alternative investments, partially offset by lower make-whole payment income on fixed maturities and increased investment expenses.

Net realized capital gains of $165 compared to net realized capital losses of $110 in 2016, primarily due to higher net gains on sales, lower impairments and the effect of losses in 2016 related to the sale of the Company's U.K. property and casualty run-off subsidiaries and the write-down of investments in solar energy partnerships that generated tax benefits.

Annualized investment yield, after-tax of 3.0%, was up 0.1 points from 2016 as the effect of higher returns on limited partnerships and alternative investments was partially offset by the effect of lower make-whole payment income and reinvesting at lower yields.

Net unrealized gains, after-tax, in the investment portfolio increased by $655 compared with the prior year due primarily to tighter credit spreads.

Written Premiums	Combined Ratio

Written premiums decreased slightly compared with the prior year for Property & Casualty, comprised of 3% growth in Commercial Lines and a 7% decrease in Personal Lines.

Combined ratio of 100.0 compared with 100.1 in the prior year for Property & Casualty, as a higher combined ratio in Commercial Lines was largely offset by the effect of asbestos and environmental reserve strengthening in P&C Other Operations in 2016 and modest improvement in the Personal Lines combined ratio.

Catastrophe losses of $836, before tax, increased from catastrophe losses of $416, before tax, in the prior year, largely due to losses in 2017 from hurricanes Harvey and Irma and wildfires in California.

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

Prior accident year development was favorable $41 in 2017 compared to unfavorable reserve development of $457 in 2016 with reserve increases in 2016 largely due to a $268 increase in asbestos and environmental reserves and a $160 increase in Personal Lines auto liability reserves.

Group Benefits Net Income Margin

Net income margin increased to 7.2% from 6.3% in the prior year for Group Benefits, primarily due to $52 of income tax benefits arising primarily from the reduction of net deferred tax liabilities due to the enactment of lower Federal income tax rates.

CONSOLIDATED RESULTS OF OPERATIONS

The Consolidated Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes beginning on page F-1 as well as with the segment operating results sections of MD&A.

	2017			2016			2015			Increase (Decrease) From 2016 to 2017			Increase (Decrease) From 2015 to 2016
Earned premiums	$	14,141		$	13,697		$	13,485		$	444		$	212
Fee income [1]	980			857			876			123			(19		)
Net investment income	1,603			1,577			1,561			26			16
Net realized capital gains (losses)	165			(110		)	(12		)	275			(98		)
Other revenues	85			86			87			(1		)	(1		)
Total revenues	16,974			16,107			15,997			867			110
Benefits, losses and loss adjustment expenses	10,174			9,961			9,325			213			636
Amortization of deferred policy acquisition costs	1,372			1,377			1,364			(5		)	13
Insurance operating costs and other expenses	4,375			3,341			3,459			1,034			(118		)
Loss on extinguishment of debt	—			—			21			—			(21		)
Loss on reinsurance transactions	—			650			—			(650		)	650
Interest expense	316			327			346			(11		)	(19		)
Amortization of other intangible assets	14			4			4			10			—
Total benefits, losses and expenses	16,251			15,660			14,519			591			1,141
Income from continuing operations before income taxes	723			447			1,478			276			(1,031		)
Income tax expense (benefit)	985			(166		)	289			1,151			(455		)
(Loss) Income from continuing operations, net of tax	(262		)	613			1,189			(875		)	(576		)
(Loss) income from discontinued operations,net of tax	(2,869		)	283			493			(3,152		)	(210		)
Net (loss) income	$	(3,131	)	$	896		$	1,682		$	(4,027	)	$	(786	)

[1]	Commercial Lines includes installment fees of $37, $39 and $40, for 2017, 2016 and 2015, respectively. Personal Lines includes installment fees of $44, $39, and $37, for 2017, 2016 and 2015, respectively.

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

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net income (loss) decreased from net income in 2016 to a net loss in 2017 primarily due to a loss on discontinued operations of $2.9 billion related to the pending sale of the life and annuity run-off business, a charge to income tax expense of $877 arising primarily from the reduction of net deferred tax assets due to the enactment of lower Federal income tax rates and a pension settlement charge of $488 after-tax. Partially offsetting the decline were the effects of a $179 after-tax change from net realized capital losses in 2016 to net realized capital gains in 2017, the effect of a $423 after-tax charge in 2016 related to a loss on reinsurance covering the Company’s asbestos and environmental exposures and a reduction in the valuation allowance on capital loss carryovers in 2016. In addition, a $324 after-tax improvement in P&C prior accident year development and higher earnings in Group Benefits and Mutual Funds were largely offset by a $273 after-tax increase in current accident year catastrophes and higher variable incentive compensation.

Earned premiums increased by $444, before tax, reflecting growth of 3% in Commercial Lines, including the effect of the Maxum acquisition, and 14% in Group Benefits, including the effect of acquiring the Aetna U.S. group life and disability business, partially offset by a 5% decrease in Personal Lines. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.

Fee income increased reflecting a 15% increase in Mutual Funds due to higher assets under management driven by market appreciation and positive net flows and the addition of Schroders funds in the fourth quarter of 2016. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.

Net investment income increased 2%, primarily due to higher income from limited partnerships and other alternative investments, partially offset by lower make-whole payment income on fixed maturities and increased investment expenses. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).

Net realized capital gains of $165 before-tax compared to net realized capital losses of $110 before-tax in 2016, primarily due to higher net gains on sales, lower impairments and the effect of losses in 2016 related to the sale of the Company's U.K. property and casualty run-off subsidiaries and the write-down of investments in solar energy partnerships in 2016 that generated tax benefits. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains (Losses).

Benefits, losses and loss adjustment expenses increased 11% in Group Benefits and decreased 1% in P&C. The increase in Group Benefits was largely due to the acquisition of Aetna’s U.S. group life and disability business. The decrease in P&C was primarily due to the effect of unfavorable prior accident year reserve development in 2016, largely offset by higher catastrophe losses in 2017.

•	Current accident year losses and loss adjustment expenses before catastrophes in Property & Casualty were relatively flat, primarily resulting from improved loss ratios and lower

earned premiums in Personal Lines, offset by higher loss ratios in workers' compensation and general liability.

•

Current accident year catastrophe losses of $836, before tax, compared to $416, before tax, for the prior year period. Catastrophe losses in 2017 were primarily due to hurricanes Harvey and Irma, California wildfires and multiple wind and hail events across various U.S. geographic regions, primarily in the Midwest, Colorado, Texas and the Southeast. Catastrophe losses in 2016 were primarily due to multiple wind and hail and winter storm events across various U.S. geographic regions, concentrated in Texas and the central and southern plains and, to a lesser extent, winter storms and hurricane Matthew. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

•

Favorable prior accident year reserve development in Property & Casualty of $41, before tax, compared to unfavorable reserve development of $457, before tax, for the prior year period. Prior accident year development in 2017 primarily included decreases in reserves for workers’ compensation and Small Commercial package business, partially offset by an increase in reserves for bond claims. Prior accident year development in 2016 was largely due to a $268 increase in asbestos and environmental reserves and a $160 increase in Personal Lines auto liability reserves. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll Forwards and Development.

Amortization of deferred policy acquisition costs was relatively flat as higher amortization on higher earned premium for Commercial Lines was offset by lower amortization on lower earned premium for Personal Lines.

Insurance operating costs and other expenses increased primarily due to a $750 pre-tax pension settlement charge. Apart from the pension settlement charge, insurance operating costs and other expenses increased by 9%, primarily driven by higher variable incentive plan compensation, increased IT costs in Commercial Lines, higher variable expenses in Mutual Funds and $20, before tax, of state guaranty fund assessments in Group Benefits, partially offset by lower direct marketing and operation costs in Personal Lines. Effective with awards granted in March, 2017, long-term incentive compensation awards to retirement-eligible employees now fully vest when they are granted, which resulted in an accelerated recognition of compensation expense in 2017 of $22 before-tax. For additional information on the pension settlement charge in second quarter 2017, see Note 15 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements.

Amortization of other intangible assets increased by $10 largely due to amortization of identifiable intangible assets recorded as a result of the acquisition of the Aetna U.S. group life and disability business, including in-force contracts, customer relationships and a marketing agreement with Aetna.

Income tax expense increased primarily due to a charge of $877 as a result of the Tax Cuts and Jobs Act ("Tax Reform") enacted in December, 2017. Among other changes, Tax Reform reduced the Federal corporate income tax rate from 35% to 21% effective January 1, 2018 which resulted in a reduction of the

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

Company's net deferred tax assets, including its net operating loss carryovers. Also contributing to the increase in income tax expense were federal income tax benefits of $113 in 2016 arising from investments in solar energy partnerships that generated tax benefits and the effect of a federal income tax benefit of $65 in 2016 related to the sale of the Company's U.K. property and casualty run-off subsidiaries.

Differences between the Company's effective income tax rate and the U.S. statutory rate of 35% are due primarily to the effects of Tax Reform on net deferred tax assets, tax exempt interest earned on invested assets, changes in the valuation allowance recorded on capital loss carryovers and federal tax credits associated with investments in solar energy partnerships. For further discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Income (loss) from discontinued operations, net of tax decreased from income of $283 in 2016 to a net loss of $2.9 billion in 2017 with the net loss in 2017 due to a loss on sale of the Company’s life and annuity run-off business of $3.3 billion, partially offset by operating income from discontinued operations of $388. Operating income from discontinued operations increased from $283 in 2016 primarily due to lower net realized capital losses in 2017. Apart from the reduction in net realized capital losses, earnings were relatively flat as an increase in the unlock benefit and lower interest credited were largely offset by lower net investment income and lower fee income due to the continued run-off of the variable annuity block.

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

Net income decreased primarily due to a loss on a reinsurance transaction covering the Company's asbestos and environmental exposure, an increase in Property & Casualty and Group Benefits incurred losses, especially in Personal Lines, higher net realized capital losses, lower income from discontinued operations and lower mutual funds fee income, partially offset by higher earned premiums, higher net investment income and lower insurance operating costs and other expenses.

Earned premiums increased 2% or $212, before tax, reflecting growth of 2% in Commercial Lines, 1% in Personal Lines and 3% in Group Benefits. For a discussion of the Company's operating results by segment, see MD&A - Results of Operations by segment.

Fee income decreased in 2016 compared to the prior year period, primarily due to lower investment management fees in Mutual Funds as a result of lower daily assets under management.

Net investment income increased, primarily due to higher asset levels partially offset by lower make-whole payments on fixed maturities, as well as reinvesting at lower interest rates. For further discussion of investment results, see the Net Investment Income (Loss) section within MD&A - Investment Results.

Net realized capital losses were $110 in 2016 an increase from net realized capital losses of $12 in 2015 primarily due to losses associated with the sale of the Company's U.K. property and casualty run-off subsidiaries and a change from net

gains to net losses on non-qualifying derivatives, partially offset by lower impairments and an increase in net realized gains on sale of corporate securities, U.S. Treasury securities, municipal bonds and equity securities. Also contributing to the increase in net realized capital losses was a $96 write-down of an investment in solar energy partnerships that generated tax credits and other tax benefits of $113 in 2016. For further discussion of investment results, see the Net Realized Capital Gains (Losses) section within MD&A - Investment Results,

Benefits, losses and loss adjustment expenses increased in both Property & Casualty and Group Benefits with the increase in Group Benefits due to the effect of growth in earned premium and higher group life loss severity. The net increase in incurred losses for Property & Casualty was due to:

•	Losses and loss adjustment expenses before catastrophes and prior accident year development in Property & Casualty increased $259, before tax, primarily resulting from higher personal and commercial auto loss costs and the effect of earned premium growth in Small Commercial and Personal Lines, partially offset by lower workers' compensation loss costs.

•

Current accident year catastrophe losses of $416, before tax, in 2016, compared to $332, before tax, in 2015. Catastrophe losses in 2016 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in Texas and the central and southern plains and, to a lesser extent, winter storms and Hurricane Matthew. Catastrophe losses in 2015 were primarily due to multiple winter storms and wind and hail events across various U.S. geographic regions as well as tornadoes and wildfires. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves.

•	Unfavorable prior accident year reserve development in Property & Casualty of $457, before tax, in 2016, compared to unfavorable reserve development of $250, before tax, in 2015.

▪

Prior accident year reserve development in 2016 was primarily due to a $268 increase in asbestos and environmental reserves and a $160 increase in personal auto liability reserves. An increase in asbestos reserves of $197 primarily related to greater than expected mesothelioma claim filings for a small percentage of defendants in specific, adverse jurisdictions. As a result, aggregate indemnity and defense costs have not declined as expected. Environmental reserves increased $71 in 2016 primarily due to deterioration associated with the tendering of new sites for policy coverage, increased defense costs stemming from individual bodily injury liability suits, and increased clean-up costs associated with waterways. Reserves were increased in Personal Lines auto liability for accident years 2014 and 2015, primarily due to higher than expected emerged auto liability frequency and severity.

▪	Prior accident year reserve development in 2015 was primarily due to an increase in asbestos reserves of $146 and environmental reserves of $52. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll-forwards and Development.

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

Insurance operating costs and other expenses decreased $118 primarily due to a reduction in direct marketing expenses in Personal Lines.

Loss on extinguishment of debt decreased due to the redemption of $296 aggregate principal amount outstanding of 4.0% senior notes in 2015. There were no early debt extinguishments in 2016.

Loss on reinsurance transaction in 2016 represents paid premium for an asbestos and environmental adverse development cover (“ADC”) reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc. (“Berkshire”), to reduce uncertainty about potential adverse development. For more information on this transaction, see MD&A -Critical Accounting Estimates, Annual Reserve Reviews.

Income tax benefit of $166 in 2016 compared to income tax expense of $289 in 2015, primarily due to a decrease in taxable income and the effect of $113 of federal tax credits and

other tax benefits in 2016 associated with investments in solar energy partnerships, as well as tax benefits in 2016 from the sale of the Company's U.K property and casualty run-off subsidiaries.

Differences between the Company's effective income tax rate and the U.S. statutory rate of 35% are due primarily to tax exempt interest earned on invested assets, changes in the valuation allowance recorded on capital loss carryovers and federal tax credits associated with investments in solar energy partnerships.

Income from discontinued operations, net of tax, decreased from 2015 to 2016 primarily due to lower tax benefits recognized in 2016, a write-off of DAC associated with fixed annuities, lower investment income and a reinsurance gain on disposition in 2015, partially offset by lower net realized capital losses. In addition, the continued run-off of the variable and fixed annuity block resulted in lower fee income, partially offset by lower amortization of DAC and lower insurance operating costs and other expenses.

INVESTMENT RESULTS

Composition of Invested Assets
	December 31, 2017					December 31, 2016
	Amount			Percent		Amount			Percent
Fixed maturities, available-for-sale ("AFS"), at fair value	$	36,964		81.9	%	$	32,182		80.9	%
Fixed maturities, at fair value using the fair value option ("FVO")	41			0.1	%	211			0.5	%
Equity securities, AFS, at fair value	1,012			2.3	%	945			2.4	%
Mortgage loans	3,175			7.0	%	2,886			7.3	%
Limited partnerships and other alternative investments	1,588			3.5	%	1,527			3.8	%
Other investments [1]	96			0.2	%	111			0.3	%
Short-term investments	2,270			5.0	%	1,895			4.8	%
Total investments	$	45,146		100	%	$	39,757		100	%

[1]	Primarily relates to derivative instruments.

Year ended December 31, 2017 compared to the year ended December 31, 2016

Total investments increased primarily due to an increase in fixed maturities, AFS, short-term investments and mortgage loans.

Fixed maturities, AFS increased primarily due the transfer in of fixed maturities, AFS related to the acquisition of Aetna's U.S. group life and disability business as well as an increase in valuations due to tighter credit spreads.

Short-term investments increased largely as a result of the Company's securities lending agreements. For more information on the Company's securities lending agreements, see Note 6 - Investments.

Mortgage Loans increased largely due to originations of multifamily commercial whole loans.

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

Net Investment Income
	For the years ended December 31,
	2017					2016					2015
(Before tax)	Amount			Yield [1]		Amount			Yield [1]		Amount			Yield [1]
Fixed maturities [2]	$	1,303		3.9	%	$	1,319		4.0	%	$	1,301		3.9	%
Equity securities	24			2.8	%	22			3.2	%	17			2.6	%
Mortgage loans	124			4.1	%	116			4.2	%	115			4.4	%
Limited partnerships and other alternative investments	174			12.0	%	128			8.6	%	130			8.0	%
Other [3]	49					51					57
Investment expense	(71		)			(59		)			(59		)
Total net investment income	$	1,603		4.0	%	$	1,577		4.0	%	$	1,561		3.9	%
Total net investment income excluding limited partnerships and other alternative investments	$	1,429		3.7	%	$	1,449		3.8	%	$	1,431		3.8	%

[1]	Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost as applicable, excluding repurchase agreement and securities lending collateral, if any, and derivatives book value.

[2]	Includes net investment income on short-term investments.

[3]	Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.

Year ended December 31, 2017 compared to the year ended December 31, 2016

Total net investment income increased primarily due to higher income from limited partnerships and other alternative investments, partially offset by lower make-whole payment income on fixed maturities and increased investment expense. Income from limited partnerships and other alternative investments increased due to higher valuation write-ups of private equity partnerships and strong returns on real estate investments in 2017.

