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 the 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)	2019			2018			2017			2016			2015
Income Statement Data
Total revenues	$	20,740		$	18,955		$	17,162		$	16,291		$	16,187
Income from continuing operations, before tax	$	2,560		$	1,753		$	723		$	447		$	1,478
Income (loss) from continuing operations, net of tax	$	2,085		$	1,485		$	(262	)	$	613		$	1,189
Income (loss) from continuing operations, net of tax, available to common stockholders [1]	$	2,064		$	1,479		$	(262	)	$	613		$	1,189
Income (loss) from discontinued operations, net of tax	$	—		$	322		$	(2,869	)	$	283		$	493
Net income (loss)	$	2,085		$	1,807		$	(3,131	)	$	896		$	1,682
Balance Sheet Data
Total assets	$	70,817		$	62,307		$	225,260		$	224,576		$	229,616
Short-term debt	$	500		$	413		$	320		$	416		$	275
Total debt	$	4,848		$	4,678		$	4,998		$	4,910		$	5,216
Preferred stock	$	334		$	334		$	—		$	—		$	—
Total stockholders’ equity	$	16,270		$	13,101		$	13,494		$	16,903		$	18,024
Income (loss) from continuing operations, net of tax, available to common stockholders per common share [1]
Basic	$	5.72		$	4.13		$	(0.72	)	$	1.58		$	2.86
Diluted	$	5.66		$	4.06		$	(0.72	)	$	1.55		$	2.80
Cash dividends declared per common share	$	1.20		$	1.10		$	0.94		$	0.86		$	0.78

[1]	Income from continuing operations, net of tax, available to common stockholders includes the impact of preferred stock dividends.

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 May 23, 2019, the Company completed the previously announced acquisition of Navigators Group, a global specialty underwriter, for $70 a share, or $2.137 billion in cash, including transaction expenses. Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse development (“Navigators ADC”) from National Indemnity Company ("NICO") on behalf of Navigators Insurance Company and certain of its affiliates (collectively, the “Navigators Insurers”). For further information regarding the Navigators ADC, refer to Insurance Risk in the Enterprise Risk Management section. Navigators Group revenue and earnings since the acquisition date are included in the operating results of the Company's Commercial Lines reporting segment. For discussion of this transaction, see Note 2 - Business Acquisitions of Notes to Consolidated Financial Statements

On May 31, 2018, Hartford Holdings, Inc., a wholly owned subsidiary of the Company, completed the sale of the issued and outstanding equity of Hartford Life, Inc. (“HLI”), a holding company, and its life and annuity operating subsidiaries. For discussion of this transaction, see Note 21 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements.

On February 16, 2018, The Hartford entered into a renewal rights agreement with the Farmers Exchanges, of the Farmers Insurance Group of Companies, to acquire its Foremost-branded small commercial business sold through independent agents. Written premium from this agreement began in the third quarter of 2018.

Certain reclassifications have been made to historical financial information presented in the MD&A to conform to the current period presentation.

Restricted cash has been reclassified out of cash to a separate line on the Consolidated Balance Sheet.

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

For discussion of the earliest of the three years included in the financial statements of the current filing, please refer to Part 2, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in The Hartford’s 2018 Form 10-K Annual Report.

Index

Description	Page
Key Performance Measures and Ratios	35
The Hartford's Operations	40
Consolidated Results of Operations	43
Investment Results	46
Critical Accounting Estimates	47
Commercial Lines	68
Personal Lines	72
Property & Casualty Other Operations	76
Group Benefits	77
Hartford Funds	79
Corporate	81
Enterprise Risk Management	82
Capital Resources and Liquidity	100
Impact of New Accounting Standards	108

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.

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

Definitions of Non-GAAP and Other Measures and Ratios

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

Book Value per Diluted Share (excluding AOCI)- This is a non-GAAP per share measure that is calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure.

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

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

•

Certain realized capital gains and losses - Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income.

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

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

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

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

•	Income tax benefit from reduction in deferred income tax valuation allowance - Valuation allowances, including the establishment and/or release of an allowance, against tax attributes like capital loss and net operating loss carryovers are infrequent.

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

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

In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding.

Net income (loss), net income (loss) available to common stockholders and income from continuing operations, net of tax, available to common stockholders (during periods when the Company reports significant discontinued operations) are the most directly comparable U.S. GAAP measures to core earnings. Income from continuing operations, net of tax, available to common stockholders is net income available to common stockholders, excluding the income (loss) from discontinued operations, net of tax. Core earnings should not be considered as a substitute for net income (loss), net income (loss) available to common stockholders or income (loss) from continuing operations, net of tax, available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, income (loss) from continuing operations, net of tax, available to common stockholders and core earnings when reviewing the Company’s performance.

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,
	2019			2018			2017
Net income (loss)	$	2,085		$	1,807		$	(3,131	)
Preferred stock dividends	21			6			—
Net income (loss) available to common stockholders	2,064			$	1,801		$	(3,131	)
Adjustments to reconcile net income available to common stockholders to core earnings:
Net realized capital losses (gains) excluded from core earnings, before tax	(389		)	118			(160		)
Loss on extinguishment of debt, before tax	90			6			—
Loss on reinsurance transactions, before tax	91			—			—
Pension settlement, before tax	—			—			750
Integration and transaction costs associated with acquired business, before tax	91			47			17
Change in loss reserves upon acquisition of a business, before tax	97			—			—
Change in deferred gain on retroactive reinsurance, before tax	16			—			—
Income tax expense (benefit) [1]	2			(75		)	669
Loss (income) from discontinued operations, net of tax	—			(322		)	2,869
Core earnings	$	2,062		$	1,575		$	1,014

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

Current Accident Year Catastrophe Ratio- a component of the loss and loss adjustment expense ratio, represents the ratio of catastrophe losses incurred in the current accident year (net of reinsurance) to earned premiums. For U.S. events, a catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers, as defined by the Property Claim Services office of Verisk. For international events, the Company's approach is similar, informed, in part, by how Lloyd's of London defines catastrophes. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"). The current accident year catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums.

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

The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses including amortization of intangibles and amortization of DAC, to premiums and other considerations, excluding buyout premiums.

The expense ratio for Commercial Lines, Personal Lines and Group Benefits does not include integration and other transaction costs associated with an acquired business.

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

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

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

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 rate-making process, adjust the assumption as appropriate for the particular state, product or coverage.

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

Loss Ratio, excluding Buyouts- utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts.

Mutual Fund and Exchange-Traded Product Assets- are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

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

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

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

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

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

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

Reinstatement Premiums- represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of the Company ceding losses to reinsurers.

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

Renewal Written Price Increase (Decrease)- for Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on standard commercial lines policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy since the prior year on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business

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

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

**Underlying Combined Ratio-**This non-GAAP financial measure of underwriting results represents the combined ratio before catastrophes, prior accident year development and current accident year change in loss reserves upon acquisition of a business. Combined ratio is the most directly comparable GAAP measure. The underlying combined ratio represents the

combined ratio for the current accident year, excluding the impact of current accident year catastrophes and current accident year change in loss reserves upon acquisition of a business. The Company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. The changes to loss reserves upon acquisition of a business are excluded from underlying combined ratio because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition as such trends are valuable to our investors' ability to assess the Company's financial performance. A reconciliation of combined ratio to underlying combined ratio is set forth in the Commercial Lines and Personal Lines Operating Summaries.

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

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

Reconciliation of Net Income to Underwriting Gain (Loss)

	For the years ended December 31,
	2019			2018			2017
Commercial Lines
Net income	$	1,192		$	1,212		$	865
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income	(2		)	(2		)	(1		)
Net investment income	(1,129		)	(997		)	(949		)
Net realized capital losses (gains)	(271		)	43			(103		)
Other expense (income)	38			2			(1		)
Loss on reinsurance transaction	91			—			—
Income tax expense	270			267			377
Underwriting gain	$	189		$	525		$	188
Personal Lines
Net income (loss)	$	318		$	(32	)	$	(9	)
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income	(13		)	(16		)	(16		)
Net investment income	(179		)	(155		)	(141		)
Net realized capital losses (gains)	(43		)	7			(15		)
Other expense (income)	1			1			(1		)
Income tax expense (benefit)	76			(19		)	26
Underwriting gain (loss)	$	160		$	(214	)	$	(156	)

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

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

THE HARTFORD'S OPERATIONS

Overview

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

Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category discontinued operations related to the life and annuity business sold in May 2018, reserves for run-off structured settlement and terminal funding agreement liabilities, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). Talcott Resolution is the holding company of the life and annuity business that we sold in May 2018. In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold.

The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) 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

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

accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments and the Lloyd's Syndicate's ability to write business is subject to Lloyd's approval for its premium capacity each year.

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

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

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

The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losses and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities, asset-backed securities and collateralized loan obligations.

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

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

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

2019 Financial Highlights

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

Ý	Increased $263 or 15%			Ý	Increased $0.71 or 14%			Ý	Increased $8.79 or 25%
+	Higher net investment income and net realized capital gains in 2019			+	Increase in net income			+	Increase in common stockholders' equity resulting primarily from an increase in AOCI, largely driven by the impact of lower interest rates and tighter credit spreads on unrealized capital gains (losses)
	-	Marginal increase in dilutive shares from the prior year
+	Lower current accident year catastrophe losses in Personal Lines
+	Lower group disability loss ratio
-	Lower discontinued operations income							+	Net income in excess of stockholder dividends
-	Lower non-catastrophe current accident year P&C underwriting results
					-	Marginal increase in dilutive shares from the prior year
-	Loss on reinsurance and reserve increases due to Navigators Group acquisition and higher loss on debt extinguishment and integration costs

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

Ý	Increased 10 bps			Þ	Improved 0.6 points			Ý	Increased 3.2 points
+	Higher returns on equity fund investments			-	Lower current accident year catastrophes			+	Lower group disability loss ratio
		+	Change to net realized capital gains in 2019
+	Greater returns on limited partnerships and other alternative investments			+	Higher expense ratio
	+	Lower level of net favorable prior accident year development			-	Higher commission rates on voluntary products
+	Higher mortgage loan prepayment penalties
	+	Higher Navigators Group loss ratio, higher non-catastrophe property losses and a higher workers’ compensation loss ratio, partially offset by a lower Personal Lines auto loss ratio			-	Greater operating expenses due to investments in technology and claims operations
-	Lower reinvestment rates

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

CONSOLIDATED RESULTS OF OPERATIONS

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

Consolidated Results of Operations

	2019			2018			2017			Increase (Decrease) From 2018 to 2019			Increase (Decrease) From 2017 to 2018
Earned premiums	$	16,923		$	15,869		$	14,141		$	1,054		$	1,728
Fee income	1,301			1,313			1,168			(12		)	145
Net investment income	1,951			1,780			1,603			171			177
Net realized capital gains (losses)	395			(112		)	165			507			(277		)
Other revenues	170			105			85			65			20
Total revenues	20,740			18,955			17,162			1,785			1,793
Benefits, losses and loss adjustment expenses	11,472			11,165			10,174			307			991
Amortization of deferred policy acquisition costs	1,622			1,384			1,372			238			12
Insurance operating costs and other expenses	4,580			4,281			4,563			299			(282		)
Loss on extinguishment of debt	90			6			—			84			6
Loss on reinsurance transactions	91			—			—			91			—
Interest expense	259			298			316			(39		)	(18		)
Amortization of other intangible assets	66			68			14			(2		)	54
Total benefits, losses and expenses	18,180			17,202			16,439			978			763
Income from continuing operations, before tax	2,560			1,753			723			807			1,030
Income tax expense	475			268			985			207			(717		)
Income (loss) from continuing operations, net of tax	2,085			1,485			(262		)	600			1,747
Income (loss) from discontinued operations, net of tax	—			322			(2,869		)	(322		)	3,191
Net income (loss)	2,085			1,807			(3,131		)	278			4,938
Preferred stock dividends	21			6			—			15			6
Net income (loss) available to common stockholders	$	2,064		$	1,801		$	(3,131	)	$	263		$	4,932

Year ended December 31, 2019 compared to year ended December 31, 2018

Net income available to common stockholders increased by $263 driven by an increase in income from continuing operations, partially offset by a reduction in income from discontinued operations due to the sale in May 2018 of the life and annuity business. Income from continuing operations, net of tax, increased by $600 primarily

due to a change to net realized capital gains in 2019 compared to net realized capital losses in 2018, lower current accident year catastrophe losses in P&C, higher net investment income, and a lower disability loss ratio in Group Benefits, partially offset by a loss on reinsurance and reserve increases upon the acquisition of Navigators Group, lower current accident year P&C underwriting results before catastrophes, a higher loss on extinguishment of debt in 2019 and higher integration costs.