Annualized net investment income yield excluding limited partnerships and other alternative investments, was 3.7% in 2017 and 3.8% in 2016. Excluding make-whole payment income on fixed maturities, income received from previously impaired securities, and prepayment penalties on mortgage loans, the annualized investment income yield, excluding limited partnerships and other alternative investments, was 3.6% in 2017 consistent with that of the same period for 2016.

Average reinvestment rate excluding certain U.S. Treasury securities and cash equivalent securities, for the year ended December 31, 2017, was approximately 3.5% which was

below the average yield of sales and maturities of 3.7% for the same period. For the year ended December 31, 2017, the average reinvestment rate of 3.5% remained consistent with that of the same period in 2016.

We expect the annualized net investment income yield for the 2018 calendar year, excluding limited partnerships and other alternative investments, to be slightly below the portfolio yield earned in 2017. This assumes the Company earns less income in 2018 from make-whole payment income on fixed maturities and recoveries on previously impaired securities than it did in 2017 and that reinvestment rates continue to be below the average yield of sales and maturities. The estimated impact on net investment income is subject to change as the composition of the portfolio changes through portfolio management and changes in market conditions.

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

Total net investment income increased primarily due to higher asset levels, partially offset by lower make-whole payments on fixed maturities as well as reinvesting at lower interest rates.

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

Net Realized Capital Gains (Losses)
	For the years ended December 31,
(Before tax)	2017			2016			2015
Gross gains on sales	$	275		$	222		$	219
Gross losses on sales	(113		)	(159		)	(194		)
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [1]	(8		)	(27		)	(41		)
Valuation allowances on mortgage loans [2]	(1		)	—			(1		)
Transactional foreign currency revaluation	14			(78		)	—
Non-qualifying foreign currency derivatives	(14		)	83			13
Other, net [3]	12			(151		)	(8		)
Net realized capital gains (losses)	$	165		$	(110	)	$	(12	)

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

[2]	See Valuation Allowances on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A.

[3]

Primarily consists of changes in value of non-qualifying derivatives, including credit derivatives and interest rate derivatives used to manage duration. Also included for the year ended December 31, 2016, is a loss related to the write-down of investments in solar energy partnerships, which generated tax benefits, and a loss related to the sale of the Company's U.K. property and casualty run-off subsidiaries.

Year ended December 31, 2017

Gross gains and losses on sales were primarily the result of duration, liquidity and credit management within corporate securities, U.S. treasury securities, equity securities, and tax-exempt municipal bonds.

Other, net gain included gains of $21 related to credit derivatives due to credit spread tightening, partially offset by losses of $7 related to equity derivatives hedging against the impact of a decline in the equity market on the investment portfolio.

Year ended December 31, 2016

Gross gains and losses on sales were primarily a result of duration, liquidity and credit management within corporate, U.S. treasury, tax-exempt municipal and equity securities.

Other, net loss included losses of $96 related to the write-down of investments in solar energy partnerships that generated solar tax credits and losses of $81 associated with the Company's U.K. property and casualty run-off subsidiaries that were sold in May 2017. For further information related to the investment in solar energy partnerships and resulting solar tax credits, refer to Note 16 - Income Taxes of Notes to Consolidated Financial Statements. In addition, there were losses of $15 related to equity derivatives which were hedging against the impact of a decline in the equity market on the investment portfolio.

Year ended December 31, 2015

Gross gains and losses on sales were primarily a

result of duration, liquidity and credit management, as well as

tactical changes to the portfolio as a result of changing market

conditions. This included sales to reduce exposure to energy,

emerging markets and below investment grade corporate

securities as well as sales within corporate, U.S. treasury and

equity securities.

Other, net losses were primarily related to losses of $7 on credit derivatives driven by widening credit spreads.

CRITICAL ACCOUNTING ESTIMATES

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

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

•	property and casualty insurance product reserves, net of reinsurance;

•	group benefit long-term disability (LTD) reserves, net of reinsurance;

•	evaluation of goodwill for impairment;

•	valuation of investments and derivative instruments including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;

•	valuation allowance on deferred tax assets; and

•	contingencies relating to corporate litigation and regulatory matters.

Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Consolidated Financial Statements. In developing these estimates management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements.

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

Property & Casualty Insurance Product Reserves

P&C Loss and Loss Adjustment Expense Reserves,

Net of Reinsurance, by Segment as of December 31, 2017

Loss and LAE Reserves, Net of Reinsurance as of December 31, 2017

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance			% Total Reserves-net
Workers’ compensation	$	9,600		$	—		$	—		$	9,600		48.4%
General liability	2,167			—			—			2,167			10.9%
Package business [1]	1,500			—			—			1,500			7.6%
Commercial property	390			—			—			390			2.0%
Automobile liability	927			1,707			—			2,634			13.3%
Automobile physical damage	13			32			—			45			0.2%
Professional liability	561			—			—			561			2.8%
Bond	286			—			—			286			1.4%
Homeowners	—			471			—			471			2.4%
Asbestos and environmental	116			11			1,325			1,452			7.3%
Assumed reinsurance	—			—			122			122			0.6%
All other	186			2			402			590			3.0%
Total reserves-net	15,746			2,223			1,849			19,818			100.0%
Reinsurance and other recoverables	3,147			71			739			3,957
Total reserves-gross	$	18,893		$	2,294		$	2,588		$	23,775

[1]	Commercial Lines policy packages that include property and general liability coverages are generally referred to as the package line of business.

For descriptions of the coverages provided under the lines of business shown above, see Part I - Item1, Business.

Overview of Reserving for Property and Casualty Insurance Claims

It typically takes many months or years to pay claims incurred under a property and casualty insurance product; accordingly, the Company must establish reserves at the time the loss is incurred. Most of the Company’s policies provide for occurrence-based

coverage where the loss is incurred when a claim event happens like an automobile accident, house or building fire or injury to an employee under a workers’ compensation policy. Some of the Company's policies, mostly for directors and officers insurance and errors and omissions insurance, are claims-made policies where the loss is incurred in the period the claim event is reported to the Company even if the loss event itself occurred in an earlier period.

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

Loss and loss adjustment expense reserves provide for the estimated ultimate costs of paying claims under insurance policies written by the Company, less amounts paid to date. These reserves include estimates for both claims that have been reported and those that have not yet been reported, and include estimates of all expenses associated with processing and settling these claims. Incurred but not reported (“IBNR”) reserves represent the difference between the estimated ultimate cost of all claims and the actual loss and loss adjustment expenses reported to the Company by claimants (“reported losses”). Reported losses represent cumulative loss and loss adjustment expenses paid plus case reserves for outstanding reported claims. Company actuaries evaluate the total reserves (IBNR and case reserves) on an accident year basis. An accident year is the calendar year in which a loss is incurred, or, in the case of claims-made policies, the calendar year in which a loss is reported.

Factors that Change Reserve Estimates- Reserve estimates can change over time because of unexpected changes in the external environment. Inflation in medical care, hospital care, automobile parts, wages and home and building repair would cause claims to settle for more than they are initially reserved. Changes in the economy can cause an increase or decrease in the number of reported claims (claim frequency). For example, an improving economy could result in more automobile miles driven and a higher number of automobile reported claims while a contracting economy can sometimes lead to an increase in workers’ compensation reported claims. An increase in the number or percentage of claims litigated can increase the average settlement amount per claim (claim severity). Changes in the judicial environment can affect interpretations of damages and how policy coverage applies which could increase or decrease claim severity. Over time, judges or juries in certain jurisdictions may be more inclined to determine liability and award damages. New legislation can also change how damages are defined resulting in greater frequency or severity. In addition, new types of injuries may arise from exposures not contemplated when the policies were written. Past examples include pharmaceutical products, silica, lead paint, molestation or abuse and construction defects.

Reserve estimates can also change over time because of changes in internal Company operations. A delay or acceleration in handling claims may signal a need to increase or reduce reserves from what was initially estimated. New lines of business may have loss development patterns that are not well established. Changes in the geographic mix of business, changes in the mix of business by industry and changes in the mix of business by policy limit or deductible can increase the risk that losses will ultimately develop differently than the loss development patterns assumed in our reserving. In addition, changes in the quality of risk selection in underwriting and changes in interpretations of policy language could increase or decrease ultimate losses from what was assumed in establishing the reserves.

In the case of assumed reinsurance, all of the above risks apply. The Company assumes insurance risk from certain pools and associations and, prior to 2004, assumed property and casualty risks from other insurance companies. Changes in the case reserving and reporting patterns of insurance companies ceding to The Hartford can create additional uncertainty in estimating the reserves. Due to the inherent complexity of the assumptions used, final claim settlements may vary significantly from the

present estimates of direct and assumed reserves, particularly when those settlements may not occur until well into the future.

Reinsurance Recoverables- Through both facultative and treaty reinsurance agreements, the Company cedes a share of the risks it has underwritten to other insurance companies. The Company records reinsurance recoverables for loss and loss adjustment expenses ceded to its reinsurers representing the anticipated recovery from reinsurers of unpaid claims, including IBNR.

The Company estimates the portion of losses and loss adjustment expenses to be ceded based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how IBNR for losses will ultimately be ceded.

The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The estimated allowance considers the credit quality of the Company's reinsurers, recent outcomes in arbitration and litigation in disputes between reinsurers and cedants and recent communication activity between reinsurers and cedants that may signal how the Company’s own reinsurance claims may settle. Where its reinsurance contracts permit, the Company secures funding of future claim obligations with various forms of collateral, including irrevocable letters of credit, secured trusts, funds held accounts and group-wide offsets. The allowance for uncollectible reinsurance was $104 as of December 31, 2017, comprised of $18 related to Commercial Lines and $86 related to Property & Casualty Other Operations.

The Company’s estimate of reinsurance recoverables, net of an allowance for uncollectible reinsurance, is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses for direct and assumed exposures.

Review of Reserve Adequacy- The Hartford regularly reviews the appropriateness of reserve levels at the line of business or more detailed level, taking into consideration the variety of trends that impact the ultimate settlement of claims. For Property & Casualty Other Operations, asbestos and environmental (“A&E”) reserves are reviewed by type of event rather than by line of business.

Reserve adjustments, which may be material, are reflected in the operating results of the period in which the adjustment is determined to be necessary. In the judgment of management, information currently available has been properly considered in establishing the reserves for unpaid losses and loss adjustment expenses and in recording the reinsurance recoverables for ceded unpaid losses.

Reserving Methodology

For a discussion of how A&E reserves are set, see MD&A - P&C Insurance Product Reserves, Reserving for Asbestos and Environmental Claims within Property & Casualty Other Operations. The following is a discussion of the reserving methods used for the Company's property and casualty lines of business other than asbestos and environmental.

How Reserves Are Set- Reserves are set by line of business within the operating segments. A single line of business

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

may be written in more than one segment. Case reserves are established by a claims handler on each individual claim and are adjusted as new information becomes known during the course of handling the claim. Lines of business for which reported losses emerge over a long period of time are referred to as long-tail lines of business. Lines of business for which reported losses emerge more quickly are referred to as short-tail lines of business. The Company’s shortest-tail lines of business are homeowners, commercial property and automobile physical damage. The longest tail lines of business include workers’ compensation, general liability, professional liability and assumed reinsurance. For short-tail lines of business, emergence of paid loss and case reserves is credible and likely indicative of ultimate losses. For long-tail lines of business, emergence of paid losses and case reserves is less credible in the early periods after a given accident year and, accordingly, may not be indicative of ultimate losses.

Use of Actuarial Methods and Judgments- The Company’s reserving actuaries regularly review reserves for both current and prior accident years using the most current claim data. A variety of actuarial methods and judgments are used for most lines of business to arrive at selections of estimated ultimate losses and loss adjustment expenses. These selections incorporate input, as appropriate, from claims personnel, pricing actuaries and operating management about reported loss cost trends and other factors that could affect the reserve estimates. Most reserves are reviewed fully each quarter, including loss and loss adjustment expense reserves for homeowners, commercial property, automobile physical damage, automobile liability, package business, workers’ compensation, most general liability and professional liability. Other reserves are reviewed semi-annually (twice per year) or annually. These primarily include reserves for losses incurred in accident years older than twelve years for Personal Lines and older than twenty years for Commercial Lines, as well as reserves for bond, assumed reinsurance, latent exposures, such as construction defects, and unallocated loss adjustment expenses. For reserves that are reviewed semi-annually or annually, management monitors the emergence of paid and reported losses in the intervening quarters and, if necessary, performs a reserve review to determine whether the reserve estimate should change.

An expected loss ratio is used in initially recording the reserves for both short-tail and long-tail lines of business. This expected loss ratio is determined by starting with the average loss ratio of recent prior accident years and adjusting that ratio for the effect of expected changes to earned pricing, loss frequency and severity, mix of business, ceded reinsurance and other factors. For short-tail lines, IBNR for the current accident year is initially recorded as the product of the expected loss ratio for the period, earned premium for the period and the proportion of losses expected to be reported in future calendar periods for the current accident period. For long-tailed lines, IBNR reserves for the current accident year are initially recorded as the product of the expected loss ratio for the period and the earned premium for the period, less reported losses for the period.

As losses emerge or develop in periods subsequent to a given accident year, reserving actuaries use other methods to estimate ultimate unpaid losses in addition to the expected loss ratio method. These primarily include paid and reported loss development methods, frequency/severity techniques and the Bornhuetter-Ferguson method (a combination of the expected loss ratio and paid development or reported development method). Within any one line of business, the methods that are given more influence vary based primarily on the maturity of the accident year, the mix of business and the particular internal and external influences impacting the claims experience or the methods. The output of the reserve reviews are reserve estimates that are referred to herein as the “actuarial indication”.

Reserve Discounting- Most of the Company’s property and casualty insurance product reserves are not discounted. However, the Company has discounted liabilities funded through structured settlements and has discounted certain reserves for indemnity payments due to permanently disabled claimants under workers’ compensation policies. For further discussion of these discounted liabilities, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements.

Differences Between GAAP and Statutory Basis Reserves- As of December 31, 2017 and 2016, U.S. property and casualty insurance product reserves for losses and loss adjustment expenses, net of reinsurance recoverables, reported under U.S. GAAP were approximately equal to net reserves reported on a statutory basis. The primary difference between the statutory and GAAP reserve amounts is due to a ceded asbestos and environmental ADC which is a retroactive reinsurance agreement between the Company and NICO that is not included in insurance liabilities for statutory accounting. This difference is largely offset by liabilities for unpaid losses for permanently disabled workers’ compensation claimants discounted under U.S. GAAP at rates that are no higher than risk-free interest rates in effect at the time the claims are incurred which can vary from the statutory discount rates set by regulators. In addition, a portion of the U.S. GAAP provision for uncollectible reinsurance is not recognized under statutory accounting.

Reserving Methods by Line of Business- Apart from A&E which is discussed in the following section on Property & Casualty Other Operations, below is a general discussion of which reserving methods are preferred by line of business. Because the actuarial estimates are generated at a much finer level of detail than line of business (e.g., by distribution channel, coverage, accident period), other methods than those described for the line of business may also be employed for a coverage and accident year within a line of business. Also, as circumstances change, the methods that are given more influence will change.

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

Preferred Reserving Methods by Line of Business

Commercial property, homeowners and automobile physical damage	These short-tailed lines are fast-developing and paid and reported development techniques are used as these methods use historical data to develop paid and reported loss development patterns, which are then applied to cumulative paid and reported losses by accident period to estimate ultimate losses. In addition to paid and reported development methods, for the most immature accident months, the Company uses frequency and severity techniques and the initial expected loss ratio. The advantage of frequency/severity techniques is that frequency estimates are generally easier to predict and external information can be used to supplement internal data in estimating average severity.
Personal automobile liability	For automobile liability, and bodily injury in particular, the Company performs a greater number of techniques than it does for commercial property, homeowners and automobile physical damage. In addition to traditional paid and reported development methods, the Company relies on frequency/severity techniques and Berquist-Sherman techniques. Because the paid development technique is affected by changes in claim closure patterns and the reported development method is affected by changes in case reserving practices, the Company uses Berquist-Sherman techniques which adjust these patterns to reflect current settlement rates and case reserving practices. The Company generally uses the reported development method for older accident years and a combination of reported development, frequency/severity and Berquist-Sherman methods for more recent accident years. For older accident periods, reported losses are a good indicator of ultimate losses given the high percentage of ultimate losses reported to date. For more recent periods, the frequency/severity techniques are not affected as much by changes in case reserve practices and changing disposal rates and the Berquist-Sherman techniques specifically adjust for these changes.
Automobile liability for commercial lines and short-tailed general liability	For older, more mature accident years, the Company primarily uses reported development techniques. For more recent accident years, the Company typically prefers frequency / severity techniques. These techniques separately analyze losses above and below a capping level (average severity) as larger claims typically behave differently than smaller claims.
Professional liability	Reported and paid loss development patterns for this line tend to be volatile. Therefore, the Company typically relies on frequency and severity techniques.
Long-tailed general liability, bond and large deductible workers’ compensation	For these long-tailed lines of business, the Company generally relies on the expected loss ratio and reported development techniques. The Company generally weights these techniques together, relying more heavily on the expected loss ratio method at early ages of development and more on the reported development method as an accident year matures.
Workers’ compensation	Workers’ compensation is the Company’s single largest reserve line of business and a wide range of methods are used. Methods include paid and reported development techniques, the expected loss ratio and Bornhuetter-Ferguson methods, and an in-depth analysis on the largest states. In recent years, we have seen an acceleration of paid losses relative to historical patterns and have adjusted our expected loss development patterns accordingly. This acceleration has largely been due to two factors. First, in more recent accident years, we have seen a higher concentration of first dollar workers' compensation business and less excess of loss business resulting in fewer longer-tailed, excess workers' compensation claims. Second, the Company has seen an increase in lump sum settlements to claimants across multiple accident years. Adjusting for the effect of an acceleration in payments compared to historical patterns, paid loss development techniques are generally preferred for the workers' compensation line, particularly for more mature accident years. For less mature accident years, the Company places greater reliance on the expected loss ratio and reported development methods, open claim approaches, and state-by-state analysis.
Assumed reinsurance and all other	For these lines, the Company tends to rely mostly on reported development techniques. In assumed reinsurance, assumptions are influenced by information gained from claim and underwriting audits.
Allocated loss adjustment expenses (ALAE)	For some lines of business (e.g., professional liability and assumed reinsurance), ALAE and losses are analyzed together. For most lines of business, however, ALAE is analyzed separately, using paid development techniques and a ratio of paid ALAE to paid loss is applied to loss reserves to estimate unpaid ALAE.
Unallocated loss adjustment expenses (ULAE)	ULAE is analyzed separately from loss and ALAE. For most lines of business, incurred ULAE costs to be paid in the future are projected based on an expected claim handling cost per claim year, the anticipated claim closure pattern and the ratio of paid ULAE to paid loss is applied to estimated unpaid losses.

In the final step of the reserve review process, senior reserving actuaries and senior management apply their judgment to determine the appropriate level of reserves considering the actuarial indications and other factors not contemplated in the actuarial indications. Those factors include, but are not limited to, the assessed reliability of key loss trends and assumptions used in the current actuarial indications, the maturity of the accident year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, and the improvement or deterioration of actuarial indications in the current period as compared to the prior periods. The Company also considers the magnitude of the difference between the actuarial indication and the recorded reserves.

Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any,

to record. In general, adjustments are made more quickly to more mature accident years and less volatile lines of business. Such adjustments of reserves are referred to as “prior accident year development”. Increases in previous estimates of ultimate loss costs are referred to as either an increase in prior accident year reserves or as unfavorable reserve development. Decreases in previous estimates of ultimate loss costs are referred to as either a decrease in prior accident year reserves or as favorable reserve development. Reserve development can influence the comparability of year over year underwriting results.

Total recorded net reserves, excluding asbestos and environmental, were 4.7% higher than the actuarial indication of the reserves as of December 31, 2017.

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

For a discussion of changes to reserve estimates recorded in 2017, see the Reserve Development section below.

Current Trends Contributing to Reserve Uncertainty

The Hartford is a multi-line company in the property and casualty insurance business. The Hartford is therefore subject to reserve uncertainty stemming from changes in loss trends and other conditions which could become material at any point in time. As market conditions and loss trends develop, management must assess whether those conditions constitute a long-term trend that should result in a reserving action (i.e., increasing or decreasing the reserve).

Difficult to Estimate Tort Exposures- Within Commercial Lines and Property & Casualty Other Operations, the Company has exposure to bodily injury claims as a result of long-term or continuous exposure to harmful products or substances. Examples include, but are not limited to, pharmaceutical products, silica, talcum powder, head injuries and lead paint. The Company also has exposure to claims from construction defects, where property damage or bodily injury from negligent construction is alleged. In addition, the Company has exposure to claims asserted against religious institutions and other organizations relating to molestation or abuse. Such exposures may involve potentially long latency periods and may implicate coverage in multiple policy periods. These factors make reserves for such claims more uncertain than other bodily injury or property damage claims. With regard to these exposures, the Company monitors trends in litigation, the external environment, the similarities to other mass torts and the potential impact on the Company’s reserves.

Standard Commercial Lines- In standard commercial lines, workers’ compensation is the Company’s single biggest line of business and the line of business with the longest pattern of loss emergence. To the extent that patterns in the frequency of settlement payments deviate from historical patterns, loss reserve estimates would be less reliable. Medical costs make up more than 50% of workers’ compensation payments. As such, reserve estimates for workers’ compensation are particularly sensitive to changes in medical inflation, the changing use of medical care procedures and changes in state legislative and regulatory environments. In addition, a deteriorating economic environment can reduce the ability of an injured worker to return to work and lengthen the time a worker receives disability benefits.

Specialty Lines- In specialty lines, many lines of insurance are “long-tail”, including large deductible workers’ compensation insurance; as such, reserve estimates for these lines are more difficult to determine than reserve estimates for shorter-tail lines of insurance. Reserves for large deductible workers’ compensation insurance require estimating losses attributable to the deductible amount that will be paid by the insured; if such losses are not paid by the insured due to financial difficulties, the Company is contractually liable. Uncertainty in estimated claim severity causes reserve variability for commercial automobile losses including reserve variability due to changes in internal claim handling and case reserving practices as well as due to changes in the external environment. Another example of reserve variability is with directors’ and officers’ insurance where uncertainty regarding the number and severity of class action

suits can result in reserve volatility. Additionally, the Company’s exposure to losses under directors’ and officers’ insurance policies is primarily in excess layers, making estimates of loss more complex.

Personal Lines- In Personal Lines, while claims emerge over relatively shorter periods, estimates can still vary due to a number of factors, including uncertain estimates of frequency and severity trends. Severity trends are affected by changes in internal claim handling and case reserving practices as well as by changes in the external environment. Changes in claim practices increase the uncertainty in the interpretation of case reserve data, which increases the uncertainty in recorded reserve levels. Severity trends have increased in recent accident years, in part driven by more expensive parts associated with new automobile technology, causing additional uncertainty about the reliability of past patterns. In addition, the introduction of new products and class plans has led to a different mix of business by type of insured than the Company experienced in the past. Such changes in mix increase the uncertainty of the reserve projections, since historical data and reporting patterns may not be applicable to the new business.

Impact of Key Assumptions on Reserves

As stated above, the Company’s practice is to estimate reserves using a variety of methods, assumptions and data elements within its reserve estimation process for reserves other than asbestos and environmental. The Company does not consistently use statistical loss distributions or confidence levels around its reserve estimate and, as a result, does not disclose reserve ranges.

Across most lines of business, the most important reserve assumptions are future loss development factors applied to paid or reported losses to date. The trend in loss cost frequency and severity is also a key assumption, particularly in the most recent accident years, where loss development factors are less credible.

The following discussion discloses possible variation from current estimates of loss reserves due to a change in certain key indicators of potential losses. For automobile liability lines in both Personal Lines and Commercial Lines, the key indicator is the annual loss cost trend, particularly the severity trend component of loss costs. For workers’ compensation and general liability, loss development patterns are a key indicator, particularly for more mature accident years. For workers’ compensation, paid loss development patterns have been impacted by medical cost inflation and other changes in loss cost trends. For general liability, loss development patterns have been impacted by, among other things, emergence of new types of claims (e.g., construction defect claims) and a shift in the mixture between smaller, more routine claims and larger, more complex claims.

Each of the impacts described below is estimated individually, without consideration for any correlation among key indicators or among lines of business. Therefore, it would be inappropriate to take each of the amounts described below and add them together in an attempt to estimate volatility for the Company’s reserves in total. For any one reserving line of business, the estimated variation in reserves due to changes in key indicators is a reasonable estimate of possible variation that may occur in the future, likely over a period of several calendar years. The variation discussed is not meant to be a worst-case scenario, and,

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

therefore, it is possible that future variation may be more than the amounts discussed below.

	Possible Change in Key Indicator	Reserves, Net of Reinsurance December 31, 2017	Estimated Range of Variation in Reserves
Personal Automobile Liability	+/- 2.5 points to the annual assumed change in loss cost severity for the two most recent accident years	$1.7 billion	+/- $80
Commercial Automobile Liability	+/- 2.5 points to the annual assumed change in loss cost severity for the two most recent accident years	$0.9 billion	+/- $20
Workers' Compensation	2% change in paid loss development patterns	$9.6 billion	+/- $400
General Liability	10% change in reported loss development patterns	$2.2 billion	+/- $200

Reserving for Asbestos and Environmental Claims

How A&E Reserves are Set- The process for establishing reserves for asbestos and environmental claims first involves estimating the required reserves gross of ceded reinsurance and then estimating reinsurance recoverables. In establishing reserves for gross asbestos claims, the Company evaluates its insureds’ estimated liabilities for such claims by examining exposures for individual insureds and assessing how coverage applies. The Company considers a variety of factors, including the jurisdictions where underlying claims have been brought, past, pending and anticipated future claim activity, disease mix, past settlement values of similar claims, dismissal rates, allocated loss adjustment expense, and potential bankruptcy impact.

Similarly, the Company reviews exposures to establish gross environmental reserves. The Company considers several factors in estimating environmental liabilities, including historical values of similar claims, the number of sites involved, the insureds’ alleged activities at each site, the alleged environmental damage, the respective shares of liability of potentially responsible parties, the appropriateness and cost of remediation, the nature of governmental enforcement activities and potential bankruptcy impact.

After evaluating its insureds’ probable liabilities for asbestos and/or environmental claims, the Company evaluates the insurance coverage in place for such claims. The Company considers its insureds’ total available insurance coverage, including the coverage issued by the Company. The Company also considers

relevant judicial interpretations of policy language and applicable coverage defenses or determinations, if any.

The estimated liabilities of insureds and the Company’s exposure to the insureds depends heavily on an analysis of the relevant legal issues and litigation environment. This analysis is conducted by the Company’s lawyers and is subject to applicable privileges.

For both asbestos and environmental reserves, the Company also analyzes its historical paid and reported losses and expenses year by year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity. The historical losses and expenses are analyzed on both a direct basis and net of reinsurance.

Once the gross ultimate exposure for indemnity and allocated loss adjustment expense is determined for its insureds by each policy year, the Company calculates its ceded reinsurance projection based on any applicable facultative and treaty reinsurance and the Company’s experience with reinsurance collections. See the section that follows entitled Adverse Development Cover that discusses the impact the reinsurance agreement with NICO may have on future adverse development of asbestos and environmental reserves, if any.

Uncertainties Regarding Adequacy of A&E Reserves- A number of factors affect the variability of estimates for gross asbestos and environmental reserves including assumptions with respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims with no payment, resolution of coverage disputes with our policyholders and the expense to indemnity ratio. Reserve estimates for gross asbestos and environmental reserves are subject to greater variability than reserve estimates for more traditional exposures.

The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements. The Company believes that its current asbestos and environmental reserves are appropriate. While future developments could cause the Company to change its estimates of its gross asbestos and environmental reserves, the adverse development cover with NICO will likely lessen the effect that these changes would have on the Company's consolidated operating results and liquidity. Consistent with past practice, the Company will continue to monitor its reserves in Property & Casualty Other Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables, the allowance for uncollectible reinsurance, and environmental liabilities. Where future developments indicate, we will make appropriate adjustments to the reserves at that time. In 2017, the Company completed the comprehensive annual review of asbestos and environmental reserves during the fourth quarter, instead of the second quarter as it had done in previous years.

Total P&C Insurance Product Reserves Development

In the opinion of management, based upon the known facts and current law, the reserves recorded for the Company’s property and casualty insurance products at December 31, 2017 represent the Company’s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses covered by policies written by the Company. However, because of the significant

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

uncertainties surrounding reserves, it is possible that management’s estimate of the ultimate liabilities for these claims may change in the future and that the required adjustment to

currently recorded reserves could be material to the Company’s results of operations and liquidity.

Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2017

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	17,950		$	2,094		$	2,501		$	22,545
Reinsurance and other recoverables [1]	3,037			25			426			3,488
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,913			2,069			2,075			19,057
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	3,961			2,584			—			6,545
Current accident year catastrophes	383			453			—			836
Prior accident year development	(22		)	(37		)	18			(41		)
Total provision for unpaid losses and loss adjustment expenses	4,322			3,000			18			7,340
Less: payments	3,489			2,846			244			6,579
Ending liabilities for unpaid losses and loss adjustment expenses, net	15,746			2,223			1,849			19,818
Reinsurance and other recoverables [1]	3,147			71			739			3,957
Ending liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	18,893		$	2,294		$	2,588		$	23,775
Earned premiums and fee income	$	6,902		$	3,734
Loss and loss expense paid ratio [2]	50.6			76.2
Loss and loss expense incurred ratio	63.0			81.3
Prior accident year development (pts) [3]	(0.3		)	(1.0		)

[1]Commercial Lines reflects the addition of $712 to the beginning gross reserves and reinsurance recoverables and $688 to the ending gross reserves and reinsurance recoverables for structured settlements reserves and recoverables due from the Company's life and annuity run-off business now classified as held for sale. These amounts were previously eliminated in consolidation.

[2]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income.

[3]	“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

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

2017 Catastrophe Losses, Net of Reinsurance

	Commercial Lines			Personal Lines
Wind and hail	$	138		$	176
Hurricanes [1]	236			68
Wildfires	51			253
Winter Storms	1			3
Total Catastrophe Losses	$	426		$	500
Less: reinsurance recoverable under the property aggregate treaty [2]	(43		)	(47		)
Net Catastrophe losses	$	383		$	453

[1]Includes catastrophe losses from Hurricane Harvey and Hurricane Irma of $170 and $121, respectively.

[2]Refers to reinsurance recoverable under the Company's Property Aggregate treaty. For further information on the treaty, refer to Part II, Item 7, MD&A — Enterprise Risk Management — Insurance Risk.

(Favorable) Unfavorable Prior Accident Year Development for the Year Ended December 31, 2017

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Workers’ compensation	$	(79	)	$	—		$	—		$	(79	)
Workers’ compensation discount accretion	28			—			—			28
General liability	11			—			—			11
Package business	(25		)	—			—			(25		)
Commercial property	(8		)	—			—			(8		)
Professional liability	1			—			—			1
Bond	32			—			—			32
Automobile liability	17			—			—			17
Homeowners	—			(14		)	—			(14		)
Net asbestos reserves	—			—			—			—
Net environmental reserves	—			—			—			—
Catastrophes	—			(16		)	—			(16		)
Uncollectible reinsurance	(15		)	—			—			(15		)
Other reserve re-estimates, net	16			(7		)	18			27
Total prior accident year development	$	(22	)	$	(37	)	$	18		$	(41	)

During 2017, the Company’s re-estimates of prior accident year reserves included the following significant reserve changes:

Workers’ compensation reserves were reduced in Small Commercial and Middle Market, given the continued emergence of favorable frequency, primarily for accident years 2013 to 2015, as well as a reduction in estimated reserves for ULAE, partially offset by strengthening reserves for captive programs within Specialty Commercial.

General liability reserves were increased for the 2013 to 2016 accident years on a class of business that insures service and maintenance contractors. This increase was partially offset by a decrease in recent accident year reserves for other Middle Market general liability reserves.

Package business reserves were reduced for accident years 2013 and prior largely due to reducing the Company’s estimate of allocated loss adjustment expenses incurred to settle the claims.

Bond business reserves increased for customs bonds written between 2000 and 2010 which was partly offset by a reduction in reserves for recent accident years as reported losses for commercial and contract surety have emerged favorably.

Automobile liability reserves within Commercial Lines were increased in Small Commercial and large national accounts for the 2013 to 2016 accident years, driven by higher frequency of more severe accidents, including litigated claims.

Asbestos and environmental reserves were unchanged as $285 of adverse development arising from the fourth quarter 2017 comprehensive annual review was offset by a $285 recoverable from NICO. For additional information related to the adverse development cover with NICO, see Note 8 - Reinsurance and 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

Catastrophes reserves were reduced primarily due to lower estimates of 2016 wind and hail event losses and a decrease in losses on a 2015 wildfire.

Uncollectible reinsurance reserves decreased as a result of giving greater weight to favorable collectibility

experience in recent calendar periods in estimating future collections.

Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2016

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	17,302		$	1,845		$	3,421		$	22,568
Reinsurance and other recoverables [1]	3,036			19			570			3,625
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,266			1,826			2,851			18,943
Add: Maxum acquisition	122			—			—			122
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	3,766			2,808			—			6,574
Current accident year catastrophes	200			216			—			416
Prior accident year development	28			151			278			457
Total provision for unpaid losses and loss adjustment expenses	3,994			3,175			278			7,447
Less: payments	3,469			2,932			567			6,968
Less: net reserves transferred to liabilities held for sale [4]	—			—			487			487
Ending liabilities for unpaid losses and loss adjustment expenses, net	14,913			2,069			2,075			19,057
Reinsurance and other recoverables [1]	3,037			25			426			3,488
Ending liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	17,950		$	2,094		$	2,501		$	22,545
Earned premiums and fee income	$	6,690		$	3,937
Loss and loss expense paid ratio [2]	51.9			74.5
Loss and loss expense incurred ratio	60.1			81.5
Prior accident year development (pts) [3]	0.4			3.9

[1]	Commercial Lines reflects the addition of $743 to the beginning gross reserves and reinsurance recoverables and $712 to the ending gross reserves and reinsurance recoverables for structured settlements reserves and recoverables due from the Company's life and annuity run-off business now classified as held for sale. These amounts were previously eliminated in consolidation.

[2]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income.

[3]	“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

[4]	Represents liabilities classified as held-for-sale as of December 31, 2016 and subsequently transferred to the buyer in connection with the sale of the Company's U.K. property and casualty run-off subsidiaries in May 2017. For discussion of the sale transaction, see Note 20 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements.