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

Revenue

Earned Premiums

[1]	For 2019, the total includes $10 recorded in Corporate other revenue.

Year ended December 31, 2019 compared to year ended December 31, 2018

Earned premiums increased primarily due to:

•	An increase in Property and Casualty reflecting an 18% increase in Commercial Lines, including the effect of the Navigators Group acquisition, partially offset by a 6% decline in Personal Lines.

•	Group Benefits was relatively flat as the increase in group disability and the higher premium from voluntary products was largely offset by a decrease in group life.

For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries.

Fee income decreased due to:

•	Lower fee income in Hartford Funds largely due to a shift to lower fee funds.

•	Partially offset by higher fee income in Corporate resulting from fees earned on the management of the investment portfolio of the life and annuity business sold in May 2018 and higher fee income in Group Benefits related to an increase related to the leave management product and higher persistency.

Net Investment Income

Year ended December 31, 2019 compared to year ended December 31, 2018

Net investment income increased primarily due to:

•	A higher level of invested assets, primarily due to the acquisition of Navigators Group.

•	Higher income from limited partnerships and other alternative investments, higher returns on equity fund investments, and greater income from pre-payment penalties on mortgage loans.

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

Net realized capital gains improved compared to net realized capital losses in 2018, with gains in 2019 primarily driven by:

•	Appreciation in the value of equity securities due to higher equity market levels.

•	Higher net gains on sales in 2019 of fixed maturity securities driven by duration and credit management trades.

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

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

Benefits, losses and expenses

Losses and LAE Incurred for P&C and GB

[1]	Prior accident year development in 2019 included reserve increases of $84 for legacy Navigators Group reserves.

Year ended December 31, 2019 compared to year ended December 31, 2018

Benefits, losses and loss adjustment expenses increased due to:

•	An increase in incurred losses for Property & Casualty which was driven by an increase in Commercial Lines, partially offset by a decrease in Personal Lines, and was driven by:

–

An increase in Property & Casualty current accident year ("CAY") loss and loss adjustment expenses before catastrophes due to the effect of higher earned premium in Commercial Lines, including the impact of the Navigators Group acquisition, and higher non-catastrophe property losses, partially offset by a lower personal auto liability loss ratio and the effect of lower earned premium in Personal Lines.

–

A decrease in favorable net prior accident year reserve development of $102, before tax. Prior accident year development in 2019 primarily included reserve decreases for workers’ compensation, small commercial package business, catastrophes, personal lines automobile liability, and uncollectible reinsurance, partially offset by increases in general liability and professional liability, including increases in Navigators Group reserves upon acquisition of the business, and commercial lines automobile liability. Prior accident year development in 2018 primarily included a decrease in reserves for workers’ compensation and a decrease in catastrophe reserves for the 2017 hurricanes. For further discussion, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

–	A decline in current accident year catastrophe losses of $358, before tax. Catastrophe losses in 2019 were

primarily from tornado, wind and hail events in the South, Midwest and Mountain West and winter storms across the country as well as from hurricanes and tropical storms in the Southeast. Catastrophe losses in 2018 were primarily from wildfires in California, hurricanes Florence and Michael in the Southeast, wind and hail storms in Colorado, and various wind storms and winter storms across the country and are net of an estimated reinsurance recoverable of $82 under the 2018 Property Aggregate reinsurance treaty. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

•	Partially offsetting the increase in Property & Casualty was a decrease in Group Benefits driven by a lower group disability loss ratio and more favorable prior incurral year development.

Amortization of deferred policy acquisition costs was up from the prior year period primarily due to:

•	An increase in Commercial Lines, including the impact from the Navigators Group acquisition and the effect of higher commissions, and an increase in Group Benefits, partially offset by a decrease in Personal Lines.

Insurance operating costs and other expenses increased due to:

•	Higher commissions in Commercial Lines and, to a lesser extent, Group Benefits.

•	Higher information technology and operations costs across Commercial Lines, Personal Lines, and Group Benefits.

•	Transaction costs, integration costs and operating costs incurred in the current year due to the Navigators Group acquisition.

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

•	An increase in direct marketing expenses in Personal Lines to generate new business growth.

•	Partially offset by a decrease in Hartford Funds due to lower variable costs.

Income tax expense increased primarily due to:

•	An increase in income from continuing operations before tax.

For further discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

INVESTMENT RESULTS

Composition of Invested Assets
	December 31, 2019						December 31, 2018
	Amount			Percent			Amount			Percent
Fixed maturities, available-for-sale ("AFS"), at fair value	$	42,148		79.5	%		$	35,652		76.2	%
Fixed maturities, at fair value using the fair value option ("FVO")	11			—	%		22			—	%
Equity securities, at fair value	1,657			3.1	%		1,214			2.6	%
Mortgage loans	4,215			8.0	%		3,704			7.9	%
Limited partnerships and other alternative investments	1,758			3.3	%		1,723			3.7	%
Other investments [1]	320			0.6	%		192			0.4	%
Short-term investments	2,921			5.5	%		4,283			9.2	%
Total investments	$	53,030		100.0	%		$	46,790		100.0	%

[1] Primarily consists of investments of consolidated investment funds and derivative instruments which are carried at fair value.

Year ended December 31, 2019 compared to the year ended December 31, 2018

Fixed maturities, AFS increased primarily due to the fixed maturities, AFS acquired as part of the acquisition of Navigators Group as well as an increase in valuations due to lower interest rates and tighter credit spreads.

Short-term investments decreased due to the funding of Navigators Group acquisition slightly offset by tax receipts related to the refund of AMT tax credits.

Net Investment Income
	For the years ended December 31,
	2019						2018						2017
(Before tax)	Amount			Yield [1]			Amount			Yield [1]			Amount			Yield [1]
Fixed maturities [2]	$	1,559		3.8	%		$	1,459		3.9	%		$	1,303		3.9	%
Equity securities	46			3.4	%		32			3.1	%		24			2.8	%
Mortgage loans	165			4.4	%		141			4.1	%		124			4.1	%
Limited partnerships and other alternative investments	232			14.4	%		205			13.2	%		174			12.0	%
Other [3]	32						20						49
Investment expense	(83		)				(77		)				(71		)
Total net investment income	$	1,951		4.1	%		$	1,780		4.0	%		$	1,603		4.0	%
Total net investment income excluding limited partnerships and other alternative investments	$	1,719		3.7	%		$	1,575		3.7	%		$	1,429		3.7	%

[1]	Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost as applicable, excluding repurchase agreement and securities lending collateral, if any, and derivatives 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, 2019 compared to the year ended December 31, 2018

Total net investment income increased primarily due to higher asset levels, largely driven by the acquisition of Navigators Group, higher returns on limited partnerships and

other alternative investments, and higher mortgage loan income due to higher asset levels and prepayment penalties.

Annualized net investment income yield, excluding limited partnerships and other alternative investments, was flat due to higher returns on equity fund investments and

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

prepayment penalties on mortgage loans, offset by lower reinvestment rates.

Average reinvestment rate, on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities and cash equivalent securities, for the year-ended December 31, 2019, was 3.4% which was below the average yield of sales and maturities of 4.0% due to repositioning into slightly higher quality credits at lower interest rates and calls on higher yielding tax-exempt municipals and corporates as well as due to sales and paydowns on higher yielding securities. The average reinvestment

rate for the year-ended December 31, 2018 was 4.0% which was higher than the average yield of sales and maturities of 3.7%, due to higher interest rates.

We expect the annualized net investment income yield for the 2020 calendar year, excluding limited partnerships and other alternative investments, to be lower than the portfolio yield earned in 2019 due to lower reinvestment rates. The estimated impact on net investment income yield is subject to change as the composition of the portfolio changes through portfolio management and changes in market conditions.

Net Realized Capital Gains (Losses)
	For the years ended December 31,
(Before tax)	2019			2018			2017
Gross gains on sales	$	234		$	114		$	275
Gross losses on sales	(56		)	(172		)	(113		)
Equity securities [1]	254			(48		)	—
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [2]	(3		)	(1		)	(8		)
Valuation allowances on mortgage loans	1			—			(1		)
Other, net [3]	(35		)	(5		)	12
Net realized capital gains (losses)	$	395		$	(112	)	$	165

[1]

The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2019*, were* $164 for the year-ended December 31, 2019*. The net unrealized gain (loss) on equity securities included in net realized capital gains (losses) related to equity securities still held as of* December 31, 2018*, were* $(80) for the year-ended December 31, 2018*. Prior to January 1, 2018, changes in net unrealized gains (losses) on equity securities were included in AOCI.*

[2]	See Other-Than-Temporary Impairments 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, interest rate derivatives used to manage duration and equity derivatives. Also includes transactional foreign currency revaluation.

Year ended December 31, 2019

Gross gains and losses on sales were primarily driven by issuer-specific selling of corporate securities, continued reduction of tax-exempt municipal bonds and sales of U.S. treasuries for duration management.

Equity securities net gains were primarily driven by appreciation of equity securities due to higher equity market levels.

Other, net losses includes losses on interest rate derivatives of $34 due to higher rates, losses on equity derivatives of $17 due to an increase in domestic equity markets, and losses of $9 due to foreign currency revaluation. These losses were partially offset by gains on credit derivatives of $27 due to credit spread tightening.

Year ended December 31, 2018

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

Equity securities net losses were driven by depreciation of equity securities due to lower equity market levels, partially offset by gains on sales due to tactical repositioning.

Other, net losses included losses of $11 related to credit derivatives due to credit spread widening, partially offset by gains of $3 on foreign currency derivatives.

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 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

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

•	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.

Property & Casualty Insurance Product Reserves

P&C Loss and Loss Adjustment Expense Reserves, Net of Reinsurance, by Segment as of December 31, 2019

Loss and LAE Reserves, Net of Reinsurance as of December 31, 2019

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance			% Total Reserves-net
Workers’ compensation	$	10,418		$	—		$	—		$	10,418		45.3%
General liability	3,494			—			—			3,494			15.2%
Marine	279			—			—			279			1.2%
Package business [1]	1,742			—			—			1,742			7.6%
Commercial property	461			—			—			461			2.0%
Automobile liability	992			1,560			—			2,552			11.1%
Automobile physical damage	15			33			—			48			0.2%
Professional liability	1,050			—			—			1,050			4.6%
Bond	337			—			—			337			1.5%
Homeowners	—			527			—			527			2.3%
Asbestos and environmental	143			10			994			1,147			5.0%
Assumed reinsurance	190			—			112			302			1.3%
All other	212			3			414			629			2.7%
Total reserves-net	19,333			2,133			1,520			22,986			100.0%
Reinsurance and other recoverables	4,030			68			1,177			5,275
Total reserves-gross	$	23,363		$	2,201		$	2,697		$	28,261

[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

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

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.

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. 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. 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. For most lines, 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. For lines acquired from the Navigators Group book of business, total reserves are evaluated on a policy year basis and then converted to accident year. A policy year is the calendar year in which a policy incepts.