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

2016 Catastrophe Losses, Net of Reinsurance

	Commercial Lines			Personal Lines
Wind and hail	$	156		$	186
Winter storms	24			7
Hurricane Matthew	17			16
Wildfires	3			7
Total Catastrophe Losses	$	200		$	216

(Favorable) Unfavorable Prior Accident Year Development for the Year Ended December 31, 2016

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Workers’ compensation	$	(119	)	$	—		$	—		$	(119	)
Workers’ compensation discount accretion	28			—			—			28
General liability	65			—			—			65
Package business	65			—			—			65
Commercial property	1			—			—			1
Professional liability	(37		)	—			—			(37		)
Bond	(8		)	—			—			(8		)
Automobile liability	57			160			—			217
Homeowners	—			(10		)	—			(10		)
Net asbestos reserves	—			—			197			197
Net environmental reserves	—			—			71			71
Catastrophes	(4		)	(3		)	—			(7		)
Uncollectible reinsurance	(30		)	—			—			(30		)
Other reserve re-estimates, net	10			4			10			24
Total prior accident year development	$	28		$	151		$	278		$	457

During 2016, the Company’s re-estimates of prior accident year reserves included the following significant reserve changes:

Workers' compensation reserves consider favorable emergence on reported losses for recent accident years as well as a partially offsetting adverse impact related to two recent Florida Supreme Court rulings that have increased the Company’s exposure to workers’ compensation claims in that state. The favorable emergence has been driven by lower frequency and, to a lesser extent, lower medical severity and management has placed additional weight on this favorable experience as it becomes more credible.

General liability reserves increased for accident years 2012 - 2015 primarily due to higher severity losses incurred on a class of business that insures service and maintenance contractors and increased for accident years 2008 and 2010 primarily due to indemnity losses and legal costs associated with a litigated claim.

Package business reserves increased due to higher than expected severity on liability claims, principally for accident years 2013 - 2015. Severity for these accident years has developed unfavorably and management has placed more weight on emerged experience.

Professional liability reserves decreased for claims made years 2008 - 2013, primarily for large accounts, including on non-securities class action cases. Claim costs have emerged favorably as these years have matured and management has placed more weight on the emerged experience.

Automobile liability reserves increased due to increases in both commercial lines automobile and personal lines automobile. Commercial automobile liability reserves increased, predominately for the 2015 accident year, primarily due to increased frequency of large claims. Personal automobile liability reserves increased, primarily related to increased bodily injury frequency and severity for the 2015 accident year, including for uninsured and under-insured motorist claims, and increased bodily injury severity for the 2014 accident year. Increases in automobile liability loss costs were across both the direct and agency distribution channels.

Asbestos and environmental reserves were increased during the period as a result of the second quarter 2016 comprehensive annual review.

Uncollectible reinsurance reserves decreased as a result of giving greater weight to favorable collectibility

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

experience in recent calendar periods in estimating future collections.

Roll-forward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2015

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	17,238		$	1,874		$	3,467		$	22,579
Reinsurance and other recoverables [1]	3,232			18			564			3,814
Beginning liabilities for unpaid losses and loss adjustment expenses, net	14,006			1,856			2,903			18,765
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	3,712			2,578			25			6,315
Current accident year catastrophes	121			211			—			332
Prior accident year development	53			(21		)	218			250
Total provision for unpaid losses and loss adjustment expenses	3,886			2,768			243			6,897
Less: payments	3,626			2,798			295			6,719
Ending liabilities for unpaid losses and loss adjustment expenses, net	14,266			1,826			2,851			18,943
Reinsurance and other recoverables [1]	3,036			19			570			3,625
Ending liabilities for unpaid losses and loss adjustment expenses, gross [1]	$	17,302		$	1,845		$	3,421		$	22,568
Earned premiums and fee income	$	6,551		$	3,910
Loss and loss expense paid ratio [2]	55.4			71.6
Loss and loss expense incurred ratio	59.7			71.5
Prior accident year development (pts) [3]	0.8			(0.5		)

[1]	Commercial Lines reflects the addition of $773 to the beginning gross reserves and reinsurance recoverables and $743 to the ending gross reserves and reinsurance recoverables for structured settlements reserves and recoverables due from the Company's life and annuity run-off business now classified as held for sale. These amounts were previously eliminated in consolidation.

[2]	The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income.

[3]	“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

2015 Catastrophe Losses, Net of Reinsurance

	Commercial Lines			Personal Lines
Wind and hail	$	43		$	114
Winter storms	57			27
Tornadoes	18			29
Other [1]	3			41
Total Catastrophe Losses	$	121		$	211

[1]Consists primarily of wildfires.

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

(Favorable) Unfavorable Prior Accident Year Development for the Year Ended December 31, 2015

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Workers’ compensation	$	(37	)	$	—		$	—		$	(37	)
Workers’ compensation discount accretion	29			—			—			29
General liability	8			—			—			8
Package business	28			—			—			28
Commercial property	(6		)	—			—			(6		)
Professional liability	(36		)	—			—			(36		)
Bond	(2		)	—			—			(2		)
Automobile liability	62			(8		)	—			54
Homeowners	—			9			—			9
Net asbestos reserves	—			—			146			146
Net environmental reserves	—			—			55			55
Catastrophes	—			(18		)	—			(18		)
Other reserve re-estimates, net	7			(4		)	17			20
Total prior accident year development	$	53		$	(21	)	$	218		$	250

During 2015, the Company’s re-estimates of prior accident year reserves included the following significant reserve changes:

Workers' compensation reserves decreased due to an improvement in claim closure rates resulting in a decrease in outstanding claims for permanently disabled claimants. In addition, accident years 2013 and 2014 continue to exhibit favorable frequency and medical severity trends; management has been placing additional weight on this favorable experience as it becomes more credible.

Package business reserves increased due to higher than expected severity on liability claims, impacting recent accident years.

Professional liability reserves decreased for claims made years 2009 through 2012 primarily for large accounts. Claim costs have emerged favorably as these years have matured and management has placed more weight on the emerged experience.

Automobile liability reserves within Commercial Lines were increased due to increased severity of large claims predominantly for accident years 2010 to 2013.

Asbestos and environmental reserves were increased during the period as a result of the 2015 comprehensive annual review.

Catastrophe reserves decreased primarily for accident year 2014, as fourth quarter 2014 catastrophes have developed favorably.

Other reserve re-estimates, net decreased due to decreased contract surety reserves across several accident years and decreased commercial surety reserves for accident years 2012 through 2014 as a result of lower emerged losses. These reserve decreases were offset by an increase in commercial

surety reserves related to accident years 2007 and prior, as the number of new claims reported has outpaced expectations.

Property & Casualty Other Operations

Net reserves and reserve activity in Property & Casualty Other Operations are categorized and reported as Asbestos, Environmental, and “All other”. The “All other” category of reserves covers a wide range of insurance and assumed reinsurance coverages, including, but not limited to, potential liability for construction defects, lead paint, silica, pharmaceutical products, molestation and other long-tail liabilities. In addition to various insurance and assumed reinsurance exposures, "All other" includes unallocated loss adjustment expense reserves. "All other" also includes the Company’s allowance for uncollectible reinsurance. When the Company commutes a ceded reinsurance contract or settles a ceded reinsurance dispute, net reserves for the related cause of loss (including asbestos, environmental or all other) are increased for the portion of the allowance for uncollectible reinsurance attributable to that commutation or settlement.

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

P&C Other Operations

Total Reserves, Net of Reinsurance

Asbestos and Environmental Reserves

Reserves for asbestos and environmental are primarily within P&C Other Operations with less significant amounts of asbestos and environmental reserves included within Commercial Lines and Personal Lines. The following tables include all asbestos and environmental reserves, including reserves in P&C Other Operations and Commercial Lines and Personal Lines.

Asbestos and Environmental Net Reserves

	Asbestos			Environmental
2017
Property and Casualty Other Operations	$	1,143		$	182
Commercial Lines and Personal Lines	72			55
Ending liability — net	$	1,215		$	237
2016
Property and Casualty Other Operations	$	1,282		$	234
Commercial Lines and Personal Lines	81			58
Ending liability — net	$	1,363		$	292
2015
Property and Casualty Other Operations	$	1,712		$	247
Commercial Lines and Personal Lines	91			71
Ending liability — net	$	1,803		$	318

Property & Casualty Reserves

Asbestos and Environmental Summary as of December 31, 2017

		Asbestos			Environmental			Total A&E
Gross
	Direct	$	1,413		$	333		$	1,746
	Assumed Reinsurance	425			46			471
	Total	1,838			379			2,217
Ceded- other than NICO		(440		)	(40		)	(480		)
Ceded - NICO ADC		(183		)	(102		)	(285		)
Net		$	1,215		$	237		$	1,452

Roll-Forward of Asbestos and Environmental Losses and LAE

	Asbestos			Environmental
2017
Beginning liability — net	$	1,363		$	292
Losses and loss adjustment expenses incurred [1]	—			—
Losses and loss adjustment expenses paid	(149		)	(55		)
Reclassification of allowance for uncollectible insurance [4]	1			—
Ending liability — net	$	1,215		$	237
2016
Beginning liability — net	$	1,803		$	318
Losses and loss adjustment expenses incurred	197			71
Losses and loss adjustment expenses paid [2]	(462		)	(56		)
Reclassification of allowance for uncollectible insurance [4]	30			—
Net reserves transferred to liabilities held for sale [3]	(205		)	(41		)
Ending liability — net	$	1,363		$	292
2015
Beginning liability — net	$	1,811		$	316
Losses and loss adjustment expenses incurred	157			57
Losses and loss adjustment expenses paid	(165		)	(55		)
Ending liability — net	$	1,803		$	318

[1]	Incurred losses of $285, net, have been ceded to NICO under an adverse development cover reinsurance agreement. See the section that follows entitled ADC for additional information.

[2]	Included $289 related to the settlement in 2016 of PPG Industries ("PPG") asbestos liabilities, net of reinsurance billed to third-party reinsurers.

[3]	A&E liabilities classified as held for sale related to the sale of the Company's U.K. property and casualty run-off subsidiaries.

[4]	Related to the reclassification of an allowance for uncollectible reinsurance from the "All Other" category of P&C Other Operations reserves.

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

Adverse Development Cover

In December 31, 2016, the Company entered into an asbestos and environmental ADC reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc. (“Berkshire”), to reduce uncertainty about potential adverse development of asbestos and environmental reserves. Under the reinsurance agreement, NICO assumes adverse net loss and allocated loss adjustment expense reserve development up to $1.5 billion above the Company's net asbestos and environmental reserves recorded as of December 31, 2016. As of December 31, 2017, the Company has incurred $285 in adverse development on asbestos and environmental reserves that have been ceded under the ADC treaty with NICO, leaving approximately $1.2 billion of coverage available for future adverse net reserve development, if any. For additional information related to the adverse development cover, see Note 8 - Reinsurance and Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements.

Net and Gross Survival Ratios

Net and Gross survival ratios are a measure of the quotient of the carried reserves divided by average annual payments (net of reinsurance and on a gross basis) and is an indication of the number of years that carried reserves would last (i.e. survive) if future annual payments were consistent with the calculated historical average.

The survival ratios shown below are calculated for the one and three year periods ended December 31, 2017. The net basis survival ratio has been materially affected by the adverse development cover entered into between the Company and NICO. The Company cedes adverse asbestos and environmental development in excess of its December 31, 2016 net carried reserves of $1.7 billion to NICO up to a limit of $1.5 billion. Since December 31, 2016, net reserves for asbestos and environmental have been declining as the Company has had no net incurred losses but continues to pay down net loss reserves. As a result, this has the effect of reducing the one- and three-year net survival ratios shown in the table below. For asbestos, the table also presents the net survival ratios excluding the effect of the PPG settlement in 2016. See section that follows entitled Major Categories of Asbestos Accounts for discussion of the PPG settlement.

Net and Gross Survival Ratios

	Asbestos	Environmental
One year net survival ratio	8.2	4.3
Three year net survival ratio- excluding PPG	7.5	4.6
One year gross survival ratio	9.2	5.7
Three year gross survival ratio - excluding PPG settlement	9.0	6.5

Asbestos and Environmental

Paid and Incurred Losses and LAE Development

	Asbestos						Environmental
	Paid Losses & LAE			Incurred Losses & LAE			Paid Losses & LAE			Incurred Losses & LAE
2017
Gross	$	199		$	306		$	66		$	126
Ceded- other than NICO	(50		)	(123		)	(11		)	(24		)
Ceded - NICO ADC	—			(183		)	—			(102		)
Net	$	149		$	—		$	55		$	—
2016
Gross	$	535		$	257		$	61		$	77
Ceded- other than NICO	(73		)	(60		)	(5		)	(6		)
Ceded - NICO ADC	—			—			—			—
Net	$	462		$	197		$	56		$	71
2015
Gross	$	230		$	251		$	68		$	82
Ceded- other than NICO	(65		)	(94		)	(13		)	(25		)
Ceded - NICO ADC	—			—			—			—
Net	$	165		$	157		$	55		$	57

Annual Reserve Reviews

Review of Asbestos Reserves

Beginning in 2017, the Company performs its regular comprehensive annual review of asbestos reserves in the fourth quarter. As part of this evaluation in the fourth quarter of 2017, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts.

As a result of the 2017 fourth quarter review, the Company increased estimated reserves before NICO reinsurance by $183, primarily due to mesothelioma claim filings not declining as expected, unfavorable developments in coverage law in some jurisdictions and continued filings in specific, adverse jurisdictions. An increased share of adverse development from the fourth quarter review is from umbrella and excess policies in the 1981-1985 policy years. This increase in reserves was offset by a $183 reinsurance recoverable under the NICO treaty.

During the 2016 second quarter review, a substantial majority of the Company’s direct accounts trended as expected, and the Company observed no material changes in the underlying legal environment. However, mesothelioma claims filings have not declined as expected for a small subset of peripheral defendants with a high concentration of asbestos filings in specific, adverse jurisdictions. As a result, aggregate indemnity and defense costs did not decline as expected. While the mesothelioma and adverse jurisdiction claim trends observed in the 2016 comprehensive annual review were similar to the 2015 comprehensive annual review, most of the defendants that had reserve increases in the

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

2016 review did not have a material impact in the 2015 review. Based on this evaluation, the Company increased its net asbestos reserves for prior year development by $197 in second quarter 2016.

During the 2015 comprehensive annual review, the Company found a substantial majority of direct accounts trended as expected, and the Company saw no material changes in the underlying legal environment during the past year. However, a small percentage of the Company’s direct accounts experienced greater than expected claim filings, including mesothelioma claims. This was driven by a subset of peripheral defendants with a high concentration of filings in specific, adverse jurisdictions. As a result, the aggregate indemnity and defense costs did not decline as expected. To a lesser degree, the Company also saw unfavorable development on certain assumed reinsurance accounts, driven by various account-specific factors, including filing activity experienced by the direct accounts. Based on this evaluation, the Company increased its net asbestos reserves for prior year development by $146 in second quarter 2015.

Review of Environmental Reserves

Beginning in 2017, the Company performs its regular comprehensive annual review of environmental reserves in the fourth quarter. As part of its evaluation in the fourth quarter of 2017, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability, as well as assumed reinsurance accounts.

As a result of the 2017 comprehensive annual review, the Company increased estimated reserves before NICO reinsurance by $102. This increase was offset by a reinsurance recoverable of $102 under the NICO cover. A substantial majority of the Company's direct environmental accounts trended as expected. However, a small percentage of the Company's direct accounts exhibited deterioration due to increased clean-up costs and liability shares associated with Superfund sites and sediment in waterways, as well as adverse legal rulings, most notably from jurisdictions in the Pacific Northwest.

During the 2016 comprehensive annual review, a substantial majority of the Company's direct environmental accounts trended as expected. However, a small percentage of the Company's direct accounts exhibited deterioration associated with the tendering of new sites for coverage, increased defense costs stemming from individual bodily injury liability suits, and increased clean-up costs associated with waterways. Based on this evaluation, the Company increased its net environmental reserves for prior year development by $71 in second quarter 2016.

During the 2015 comprehensive annual review, a substantial majority of the Company's environmental exposures trended as expected, however the Company found loss and expense estimates for certain individual account exposures increased based upon an increase in clean-up costs, including at a handful of Superfund sites. In addition, new claim severity deteriorated, although frequency continued to decline as expected. The net effect of these account-specific changes as well as quarterly actuarial evaluations of new account emergence and historical loss and expense paid experience resulted in an increase of $57 in net environmental reserves for prior years development.

Major Categories of Asbestos Accounts

Direct asbestos exposures include both Known and Unallocated Direct Accounts.

•

Known Direct Accounts- includes both Major Asbestos Defendants and Non-Major Accounts, and represent approximately 63% of the Company's total Direct gross asbestos reserves as of December 31, 2017 compared to approximately 61% as of June 30, 2016. Major Asbestos Defendants have been defined as the “Top 70” accounts in Tillinghast's published Tiers 1 and 2 and Wellington accounts, while Non-Major accounts are comprised of all other direct asbestos accounts and largely represent smaller and more peripheral defendants. Major Asbestos Defendants have the fewest number of asbestos accounts and up through second quarter 2016 had included reserves related to PPG Industries, Inc. (“PPG”). In May 2016, the Company pre-paid its funding obligation in the amount of $315 as permitted under the settlement agreement, arising from participation in a 2002 settlement of asbestos liabilities of PPG. The Company's funding obligation approximated the amount reserved for this exposure.

•

Unallocated Direct Accounts- includes an estimate of the reserves necessary for asbestos claims related to direct insureds that have not previously tendered asbestos claims to the Company and exposures related to liability claims that may not be subject to an aggregate limit under the applicable policies. These exposures represent approximately 37% of the Company's Direct gross asbestos reserves as of December 31, 2017 compared to approximately 39% as of June 30, 2016.

Review of "All Other" Reserves in Property & Casualty Other Operations

In the fourth quarters of 2017, 2016 and 2015, the Company completed evaluations of certain of its non-asbestos and non-environmental reserves in Property & Casualty Other Operations, including its assumed reinsurance liabilities, unallocated loss adjustment expense reserves, and allowance for uncollectible reinsurance. Overall prior year development on all other reserves was immaterial with reserves increasing (decreasing) by $18, ($20), and $29 respectively for calendar years 2017, 2016 and 2015.

The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. During the fourth quarter of 2017, and second quarters of 2016 and 2015, the Company completed its annual evaluations of the collectibility of the reinsurance recoverables and the adequacy of the allowance for uncollectible reinsurance associated with older, long-term casualty liabilities reported in Property & Casualty Other Operations. In conducting these evaluations, the Company used its most recent detailed evaluations of ceded liabilities reported in the segment. The Company analyzed the overall credit quality of the Company’s reinsurers, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and recent developments in commutation activity between reinsurers and cedants. The evaluations in the fourth quarter of 2017, and second quarters of 2016 and 2015, resulted in no material adjustments to the Property & Casualty Other Operations' overall ceded reinsurance reserves, including the

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

allowance for uncollectible reinsurance. As of December 31, 2017, 2016, and 2015 the allowance for uncollectible reinsurance for Property & Casualty Other Operations totaled $86, $136, and $220 respectively. Reductions in the allowance since 2015 are primarily the result of actuarial reserve evaluations that have given greater weight to favorable collectibility experience in recent calendar year periods in estimating future collections, and to a lesser extent impacts from the sale of the Company's UK P&C run-off subsidiaries in 2017. Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, particularly for older, long-term casualty liabilities, it is possible that future adjustments to the Company's reinsurance recoverables, net of the allowance, could be required.

Impact of Re-estimates on Property and Casualty Insurance Product Reserves

Estimating property and casualty insurance product reserves uses a variety of methods, assumptions and data elements.

Ultimate losses may vary materially from the current estimates. Many factors can contribute to these variations and the need to change the previous estimate of required reserve levels. Prior accident year reserve development is generally due to the emergence of additional facts that were not known or anticipated at the time of the prior reserve estimate and/or due to changes in interpretations of information and trends.

The table below shows the range of annual reserve re-estimates experienced by The Hartford over the past ten years. The amount of prior accident year development (as shown in the reserve roll-forward) for a given calendar year is expressed as a percent of the beginning calendar year reserves, net of reinsurance. The ranges presented are significantly influenced by the facts and circumstances of each particular year and by the fact that only the last ten years are included in the range. Accordingly, these percentages are not intended to be a prediction of the range of possible future variability. For further discussion of the potential for variability in recorded loss reserves, see Preferred Reserving Methods by Line of Business - Impact of Changes in Key Assumptions on Reserve Volatility section.

Range of Prior Accident Year Unfavorable (Favorable) Development for the Ten Years Ended December 31, 2017

	Commercial Lines	Personal Lines	Property & Casualty Other Operations	Total Property & Casualty [1]
Annual range of prior accident year unfavorable (favorable) development for the ten years ended December 31, 2017	(3.1%) - 1.0%	(6.9%) - 8.3%	0.9% - 9.8%	(1.2%) - 2.4%

[1]	Excluding the reserve increases for asbestos and environmental reserves, over the past ten years reserve re-estimates for total property and casualty insurance ranged from (2.5%) to 1.0%.

The potential variability of the Company’s property and casualty insurance product reserves would normally be expected to vary by segment and the types of loss exposures insured by those segments. Illustrative factors influencing the potential reserve variability for each of the segments are discussed under Critical Accounting Estimates for Property & Casualty Insurance Product Reserves and Asbestos and Environmental Reserves. See the section entitled Property & Casualty Other Operations, Annual Reserve Reviews about the impact that the ADC retroactive reinsurance agreement with NICO may have on net reserve changes of asbestos and environmental reserves going forward.

The following table summarizes the effect of reserve re-estimates, net of reinsurance, on calendar year operations for the ten-year period ended December 31, 2017. The total of each column details the amount of reserve re-estimates made in the indicated calendar year and shows the accident years to which the re-estimates are applicable. The amounts in the total column on the far right represent the cumulative reserve re-estimates during the ten year period ended December 31, 2017 for the indicated accident year in each row.

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

Effect of Net Reserve Re-estimates on Calendar Year Operations

	Calendar Year
	2008			2009			2010			2011			2012			2013			2014			2015			2016			2017			Total
By Accident Year
2007 & Prior	$	(226	)	$	(147	)	$	(158	)	$	166		$	(18	)	$	9		$	358		$	284		$	296		$	75		$	639
2008				(39		)	1			(31		)	(1		)	(37		)	(13		)	43			(5		)	8			(74		)
2009							(39		)	(13		)	(24		)	(8		)	7			7			10			(12		)	(72		)
2010										245			3			61			(22		)	16			15			16			334
2011													36			148			(4		)	12			(6		)	6			192
2012																19			—			(55		)	(35		)	(12		)	(83		)
2013																			(98		)	(43		)	(29		)	(33		)	(203		)
2014																						(14		)	20			(19		)	(13		)
2015																									191			(41		)	150
2016																												(29		)	(29		)
Increase (decrease) in net reserves	$	(226	)	$	(186	)	$	(196	)	$	367		$	(4	)	$	192		$	228		$	250		$	457		$	(41	)	$	841

Accident years 2007 and Prior

The net reserve re-estimates for accident years 2006 and prior are driven mostly by increased reserves for asbestos and environmental reserves, and also for increased estimates on assumed casualty reinsurance, workers’ compensation and general liability claims.

Partially offsetting reserve increases for accident years 2007 and prior was favorable development mainly related to workers’ compensation claims, driven, in part, by state regulatory reforms in California and Florida, underwriting actions and expense reduction initiatives. Additionally, reserves for professional liability were reduced due to a lower estimate of claim severity in both directors’ and officers’ and errors and omissions insurance claims. Reserves for personal automobile liability claims were reduced largely due to improvement in emerged claim severity.

Accident years 2008 and 2009

Estimates of ultimate losses have emerged favorably for accident years 2008 and 2009 mainly related to personal automobile liability.

Accident years 2010 and 2011

Unfavorable reserve re-estimates on accident years 2010 and 2011 were primarily related to workers' compensation and commercial automobile liability. Workers' compensation loss cost trends were higher than initially expected as an increase in frequency outpaced a moderation of severity trends. Unfavorable commercial automobile liability reserve re-estimates were driven by higher frequency of large loss bodily injury claims.

Accident years 2012 and 2013

Estimates of ultimate unpaid losses were decreased for accident years 2012 and 2013 due to favorable frequency and/or medical severity trends for workers’ compensation, favorable professional liability claim emergence, and lower frequency of late emerging general liability claims for the 2012 accident year. Favorable emergence of property lines of business, including catastrophes, for the 2013 accident year, is partially offset by increased reserves in automobile liability due to increased severity of large claims.

Accident years 2014 and 2015

Reserve changes for accident years 2014 and 2015 were largely driven by unfavorable frequency and severity trends for personal and commercial automobile liability and increased severity of liability claims on package business, offset by favorable frequency and medical severity trends for workers' compensation.

Accident year 2016

Reserves were decreased for the 2016 accident year largely due to reserve decreases on short-tail lines of business, where results emerge more quickly.

Group Benefit Long-term Disability ("LTD") Reserves, Net of Reinsurance

The Company establishes reserves for group life and accident & health contracts, including long-term disability coverage, for both outstanding reported claims and claims related to insured events that the Company estimates have been incurred but have not yet been reported. These reserve estimates can change over time based on facts and interpretations of circumstances, and consideration of various internal factors including The Hartford’s experience with similar cases, claim payment patterns, loss control programs and mix of business. In addition, the reserve estimates are influenced by various external factors including court decisions and economic conditions. The effects of inflation are implicitly considered in the reserving process. Long-tail claim liabilities are discounted because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The majority of Group Benefits’ reserves are for LTD claimants who are known to be disabled and are currently receiving benefits. The Company held $6,807 and $4,687 of LTD unpaid losses and loss adjustment expenses, net of reinsurance, as of December 31, 2017 and 2016, respectively, with the increase from 2016 to 2017 largely due to the acquisition of Aetna's U.S. group life and disability business.

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

Reserving Methodology

How Reserves are Set - A Disabled Life Reserve (DLR) is calculated for each LTD claim. The DLR for each claim is the expected present value of all future benefit payments starting with the known monthly gross benefit which is reduced for estimates of the expected claim recovery due to return to work or claimant death, offsets from other income including offsets from Social Security benefits, and discounting where the discount rate is tied to expected investment yield at the time the claim is incurred. Estimated future benefit payments represent the monthly income benefit that is paid until recovery, death or expiration of benefits. Claim recoveries are estimated based on claim characteristics such as age and diagnosis and represent an estimate of benefits that will terminate, generally as a result of the claimant returning to work or being deemed able to return to work. For claims recently closed due to recovery, a portion of the DLR is retained for the possibility that the claim reopens upon further evidence of disability. In addition, a reserve for estimated unpaid claim expenses is included in the DLR.

The DLR also includes a liability for potential payments to pending claimants who have not yet been approved for LTD either because they have not yet satisfied the waiting (or elimination) period or because the approval or denial decision has not yet been made. In these cases, the present value of future benefits is reduced for the likelihood of recovery before benefit onset or claim denial based on Company experience. For claims recently closed due to denial, a portion of the DLR is retained for the possibility that the claim is later approved upon further evidence of disability.

Estimates for incurred but not reported (IBNR) claims are made by applying completion factors to the dollar amount of claims reported or expected depending on the reporting segment. Completion factors are derived from standard actuarial techniques using triangles that display historical claim count emergence by incurral month. These estimates are reviewed for reasonableness and are adjusted for current trends and other factors expected to cause a change in claim emergence. The reserves include an estimate of unpaid claim expenses, including a provision for the cost of initial set-up of the claim once reported.

For all products, including LTD, there is a period generally ranging from two to twelve months, depending on the product and reporting segment, where emerged claims for an incurral year are not yet credible enough to be a basis for estimating reserves. In these cases, the ultimate loss is estimated using earned premium multiplied by an expected loss ratio based on pricing assumptions of claim incidence, claim severity, and earned pricing.

Current Trends Contributing to Reserve Uncertainty

In group insurance, Long-Term Disability (LTD) has the longest pattern of loss emergence and the highest reserve amount. One significant risk to the reserve would be a slowdown in recoveries. In particular, the economic environment can affect the ability of a disabled employee to return-to-work and the length of time an employee receives disability benefits. Another significant risk is a change in benefit offsets. Often the Company pays a reduced benefit due to offsets from other income sources such as pensions or Social Security Disability Insurance (SSDI). Possible changes to the frequency, timing, or amount of offsets, such as a change in SSDI approval standards or benefit offerings, create a risk that the amount to settle open claims will exceed initial

estimates. Since the monthly income benefit for a claimant is established based on the individual’s salary at the time of disability and the level of coverages and benefits provided, inflation is not considered a significant risk to the reserve estimate. Few of the Company’s LTD policies provide for cost of living adjustments to the monthly income benefit.

Impact of Key Assumptions on Reserves

The key assumptions affecting our group life and accident & health reserves include:

Discount Rate - The discount rate is the interest rate at which expected future claim cash flows are discounted to determine the present value. A higher selected discount rate results in a lower reserve. If the discount rate is higher than our future investment returns, our invested assets will not earn enough investment income to cover the discount accretion on our claim reserves which would negatively affect our profit. For each incurral year, the discount rates are estimated based on investment yields expected to be earned net of investment expenses. The incurral year is the year in which the claim is incurred and the estimated settlement pattern is determined. Once established, discount rates for each incurral year are unchanged except that LTD reserves assumed from the acquisition of Aetna's U.S. group life and disability business are all discounted using current rates as of the November 1, 2017 acquisition date. The weighted average discount rate on LTD reserves was 3.5% and 4.3% in 2017 and 2016, respectively, with the decrease from 2016 to 2017 largely due to Aetna U.S. group life and disability business LTD reserves being discounted at current rates as of the acquisition date. Had the discount rate for each incurral year been 10 basis points lower at the time they were established, our Group Benefits unpaid loss and loss adjustment expense reserves would be higher by $34, pretax, as of December 31, 2017.

Claim Termination Rates (inclusive of mortality, recoveries, and expiration of benefits) - Claim termination rates are an estimate of the rate at which claimants will cease receiving benefits during a given calendar year. Terminations result from a number of factors, including death, recoveries and expiration of benefits. The probability that benefits will terminate in each future month for each claim is estimated using a predictive model that uses past Company experience, contract provisions, job characteristics and other claimant-specific characteristics such as diagnosis, time since disability began, and age. Actual claim termination experience will vary from period to period. Over the past 10 years, claim termination rates for a single incurral year have generally increased and have ranged from 7% below to 8% above current assumptions over that time period. For a single recent incurral year (such as 2017), a one percent decrease in our assumption for LTD claim termination rates would increase our reserves by $7. For all incurral years combined, as of December 31, 2017, a one percent decrease in our assumption for our LTD claim termination rates would increase our Group Benefits unpaid losses and loss adjustment expense reserves by $20.

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

Evaluation of Goodwill for Impairment

Goodwill balances are reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. The goodwill impairment test follows a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. If the carrying amount of the reporting unit’s goodwill exceeds the implied goodwill value, an impairment loss is recognized in an amount equal to that excess, not to exceed the goodwill carrying value.

The estimated fair value of each reporting unit incorporates multiple inputs into discounted cash flow calculations including assumptions that market participants would make in valuing the reporting unit. Assumptions include levels of economic capital, future business growth, earnings projections, assets under management for Mutual Funds, and the weighted average cost of capital used for purposes of discounting. Decreases in business growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause a reporting unit’s fair value to decrease, increasing the possibility of impairment.

A reporting unit is defined as an operating segment or one level below an operating segment. The Company’s reporting units, for which goodwill has been allocated include Small Commercial within the Commercial Lines segment, Group Benefits, Personal Lines and Mutual Funds.

The carrying value of goodwill is $1,290 as of December 31, 2017 and is comprised of $38 for Small Commercial, $272 for Mutual Funds, $861 for Group Benefits and $119 for Personal Lines.

The annual goodwill assessment for the Small Commercial, Mutual Funds, Group Benefits and Personal Lines reporting units was completed as of October 31, 2017, and resulted in no write-downs of goodwill for the year ended December 31, 2017. All reporting units passed the first step of the annual impairment test with a significant margin. For information regarding the 2016 and 2015 impairment tests see Note 10 -Goodwill & Other Intangible Assets of Notes to Consolidated Financial Statements.

Valuation of Investments and Derivative Instruments

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

The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources which are listed in

priority order: quoted prices, prices from third-party pricing services, internal matrix pricing, and independent broker quotes. The fair value of free-standing derivative instruments are determined primarily using a discounted cash flow model or option model technique and incorporate counterparty credit risk. In some cases, quoted market prices for exchange-traded transactions and transactions cleared through central clearing houses ("OTC-cleared") may be used and in other cases independent broker quotes may be used. For further discussion, see the Fixed Maturities, Equity Securities, Short-term Investments and Free-standing Derivatives section in Note 5 of Notes to Consolidated Financial Statements.

Evaluation of OTTI on Available-for-sale Securities and Valuation Allowances on Mortgage Loans

Each quarter, a committee of investment and accounting professionals evaluates investments to determine if an other-than-temporary impairment (“impairment”) is present for AFS securities or a valuation allowance is required for mortgage loans. This evaluation is a quantitative and qualitative process, which is subject to risks and uncertainties. For further discussion of the accounting policies, see the Significant Investment Accounting Policies Section in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements. For a discussion of impairments recorded, see the Other-than-temporary Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A.

Valuation Allowance on Deferred Tax Assets

Deferred tax assets represent the tax benefit of future deductible temporary differences and certain tax carryforwards. Deferred tax assets are measured using the enacted tax rates expected to be in effect when such benefits are realized if there is no change in tax law. Under U.S. GAAP, we test the value of deferred tax assets for impairment on a quarterly basis at the entity level within each tax jurisdiction, consistent with our filed tax returns. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The determination of the valuation allowance for our deferred tax assets requires management to make certain judgments and assumptions. In evaluating the ability to recover deferred tax assets, we have considered all available evidence as of December 31, 2017, including past operating results, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. In the event we determine it is more likely than not that we will not be able to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance would be reversed. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions.

As of December 31, 2017 and December 31, 2016, the Company had no valuation allowance. The reduction in the valuation allowance in 2016 stems primarily from taxable gains on the

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

termination of derivatives during the period. The Company had no capital loss carryovers as of December 31, 2017. As a result of the Tax Cuts and Jobs Act ("Tax Reform") enacted by the federal government on December 22, 2017, the Company reclassified AMT credits of $790, net of a sequestration fee payable, from deferred taxes to a current income tax receivable since the law allows for the refund of AMT credits over time but no later than 2022. For additional information about Tax Reform, see Note - 16, Income Taxes of Notes to Consolidated Financial Statements.