Factors that Change Reserve Estimates- Reserve estimates can change over time because of unexpected changes in the external environment. Inflation in claim costs, such as with 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, or a change in economic conditions can lead to more or less 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 or change the statutes of limitations for the filing of civil suits, resulting in greater claim 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. Changes in claim patterns may arise through integration of Navigators Group claims practices. 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 property and casualty risks from other insurance companies as part of its Global Re business acquired from Navigators Group and from certain pools and associations. Global Re, which is a part of the global specialty business, mostly assumes property, casualty, surety, agriculture, marine and accident and health insurance risks. 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 IBNR for losses that 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 $114 as of December 31, 2019, comprised of $42 related to Commercial Lines, $1 related to Personal Lines and $71 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 (“Run-off 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

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

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

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.

Reserves are set by line of business within the operating segments. A single line of business may be written in more than one segment. 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, marine 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. New methods may be added for specific lines over time to inform these selections where appropriate. The reserve 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, marine, automobile physical damage, automobile liability, package property business, and workers’ compensation. Other reserves, including most general liability and professional liability lines, are reviewed semi-annually. Certain additional reserves are also reviewed semi-annually or annually, including 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 a portion of workers’ compensation reserves that have a fixed and determinable payment stream. 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, 2019 and 2018, 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 reinsurance recoverables on two ceded retroactive reinsurance agreements that are recorded as a reduction of other liabilities under statutory accounting. One of the retroactive reinsurance agreements covers substantially all adverse development on asbestos and environmental reserves subsequent to 2016 and the other covers adverse development on Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018. Under both agreements, the Company cedes to NICO, a subsidiary of Berkshire Hathaway Inc. ("Berkshire").

Reserving Methods by Line of Business- Apart from Run-off 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 personal automobile liability, and bodily injury in particular, 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.
Commercial automobile liability	The Company performs a variety of techniques, including the paid and reported development methods and frequency/severity techniques. For older, more mature accident years, the Company primarily uses reported development techniques. For more recent accident years, the Company relies on several methods that incorporate expected loss ratios, reported loss development, paid loss development, frequency/severity, case reserve adequacy, and claim settlement rates.
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.
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, with adjustments based on analysis of larger states. We have seen an acceleration of paid losses relative to historical patterns that began in 2011. This acceleration is due to an increase in lump sum settlements to claimants across multiple accident years and we have adjusted our expected loss development patterns accordingly. 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 expected loss ratio methods.
Marine	For marine liability, the Company generally relies on the expected loss ratio, Berquist-Sherman, 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 then shifts towards Berquist-Sherman and then more towards the reported development method as a policy year matures. Policy year loss reserve estimates are then converted to an accident year basis. For marine property segments, the Company relies on a Berquist-Sherman method for early development ages then shifts to reported development techniques.
Assumed reinsurance and all other	Standard methods, such as expected loss ratio, Berquist-Sherman and reported development techniques are applied. These methods and analyses are informed by underlying treaty by treaty analyses supporting the ELRs, and cedant data will often inform the loss development patterns. In some instances, reserve indications may also be influenced by information gained from claims and underwriting audits. For the A&H business where the reporting is quick and treaties are not written evenly throughout the year, policy quarter analyses are performed to avoid potential distortions. Policy quarter and policy year loss reserve estimates are then converted to an accident year basis.
Allocated loss adjustment expenses (ALAE)	For some lines of business (e.g., professional liability, assumed reinsurance, and the acquired Navigators Group book of business), 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, future ULAE costs to be paid 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. For some lines, a simplified paid-to-paid approach is used.

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

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

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.

For a discussion of changes to reserve estimates recorded in 2019, see the Total P&C Insurance Product 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).

General liability- Within Commercial Lines, including the acquired Navigators Group book of business, and Property & Casualty Other Operations, the Company has exposure to general liability claims, including from bodily injury, property damage and product liability. Reserves for these exposures can be particularly difficult to estimate due to the long development pattern and uncertainty about how cases will settle. In particular, the Company has exposure to bodily injury claims that is the 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 including legislation, the similarities to other mass torts and the potential impact on the Company’s reserves. Additionally, uncertainty in estimated claim severity causes reserve variability, particularly with respect to changes in internal claim handling and case reserving practices.

Workers’ compensation- Included in both Small Commercial and in Middle & Large Commercial, workers’ compensation is the Company’s single biggest line of business and the property and casualty 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 approximately 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. In National Accounts, 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.

Commercial Lines automobile- 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.

Directors' and officers' insurance- Uncertainty regarding the number and severity of class action suits can result in reserve volatility for both directors' and officers' insurance claims. Additionally, the Company’s exposure to losses under directors’ and officers’ insurance policies, both domestically and internationally, is primarily in excess layers, making estimates of loss more complex.

Personal Lines automobile- 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.

Assumed reinsurance- While the pricing and reserving processes can be challenging and idiosyncratic for insurance companies, the inherent uncertainties of setting prices and estimating such reserves are even greater for the reinsurer. This is primarily due to the longer time between the date of an occurrence and the reporting of claims to the reinsurer, the diversity of development patterns among different types of reinsurance treaties or contracts, the necessary reliance on the ceding companies for information regarding reported claims and differing pricing and reserving practices among ceding companies. In addition, trends that have affected development of liabilities in the past may not necessarily occur or impact liability development in the same manner or to the same degree in the future. As a result, actual losses and LAE may deviate, perhaps substantially, from the expected estimates.

International business- In addition to several of the line-specific trends listed above, the International business acquired

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

through the Navigators Group book of business may have additional uncertainty due to geopolitical, foreign currency, and other risks. For example, uncertainty with the resolution of Brexit can affect the reserve estimates for international 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. 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, incurred 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, 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, 2018	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	$1.6 billion	+/- $80
Commercial Automobile Liability	+/- 2.5 points to the annual assumed change in loss cost severity for the two most recent accident years	$1.0 billion	+/- $30
Workers' Compensation	2% change in paid loss development patterns	$10.4 billion	+/- $400
General Liability	8% change in reported loss development patterns	$3.5 billion	+/- $450

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, the level of plaintiff demands, disease mix, past settlement values of similar claims, dismissal rates, allocated loss adjustment expense, and potential impact of other defendants being in bankruptcy.

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 or mandated remediation efforts and potential impact of other defendants being in bankruptcy.

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, the nature of how policy limits are enforced on multi-year policies and applicable coverage defenses or determinations, if any.

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

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 A&E 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. Future developments could cause the Company to change its estimates of its gross asbestos and environmental reserves and if cumulative ceded losses under the adverse development cover (“A&E ADC”) with NICO exceed the ceded premium paid of $650, there could be significant variability in net income due to timing differences between when gross reserves are increased and when reinsurance recoveries are recognized. 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.

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, 2019 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 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.

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

Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2019

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	19,455		$	2,456		$	2,673		$	24,584
Reinsurance and other recoverables	3,137			108			987			4,232
Beginning liabilities for unpaid losses and loss adjustment expenses, net	16,318			2,348			1,686			20,352
Navigators Group acquisition	2,001			—			—			2,001
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	4,913			2,087			—			7,000
Current accident year ("CAY") catastrophes	323			140			—			463
Prior accident year development ("PYD") [1]	(44		)	(42		)	21			(65		)
Total provision for unpaid losses and loss adjustment expenses	5,192			2,185			21			7,398
Change in deferred gain on retroactive reinsurance included in other liabilities [1]	(16		)	—			—			(16		)
Payments	(4,161		)	(2,400		)	(187		)	(6,748		)
Foreign currency adjustment	(1		)	—			—			(1		)
Ending liabilities for unpaid losses and loss adjustment expenses, net	19,333			2,133			1,520			22,986
Reinsurance and other recoverables	4,030			68			1,177			5,275
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	23,363		$	2,201		$	2,697		$	28,261
Earned premiums and fee income	$	8,325		$	3,235
Loss and loss expense paid ratio [2]	50.0			74.2
Loss and loss expense incurred ratio	62.6			68.3
Prior accident year development (pts) [3]	(0.5		)	(1.3		)

[1]

Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators ADC which, under retroactive reinsurance accounting, is deferred and recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the Navigators ADC agreement, please refer to Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements.

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

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

Current Accident Year Catastrophe Losses for the Year Ended December 31, 2019, Net of Reinsurance
	Commercial Lines			Personal Lines			Total
Wind and hail	$	157		$	102		$	259
Winter storms	54			18			72
Tropical Storms	18			5			23
Hurricanes	20			4			24
Wildfires	4			4			8
Tornadoes	53			7			60
Typhoons	16			—			16
Other	1			—			1
Total catastrophe losses	$	323		$	140		$	463

In December, 2019, the judge overseeing the bankruptcy of PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) approved an $11 billion settlement with insurers representing approximately 85 percent of insurance subrogation claims to resolve all such claims arising from the

2017 Northern California wildfires and 2018 Camp wildfire. The settlement is subject to the confirmation by the bankruptcy court of a chapter 11 plan of reorganization (a "Plan") which implements the terms of the settlement. If a Plan is approved, certain of the Company’s insurance subsidiaries would be entitled

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

to settlement payments. Based on reserve estimates submitted with the subrogation request, the amount our subsidiaries could collect from PG&E, if any, would be approximately $300 to $325 but could be more or less than that amount depending on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. Approval of the Plan and amount of the Company’s ultimate subrogation recoveries from PG&E are subject to uncertainty.

Given the uncertainty about whether the Plan will be approved, the Company has not recognized a benefit from potential subrogation from PG&E and will evaluate in future periods when

more information becomes known. In connection with the 2018 Camp wildfire, the Company has recognized a $12 reinsurance recoverable for losses incurred in excess of a $350 per occurrence retention. Under its 2018 property aggregate catastrophe treaty, the Company has recognized a reinsurance recoverable for aggregate catastrophe losses in excess of an $825 retention, with the recoverable currently estimated at $45. As such, the first $57 of subrogation recoveries would be offset by a $57 reduction in these reinsurance recoverables resulting in no net benefit to income.

Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2019
	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Workers’ compensation	$	(120	)	$	—		$	—		$	(120	)
Workers’ compensation discount accretion	33			—			—			33
General liability	61			—			—			61
Marine	8			—			—			8
Package business	(47		)	—			—			(47		)
Commercial property	(11		)	—			—			(11		)
Professional liability	29			—			—			29
Bond	(3		)	—			—			(3		)
Assumed Reinsurance	3			—			—			3
Automobile liability	27			(38		)	—			(11		)
Homeowners	—			3			—			3
Net asbestos reserves	—			—			—			—
Net environmental reserves	—			—			—			—
Catastrophes	(40		)	(2		)	—			(42		)
Uncollectible reinsurance	(5		)	—			(25		)	(30		)
Other reserve re-estimates, net	5			(5		)	46			46
Total prior accident year development, including full benefit for the ADC cession	(60		)	(42		)	21			(81		)
Change in deferred gain on retroactive reinsurance included in other liabilities	16			—			—			16
Total prior accident year development	$	(44	)	$	(42	)	$	21		$	(65	)

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

Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2018

	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	18,893		$	2,294		$	2,588		$	23,775
Reinsurance and other recoverables	3,147			71			739			3,957
Beginning liabilities for unpaid losses and loss adjustment expenses, net	15,746			2,223			1,849			19,818
Provision for unpaid losses and loss adjustment expenses
Current accident year before catastrophes	4,037			2,249			—			6,286
Current accident year catastrophes	275			546			—			821
Prior accident year development	(200		)	(32		)	65			(167		)
Total provision for unpaid losses and loss adjustment expenses	4,112			2,763			65			6,940
Payments	(3,540		)	(2,638		)	(228		)	(6,406		)
Ending liabilities for unpaid losses and loss adjustment expenses, net	16,318			2,348			1,686			20,352
Reinsurance and other recoverables	3,137			108			987			4,232
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	19,455		$	2,456		$	2,673		$	24,584
Earned premiums and fee income	$	7,081		$	3,439
Loss and loss expense paid ratio [1]	50.0			76.7
Loss and loss expense incurred ratio	58.4			81.3
Prior accident year development (pts) [2]	(2.8		)	(0.9		)

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

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

Current Accident Year Catastrophe Losses for the Year Ended December 31, 2018, Net of Reinsurance
	Commercial Lines			Personal Lines			Total
Wind and hail	$	124		$	164		$	288
Winter storms	50			25			75
Flooding	1			1			2
Volcanic eruption	—			2			2
Wildfire	56			384			440
Hurricanes	71			23			94
Massachusetts gas explosion	1			—			1
Earthquake	—			1			1
Total catastrophe losses	303			600			903
Less: reinsurance recoverable under the property aggregate treaty [1]	(28		)	(54		)	(82		)
Net catastrophe losses	$	275		$	546		$	821

[1]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.