In assessing the need for a valuation allowance, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of debt securities with market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset-liability matching. Management views such tax planning strategies as prudent and feasible, and would implement them, if necessary, to realize the deferred tax assets.

Contingencies Relating to Corporate Litigation and Regulatory Matters

Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management

establishes reserves for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated reserve at the low end of the range of losses.

The Company has a quarterly monitoring process involving legal and accounting professionals. Legal personnel first identify outstanding corporate litigation and regulatory matters posing a reasonable possibility of loss. These matters are then jointly reviewed by accounting and legal personnel to evaluate the facts and changes since the last review in order to determine if a provision for loss should be recorded or adjusted, the amount that should be recorded, and the appropriate disclosure. The outcomes of certain contingencies currently being evaluated by the Company, which relate to corporate litigation and regulatory matters, are inherently difficult to predict, and the reserves that have been established for the estimated settlement amounts are subject to significant changes. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of the Company. In view of the uncertainties regarding the outcome of these matters, as well as the tax-deductibility of payments, it is possible that the ultimate cost to the Company of these matters could exceed the reserve by an amount that would have a material adverse effect on the Company’s consolidated results of operations and liquidity in a particular quarterly or annual period.

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

SEGMENT OPERATING SUMMARIES

COMMERCIAL LINES

Results of Operations

Underwriting Summary

	2017			2016			2015
Written premiums	$	6,956		$	6,732		$	6,625
Change in unearned premium reserve	91			81			114
Earned premiums	6,865			6,651			6,511
Fee income	37			39			40
Losses and loss adjustment expenses
Current accident year before catastrophes	3,961			3,766			3,712
Current accident year catastrophes [1]	383			200			121
Prior accident year development [1]	(22		)	28			53
Total losses and loss adjustment expenses	4,322			3,994			3,886
Amortization of DAC	1,009			973			951
Underwriting expenses	1,348			1,230			1,218
Dividends to policyholders	35			15			17
Underwriting gain	188			478			479
Net servicing income	1			2			2
Net investment income [2]	949			917			910
Net realized capital gains (losses) [2]	103			13			(6		)
Other income (expenses)	1			(1		)	2
Income from continuing operations before income taxes	1,242			1,409			1,387
Income tax expense [3]	377			415			403
Income from continuing operations, net of tax	865			994			984
Income from discontinued operations, net of tax	—			—			7
Net income	$	865		$	994		$	991

[1]	For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Total Property and Casualty Insurance Product Reserves Development.

[2]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

[3]	2017 includes $25 of income tax expense primarily from reducing net deferred tax assets due to the reduction in the corporate Federal income tax rate from 35% to 21%. For further discussion, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Premium Measures [1]

	2017			2016			2015
New business premium	$	1,183		$	1,140		$	1,121
Standard commercial lines policy count retention	84		%	84		%	84		%
Standard commercial lines renewal written price increase	3.2		%	2.2		%	2.2		%
Standard commercial lines renewal earned price increase	2.9		%	2.3		%	3.5		%
Standard commercial lines policies in-force as of end of period (in thousands)	1,338			1,346			1,325

[1]	Standard commercial lines consists of small commercial and middle market. Standard commercial premium measures exclude middle market programs and livestock lines of business.

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

Underwriting Ratios

	2017		2016		2015
Loss and loss adjustment expense ratio
Current accident year before catastrophes	57.7		56.6		57.0
Current accident year catastrophes	5.6		3.0		1.9
Prior accident year development	(0.3	)	0.4		0.8
Total loss and loss adjustment expense ratio	63.0		60.1		59.7
Expense ratio	33.8		32.5		32.7
Policyholder dividend ratio	0.5		0.2		0.3
Combined ratio	97.3		92.8		92.6
Current accident year catastrophes and prior year development	5.3		3.4		2.7
Underlying combined ratio	92.0		89.4		90.0

2018 Outlook

The Company expects higher Commercial Lines written premiums in 2018, driven by increases across Small Commercial, Middle Market and Specialty Commercial, reflecting a mix of expected continued economic growth, distribution expansion, and the effect of competitive conditions on written pricing. Management expects the written premium increases will be driven by higher new business, partially offset by lower renewal premium. In workers’ compensation, market conditions are expected to put downward pressure on rates and increase competition for new business. In auto, profit improvement initiatives will drive lower retention, partially offset by higher written pricing. Pricing varies significantly by product line with mid-single digit pricing increases expected in property and general liability and higher written pricing increases expected in commercial automobile. In workers’ compensation, given favorable profitability trends, rates are expected to be flat to declining.

The Company expects the Commercial Lines combined ratio will be between approximately 93.0 and 95.5 for 2018, compared to 97.3 in 2017, largely due to higher catastrophe losses incurred in 2017. The underlying combined ratio is expected to decrease slightly due to the effect of continued earned pricing increases and moderate average claim severity, but the improvement is subject to changes in market pricing and loss cost trends. Current accident year catastrophes are assumed to be 2.6 points of the combined ratio in 2018 compared to 5.6 points in 2017.

Net Income

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net income decreased in 2017 due to a lower underwriting gain, partially offset by increases in net investment income and net realized capital gains. For further discussion of investment results, see MD&A - Investment Results, Net Investment Income (Loss).

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

Net income increased in 2016 primarily due to a shift to net realized capital gains in the current year from net realized capital losses in the prior year and higher net investment income.

Underwriting Gain

Year ended December 31, 2017 compared to the year ended December 31, 2016

Underwriting gain decreased in 2017 primarily due to higher catastrophe losses and higher underwriting expenses largely driven by an increase in variable incentive compensation and higher IT costs. Also contributing to the decrease were higher current accident year loss costs for workers’ compensation, general liability and non-catastrophe property, offset by the effect of earned premium growth and a change from unfavorable prior accident year development in 2016 to favorable development in 2017.

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

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

Underwriting gain decreased slightly driven by higher losses and loss adjustment expenses and higher underwriting expenses, partially offset by earned premium growth.

Earned Premiums

[1]	Other of $46, $42, and $34 for 2017, 2016, and 2015, respectively, is included in the total.

Year ended December 31, 2017 compared to the year ended December 31, 2016

Earned premiums increased in 2017 reflecting written premium growth over the preceding twelve months.

Written premiums increased in 2017 primarily due to growth in Small Commercial.

•	Small Commercial written premium growth for 2017 was primarily due to higher renewal premium driven by renewal written price increases and growth from the acquisition of Maxum, partially offset by lower new business premium, excluding Maxum, and the effect of lower policy retention.

•	Middle Market written premiums in 2017 were up modestly as higher new and renewal premium was partially offset by modestly higher property reinsurance costs.

•	Specialty Commercial written premiums in 2017 were up slightly as growth in Bond was largely offset by new business declines in National Accounts.

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

Earned premiums increased in 2016 reflecting written premium growth over the preceding twelve months.

Written premiums increased in 2016 due to growth in Small Commercial. Renewal written pricing increases and policy retention for standard commercial lines were both unchanged in 2016 compared to 2015.

•	Small Commercial increased primarily due to workers’ compensation driven by higher new business, renewal and audit premium, and Spectrum package business driven by higher renewal premium, as well as the acquisition of Maxum.

•	The decrease in Middle Market was driven primarily by lower new business, renewal and endorsement premium in workers’ compensation, and lower new business and renewal premium in general liability and specialty programs, partially offset by higher new business and renewal premium in construction.

•	Specialty Commercial decreased primarily as a result of lower retrospective premium on loss sensitive business in national accounts.

•	Renewal written pricing increases averaged 2% in standard commercial, which included 3% for Small Commercial and 1% for Middle Market.

Loss and LAE Ratio before Catastrophes and Prior Accident Year Development

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

Year ended December 31, 2017 compared to the year ended December 31, 2016

Loss and LAE ratio before catastrophes and prior accident year development increased in 2017, primarily due to a higher loss and loss adjustment expense ratio in both workers' compensation and general liability, as well as higher commercial property losses in Middle Market. The workers’ compensation current accident year loss ratio deteriorated from 2016 to 2017 as increases in average claim severity outpaced the effect of earned pricing and a modest reduction in loss cost frequency.

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

Loss and LAE ratio before catastrophes and prior accident year development decreased in 2016, as compared to the prior year period, primarily due to a lower loss and loss adjustment expense ratio in workers' compensation, driven by favorable frequency, partially offset by a higher loss and loss adjustment expense ratio in commercial automobile, driven by elevated frequency and severity.

Catastrophes and Prior Accident Year Development

Year ended December 31, 2017 compared to the year ended December 31, 2016

Current accident year catastrophe losses for 2017 were primarily from hurricanes Harvey and Irma as well as from wind and hail events in the Midwest, Texas and Colorado. Catastrophe losses for 2016 were primarily due to wind and hail events and winter storms across various U.S. geographic regions.

Prior accident year development was favorable in 2017 compared to unfavorable prior accident year development in 2016. Net reserve decreases for 2017 were primarily related to reduced loss reserve estimates for workers' compensation and small commercial package business, partially offset by reserves increases for bond.

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

Current accident year catastrophe losses totaled $200, before tax, in 2016, compared to $121, before tax, in 2015. Catastrophe losses for both years were primarily due to wind and hail events and winter storms across various U.S. geographic regions.

Prior accident year development of $28, before tax, was unfavorable in 2016, compared to unfavorable prior accident year development of $53, before tax, in 2015. Net reserve increases in 2016 were primarily related to package business, general liability and commercial automobile liability, largely offset by a decrease in reserves for workers’ compensation, professional liability and uncollectible reinsurance.

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

PERSONAL LINES

Results of Operations

Underwriting Summary

	2017			2016			2015
Written premiums	$	3,561		$	3,837		$	3,918
Change in unearned premium reserve	(129		)	(61		)	45
Earned premiums	3,690			3,898			3,873
Fee income	44			39			37
Losses and loss adjustment expenses
Current accident year before catastrophes	2,584			2,808			2,578
Current accident year catastrophes [1]	453			216			211
Prior accident year development [1]	(37		)	151			(21		)
Total losses and loss adjustment expenses	3,000			3,175			2,768
Amortization of DAC	309			348			359
Underwriting expenses	581			603			665
Underwriting (Loss) Gain	(156		)	(189		)	118
Net servicing income [2]	16			20			22
Net investment income [3]	141			135			128
Net realized capital gains [3]	15			2			4
Other income [4]	1			—			15
Income (loss) before income taxes	17			(32		)	287
Income tax expense (benefit) [5]	26			(23		)	88
Net (loss) income	$	(9	)	$	(9	)	$	199

[1]	For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Total Property and Casualty Insurance Product Reserves Development.

[2]	Includes servicing revenues of $85, $86, and $86 for 2017, 2016, and 2015, respectively and includes servicing expenses of $69, $66, and $64 for 2017, 2016, and 2015, respectively.

[3]	For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

[4]	Includes a benefit of $17, before tax, for the year ended December 31, 2015, from the resolution of litigation.

[5]	2017 includes $33 of income tax expense primarily from reducing net deferred tax assets due to the reduction in the corporate Federal income tax rate from 35% to 21%. For further discussion, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Written and Earned Premiums

Written Premiums	2017			2016			2015
Product Line
Automobile	$	2,497		$	2,694		$	2,721
Homeowners	1,064			1,143			1,197
Total	$	3,561		$	3,837		$	3,918
Earned Premiums
Product Line
Automobile	$	2,584		$	2,720		$	2,671
Homeowners	1,106			1,178			1,202
Total	$	3,690		$	3,898		$	3,873

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

Premium Measures

	2017			2016			2015
Policies in-force end of period (in thousands)
Automobile	1,702			1,965			2,062
Homeowners	1,038			1,176			1,272
New business written premium
Automobile	$	152		$	311		$	422
Homeowners	$	44		$	74		$	110
Policy count retention
Automobile	81		%	84		%	84		%
Homeowners	83		%	84		%	85		%
Renewal written price increase
Automobile	11.0		%	7.6		%	5.7		%
Homeowners	8.9		%	8.0		%	7.0		%
Renewal earned price increase
Automobile	9.6		%	6.3		%	5.1		%
Homeowners	8.5		%	7.6		%	6.8		%

Underwriting Ratios

	2017		2016		2015
Loss and loss adjustment expense ratio
Current accident year before catastrophes	70.0		72.0		66.6
Current accident year catastrophes	12.3		5.5		5.4
Prior accident year development	(1.0	)	3.9		(0.5	)
Total loss and loss adjustment expense ratio	81.3		81.5		71.5
Expense ratio	22.9		23.4		25.5
Combined ratio	104.2		104.8		97.0
Current accident year catastrophes and prior year development	11.3		9.4		4.9
Underlying combined ratio	93.0		95.4		92.0

Product Combined Ratios

	2017		2016		2015
Automobile
Combined ratio	101.6		111.6		99.4
Underlying combined ratio	99.7		103.9		99.0
Homeowners
Combined ratio	110.4		89.3		92.1
Underlying combined ratio	77.1		75.9		76.8

2018 Outlook

In 2018, the Company expects the rate of pricing increases for automobile and homeowners across the industry to decrease slightly, as loss cost trends have moderated. Accordingly, the Company expects written pricing increases in 2018 for both automobile and homeowners to be in the high single-digits, slightly below written pricing increases for 2017. Management expects continued automobile profitability improvement in 2018 as loss cost frequency and severity have moderated and the book of business continues to benefit from earned pricing increases. While the Company will continue to execute on multiple

profitability improvement initiatives in personal automobile in 2018, the Company also plans to drive new business growth in select states, particularly in the direct channel. Due to those actions, the Company expects a low-single digit decline in Personal Lines written premiums in 2018, with AARP direct premiums expected to be flat to slightly higher and AARP agency and other agency premium expected to decline.

The Company expects the combined ratio for Personal Lines will be between approximately 96.0 and 98.0 for 2018 compared to 104.2 in 2017, primarily due to lower current accident year catastrophes and continued improvement in the underlying automobile loss ratio. Current accident year catastrophes are

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

assumed to be 5.6 points of the combined ratio in 2018 compared to 12.3 points in 2017. For automobile, we expect that management actions, including the effect of earned pricing, will exceed an expected increase in loss cost severity and higher direct marketing expenses, resulting in a lower underlying combined ratio. The underlying combined ratio for homeowners is expected to remain relatively flat in 2018, driven by earned pricing increases, offset by increased average claim severity and higher expenses.

Net (Loss) Income

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net loss in 2017 was unchanged from 2016 as lower underwriting loss and higher net realized capital gains was offset by $33 of income tax expense arising primarily from the reduction of net deferred tax assets due to the enactment of lower Federal income tax rates.

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

Net loss in 2016 compared to net income in 2015 primarily due to a change from underwriting gain to underwriting loss.

Underwriting (Loss) Gain

Year ended December 31, 2017 compared to the year ended December 31, 2016

Underwriting loss decreased in 2017 primarily due a change from unfavorable prior accident year development in 2016 to favorable development in 2017 and lower current accident year loss costs in both auto and homeowners, partially offset by higher current accident year catastrophe losses. The decrease in underwriting expenses was primarily due to lower marketing and operations costs, partially offset by higher variable incentive compensation and the decrease in DAC amortization was driven primarily by lower Agency commissions.

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

Underwriting loss in 2016 compared to an underwriting gain in 2015 primarily due to an increase in automobile liability loss costs, with higher current accident year loss and loss adjustment expenses and more unfavorable prior accident year reserve development, principally related to the 2015 accident year. The increase in automobile loss costs was partially offset by lower direct marketing expenses.

Earned Premiums

Year ended December 31, 2017 compared to the year ended December 31, 2016

Earned premiums decreased in 2017, reflecting a decline in written premium over the prior six to twelve months in the Other Agency channel and, to a lesser extent, in AARP Direct.

Written premiums decreased in 2017 in AARP Direct and both Agency channels primarily due to a decline in new business and lower policy count retention in both automobile and homeowners partially offset by the effect of renewal written price increases.

Renewal written pricing increases were higher in 2017 in both automobile and home, as the Company increased rates to improve profitability.

Policy count retention decreased in 2017 in both automobile and homeowners, driven in part by renewal written pricing increases.

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

Policies in-force decreased in 2017 in both automobile and homeowners, driven by low new business and low policy count retention.

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

Earned premiums increased in 2016 reflecting written premium growth in 2015 over the prior six to twelve months.

Written premiums decreased in 2016 primarily due a decline in new business in both automobile and homeowners, partially offset by higher premium retention in automobile, driven by higher written pricing increases.

Renewal written pricing increased in both automobile and home as the Company increased rates to improve profitability.

Policy count retention for homeowners was lower in 2015 driven in part by renewal written pricing increases.

Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development

Year ended December 31, 2017 compared to the year ended December 31, 2016

Loss and loss adjustment expense ratio before catastrophes and prior accident year development decreased in 2017, primarily as a result of lower automobile liability and auto physical damage frequency and lower non-catastrophe weather-related homeowners losses and the effect of earned pricing increases.

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

Loss and loss adjustment expense ratio before catastrophes and prior accident year development increased primarily as a result of higher automobile liability frequency and severity, partially offset by the effect of increases in earned pricing.