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

Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2018
	Commercial Lines			Personal Lines			Property & Casualty Other Operations			Total Property & Casualty Insurance
Workers’ compensation	$	(164	)	$	—		$	—		$	(164	)
Workers’ compensation discount accretion	40			—			—			40
General liability	52			—			—			52
Package business	(26		)	—			—			(26		)
Commercial property	(12		)	—			—			(12		)
Professional liability	(12		)	—			—			(12		)
Bond	2			—			—			2
Automobile liability	(15		)	(18		)	—			(33		)
Homeowners	—			(25		)	—			(25		)
Net asbestos reserves	—			—			—			—
Net environmental reserves	—			—			—			—
Catastrophes	(67		)	18			—			(49		)
Uncollectible reinsurance	—			—			22			22
Other reserve re-estimates, net	2			(7		)	43			38
Total prior accident year development	$	(200	)	$	(32	)	$	65		$	(167	)

Rollforward 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	$	17,950		$	2,094		$	2,501		$	22,545
Reinsurance and other recoverables	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
Payments	(3,489		)	(2,846		)	(244		)	(6,579		)
Less: net reserves transferred to liabilities held for sale [1]	—			—			—			—
Ending liabilities for unpaid losses and loss adjustment expenses, net	15,746			2,223			1,849			19,818
Reinsurance and other recoverables	3,147			71			739			3,957
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	18,893		$	2,294		$	2,588		$	23,775
Earned premiums and fee income	$	6,902		$	3,734
Loss and loss expense paid ratio [1]	50.6			76.2
Loss and loss expense incurred ratio	63.0			81.3
Prior accident year development (pts) [2]	(0.3		)	(1.0		)

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

[2]	“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

Current Accident Year Catastrophe Losses for the Year Ended December 31, 2017, Net of Reinsurance
	Commercial Lines			Personal Lines			Total
Wind and hail	$	138		$	176		$	314
Hurricanes [1]	236			68			304
Wildfires	51			253			304
Winter storms	1			3			4
Total catastrophe losses	426			500			926
Less: reinsurance recoverable under the property aggregate treaty [2]	(43		)	(47		)	(90		)
Net catastrophe losses	$	383		$	453		$	836

[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.

Unfavorable (Favorable) 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	)

For discussion of the factors contributing to unfavorable (favorable) prior accident year reserve development, please refer to Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements.

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, head injuries, 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

The vast majority of the Company's exposure to A&E relates to policy coverages provided prior to 1986, reported within the P&C Other Operations segment (“Run-off A&E”). In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments.

Run-off A&E Summary as of December 31, 2019

		Asbestos			Environmental			Total A&E
Gross
	Direct	$	1,315		$	353		$	1,668
	Assumed Reinsurance	477			62			539
	Total	1,792			415			2,207
Ceded- other than NICO		(484		)	(69		)	(553		)
Ceded - NICO A&E ADC "Run-off"[1]		(434		)	(226		)	(660		)
Net		$	874		$	120		$	994

[1]	Including $660 of ceded losses for Run-off A&E and a $20 reduction in ceded losses for Commercial Lines and Personal Lines, cumulative net incurred losses of $640 have been ceded to NICO under an adverse development cover reinsurance agreement. See the section that follows entitled A&E Adverse Development Cover for additional information.

Rollforward of Run-off A&E Losses and LAE

	Asbestos			Environmental
2019
Beginning liability — net	$	984		$	151
Losses and loss adjustment expenses incurred	—			—
Losses and loss adjustment expenses paid	(111		)	(32		)
Reclassification of allowance for uncollectible insurance [1]	1			1
Ending liability — net	$	874		$	120
2018
Beginning liability — net	$	1,143		$	182
Losses and loss adjustment expenses incurred	—			—
Losses and loss adjustment expenses paid	(159		)	(31		)
Reclassification of allowance for uncollectible insurance [1]	—			—
Ending liability — net	$	984		$	151
2017
Beginning liability — net	$	1,282		$	234
Losses and loss adjustment expenses incurred	—			—
Losses and loss adjustment expenses paid	(140		)	(52		)
Reclassification of allowance for uncollectible insurance [1]	1			—
Ending liability — net	$	1,143		$	182

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

A&E Adverse Development Cover

Effective December 31, 2016, the Company entered into an A&E ADC reinsurance agreement with NICO, a subsidiary of Berkshire, to reduce uncertainty about potential adverse development. Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss and allocated loss adjustment expense reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion, including both Run-off A&E and A&E reserves in Commercial Lines and Personal Lines. The $650 reinsurance premium was placed in a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.

Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid are recognized as a dollar-for-dollar offset to net losses incurred before ceding to the A&E ADC. Cumulative ceded losses exceeding the $650 reinsurance premium paid result in a deferred gain. The deferred gain will be recognized over the claim

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

settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of A&E claims after December 31, 2016 in excess of $650 may result in significant charges against earnings.

As of December 31, 2019, the Company has incurred a cumulative $640 in adverse development on A&E reserves that have been ceded under the A&E ADC treaty with NICO, including $660 for Run-off A&E reserves and ($20) for A&E reserves in Commercial Lines and Personal Lines. As such, $860 of coverage is available for future adverse net reserve development, if any.

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.

Since December 31, 2016, asbestos and environmental net reserves have been declining since all adverse development has been ceded to NICO, up to a limit of $1.5 billion. Recoveries from NICO will not be collected until the Company has cumulative loss payments of more than the $1.7 billion carrying value of net reserves as of December 31, 2016. Accordingly, with no net incurred losses, the payment of losses without any current collection of recoveries from NICO has reduced the Company’s net loss reserves which decreases the net survival ratios such that, unadjusted, the net survival ratios would not be representative of the true number of years of average loss payments covered by the reserves. Therefore, the net survival ratios presented in the table below are calculated before considering the effect of the A&E ADC reinsurance agreement but net of other reinsurance in place.

Net and Gross Survival Ratios

	Asbestos	Environmental
One year net survival ratio [1]	11.7	10.8
Three year net survival ratio [1]	9.5	9.0
One year gross survival ratio	13.6	10.7
Three year gross survival ratio	10.1	8.4

[1] As of December 31, 2019, the one year net survival ratios after considering the ADC were 7.8 and 3.8 for asbestos and environmental, respectively. As of December 31, 2019, the three year net survival ratios after considering the ADC were 6.4 and 3.1, respectively.

Run-off A&E Paid and Incurred Losses and LAE Development

	Asbestos						Environmental
	Paid Losses & LAE			Incurred Losses & LAE			Paid Losses & LAE			Incurred Losses & LAE
2019
Gross	$	131		$	115		$	39		$	95
Ceded- other than NICO	(20		)	(39		)	(7		)	(39		)
Ceded - NICO A&E ADC	—			(76		)	—			(56		)
Net	$	111		$	—		$	32		$	—
2018
Gross	$	213		$	249		$	47		$	83
Ceded- other than NICO	(54		)	(85		)	(16		)	(12		)
Ceded - NICO A&E ADC	—			(164		)				(71		)
Net	$	159		$	—		$	31		$	—
2017
Gross	$	190		$	317		$	63		$	123
Ceded- other than NICO	(50		)	(123		)	(11		)	(24		)
Ceded - NICO A&E ADC	—			(194		)	—			(99		)
Net	$	140		$	—		$	52		$	—

Annual Reserve Reviews

Review of Asbestos and Environmental Reserves

The Company performs its regular comprehensive annual review of asbestos and environmental reserves in the fourth quarter, including both Run-off A&E (P&C Other Operations) and asbestos and environmental reserves included in Commercial Lines and Personal Lines. As part of the evaluation of asbestos reserves in the fourth quarter of 2019, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts. As part of its evaluation of environmental reserves in the fourth quarter of 2019, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability, as well as assumed reinsurance accounts.

2019 comprehensive annual reviews

During the 2019 fourth quarter review, the Company increased estimated asbestos reserves before NICO reinsurance in P&C Other Operations by $76, primarily due to an increase in average settlement values, most notably from mesothelioma claims, driven by elevated plaintiff demands. In addition, cost-sharing agreements and settlements with certain insureds reduced the uncertainty of the Company’s asbestos liability but resulted in a reserve increase. Partially offsetting the adverse development was a decrease in the number of claim filings, most notably from mesothelioma claims.

As a result of the 2019 fourth quarter review, the Company increased estimated environmental reserves before NICO reinsurance in P&C Other Operations by $56, primarily due to

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

regulatory remediation requirements that changed in 2019 for certain sites polluted by coal ash and resulted in more costly and extensive remediation plans, a higher than anticipated number of claims associated with per & polyfluoroalkyl substances (PFAS), and increased defense and cleanup costs associated with Superfund sites.

The total $132 increase in asbestos and environmental reserves in P&C Other Operations was offset by a $132 reinsurance recoverable under the NICO treaty. Including a reduction of asbestos and environmental reserves in Commercial Lines and Personal Lines, the net increase in A&E reserves in 2019 was $117 offset by a $117 increase in reinsurance recoverables under the NICO treaty.

2018 comprehensive annual reviews

During the 2018 fourth quarter review of asbestos reserves, the Company increased estimated reserves before NICO reinsurance in P&C Other Operations by $164, primarily due to an increase in average mesothelioma settlement values driven by elevated plaintiff demands and defendant bankruptcies. The rise in plaintiff demands also resulted in higher than anticipated defense costs for a small subset of peripheral defendants with a high concentration of asbestos filings in specific, adverse jurisdictions. In addition, the Company observed unfavorable developments in the application of coverage that resulted in increased liability shares on certain insureds. An increase in reserves from umbrella and excess policies in the 1981-1985 policy years contributed to the adverse development.

As a result of the 2018 fourth quarter review of environmental reserves, the Company increased estimated reserves before NICO reinsurance by $71 due to increased defense and clean-up costs associated with increasingly complex remediation plans at Superfund sites, intensifying regulatory scrutiny by state agencies (particularly in the Pacific Northwest), and increased liability shares due to unavailability of other responsible parties.

The total $235 increase in asbestos and environmental reserves in P&C Other Operations was offset by a $235 reinsurance recoverable under the NICO treaty. Including an increase in asbestos and environmental reserves in Commercial Lines and Personal Lines, the net increase in A&E reserves in 2018 was $238 offset by a $238 increase in reinsurance recoverables under the NICO treaty

For information regarding the 2017 comprehensive annual review, please refer to Part 2, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in The Hartford’s 2018 Form 10-K Annual Report.

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 73% of the Company's total Direct gross asbestos reserves as of December 31, 2019 compared to approximately 70% as of December 31, 2018. 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.

•

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 27% of the Company's Direct gross asbestos reserves as of December 31, 2019 compared to approximately 30% as of December 31, 2018.

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

In the fourth quarters of 2019, 2018 and 2017, the Company completed evaluations of certain of its non-asbestos and non-environmental reserves in Property & Casualty Other Operations, including unallocated loss adjustment expense reserves and the allowance for uncollectible reinsurance. Overall prior year development on all other reserves resulted in increases of $21, $65 and $18, respectively for calendar years 2019, 2018 and 2017. Included in the 2019 adverse reserve development was a $37 increase in reserves for unallocated loss adjustment expenses, primarily due to an increase in expected aggregate claim handling costs associated with asbestos and environmental claims, as well as higher than anticipated ULAE costs in recent years, prompting an increase in the projected ULAE run rate.

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 quarters of 2019, 2018 and 2017, 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. As of December 31, 2019, 2018, and 2017 the allowance for uncollectible reinsurance for Property & Casualty Other Operations totaled $71, $105 and $86, respectively. 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

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

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 rollforward) 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 and Impact of Key Assumptions on Reserves sections.

Range of Prior Accident Year Unfavorable (Favorable) Development for the Ten Years Ended December 31, 2019

	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, 2019	(2.9%) - 1.0%	(6.9%) - 8.3%	0.9% - 9.8%	(1.1%) - 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 A&E 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, 2019. 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, 2019 for the indicated accident year in each row. This table does not include Navigators Group reserve re-estimates for periods prior to the acquisition of the business on May 23, 2019.

Effect of Net Reserve Re-estimates on Calendar Year Operations

	Calendar Year
	2010			2011			2012			2013			2014			2015			2016			2017			2018			2019			Total
By Accident Year
2009 & Prior	$	(196	)	$	122		$	(43	)	$	(36	)	$	352		$	334		$	301		$	71		$	(38	)	$	50		$	917
2010				245			3			61			(22		)	16			15			16			1			(12		)	323
2011							36			148			(4		)	12			(6		)	6			11			(19		)	184
2012										19			—			(55		)	(35		)	(12		)	(15		)	(15		)	(113		)
2013													(98		)	(43		)	(29		)	(33		)	(2		)	(26		)	(231		)
2014																(14		)	20			(19		)	(54		)	(29		)	(96		)
2015																			191			(41		)	(93		)	19			76
2016																						(29		)	14			(11		)	(26		)
2017																									9			(116		)	(107		)
2018																												78			78
Increase (decrease) in net reserves [1] [2]	$	(196	)	$	367		$	(4	)	$	192		$	228		$	250		$	457		$	(41	)	$	(167	)	$	(81	)	$	1,005

[1]	For the 2019 calendar year, net favorable prior accident year development recognized in the consolidated statement of operations was $65 rather than $81 as shown in this table as the Company recognized a $16 deferred gain on retroactive reinsurance. See Note 2 - Business Acquisitions of Notes to Consolidated Financial Statements.

[2]	For calendar years before 2017, the 2009 and prior accident year development includes adverse development for A&E reserves. Beginning with the 2017 calendar year, A&E reserve development has been ceded to NICO.

The commentary below explains, by accident year, the total prior accident year development recognized over the past 10 years.

Accident years 2009 and Prior

The net increases in estimates of ultimate losses for accident

years 2009 and prior are driven mostly by increased reserves for

asbestos and environmental reserves, and also by increased

estimates for customs bonds and other mass torts claims.

Partially offsetting these reserve increases was favorable

development in general liability and workers’ compensation.

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

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

personal automobile liability claims were reduced largely due to

improvement in emerged claim severity.

Accident years 2010 and 2011

Unfavorable changes in estimates of ultimate losses 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 losses were decreased for accident years

2012 and 2013 due to favorable frequency and/or medical

severity trends for workers’ compensation and favorable professional liability claim emergence. 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

Changes in estimates of ultimate losses for accident years 2014

and 2015 were largely driven by unfavorable frequency and

severity trends for personal and commercial automobile liability,

increased severity of liability claims on package business and increased estimated severity on the acquired Navigators Group book of business related to U.S construction, premises liability, products liability and excess casualty offset by favorable frequency and medical severity trends for

workers' compensation.

Accident year 2016

Estimates of ultimate losses were decreased for the 2016

accident year largely due to reserve decreases on short-tail lines

of business, where results emerge more quickly, and workers’ compensation due to lower estimated claim severity, somewhat offset by unfavorable reserve estimates for higher hazard general

liability exposures due to increased frequency and severity

trends, higher estimated severity in middle & large commercial and on the acquired Navigators Group book of business related to U.S construction, premises liability, products liability and excess casualty

Accident year 2017

Ultimate loss estimates were decreased for the 2017 accident

year mainly due to favorable reserve estimates in personal auto liability due to emergence of lower estimated severity, workers’ compensation related to lower than previously estimated claim severity and release of reserves related to catastrophes, somewhat offset by increases in estimates of ultimate losses in general liability and bond. Partially offsetting was an increase to general liability reserves that was related to higher hazard exposures which experienced increased frequency and severity trends. In addition, unfavorable bond reserve re-estimates were driven by large claims.

Accident year 2018

Ultimate loss estimates were increased for the 2018 accident

year mainly due to commercial auto liability, and professional liability. Commercial auto liability was related to higher estimated severity on national accounts. On the Navigators

Group book of business, reserve increases for professional liability was related to large loss activity and increased estimated severity on directors and officers reserves.

Group Benefit 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 $6,616 and $6,767 of LTD unpaid losses and loss adjustment expenses, net of reinsurance, as of December 31, 2019 and 2018, respectively.

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 beyond the elimination period who have not yet been approved for LTD. In these cases, the present value of future benefits is reduced for the likelihood of claim denial based on Company experience.

Estimates for incurred but not reported ("IBNR") claims are made by applying completion factors to expected emerged experience by line of business. Included within IBNR are bulk reserves for claims reported but still within the waiting period until benefits are paid, typically 3 or 6 months depending on the contract. 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

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

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 line of business, 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, 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 including disability 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 profits. 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 3.4% in 2019 and 2018. Had the discount rate for each incurral year been 10 basis points lower at the time they were established, our LTD unpaid loss and loss adjustment expense reserves would be higher by $30, pretax, as of December 31, 2019.

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 8 years, claim termination rates for a single incurral year have generally increased and have ranged from 5% below to 6% above current assumptions over that time period. For a single recent incurral year (such as 2019), a one percent decrease in our assumption for LTD claim termination rates would increase our reserves by $9. For all incurral years combined, as of December 31, 2019, 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 $22.

Evaluation of Goodwill for Impairment

Current Evaluation for Goodwill 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 Hartford 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 consist of Commercial Lines, Personal Lines, Group Benefits, and Hartford Funds.

The carrying value of goodwill is $1,913 as of December 31, 2019 and is comprised of $661 for Commercial Lines, $119 for Personal Lines, $861 for Group Benefits, and $272 for Hartford Funds.

The annual goodwill assessment for the reporting units was completed as of October 31, 2019, and resulted in no write-downs of goodwill for the year ended December 31, 2019. All reporting units passed the first step of the annual impairment test with a significant margin. For information regarding the 2018 and

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

2017 impairment tests see Note 10 -Goodwill & Other Intangible Assets of Notes to Consolidated Financial Statements.

Future Accounting Change Contributing to Uncertainty for Goodwill Impairment

Effective January 1, 2020, the Company will adopt updated accounting guidance on recognition and measurement of goodwill impairment, as required. The updated guidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unit over its estimated fair value, up to the amount of the reporting unit’s goodwill. Since the estimated fair value of the reporting unit will no longer be allocated to the assets and liabilities of the reporting unit to determine an implied goodwill value, under the updated guidance, changes in market-based factors are more likely to result in a goodwill impairment, whether a reporting unit’s fair value is estimated using an income approach or a market approach. For example, changes in the weighted average cost of capital that is used to discount expected cash flows under the income approach or changes in market-based factors such as peer company price to earnings multiples or price to book multiples under a market approach can significantly affect changes to the estimated fair value of each reporting unit and such changes could result in impairments that have a material effect on our results of operations and financial condition.

Valuation of Investments and Derivative Instruments

Fixed Maturities, Equity Securities, Short-term Investments and 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 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 Derivatives section in Note 5 - Fair Value Measurements 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, 2019, 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, 2019, the Company has recorded a valuation allowance of $4 against foreign deferred tax assets for foreign NOLs. As of December 31, 2018, the Company had no valuation allowance on U.S. NOL's. The U.S. NOL carryovers, if unused, would expire between 2028 and 2036. The foreign NOLs do not expire. As of December 31, 2019, the Company projects there will be sufficient future taxable income to fully recover the remainder of the NOL carryover for which benefits have been recognized, though the Company's estimate of the likely realization may change over time. As of December 31, 2019 the Company had remaining AMT credit carryovers of $410 which are reflected as a current income tax receivable within other assets in the accompanying Condensed Consolidated Balance Sheets. AMT credits may be used to offset a regular tax liability for any taxable year beginning after December 31, 2017, and are refundable at an amount equal to 50 percent of the excess of the minimum tax credit for the taxable year over the amount of credit allowable for the year against regular tax liability. Any remaining credits not used against regular tax liability are refundable in the 2021 tax year to be realized in 2022. For additional information about Tax Reform, 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

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

	2019			2018			2017
Written premiums	$	8,452		$	7,136		$	6,956
Change in unearned premium reserve	162			89			91
Earned premiums	8,290			7,047			6,865
Fee income	35			34			37
Losses and loss adjustment expenses
Current accident year before catastrophes	4,913			4,037			3,961
Current accident year catastrophes [1]	323			275			383
Prior accident year development [1]	(44		)	(200		)	(22		)
Total losses and loss adjustment expenses	5,192			4,112			4,322
Amortization of DAC	1,296			1,048			1,009
Underwriting expenses	1,600			1,369			1,347
Amortization of other intangible assets	18			4			1
Dividends to policyholders	30			23			35
Underwriting gain	189			525			188
Net servicing income	2			2			1
Net investment income [2]	1,129			997			949
Net realized capital gains (losses) [2]	271			(43		)	103
Loss on reinsurance transaction	(91		)	—			—
Other income (expenses)	(38		)	(2		)	1
Income before income taxes	1,462			1,479			1,242
Income tax expense [3]	270			267			377
Net income	$	1,192		$	1,212		$	865

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

[2]	For discussion of consolidated investment results, see MD&A - Investment Results.

[3]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Premium Measures

		2019			2018			2017
Small commercial new business premium		$	646		$	600		$	552
Middle market new business premium		584			540			466
Small commercial policy count retention		83		%	82		%	84		%
Middle market policy count retention [1]		80		%	78		%	78		%
Standard commercial lines renewal written price increases [1] [2]		2.7		%	2.4		%	3.3		%
Standard commercial lines renewal earned price increases [1] [2]		2.3		%	3.0		%	2.8		%
Small commercial premium retention		85		%	84		%	88		%
Middle market premium retention [1]		84		%	83		%	82		%
Small commercial policies in-force as of end of period (in thousands)		1,291			1,271			1,266
Middle market policies in-force as of end of period (in thousands) [1]		62			64			66

[1]	Excludes certain risk classes of higher hazard general liability in middle market.

[2]	Small commercial and middle market lines within middle & large commercial are generally referred to as standard commercial lines.

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

Underwriting Ratios

	2019		2018		2017
Loss and loss adjustment expense ratio
Current accident year before catastrophes	59.3		57.3		57.7
Current accident year catastrophes	3.9		3.9		5.6
Prior accident year development	(0.5	)	(2.8	)	(0.3	)
Total loss and loss adjustment expense ratio	62.6		58.4		63.0
Expense ratio	34.7		33.9		33.8
Policyholder dividend ratio	0.4		0.3		0.5
Combined ratio	97.7		92.6		97.3
Current accident year catastrophes and prior year development	3.4		1.1		5.3
Current accident year change in loss reserves upon acquisition of a business [1]	0.3		—		—
Underlying combined ratio	94.0		91.5		92.0

[1]	Upon acquisition of Navigators Group and a review of Navigators Insurers reserves, the year ended December 31, 2019 included $68 of prior accident year reserve increases and $29 of current accident year reserve increases which were excluded for the purposes of the underlying combined ratio calculation.

2020 Outlook

The Company expects higher Commercial Lines written premiums in 2020, largely driven by the inclusion of a full year of written premium from the Navigators Group acquisition. Apart from the Navigators Group acquisition, the Company expects both new business and premium renewal retention to be relatively flat compared with 2019 as a modest increase in new and renewal premium for middle and large commercial, driven in part by continued growth in industry verticals, is expected to offset a modest decrease in small commercial new business. Management expects positive renewal written pricing in all lines of business except workers' compensation, which is expected to be flat to slightly positive in middle market and down in small commercial. In addition to the impact of pricing trends, written premium growth in 2019 will depend on economic conditions as economic growth is expected to moderate in 2020 while the interest rate environment will also put pressure on pricing.