Catastrophes and Prior Accident Year Development

Year ended December 31, 2017 compared to the year ended December 31, 2016

Current accident year catastrophe losses for 2017 were primarily due to hurricanes Harvey and Irma and wildfires in California as well as multiple wind and hail events across various U.S. geographic regions, concentrated in Texas, Colorado, the Midwest and the Southeast. Catastrophe losses for 2016 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the Midwest and central plains.

Prior accident year development was favorable for 2017 compared to unfavorable prior accident year development for 2016. Net reserves decreased in 2017 primarily due to decreases in reserves for prior accident year catastrophes and homeowners.

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

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

Current accident year catastrophe losses of $216, before tax, in 2016 increased compared to $211, before tax, in 2015. Catastrophe losses in 2016 were primarily due to multiple wind and hail events across various U.S. geographic regions, concentrated in the Midwest and central plains. Catastrophe losses in 2015 were primarily due to wildfires in California and multiple events (wind and hail primarily) across various U.S. geographic regions.

Prior accident year development of $151, before tax, was unfavorable in 2016, compared to favorable prior accident year development of $21, before tax, in 2015. Net reserves increased for 2016 primarily due to increased bodily injury frequency and severity for the 2015 accident year and increased bodily injury severity for the 2014 accident year. Net reserves decreased for 2015 primarily due to accident year 2014 catastrophes.

PROPERTY & CASUALTY OTHER OPERATIONS

Results of Operations

Underwriting Summary

	2017			2016			2015
Written premiums	$	—		$	(1	)	$	35
Change in unearned premium reserve	—			(1		)	3
Earned premiums	—			—			32
Losses and loss adjustment expenses
Current accident year	—			—			25
Prior accident year development [1]	18			278			218
Total losses and loss adjustment expenses	18			278			243
Underwriting expenses	14			19			32
Underwriting loss	(32		)	(297		)	(243		)
Net investment income [2]	106			127			133
Net realized capital gains (losses) [2]	14			(70		)	3
Loss on reinsurance transaction	—			650			—
Other income	5			6			7
Income (loss) before income taxes	93			(884		)	(100		)
Income tax expense (benefit)	24			(355		)	(47		)
Net income (loss)	$	69		$	(529	)	$	(53	)

[1]For discussion of prior accident year development, see MD&A - Critical Accounting Estimates, Total Property and Casualty Insurance Product Reserves Development.

[2]For discussion of consolidated investment results, see MD&A - Investment Results, Net Investment Income (Loss) and Net Realized Capital Gains (Losses).

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

Net Income (Loss)

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net income (loss) improved from a net loss of $529 to net income of $69 primarily due to losses in 2016, including a loss on reinsurance transaction for premium paid to NICO covering adverse reserve development of asbestos and environmental reserves after 2016, as well adverse development in 2016 due to the second quarter study of asbestos and environmental reserves.

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

Net loss increased in 2016 primarily due to a $423 after-tax loss on the reinsurance transaction that cedes adverse development on asbestos and environmental reserves and higher unfavorable net asbestos and environmental prior accident year development associated with the Company's comprehensive annual review. Net realized capital losses before tax in 2016 included an $81 estimated capital loss on the pending sale of the Company's U.K. property and casualty run-off subsidiaries. Net of tax benefits, the pending sale resulted in an estimated after-tax loss of $5.

Pre-tax Charge for Asbestos and Environmental Reserve Increases

Year ended December 31, 2017 compared to the year ended December 31, 2016

Asbestos Reserves were virtually unchanged in 2017 as a $183 increase in estimated reserves before NICO reinsurance was offset by $183 of losses recoverable under the NICO treaty. The increase in reserves before NICO reinsurance was primarily due to mesothelioma claim filings not declining as expected, unfavorable developments in coverage law in some jurisdictions and continued filings in specific, adverse jurisdictions. An increased share of adverse development from the fourth quarter review is from umbrella and excess policies in the 1981-1985 policy years.

Environmental Reserves were unchanged in 2017 as a $102 increase in estimated reserves before NICO reinsurance was offset by $102 of loss recoverable under the NICO treaty. The increase in reserves before NICO reinsurance was primarily due to increased clean-up costs and liability shares associated with Superfund sites and sediment in waterways, as well as adverse legal rulings, most notably from jurisdictions in the Pacific Northwest.

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

Asbestos Reserves increased by $197 in 2016 arising from the second quarter reserve study which found that mesothelioma claims filings have not declined as expected in specific, adverse jurisdictions. As a result, aggregate indemnity and defense costs have not declined as expected resulting in unfavorable net asbestos reserve development.

Environmental Reserves increased by $71 in 2016 primarily due to deterioration associated with the tendering of new sites for policy coverage, increased defense costs stemming from individual bodily injury liability suits, and increased clean-up costs associated with waterways.

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

GROUP BENEFITS

Results of Operations

Operating Summary

	2017 [1]			2016			2015
Premiums and other considerations	$	3,677		$	3,223		$	3,136
Net investment income [2]	381			366			371
Net realized capital gains (losses) [2]	34			45			(11		)
Total revenues	4,092			3,634			3,496
Benefits, losses and loss adjustment expenses	2,803			2,514			2,427
Amortization of DAC	33			31			31
Insurance operating costs and other expenses	915			776			788
Amortization of Other Intangible Assets	9			—			—
Total benefits, losses and expenses	3,760			3,321			3,246
Income before income taxes	332			313			250
Income tax expense [3]	38			83			63
Net income	$	294		$	230		$	187

[1]	The Results of Operations related to 2017 include two months of results from Aetna's U.S. group life and disability business due to the acquisition that occurred on November 1, 2017. For discussion of the acquisition, see Note 2 - Business Acquisitions.

[2]	For discussion of consolidated investment results, see MD&A - Investment Results, Investment Income (Loss) and Net Realized Capital Gains (Losses).

[3]	2017 includes $52 of income tax benefit primarily from reducing net deferred tax liabilities due to the reduction in the corporate Federal income tax rate from 35% to 21%. For discussion of income taxes, see Note 16 - Income Taxes of Notes to the Consolidated Financial Statements.

Premiums and Other Considerations

	2017			2016			2015
Fully insured — ongoing premiums	$	3,571		$	3,142		$	3,068
Buyout premiums	15			6			1
Fee income	91			75			67
Total premiums and other considerations	$	3,677		$	3,223		$	3,136
Fully insured ongoing sales, excluding buyouts	$	449		$	450		$	467

Ratios, Excluding Buyouts

	2017		2016		2015
Group disability loss ratio	76.5	%	81.4	%	81.6	%
Group life loss ratio	76.7	%	75.7	%	74.7	%
Total loss ratio	76.1	%	78.0	%	77.4	%
Expense ratio	25.7	%	25.1	%	26.1	%

Margin

	2017		2016		2015
Net income margin	7.2	%	6.3	%	5.4	%
Less: Net realized capital gains (losses) excluded from core earnings, after tax	0.4	%	0.6	%	(0.2	)%
Less: Integration and transaction costs associated with acquired business, after tax	(0.3	)%	—	%	—	%
Less: Income tax benefit	1.3	%	—	%	—	%
Core earnings margin	5.8	%	5.7	%	5.6	%

2018 Outlook

The Company expects Group Benefits fully insured ongoing premiums to increase significantly in 2018 due to the acquisition of Aetna's U.S. group life and disability business in November

2017. Excluding the impact of the acquisition, the Company expects a mid-single digit percentage increase in fully insured ongoing premiums in 2018 due, in part, to growth in national accounts, sales of voluntary products and the addition of a new Paid Family Leave product. The segment’s net income is expected

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

to decline slightly in 2018 as additional earnings from the acquired business will be offset by the fact that 2017 included a $52 million tax benefit associated with Tax Reform. Expected net income for 2018 is in the range of $275 to $295 million. Management expects that the 2018 core earnings margin, which does not include the effect of net realized capital gains (losses) or integration and transaction costs associated with the acquired business, will be down slightly from 5.8% in 2017 as strong returns from limited partnerships and strong long term disability recoveries in 2017 are not expected to repeat in 2018.

Net Income

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net income increased in 2017 compared to 2016, primarily due to $52 of income tax benefits arising primarily from the reduction of net deferred tax liabilities due to the enactment of lower Federal income tax rates. In addition, net income increased as a result of growth in premiums and other considerations and a lower group disability loss ratio, partially offset by an increase in insurance operating costs and other expenses due, in part, to higher variable incentive compensation as well as integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business. Insurance operating costs and other expenses in 2017 also included state guaranty fund assessments of $20 before tax related to the liquidation of a life and health insurance company. The acquisition of Aetna's U.S. group life and disability business, which closed on November 1, 2017, did not have a material impact on results in 2017.

Insurance operating costs and other expenses increased 18%, primarily due to the inclusion of two months of expenses for the acquired Aetna's U.S. group life and disability business, state guaranty fund assessments of $20 before tax related to the liquidation of a life and health insurance company and an increase in variable incentive compensation.

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

Net income increased in 2016 primarily due to higher net realized capital gains, higher premiums and other considerations and lower insurance operating costs and other expenses, partially offset by higher benefits, losses and loss adjustment expenses.

Insurance operating costs and other expenses decreased 2% due primarily to decreased administrative expenses.

Fully Insured Ongoing Premiums

Year ended December 31, 2017 compared to the year ended December 31, 2016

Fully insured ongoing premiums increased in 2017, in part, because it included two months of premiums for the acquired Aetna's U.S. group life and disability business. Excluding the impact of the acquisition, fully insured ongoing premiums increased 3% due to sales, strong persistency and modest group disability pricing increases.

Fully insured ongoing sales, excluding buyouts were essentially flat to prior year reflecting higher group disability sales offset by lower group life and other sales.

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

Fully insured ongoing premiums increased 2% due to strong persistency and pricing increases.

Fully insured ongoing sales, excluding buyouts decreased 4% in 2016, reflecting lower disability sales.

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

Ratios

Year ended December 31, 2017 compared to the year ended December 31, 2016

Total loss ratio decreased 1.9 points, primarily due to a lower group disability loss ratio. The group disability loss ratio decreased 4.9 points, driven by continued improvements in incidence trends, higher recoveries and modest pricing increases. The group life loss ratio increased 1.0 points, primarily driven by favorable changes in reserve estimates of 1.3 points in 2016 partially offset by favorable mortality in the current year.

Expense ratio increased 0.6 points primarily due to state guaranty fund assessments related to the liquidation of a life and health insurance company, an increase in variable incentive compensation and amortization of intangible assets recorded in connection with the acquisition of Aetna's U.S. group life and disability business. Integration and transaction costs of $17 in 2017 related to the acquisition are not included in the expense ratio.

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

Total loss ratio increased 0.6 points in 2016 to 78.0% due to a higher group life loss ratio. The group life loss ratio increased 1.0 point due to higher severity in 2016. Included in the life loss ratio were favorable changes in reserve estimates of 1.3 points in 2016. The group disability loss ratio decreased 0.2 points primarily driven by increased pricing and improved incidence trends, partially offset by an increase in long-term disability claim severity. Included in the disability loss ratio were favorable changes in long-term disability reserve estimates of 0.4 points compared to 1.2 points in the prior year.

Expense ratio improved 1.0 points in 2016, reflecting premium growth and lower insurance operating costs and other expenses.

MUTUAL FUNDS

Results of Operations

Operating Summary

	2017			2016			2015
Fee income and other revenue	$	804		$	701		$	723
Net investment income	3			1			1
Total revenues	807			702			724
Amortization of DAC	21			24			22
Operating costs and other expenses	617			557			568
Total benefits, losses and expenses	638			581			590
Income before income taxes	169			121			134
Income tax expense [2]	63			43			48
Net income	$	106		$	78		$	86
Daily Average Total Mutual Funds segment AUM	$	107,593		$	92,042		$	94,687
Return on Assets ("ROA") [1]	9.9			8.5			9.1
Less: Effect of income tax expense	(0.3		)	—			—
Return on Assets ("ROA"), core earnings [1]	10.2			8.5			9.1

[1]	Represents annualized earnings divided by a daily average of assets under management, as measured in basis points.

[2]	2017 includes $4 of income tax expense primarily from reducing net deferred tax assets due to the reduction in the corporate Federal income tax rate from 35% to 21%. For further discussion, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

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

Mutual Funds Segment AUM

	2017			2016			2015
Mutual Fund AUM - beginning of period	$	81,298		$	74,413		$	73,035
Sales	23,654			19,135			17,527
Redemptions	(20,409		)	(20,055		)	(16,036		)
Net Flows	3,245			(920		)	1,491
Change in market value and other [1]	14,067			7,805			(113		)
Mutual Fund AUM - end of period	98,610			81,298			74,413
Exchange-Traded Products AUM [2]	480			209
Mutual Funds segment AUM	99,090			81,507			74,413
Life and annuity run-off business	16,260			16,010			17,549
Total Mutual Funds segment AUM	$	115,350		$	97,517		$	91,962

[1]	Other includes AUM from adoption of ten U.S. mutual funds with aggregate AUM of approximately $3.0 billion (as of October 2016) from Schroder Investment Management North America Inc.

[2]	Includes AUM of approximately $200 acquired upon acquisition in July 2016 of Lattice Strategies, LLC and subsequent net flows and change in market value.

Mutual Fund AUM by Asset Class

	2017			2016			2015
Equity	$	63,740		$	50,826		$	47,369
Fixed Income	14,401			13,301			12,625
Multi-Strategy Investments	20,469			17,171			14,419
Mutual Fund AUM	$	98,610		$	81,298		$	74,413

2018 Outlook

The Company expects to increase sales in 2018 from a diversified lineup of mutual funds and ETPs. Assuming markets continue to grow, the Company expects assets under management and earnings growth in 2018 provided the Company continues delivering strong fund performance and generates positive net flows. The growth in assets under management and earnings will be partially offset by the continued run off of the life and annuity business held for sale. After the sale of the life and annuity run-off business, which is expected to close by June 30, 2018, the Mutual Funds segment expects to continue to manage the mutual fund assets of that business.

Net Income

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net income increased in 2017 due to higher investment management fees resulting from higher daily average AUM levels driven in part by the addition of Schroders' funds in late 2016, as well as a reduction in estimated state income tax expense, partially offset by higher variable costs including sub-advisory and distribution and service expenses.

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

Net income decreased in 2016, compared to the prior year period, primarily due to lower investment management fees as a result of lower daily average AUM combined with transaction

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

costs of approximately of $3 associated with the acquisition of Lattice Strategies, LLC and the adoption of ten Schroders' funds during 2016. Daily average AUM decreased primarily due to market volatility early in the year and the continued run off of AUM related to the life and annuity run-off business held for sale.

Total Mutual Funds Segment AUM

Year ended December 31, 2017 compared to the year ended December 31, 2016

Total Mutual Funds segment AUM increased in 2017 primarily due to positive net flows and market appreciation, partially offset by the continued run off of AUM related to the life and annuity run-off business held for sale.

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

Total Mutual Funds segment AUM increased in 2016 primarily due to market appreciation and the adoption of 10 Schroders' funds partially offset by net outflows and the continued run off of AUM related to the life and annuity run-off business held for sale.

CORPORATE

Results of Operations

Operating Summary

	2017			2016			2015
Fee income	$	4		$	3		$	9
Net investment income	23			31			18
Net realized capital gains (losses)	(1		)	(100		)	(2		)
Total revenues	26			(66		)	25
Benefits, losses and loss adjustment expenses [1]	31			—			—
Insurance operating costs and other expenses	59			87			118
Pension Settlement	750			—			—
Loss on extinguishment of debt [2]	—			—			21
Interest expense [2]	316			327			346
Restructuring and other costs	—			—			20
Total benefits, losses and expenses	1,156			414			505
(Loss) before income taxes	(1,130		)	(480		)	(480		)
Income tax expense (benefit) [3]	457			(329		)	(266		)
Loss from continuing operations, net of tax	(1,587		)	(151		)	(214		)
(Loss) income from discontinued operations,net of tax	(2,869		)	283			486
Net (loss) income	$	(4,456	)	$	132		$	272

[1]	Represents benefits expense on life and annuity business retained by the Company.

[2]	For discussion of debt, see Note 13 - Debt of Notes to Consolidated Financial Statements.

[3]	2017 includes $867 of income tax expense primarily from reducing net deferred tax assets due to the reduction in the corporate Federal income tax rate from 35% to 21%. For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

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

Net (Loss) Income

Year ended December 31, 2017 compared to the year ended December 31, 2016

Net loss increased primarily due to a $3.3 billion estimated loss on sale of the life and annuity run-off business, $867 of income tax expense arising primarily from the reduction of net deferred tax assets due to the enactment of lower Federal income tax rates and a $488 after-tax pension settlement charge.

Insurance operating costs and other expenses decreased in 2017 largely due to lower centralized services costs and lower estimated state income tax expense. Upon reporting the life and annuity run-off business as discontinued operations, centralized services costs were reallocated to Corporate for all periods presented and those reallocated costs declined from 2016 to 2017 principally due to a lower allocation of IT costs.

Income (loss) from discontinued operations Income (loss) from discontinued operations decreased from income of $283 in 2016 to a net loss of $2.9 billion in 2017 with the net loss in 2017 due to a loss on sale of the Company’s life and annuity run-off business of $3.3 billion, partially offset by operating income from discontinued operations of $388. Operating income from discontinued operations increased from $283 in 2016 primarily due to lower net realized capital losses in 2017. Apart from the reduction in net realized capital losses, earnings were relatively flat as an increase in the assumption study benefit and lower interest credited were largely offset by lower net investment income and lower fee income due to the continued run-off of the variable annuity block.