Pricing varies significantly by product line with mid-single digit pricing increases expected in property and general liability and high single to low double digit written pricing increases expected in commercial automobile. In workers’ compensation, given favorable profitability trends, rates are expected to continue to decline in 2020, particularly in small commercial. Additionally, 2020 rates are expected to remain firm in global specialty where increases are expected in international, wholesale and financial lines.

The Company expects the Commercial Lines combined ratio will be between approximately 95.5 and 97.5 for 2020, compared to 97.7 in 2019, primarily due to lower current accident year catastrophe losses expected in 2020, partially offset by less favorable prior year development. The underlying combined ratio is expected to be flat to slightly lower as earned pricing increases in excess of moderate increases in loss costs in most lines will be largely offset by continued margin compression in workers’ compensation, while the expense ratio is expected to be down slightly. Current accident year catastrophes are assumed to be 2.9 points of the combined ratio in 2020 compared to 3.9 points in 2019.

Net Income

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net income decreased slightly in 2019 due to $91 before tax of ADC ceded premium and a lower underwriting gain, largely offset by a shift from net realized capital losses in 2018 to net realized capital gains in 2019 and higher net investment income.

Contributing to the increase in net investment income was income on invested assets acquired from Navigators Group and higher income from limited partnerships and alternative investments. For further discussion of investment results, see MD&A - Investment Results.

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

Underwriting Gain

Year ended December 31, 2019 compared to the year ended December 31, 2018

Underwriting gain decreased in 2019, primarily due to a decrease in net favorable prior year development, including $97 before tax of increases to Navigators Group reserves upon acquisition of the business, higher expenses, a higher current accident year loss and loss adjustment expense ratio before catastrophes, and higher catastrophe losses, partially offset by the effect of higher earned premium, excluding Navigators Group. Higher commissions contributed to the increase in amortization of DAC. Contributing to the increase in underwriting expenses was the effect of higher information technology and operations costs in middle market as well as higher operations and other costs in small commercial associated with the 2018 renewal rights agreement with Farmers Group to acquire its Foremost-branded small commercial business.

Additionally, the acquisition of Navigators Group contributed to the increase in earned premiums with a corresponding increase to losses and loss adjustment expenses, amortization of DAC and underwriting expenses. Apart from the effect of the Navigators Group acquisition, earned premiums increased in all commercial lines of business.

Earned Premiums

[1]	Other of $42*,* $45*, and* $46 for 2019*,* 2018*, and* 2017*, respectively, is included in the total.*

Year ended December 31, 2019 compared to the year ended December 31, 2018

Earned premiums increased in 2019 reflecting written premium growth over the preceding twelve months.

Written premiums increased in 2019 with growth across small commercial, middle & large commercial, and global specialty, including growth from the acquisition of Navigators Group. In standard commercial lines, renewal written pricing increased in 2019, mostly attributable to higher written pricing in property and general liability lines, partially offset by larger rate decreases in small commercial workers' compensation. New business premium in small commercial and middle market increased over the prior year, with increases in package business and workers' compensation in small commercial and property and industry verticals in middle market.

•	Small commercial written premium increased primarily driven by having a full year's premium from the business acquired under a 2018 renewal rights agreement with Farmers Group to acquire its Foremost-branded small commercial business, offset by lower renewal premium in workers' compensation.

•	Middle & large commercial written premium growth was primarily due to new business growth, the acquisition of Navigators Group and higher renewal premium in core middle market lines, as well as growth in certain industry verticals, including construction and energy. The increase in renewal

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

premium was due to renewal written price increases across most lines and higher audit premium.

•	Global specialty written premium increased in 2019 driven by the acquisition of Navigators Group as well as growth in financial products and bond.

Current Accident Year Loss and LAE Ratio before Catastrophes

Year ended December 31, 2019 compared to the year ended December 31, 2018

Current Accident Year Loss and LAE ratio before catastrophes increased in 2019 primarily due to a higher loss and loss adjustment expense ratio on the acquired Navigators Group business and higher non-catastrophe property losses in small commercial package business and middle market inland marine as well as a higher loss and loss adjustment expense ratio in workers' compensation due to rate decreases.

Included in current accident year loss and loss adjustment expenses before catastrophes for 2019 was a $29 increase in current accident year Navigators Group reserves upon acquisition of the business in May 2019, which was driven primarily by increased loss estimates for general liability, international professional liability and assumed reinsurance accident and health business.

Catastrophes and Unfavorable (Favorable) Prior Accident Year Development

Year ended December 31, 2019 compared to the year ended December 31, 2018

Current accident year catastrophe losses for 2019 were primarily from tornado, wind and hail events in various areas of the Midwest, Mountain West and Southeast and, to a lesser extent, winter storms in the northern plains, Midwest and Northeast. Current accident year catastrophe losses in 2018 were primarily from hurricanes Florence and Michael in the Southeast, wildfires in California, wind and hail storms in Colorado, and various wind storms and winter storms across the country. Catastrophe losses in 2018 are net of an estimated reinsurance recoverable of $28 under the 2018 Property Aggregate reinsurance treaty that was allocated to Commercial Lines. Due to reductions in 2018 catastrophe loss estimates in 2019, the reinsurance recoverable under the Property Aggregate treaty allocated to Commercial Lines was reduced to $15 as of December 31, 2019.

Prior accident year development was less favorable in 2019 than in 2018. Net reserve decreases for 2019 were primarily related to lower loss reserve estimates for workers' compensation claims, package business reserves and catastrophes, partially offset by a $68 before tax increase to Navigators Group reserves upon acquisition of the business and increases in reserves for auto liability and general liability. The increase in Navigators Group reserves upon acquisition of the business principally related to higher reserve estimates for general liability, professional liability and marine. Net reserve decreases for 2018 were primarily related to decreases for workers' compensation, catastrophes and unallocated loss adjustment expense reserves, partially offset by an increase in general liability reserves.

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

PERSONAL LINES

Results of Operations

Underwriting Summary

	2019			2018			2017
Written premiums	$	3,131		$	3,276		$	3,561
Change in unearned premium reserve	(67		)	(123		)	(129		)
Earned premiums	3,198			3,399			3,690
Fee income	37			40			44
Losses and loss adjustment expenses
Current accident year before catastrophes	2,087			2,249			2,584
Current accident year catastrophes [1]	140			546			453
Prior accident year development [1]	(42		)	(32		)	(37		)
Total losses and loss adjustment expenses	2,185			2,763			3,000
Amortization of DAC	259			275			309
Underwriting expenses	625			611			577
Amortization of other intangible assets	6			4			4
Underwriting gain (loss)	160			(214		)	(156		)
Net servicing income [2]	13			16			16
Net investment income [3]	179			155			141
Net realized capital gains (losses) [3]	43			(7		)	15
Other income (expenses)	(1		)	(1		)	1
Income (loss) before income taxes	394			(51		)	17
Income tax expense (benefit) [4]	76			(19		)	26
Net income (loss)	$	318		$	(32	)	$	(9	)

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

[2]	Includes servicing revenues of $83*,* $84*, and* $85 for 2019*,* 2018*, and* 2017*, respectively and includes servicing expenses of $70,* $68*, and* $69 for 2019*,* 2018*, and* 2017*, respectively.*

[3]	For discussion of consolidated investment results, see MD&A - Investment Results.

[4]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Written and Earned Premiums

Written Premiums	2019			2018			2017
Product Line
Automobile	$	2,176		$	2,273		$	2,497
Homeowners	955			1,003			1,064
Total	$	3,131		$	3,276		$	3,561
Earned Premiums
Product Line
Automobile	$	2,221		$	2,369		$	2,584
Homeowners	977			1,030			1,106
Total	$	3,198		$	3,399		$	3,690

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

Premium Measures

	2019			2018			2017
Policies in-force end of period (in thousands)
Automobile	1,422			1,510			1,702
Homeowners	877			927			1,038
New business written premium
Automobile	$	220		$	169		$	152
Homeowners	$	73		$	46		$	44
Policy count retention
Automobile	85		%	82		%	81		%
Homeowners	85		%	83		%	83		%
Renewal written price increase
Automobile	4.6		%	7.2		%	10.9		%
Homeowners	6.5		%	9.7		%	8.9		%
Renewal earned price increase
Automobile	5.5		%	9.6		%	9.6		%
Homeowners	8.4		%	9.3		%	8.5		%
Premium retention
Automobile	87		%	85		%	88		%
Homeowners	89		%	90		%	89		%

Underwriting Ratios

	2019		2018		2017
Loss and loss adjustment expense ratio
Current accident year before catastrophes	65.3		66.2		70.0
Current accident year catastrophes	4.4		16.1		12.3
Prior accident year development	(1.3	)	(0.9	)	(1.0	)
Total loss and loss adjustment expense ratio	68.3		81.3		81.3
Expense ratio	26.7		25.0		22.9
Combined ratio	95.0		106.3		104.2
Current accident year catastrophes and prior year development	3.1		15.2		11.3
Underlying combined ratio	91.9		91.2		93.0

Product Combined Ratios

	2019		2018		2017
Automobile
Combined ratio	96.6		98.6		101.6
Underlying combined ratio	97.9		98.2		99.7
Homeowners
Combined ratio	91.7		124.3		110.4
Underlying combined ratio	78.3		75.1		77.1

2020 Outlook

Written premium is expected to decline in 2020 as non-renewal of premium more than offsets new business growth, with a larger percentage decrease expected in the agency channel. The Company expects to increase new business in 2020, with most of the growth in the direct channel, driven by investments in product enhancements and targeted marketing initiatives. In 2020, the Company expects written pricing increases in 2020 to be in the

low to mid-single digits for automobile and mid-single digits for homeowners.

The Company expects the combined ratio for Personal Lines will be between approximately 98.5 and 100.5 for 2020 compared to 95.0 in 2019, primarily due to higher current accident year catastrophes, less favorable prior year development, and a higher expense ratio, partially offset by a modestly lower current accident year loss and loss adjustment expense ratio before

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

catastrophes. The expected increase in the expense ratio is driven by lower earned premium and investments to support growth and strategic initiatives. The underlying combined ratio for Personal Lines is expected to be slightly higher, largely due to a higher expense ratio, partially offset by an improved current accident year loss and loss adjustment expense ratio in automobile. Current accident year catastrophes are assumed to be 7.1 points of the combined ratio in 2020 compared with 4.4 points in 2019. For automobile, we expect the underlying combined ratio to improve slightly as further improvement in the loss ratio before catastrophes, driven by earned pricing increases in excess of modestly higher loss costs, will be partially offset by a higher expense ratio. The underlying combined ratio for homeowners is expected to increase in 2020, primarily driven by a return to a higher, more normal, level of non-catastrophe weather and non-weather loss experience and a higher expense ratio, partially offset by the effect of earned pricing increases.

Net Income (Loss)

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net income in 2019 improved from a net loss in 2018, primarily due to lower current accident year catastrophe losses. A change from net realized capital losses in 2018 to net realized capital gains in 2019 and higher net investment income were largely offset by a decrease in underlying underwriting results.

Underwriting Gain (Loss)

Year ended December 31, 2019 compared to the year ended December 31, 2018

Underwriting gain in 2019 improved from an underwriting loss in 2018, primarily due to lower current accident year catastrophes and, to a lesser extent, a lower current accident year loss ratio before catastrophes in auto partially offset by the effect of lower earned premium and an increase in underwriting expenses. The increase in underwriting expenses was largely driven by investments in information technology, and an increase in direct marketing spending, selling expenses, and operational costs to generate new business, partially offset by a reduction in state taxes and assessments. The decrease in amortization of DAC was commensurate with the reduction in earned premium.

Earned Premiums

Year ended December 31, 2019 compared to the year ended December 31, 2018

Earned premiums decreased in 2019, reflecting a decline in written premium over the prior six to twelve months in both Agency channels and in AARP Direct.

Written premiums decreased in 2019 in AARP Direct and both Agency channels. Despite an increase in new business and higher policy count retention in both auto and homeowners, written premium declined, primarily due to not generating enough new business to offset the loss of non-renewed premium.

Renewal written pricing increases in 2019 were lower in both auto and homeowners in response to moderating loss cost trends.

Policy count retention increased in both automobile and homeowners, in part driven by moderating renewal written price increases.

Policies in-force decreased in 2019 in both automobile and homeowners, driven by not generating enough new business to offset the loss of non-renewed policies.

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

Current Accident Year Loss and Loss Adjustment Expense Ratio before Catastrophes

Year ended December 31, 2019 compared to the year ended December 31, 2018

Current accident year loss and LAE ratio before catastrophes decreased in 2019. For auto, a decrease in the loss and loss adjustment expense ratio was due to the effect of earned pricing increases and a slight decrease in average claim frequency, partially offset by a modest increase in average claim severity. For home, the increase in the current accident year loss and loss adjustment expense ratio before catastrophes was driven by an increase in the loss adjustment expense and moderately higher severity partially offset by earned pricing increases and a decrease in frequency.

Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development

Year ended December 31, 2019 compared to the year ended December 31, 2018

Current accident year catastrophe losses for 2019 primarily included winter storms across the country and tornado, wind and hail events in the South, Midwest, and Mountain West. Catastrophe losses for 2018 were primarily from wildfires in California, wind and hail storms in Colorado, hurricanes Florence and Michael in the Southeast and various wind storms and winter storms across the country. Catastrophe losses in 2018 were net of an estimated reinsurance recoverable of $54 under the 2018 Property Aggregate reinsurance treaty that was allocated to Personal Lines. Due to reductions in 2018 catastrophe loss estimates in 2019, the reinsurance recoverable under the Property Aggregate treaty allocated to Personal Lines was reduced to $30 as of December 31 2019.

Prior accident year development was favorable in 2019 primarily due to a decrease in auto liability reserves for the 2017 accident year. Favorable development in 2018 was primarily in automobile liability and homeowners, partially offset by an increase in net catastrophe loss reserves.

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

PROPERTY & CASUALTY OTHER OPERATIONS

Results of Operations

Underwriting Summary

	2019			2018			2017
Written Premiums	$	—		$	(4	)	$	—
Change in unearned premium reserve	(2		)	(4		)	—
Earned premiums	2			—			—
Losses and loss adjustment expenses
Prior accident year development [1]	21			65			18
Total losses and loss adjustment expenses	21			65			18
Underwriting expenses	12			12			14
Underwriting loss	(31		)	(77		)	(32		)
Net investment income [2]	84			90			106
Net realized capital gains (losses) [2]	20			(4		)	14
Other income (expenses)	—			(1		)	5
Income before income taxes	73			8			93
Income tax expense (benefit) [3]	12			(7		)	24
Net income	$	61		$	15		$	69

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

[2]	For discussion of consolidated investment results, see MD&A - Investment Results.

[3]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Net Income

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net Income increased primarily due to a decrease in net unfavorable prior accident year development and an increase in

net realized capital gains. The decrease in prior accident year development was principally due to a change from reserve increases for uncollectible reinsurance in 2018 to reserve decreases for uncollectible reinsurance in 2019.

Asbestos Reserves reflected no net incurred losses and allocated loss adjustment expenses in 2019 as a $76 increase in estimated reserves before NICO reinsurance was offset by $76 of losses recoverable under the NICO treaty. The increase before NICO reinsurance was primarily due to an increase in average mesothelioma settlement values driven by elevated plaintiff demands and defendant bankruptcies and, to a lesser extent, unfavorable developments in the application of coverage that resulted in increased liability shares on certain insureds. An increase in reserves from umbrella and excess policies in the 1981 - 1985 policy years contributed to the adverse development. Partially offsetting the unfavorable development was the effect of a decrease in the number of mesothelioma claim filings and a projection that trend will continue.

Environmental Reserves reflected no net incurred losses and allocated loss adjustment expenses in 2019 as a $56 increase in estimated reserves before NICO reinsurance was offset by $56 of loss recoverable under the NICO treaty. The increase in reserves before NICO reinsurance was primarily due to an increase in the estimated costs to remediate sites polluted by coal ash and polyfluoroalkyl chemicals and due to increased defense and clean-up costs associated with Superfund sites and intensifying regulatory scrutiny by state agencies for more extensive remediation.

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

GROUP BENEFITS

Results of Operations

Operating Summary

	2019			2018			2017
Premiums and other considerations	$	5,603		$	5,598		$	3,677
Net investment income [1]	486			474			381
Net realized capital gains (losses) [1]	34			(47		)	34
Total revenues	6,123			6,025			4,092
Benefits, losses and loss adjustment expenses	4,055			4,214			2,803
Amortization of DAC	54			45			33
Insurance operating costs and other expenses	1,311			1,282			915
Amortization of other intangible assets	41			60			9
Total benefits, losses and expenses	5,461			5,601			3,760
Income before income taxes	662			424			332
Income tax expense [2]	126			84			38
Net income	$	536		$	340		$	294

[1]	For discussion of consolidated investment results, see MD&A - Investment Results.

[2]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to the Consolidated Financial Statements.

Premiums and Other Considerations

	2019			2018			2017
Fully insured — ongoing premiums	$	5,416		$	5,418		$	3,571
Buyout premiums	7			5			15
Fee income	180			175			91
Total premiums and other considerations	$	5,603		$	5,598		$	3,677
Fully insured ongoing sales, excluding buyouts	$	647		$	704		$	449

Ratios, Excluding Buyouts

	2019		2018		2017
Group disability loss ratio	67.3	%	73.1	%	76.5	%
Group life loss ratio	79.5	%	78.4	%	76.7	%
Total loss ratio	72.3	%	75.3	%	76.1	%
Expense ratio [1]	24.5	%	24.0	%	25.7	%

[1] Integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business are not included in the expense ratio.

Margin

	2019		2018		2017
Net income margin	8.8	%	5.6	%	7.2	%
Adjustments to reconcile net income margin to core earnings margin:
Net realized capital losses (gains) excluded from core earnings, before tax	(0.5	)%	0.9	%	(0.7	)%
Integration and transaction costs associated with acquired business, before tax	0.6	%	0.8	%	0.4	%
Income tax benefit	—	%	(0.3	)%	(1.1	)%
Core earnings margin	8.9	%	7.0	%	5.8	%

2020 Outlook

The Company expects Group Benefits fully insured ongoing premiums to increase modestly in 2020, with increases in both sales and renewal premium. In 2020, the segment's net income

margin is expected to be between 6.25% and 7.25%, compared to a net income margin of 8.8% in 2019. The expected decrease largely reflects the expectation of less favorable claim incidence and recoveries on long-term disability claims, lower expected investment yield driven, in part, by strong investment returns

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

from limited partnerships in 2019 that are not assumed to repeat in 2020, and a level of net realized capital gains in 2019 not expected to recur in 2020. Management expects that the 2020 core earnings margin, which does not include the effect of net realized capital gains (losses) or integration costs associated with the acquired business, will be in the range of 6.5% to 7.5%, down from a 2019 core earnings margin of 8.9%, primarily due to the expectation of less favorable claim incidence and recoveries on long-term disability claims and lower expected investment income.

Net Income

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net income increased in 2019 compared to 2018, primarily due to a lower group disability loss ratio and a change from net realized capital losses in 2018 to net realized capital gains in 2019. Lower amortization of other intangibles, higher net investment income and lower integration costs were largely offset by higher insurance operating costs and other expenses.

Insurance operating costs and other expenses increased in 2019 compared to 2018 due to higher commissions on our voluntary product offerings and investments in technology and claims operations, partially offset by achievements of expense synergies and lower state taxes and assessments.

Fully Insured Ongoing Premiums

Year ended December 31, 2019 compared to the year ended December 31, 2018

Fully insured ongoing premiums were relatively flat in 2019 compared to 2018 as a decrease in group life was offset by an increase in group disability and higher premiums from voluntary products.

Fully insured ongoing sales, excluding buyouts decreased in 2019 compared to 2018 with decreases in group disability and group life, partially offset by an increase in sales of voluntary products. Part of the decrease in fully insured ongoing sales was due to first year sales of the New York Paid Family Leave product in 2018.

Ratios

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

Year ended December 31, 2019 compared to the year ended December 31, 2018

Total loss ratio decreased 3.0 points from 2018 to 2019 as a decrease in the group disability loss ratio was partially offset by an increase in the group life loss ratio. The group disability loss ratio decreased 5.8 points driven by continued favorable incidence trends and strong claim recoveries on prior incurral year reserves, including the impact of updating our claim recovery probabilities to more recent experience and an experience refund related to the New York Paid Family Leave product.

The group life loss ratio increased 1.1 points, largely due to higher severity.

Expense ratio increased 0.5 points from 2018 to 2019, due to higher commissions on our voluntary product offerings, investments in technology and claims, and higher amortization of DAC, partially offset by achievements of expense synergies and lower state taxes and assessments.

HARTFORD FUNDS

Results of Operations

Operating Summary

	2019			2018			2017
Fee income and other revenue	$	999		$	1,032		$	992
Net investment income	7			5			3
Net realized capital gains (losses)	5			(4		)	—
Total revenues	1,011			1,033			995
Amortization of DAC	12			16			21
Operating costs and other expenses	813			831			805
Total benefits, losses and expenses	825			847			826
Income before income taxes	186			186			169
Income tax expense [1]	37			38			63
Net income	$	149		$	148		$	106
Daily average total Hartford Funds segment AUM	$	117,914		$	116,876		$	107,593
Return on Assets ("ROA") [2]	12.5			12.6			9.9
Adjustments to reconcile ROA to ROA, core earnings:
Effect of net realized capital (gains) losses, excluded from core earnings, before tax	(0.3		)	0.4			—
Effect of income tax benefit (expense)	—			(0.1		)	0.3
Return on Assets ("ROA"), core earnings [2]	12.2			12.9			10.2

[1]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

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

Hartford Funds Segment AUM

	2019			2018			2017
Mutual Fund and ETP AUM - beginning of period	$	91,557		$	99,090		$	81,507
Sales - mutual fund	22,479			22,198			23,654
Redemptions - mutual fund	(23,624		)	(23,888		)	(20,409		)
Net flows - ETP	1,332			1,404			157
Net Flows - mutual fund and ETP	187			(286		)	3,402
Change in market value and other	20,789			(7,247		)	14,181
Mutual Fund and ETP AUM - end of period	112,533			91,557			99,090
Talcott Resolution life and annuity separate account AUM [1]	14,425			13,283			16,260
Hartford Funds AUM - end of period	$	126,958		$	104,840		$	115,350

[1]	Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment.

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

Mutual Fund AUM by Asset Class

	2019			2018			2017
Equity	$	71,629		$	56,986		$	63,740
Fixed Income	16,130			14,467			14,401
Multi-Strategy Investments [1]	21,332			18,233			20,469
Exchange-traded products	3,442			1,871			480
Mutual Fund and ETP AUM	$	112,533		$	91,557		$	99,090

[1]	Includes balanced, allocation, and alternative investment products.

2020 Outlook

Assuming continued growth in equity markets in 2020 and an expectation of positive net flows, the Company expects net income for Hartford Funds to increase from 2019 to 2020. The Company expects to increase net sales in 2020 from a diversified lineup of mutual funds and ETPs, though net flows are more uncertain given the increased volatility in the markets. Assuming the Company can generate positive net flows and fund performance is strong, assets under management are expected to increase modestly despite the expected continued decline of the Talcott Resolution AUM.

Net Income

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net income increased slightly in 2019 as a change from net realized capital losses in 2018 to net realized capital gains in 2019 was largely offset by the effect of lower investment management fee revenues, an increase in contingent consideration payable associated with the acquisition of Lattice Strategies LLC

("Lattice") and lower state income tax expense in 2018. The decrease in investment management fees was driven by fee reductions and a shift to lower fee funds, partially offset by the effect of slightly higher average daily AUM. See Note 5 - Fair Value Measurements of Notes to Consolidated Financial Statements for additional information on the Lattice consideration.