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

Net income decreased primarily due to lower income from discontinued operations, net of tax, partially offset by a decrease

in insurance operating costs and other expenses, an increase in net investment income and lower interest expense. The income tax benefit of $113 associated with the investments in solar energy partnerships was offset by realized capital losses of $96. before tax, associated with the write-down of investments in solar energy partnerships.

Insurance operating costs and other expenses decreased in 2016 largely due a reduction in restructuring costs.

Income (loss) from discontinued operations Operating income from discontinued operations decreased from $486 in 2015 primarily due to lower tax benefits recognized in 2016, a write-off of DAC associated with fixed annuities, lower investment income and a reinsurance gain on disposition in 2015. In addition, the continued run-off of the variable and fixed annuity block resulted in lower fee income, partially offset by lower amortization of DAC and lower insurance operating costs and other expenses.

Interest Expense

Year ended December 31, 2017 compared to the year ended December 31, 2016

Interest expense decreased primarily due to a decrease in outstanding debt due to debt maturities and the paydown of senior notes. Since December 31, 2016, $416 of senior notes have either matured or been paid down.

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

Interest expense decreased in 2016 primarily due to a decrease in outstanding debt from debt maturities and the paydown of senior notes. In 2016, $275 of senior notes matured.

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

ENTERPRISE RISK MANAGEMENT

The Company’s Board of Directors has ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management is tasked with the day-to-day management of the Company’s risks.

The Company manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) oversees the risk profile and risk management practices of the Company. As illustrated below, a number of functional committees sit underneath the ERCC, providing oversight of specific risk areas and recommending risk mitigation strategies to the ERCC.

ERCC Members
CEO (Chair)
President
Chief Financial Officer
Chief Investment Officer
Chief Risk Officer
General Counsel
Others as deemed necessary by the Committee Chair

									ERCC
Asset Liability Committee			Underwriting Risk Committee			Emerging Risk Steering Committee			Operational Risk Committee			Catastrophe Risk Committee			Economic Capital Executive Committee			Model Oversight Committee

The Company's enterprise risk management ("ERM") function supports the ERCC and functional committees, and is tasked with, among other things:

•	risk identification and assessment;

•	the development of risk appetites, tolerances, and limits;

•	risk monitoring; and

•	internal and external risk reporting.

The Company categorizes its main risks as insurance risk, operational risk and financial risk, each of which is described in more detail below.

Insurance Risk

Insurance risk is the risk of losses of both a catastrophic and non-catastrophic nature on the P&C and life products the Company has sold. Catastrophe insurance risk is the exposure arising from both natural (e.g., weather, earthquakes, wildfires, pandemics) and man-made catastrophes (e.g., terrorism, cyber-attacks) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios.

Sources of Insurance Risk Non-catastrophe insurance risks exist within each of the Company's divisions except Mutual Funds and include:

•	Property- Risk of loss to personal or commercial property from automobile related accidents, weather, explosions, smoke, shaking, fire, theft, vandalism, inadequate installation, faulty equipment, collisions and falling objects, and/or machinery mechanical breakdown resulting in physical damage and other covered perils.

•

Liability- Risk of loss from automobile related accidents, uninsured and underinsured drivers, lawsuits from accidents, defective products, breach of warranty, negligent acts by professional practitioners, environmental claims, latent exposures, fraud, coercion, forgery, failure to fulfill obligations per contract surety, liability from errors and omissions, derivative lawsuits, and other securities actions and covered perils.

•	Mortality- Risk of loss from unexpected trends in insured deaths impacting timing of payouts from life insurance, personal or commercial automobile related accidents, and death of employees or executives during the course of employment, while on disability, or while collecting workers compensation benefits.

•	Morbidity- Risk of loss to an insured from illness incurred during the course of employment or illness from other covered perils.

•	Disability- Risk of loss incurred from personal or commercial automobile related losses, accidents arising outside of the workplace, injuries or accidents incurred during the course of employment, or from equipment, with each loss resulting in short term or long-term disability payments.

•	Longevity- Risk of loss from increased life expectancy trends among policyholders receiving long-term benefit payments.

Catastrophe risk primarily arises in the group life, group disability, property, and workers' compensation product lines.

Impact Non-catastrophe insurance risk can arise from unexpected loss experience, underpriced business and/or underestimation of loss reserves and can have significant effects on the Company’s earnings. Catastrophe insurance risk can arise from various unpredictable events and can have significant

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

effects on the Company's earnings and may result in losses that could constrain its liquidity.

Management The Company's policies and procedures for managing these risks include disciplined underwriting protocols, exposure controls, sophisticated risk-based pricing, risk modeling, risk transfer, and capital management strategies. The Company has established underwriting guidelines for both individual risks, including individual policy limits, and risks in the aggregate,

including aggregate exposure limits by geographic zone and peril. The Company uses both internal and third-party models to estimate the potential loss resulting from various catastrophe events and the potential financial impact those events would have on the Company's financial position and results of operations across its businesses.

Among specific risk tolerances set by the Company, risk limits are set for natural catastrophes, terrorism risk and pandemic risk.

Risk	Definition	Details and Company Limits
Natural catastrophe	Exposure arising from natural phenomena (e.g., weather, earthquakes, wildfires, etc.) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios.	The Company generally limits its estimated pre-tax loss as a result of natural catastrophes for property & casualty exposures from a single 250-year event to less than 30% of statutory surplus of the property and casualty insurance subsidiaries prior to reinsurance and to less than 15% of statutory surplus of the property and casualty insurance subsidiaries after reinsurance. From time to time the estimated loss to natural catastrophes from a single 250-year event prior to reinsurance may fluctuate above or below these limits due to changes in modeled loss estimates, exposures or statutory surplus.
	- The estimated 250 year pre-tax probable maximum loss from earthquake events is estimated to be $982 before reinsurance and $515 net of reinsurance. [1]
	- The estimated 250 year pre-tax probable maximum losses from hurricane events are estimated to be $1.6 billion before reinsurance and $777 net of reinsurance. [1]
Terrorism	The risk of losses from terrorist attacks, including losses caused by single-site and multi-site conventional attacks, as well as the potential for attacks using nuclear, biological, chemical or radiological weapons (“NBCR”).	Enterprise limits for terrorism apply to aggregations of risk across property-casualty, group benefits and specific asset portfolios and are defined based on a deterministic, single-site conventional terrorism attack scenario. The Company manages its potential estimated loss from a conventional terrorism loss scenario, up to $1.7 billion net of reinsurance and $2.0 billion gross of reinsurance, before coverage under the Terrorism Risk Insurance Program established under “TRIPRA”. In addition, the Company monitors exposures monthly and employs both internally developed and vendor-licensed loss modeling tools as part of its risk management discipline. Our modeled exposures to conventional terrorist attacks around landmark locations may fluctuate above and below our stated limits.
Pandemic	The exposure to loss arising from widespread influenza or other pathogens or bacterial infections that create an aggregation of loss across the Company's insurance or asset portfolios.	The Company generally limits its estimated pre-tax loss from a single 250 year pandemic event to less than 15% of statutory surplus of the property and casualty and group benefits insurance subsidiaries. In evaluating these scenarios, the Company assesses the impact on group life policies, short-term and long-term disability, property & casualty claims, and losses in the investment portfolio associated with market declines in the event of a widespread pandemic. While ERM has a process to track and manage these limits, from time to time, the estimated loss for pandemics may fluctuate above or below these limits due to changes in modeled loss estimates, exposures, or statutory surplus.

[1]

The loss estimates represent total property losses for hurricane events and property and workers compensation losses for earthquake events resulting from a single event. The estimates provided are based on 250-year return period loss estimates that have a 0.4% likelihood of being exceeded in any single year. The net loss estimates provided assume that the Company is able to recover all losses ceded to reinsurers under its reinsurance programs. The Company also manages natural catastrophe risk for group life and group disability, which in combination with property and workers compensation loss estimates are subject to separate enterprise risk management net aggregate loss limits as a percent of enterprise surplus.

Reinsurance as a Risk Management Strategy

In addition to the policies and procedures outlined above, the Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers' compensation exposures, and individual risk or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial.

Facultative reinsurance is used by the Company to manage policy-specific risk exposures based on established underwriting guidelines. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program established under “TRIPRA” and other reinsurance programs relating to particular risks or specific lines of business.

Reinsurance for Catastrophes- The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers’ compensation losses aggregating from single catastrophe events.

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

Primary Catastrophe Treaty Reinsurance Coverages as of January 1, 2018

		Effective for the period		% of layer(s) reinsurance		Per occurrence limit				Retention
Property losses arising from a single catastrophe event [1] [2]		1/1/2018 to 1/1/2019		89%		$	850			$	350
Property catastrophe losses from a Personal Lines Florida hurricane		6/1/2017 to 6/1/2018		90%		$	102		[3]	$	31
Workers compensation losses arising from a single catastrophe event [4]		1/1/2018 to 12/31/2018		80%		$	350			$	100

[1]	Certain aspects of our principal catastrophe treaty have terms that extend beyond the traditional one year term. While the overall treaty is placed at 89%, each layer's placement varies slightly.

[2]	$100 of the property occurrence treaty can alternatively be used as part of the Property Aggregate treaty referenced below.

[3]	The per occurrence limit on the FHCF treaty is $102 for the 6/1/2017 to 6/1/2018 treaty year based on the Company's election to purchase the required coverage from FHCF. Coverage is based on the best available information from FHCF, which was updated in January 2018.

[4]	In addition to the limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of a $30 per event limit in excess of a $20 retention.

In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other catastrophe and working layer treaties and facultative reinsurance agreements that cover property catastrophe losses on an aggregate excess of loss and on a per risk basis. The principal property catastrophe reinsurance program and certain other reinsurance programs include a provision to reinstate limits in the event that a catastrophe loss exhausts limits on one or more layers under the treaties. In addition, covering the period from January 1, 2018 to December 31, 2018, the Company has a Property Aggregate treaty in place which provides one limit of $200 of aggregate qualifying property catastrophe losses in excess of a net retention of $825.

Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by NBCR attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through TRIPRA to the end of 2020.

TRIPRA provides a backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, for losses that exceed a threshold of industry losses of $160 in 2018, with the threshold increasing to $200 by 2020. Under the program, in any one calendar year, the federal government would pay a percentage of losses incurred from a certified act of terrorism after an insurer's losses exceed 20% of the Company's eligible direct commercial earned premiums of the prior calendar year up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. The percentage of losses paid by the federal government is 82% in 2018, decreasing by 1 point annually to 80% in the year 2020. The Company's estimated deductible under the program is $1.3 billion for 2018. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.

Reinsurance for Asbestos and Environmental Reserve Development- Under an ADC reinsurance agreement, NICO, a subsidiary of Berkshire Hathaway Inc. (“Berkshire”), assumes adverse net loss and allocated loss adjustment expense reserve

development up to $1.5 billion above the Company’s net asbestos and environmental reserves recorded as of December 31, 2016. Under retroactive reinsurance accounting, net adverse asbestos and environmental reserve development after December 31, 2016 results in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid for the ADC are recognized as a dollar-for-dollar offset to direct losses incurred. As of December 31, 2017, $285 of incurred asbestos and environmental losses had been ceded to NICO. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings. Furthermore, there is a risk that cumulative adverse development of asbestos and environmental claims could ultimately exceed the $1.5 billion treaty limit in which case all adverse development in excess of the treaty limit would be absorbed as a charge to earnings by the Company. In these scenarios, the effect of these changes could be material to the Company’s consolidated operating results and liquidity.

Reinsurance Recoverables

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

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

Property & Casualty Reinsurance Recoverables

	As of December 31,
	2017			2016
Paid loss and loss adjustment expenses	$	84		$	89
Unpaid loss and loss adjustment expenses	3,496			3,161
Gross reinsurance recoverables	3,580			3,250
Less: Allowance for uncollectible reinsurance	(104		)	(165		)
Net reinsurance recoverables [1]	$	3,476		$	3,085

[1]	Includes Property & Casualty Commercial Lines reinsurance recoverables of $688 and $712 as of December 31, 2017 and 2016, respectively, for structured settlements recoverables due from the Company's life and annuity run-off business now classified as held for sale. These amounts were previously eliminated in consolidation.

As shown in the following table, a portion of the total gross reinsurance recoverables relates to the Company’s mandatory participation in various involuntary assigned risk pools and the value of annuity contracts held under structured settlement agreements. Reinsurance recoverables due from mandatory pools are backed by the financial strength of the property and casualty insurance industry. Annuities purchased from third-party life insurers under structured settlements are recognized as reinsurance recoverables in cases where the Company has not obtained a release from the claimant. Of the remaining gross reinsurance recoverables, the portion of recoverables due from companies rated by A.M. Best is as follows:

Distribution of Gross Reinsurance Recoverables

	As of December 31,
	2017					2016
Gross reinsurance recoverables [1]	$	3,580				$	3,250
Less: mandatory (assigned risk) pools and structured settlements [1]	(1,199		)			(1,240		)
Gross reinsurance recoverables excluding mandatory pools and structured settlements	$	2,381				$	2,010
				% of Total					% of Total
Rated A- (Excellent) or better by A.M. Best [2]	$	1,836		77.1	%	$	1,470		73.1	%
Other rated by A.M. Best	1			0.1	%	1			0.1	%
Total rated companies	1,837			77.2	%	1,471			73.2	%
Voluntary pools	37			1.5	%	79			3.9	%
Captives	323			13.6	%	336			16.7	%
Other not rated companies	184			7.7	%	124			6.2	%
Total	$	2,381		100.0	%	$	2,010		100.0	%

[1]	Includes Property & Casualty Commercial Lines reinsurance recoverables of $688 and $712 as of December 31, 2017 and 2016, respectively, for structured settlements recoverables due from the Company's life and annuity run-off business now classified as held for sale. These amounts were previously eliminated in consolidation.

[2]	Based on A.M. Best ratings as of December 31, 2017 and 2016, respectively.

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

Where its contracts permit, the Company secures future claim obligations with various forms of collateral, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers. As indicated in the above table, 77.1% of the gross reinsurance recoverables due from reinsurers rated by A.M. Best were rated A- (excellent) or better as of December 31, 2017.

Annually, the Company completes evaluations of the reinsurance recoverable asset associated with older, long-term casualty liabilities reported in the Property & Casualty Other Operations reporting segment, and the allowance for uncollectible reinsurance reported in the Commercial Lines reporting segment. For a discussion regarding the results of these evaluations, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance.

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

Group benefits and life insurance product reinsurance recoverables

represent reserve for future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable that are recoverable from a number of reinsurers.

Group Benefits Reinsurance Recoverables

	As of December 31,
	2017			2016
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable	$	236		$	208
Less: Allowance for uncollectible reinsurance [1]	—			—
Net reinsurance recoverables	$	236		$	208

[1]	No allowance for uncollectible reinsurance was required as of December 31, 2017 and 2016.

Guaranty Funds and Other Insurance-related Assessments

As part of its risk management strategy, the Company regularly monitors the financial strength of other insurers and, in particular, activity by insurance regulators and various state guaranty associations relating to troubled insurers. In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events.

Sources of Operational Risk Operational risk is inherent in the Company's business and functional areas. Operational risks include legal; cyber and information security; models; third party vendors; technology; operations; business continuity; disaster recovery; internal and external fraud; and compliance.

Impact Operational risk can result in financial loss, disruption of our business, regulatory actions or damage to our reputation.

Management Responsibility for day-to-day management of operational risk lies within each business unit and functional area. ERM provides an enterprise-wide view of the Company's operational risk on an aggregate basis. ERM is responsible for 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.

Cybersecurity Risk

The Hartford has implemented an information protection program with established governance routines that promote an adaptive approach for assessing and managing risks. The Hartford has invested to build a ‘defense-in-depth’ strategy that uses multiple security measures to protect the integrity of the Company's information assets. This ‘defense-in-depth’ strategy aligns to the National Institute of Standards and Technology (NIST) Cyber Security Framework and provides preventative, detective and responsive measures that collectively protects the company. Various cyber assurance methods, including security metrics, third party security assessments, external penetration testing, red team exercises, and cyber war game exercises are used to test the effectiveness of the overall cybersecurity control environment.

The Hartford, like many other large financial services companies, blocks attempted cyber intrusions on a daily basis. In the event of a cyber intrusion, the company invokes its Cyber Incident Response Program commensurate with the nature of the intrusion. While the actual methods employed differ based on the event, our approach employs internal teams and outside advisors with specialized skills to support the response and recovery efforts and requires elevation of issues, as necessary, to senior management.

From a governance perspective, senior members of our Enterprise Risk Management, Information Protection and Internal Audit functions provide detailed, regular reports on cybersecurity matters to the Board, including the Finance, Investment, and Risk Management Committee (FIRMCo), which has principal responsibility for oversight of cybersecurity risk, and/or the Audit Committee, which oversees controls for the Company's major risk exposures. The topics covered by these updates include the company's activities, policies and procedures to prevent, detect and respond to cybersecurity incidents, as well as lessons learned from cybersecurity incidents and internal and external testing of our protection measures. FIRMCo meets at each regular Board meeting and is briefed on cyber risks at least annually.

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 invested assets. Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored, and mitigated where appropriate. The Company uses various risk management strategies, including reinsurance and over-the-counter ("OTC") 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.