Hartford Funds AUM

December 31, 2019 compared to December 31, 2018

Hartford Funds AUM increased from December 31, 2018 to December 31, 2019 due to market appreciation in 2019 across equity, fixed income and multi-strategy funds and exchange traded products. Net flows were slightly positive in 2019 compared to slightly negative net flows in 2018 with net inflows in exchange traded products and fixed income funds offset by net outflows in equity and multi-strategy funds.

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

CORPORATE

Results of Operations

Operating Summary

	2019			2018			2017
Fee income	$	50		$	32		$	4
Other revenue	96			21			—
Net investment income	66			59			23
Net realized capital gains (losses)	22			(7		)	(1		)
Total revenues	234			105			26
Benefits, losses and loss adjustment expenses [1]	19			11			31
Insurance operating costs and other expenses	83			83			59
Pension settlement	—			—			750
Loss on extinguishment of debt [2]	90			6			—
Interest expense [2]	259			298			316
Total benefits, losses and expenses	451			398			1,156
Loss before income taxes	(217		)	(293		)	(1,130		)
Income tax expense (benefit) [3]	(46		)	(95		)	457
Loss from continuing operations, net of tax	(171		)	(198		)	(1,587		)
Income (loss) from discontinued operations,net of tax	—			322			(2,869		)
Net income (loss)	$	(171	)	$	124		$	(4,456	)
Preferred stock dividends	21			6			—
Net income (loss) available to common stockholders	$	(192	)	$	118		$	(4,456	)

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

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

[3]	For discussion of income taxes, see Note 16 - Income Taxes of Notes to Consolidated Financial Statements.

Net Income (Loss)

Year ended December 31, 2019 compared to the year ended December 31, 2018

Net loss compared to net income in 2018 as 2018 included income from discontinued operations related to the life and annuity business sold in May 2018. The loss from continuing operations, net of tax, improved due to an increase in other revenues due to higher earnings on the Company's retained

equity interest in the legal entity that acquired the life and annuity business sold in 2018, lower interest expense, a change to net realized capital gains in 2019 from net realized capital losses in 2018, and greater fee revenue from managing the invested assets of Talcott Resolution post-sale, partially offset by an increase in loss on extinguishment of debt and transaction costs incurred in 2019 related to the Navigators Group acquisition.

Interest Expense

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

Year ended December 31, 2019 compared to the year ended December 31, 2018

Interest expense decreased primarily due to the maturity of senior notes payable in January 2019 and the redemption of junior subordinated debentures in June 2018, partially offset by the issuance of senior notes in August 2019 in excess of the amount of proceeds used to redeem other outstanding senior notes. On June 15, 2018, The Hartford redeemed $500 aggregate principal amount of its 8.125% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068. On January 15, 2019,

the Company repaid at maturity the $413 principal amount of its 6.0% senior notes. In third quarter 2019, after receiving net proceeds of $1.38 billion from the issuance of the 2.8% senior notes due August 19, 2029 and 3.6% senior notes due August 19, 2049, The Hartford repaid $265 of 5.75% senior notes due 2023 that had been assumed in the Navigators Group acquisition and $800 of 5.125% senior notes due 2022 of The Hartford Financial Services Group, Inc., and recognized a loss on extinguishment of debt of $90. For additional information, see Note 13 - Debt of Notes to the Consolidated Financial Statements.

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			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 Group Benefits 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 segments except Hartford 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, losses from political and credit coverages, losses

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

from derivative lawsuits, and other securities actions and covered perils.

•	Mortality- Risk of loss from unexpected trends in insured deaths impacting timing of payouts from group 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.

•	Cyber Insurance- Risk of loss to property, breach of data and business interruption from various types of cyber-attacks.

Catastrophe risk primarily arises in the property, automobile, workers' compensation, casualty, group life, and group disability lines of business.

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 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.

In addition, certain insurance products offered by The Hartford provide coverage for losses incurred due to cyber events and the Company has assessed and modeled how those products would respond to different events in order to manage its aggregate exposure to losses incurred under the insurance policies we sell. The Company models numerous deterministic scenarios including losses caused by malware, data breach, distributed denial of service attacks, intrusions of cloud environments and attacks of power grids.

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

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

Risk	Definition	Details and Company Limits
Natural catastrophe	Exposure arising from natural phenomena (e.g., earthquakes, wildfires, etc.) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios and the inherent volatility of weather or climate pattern changes.	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 the projected total available capital at year end of the property and casualty insurance subsidiaries prior to reinsurance and to less than 15% of the projected total available capital at year end 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. [2]
	- The estimated 250 year pre-tax probable maximum loss from earthquake events is estimated to be $1.1 billion before reinsurance and $408 million net of reinsurance. [1]
	- The estimated 250 year pre-tax probable maximum losses from hurricane events are estimated to be $1.8 billion before reinsurance and $906 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 $2.0 billion net of reinsurance and $2.5 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 18% of the aggregate projected total available capital at year end of the property and casualty and group benefits insurance subsidiaries. In evaluating these scenarios, the Company assesses the impact on group life, short-term disability, long-term disability and property & casualty claims. 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. In addition, the Company assesses losses in the investment portfolio associated with market declines in the event of a widespread pandemic. [2]

[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.

[2]

For U.S. insurance subsidiaries other than Navigators Insurers, total available capital is equal to actual statutory capital and surplus. For Navigators Insurers, including in U.S. and non-U.S. jurisdictions, total available capital is equal to U.S. GAAP equity of those subsidiaries less certain assets such as goodwill, intangible assets, deferred taxes and other adjustments, including discounting.

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 (including facultative reinsurance) or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk

Insurance Program (“TRIPRA”) and other reinsurance programs relating to particular risks or specific lines of business.

Reinsurance for Catastrophes- The Company utilizes various reinsurance programs to mitigate catastrophe losses including excess of loss occurrence-based treaties covering property and workers’ compensation, and an aggregate property catastrophe treaty as well as individual risk agreements (including facultative reinsurance) that reinsure losses from specific classes or lines of business. The aggregate property catastrophe treaty covers the aggregate of catastrophe events designated by the Property Claim Services office of Verisk and, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand.

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, 2020

	Portion of losses reinsured	Portion of losses retained by The Hartford
Per Occurrence Property Catastrophe Treaty from 1/1/2020 to 12/31/2020 [1] [2]
Losses of $0 to $150	None	100% retained
Losses of $150 to $350 for named storms and earthquakes	None	100% retained
Losses of $150 to $350 from one event other than named storms and earthquakes	70% of $200 in excess of $150	30% co-participation
Losses of $350 to $500 from one event (all perils)	75% of $150 in excess of $350	25% co-participation
Losses of $500 to $1.1 billion from one event [3] (all perils)	90% of $600 in excess $500	10% co-participation
Aggregate Property Catastrophe Treaty for 1/1/2020 to 12/31/2020 [4]
$0 to $700 of aggregate losses	None	100% retained
$700 to $900 of aggregate losses	100%	None
Workers' Compensation Catastrophe Treaty for 1/1/2020 to 12/31/2020
Losses of $0 to $100 from one event	None	100% retained
Losses of $100 to $450 from one event [5]	80% of $350 in excess of $100	20% co-participation

[1]	As of January 1, 2020 Navigators Group (Global Specialty) is included in the Corporate Property Catastrophe treaties. These treaties do not cover the assumed reinsurance business which purchases its own retrocessional coverage.

[2]

In addition to the Property Occurrence Treaty, for Florida events, The Hartford has purchased the mandatory FHCF reinsurance for the period from 6/1/2019 to 5/30/2020. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford Insurance Company of the Midwest, with coverage for approximately $67 of per event losses in excess of a $27 retention.

[3]	Portions of this layer of coverage extend beyond a traditional one year term.

[4]

The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all catastrophe events (up to $350 per event), either designated by the Property Claim Services office of Verisk or, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand. All catastrophe losses apply toward satisfying the $700 attachment point under the aggregate treaty.

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

In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other reinsurance agreements that cover property catastrophe losses. The Per Occurrence Property Catastrophe Treaty, and Workers' Compensation Catastrophe Treaty include a provision to reinstate one limit in the event that a catastrophe loss exhausts limits on one or more layers under the treaties.

Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological 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 2027.

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 $200 billion. Under the program, in any one calendar year, the federal government will 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 80% . The Company's estimated deductible under the program is $1.5 billion for 2020. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit,

Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.

Reinsurance for A&E and Navigators Group Reserve Development - The Company has two adverse development cover (“ADC”) reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years (the “A&E ADC”) and the other covers substantially all reserve development of Navigators Insurance Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”). For more information on the A&E ADC and the Navigators ADC, see Note 1, Basis of Presentation and Significant Accounting Policies, and Note 11, Reserve for Unpaid Losses and Loss Adjustment Expenses.

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,
	2019			2018
Paid loss and loss adjustment expenses	$	249		$	127
Unpaid loss and loss adjustment expenses	4,819			3,773
Gross reinsurance recoverables	5,068			3,900
Allowance for uncollectible reinsurance	(114		)	(126		)
Net reinsurance recoverables	$	4,954		$	3,774

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,
	2019					2018
Gross reinsurance recoverables	$	5,068				$	3,900
Mandatory (assigned risk) pools and structured settlements	(1,186		)			(1,220		)
Gross reinsurance recoverables excluding mandatory pools and structured settlements	$	3,882				$	2,680
				% of Total					% of Total
Rated A- (excellent) or better by A.M. Best [1]	$	3,261		84.0	%	$	2,194		81.8	%
Other rated by A.M. Best	—					1			0.1	%
Total rated companies	3,261			84.0	%	2,195			81.9	%
Voluntary pools	30			0.8	%	35			1.3	%
Captives	325			8.3	%	302			11.3	%
Other not rated companies	266			6.9	%	148			5.5	%
Total	$	3,882		100.0	%	$	2,680		100.0	%

[1]	Based on A.M. Best ratings as of December 31, 2019 and 2018*, 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, excluding mandatory pools and structured settlements, 84.0% of the gross reinsurance recoverables due from reinsurers rated by A.M. Best were rated A- (excellent) or better as of December 31, 2019.

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.

Group Benefits 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,
	2019			2018
Paid loss and loss adjustment expenses	$	6		$	12
Unpaid loss and loss adjustment expenses	247			239
Gross reinsurance recoverables	253			251
Allowance for uncollectible reinsurance [1]	—			—
Net reinsurance recoverables	$	253		$	251

[1]	No allowance for uncollectible reinsurance was required as of December 31, 2019 and 2018*.*

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 in the U.S. 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: compliance with laws and regulation, cybersecurity, business disruption, technology failure, inadequate execution or process management, reliance on model and data analytics, internal fraud, external fraud, third party dependency and attraction and retention of talent.

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

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 employs 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 (the "Program") commensurate with the nature of the intrusion. While the actual methods employed differ based on the event, our approach uses 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. In addition, we have procedures to ensure timely notification of critical cybersecurity incidents pursuant to the Program to help identify employees who may have material non-public information and to implement blackout restrictions on trading the Company's securities during the investigation and assessment of such cybersecurity incidents.

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), a committee comprised of all directors, 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 cyber defenses.

Financial Risk

Financial risks include direct and indirect risks to the Company's financial objectives from events that impact financial market conditions and the value of financial assets. 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 managed, with risks mitigated where appropriate. The Company uses various risk management strategies, including limiting aggregation of risk, portfolio re-balancing and hedging with over-the-counter and exchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve one of four Company-approved objectives: hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; or entering into synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management. The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity and foreign currency exchange.

Liquidity Risk

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

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

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

Management The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions. The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability liquidity. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact operating cash flows or liquid assets. The liquidity requirements of the Holding Company have been and will continue to be met by the Holding Company's fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or