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Hartford Financial Services (HIG)

Filed: 28 Jul 21, 4:19pm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________ 
FORM 10-Q
 ____________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 001-13958
____________________________________ 
hig-20210630_g1.jpg
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3317783
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Hartford Plaza, Hartford, Connecticut 06155
(Address of principal executive offices) (Zip Code)
(860) 547-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareHIGThe New York Stock Exchange
6.10% Notes due October 1, 2041HIG 41The New York Stock Exchange
7.875% Fixed-to-Floating Rate Junior Subordinated Debentures due 2042HGHThe New York Stock Exchange
Depositary Shares, Each Representing a 1/1,000th Interest in a Share of 6.000% Non-Cumulative Preferred Stock, Series G, par value $0.01 per shareHIG PR GThe New York Stock Exchange
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Indicate by check mark:
•     whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesNo
•     whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YesNo
•     whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
•     whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YesNo
As of July 27, 2021, there were outstanding 347,185,658 shares of Common Stock, $0.01 par value per share, of the registrant.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
ItemDescriptionPage
1. 
          NOTE 2 - EARNINGS PER SHARE
          NOTE 3 - SEGMENT INFORMATION
          NOTE 5 - INVESTMENTS
          NOTE 6 - DERIVATIVES
          NOTE 8 - REINSURANCE
          NOTE 11 - INCOME TAXES
          NOTE 13 - EQUITY
          NOTE 16 - BUSINESS DISPOSITION
2. 
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK[a]
4. 
1. 
1A.
2. 
6. 
[a]The information required by this item is set forth in the Enterprise Risk Management section of Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.
3




Forward-looking Statements
Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.
Forward-looking statements are based on management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company" or "The Hartford"). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statements; or in Part I, Item 1A, Risk Factors, in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and those identified from time to time in our other filings with the Securities and Exchange Commission.
Risks relating to the pandemic caused by the spread of the novel strain of coronavirus, specifically identified as the Coronavirus Disease 2019 (“COVID-19”) including impacts to the Company's insurance and product-related, regulatory/legal, recessionary and other global economic, capital and liquidity and operational risks
Risks Relating to Economic, Political and Global Market Conditions:
challenges related to the Company’s current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns, changes in trade regulation including tariffs and other barriers or other potentially adverse macroeconomic developments on the demand for our products and returns in our investment portfolios;
market risks associated with our business, including changes in credit spreads, equity prices, interest rates, inflation rate, foreign currency exchange rates and market volatility;
the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;
the impacts of changing climate and weather patterns on our businesses, operations and investment portfolio including on claims, demand and pricing of our products, the availability and cost of reinsurance, our modeling data used to evaluate and manage risks of catastrophes and severe weather events, the value of our investment portfolios and credit risk with reinsurers and other counterparties;
the risks associated with the discontinuance of the London Inter-Bank Offered Rate ("LIBOR") on the securities we hold or may have issued, other financial instruments and any other assets and liabilities whose value is tied to LIBOR;
the impacts associated with the withdrawal of the United Kingdom (“U.K.”) from the European Union (“E.U.”) on our international operations in the U.K. and E.U.
Insurance Industry and Product-Related Risks:
the possibility of unfavorable loss development, including with respect to long-tailed exposures;
the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims;
the possibility of another pandemic, civil unrest, earthquake, or other natural or man-made disaster that may adversely affect our businesses;
weather and other natural physical events, including the intensity and frequency of storms, hail, wildfires, flooding, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns;
the possible occurrence of terrorist attacks and the Company’s inability to contain its exposure as a result of, among other factors, the inability to exclude coverage for terrorist attacks from workers' compensation policies and limitations on reinsurance coverage from the federal government under applicable laws;
the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;
actions by competitors that may be larger or have greater financial resources than we do;
technological changes, including usage-based methods of determining premiums, advancements in automotive safety features, the development of autonomous vehicles, and platforms that facilitate ride sharing,
the Company's ability to market, distribute and provide insurance products and investment advisory services through current and future distribution channels and advisory firms;
political instability, politically motivated violence or civil unrest, may increase the frequency and severity of insured losses;
Financial Strength, Credit and Counterparty Risks:
4




risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments;
capital requirements which are subject to many factors, including many that are outside the Company’s control, such as National Association of Insurance Commissioners ("NAIC") risk based capital formulas, rating agency capital models, Funds at Lloyd's and Solvency Capital Requirement, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;
losses due to nonperformance or defaults by others, including credit risk with counterparties associated with investments, derivatives, premiums receivable, reinsurance recoverables and indemnifications provided by third parties in connection with previous dispositions;
the potential for losses due to our reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;
state and international regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends;
Risks Relating to Estimates, Assumptions and Valuations:
risk associated with the use of analytical models in making decisions in key areas such as underwriting, pricing, capital management, reserving, investments, reinsurance and catastrophe risk management;
the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the Company’s fair value estimates for its investments and the evaluation of intent-to-sell impairments and allowance for credit losses on available-for-sale securities and mortgage loans;
the potential for further impairments of our goodwill;
Strategic and Operational Risks:
the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;
the potential for difficulties arising from outsourcing and similar third-party relationships;
the risks, challenges and uncertainties associated with capital management plans, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;
risks associated with acquisitions and divestitures, including the challenges of integrating acquired companies or businesses, which may result in our inability to achieve the anticipated benefits and synergies and may result in unintended consequences;
difficulty in attracting and retaining talented and qualified personnel, including key employees, such as executives, managers and employees with strong technological, analytical and other specialized skills;
the Company’s ability to protect its intellectual property and defend against claims of infringement;
Regulatory and Legal Risks:
the cost and other potential effects of increased federal, state and international regulatory and legislative developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels;
unfavorable judicial or legislative developments;
the impact of changes in federal, state or foreign tax laws;
regulatory requirements that could delay, deter or prevent a takeover attempt that stockholders might consider in their best interests; and
the impact of potential changes in accounting principles and related financial reporting requirements.
Any forward-looking statement made by the Company in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
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Part I - Item 1. Financial Statements

Item 1.
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the "Company") as of June 30, 2021, the related condensed consolidated statements of operations, comprehensive income (loss), and changes in stockholders' equity for the three-month and six-month periods ended June 30, 2021 and 2020, and of cash flows for the six-month periods ended June 30, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 19, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ DELOITTE & TOUCHE LLP

Hartford, Connecticut
July 28, 2021
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Operations
Three Months Ended June 30,Six Months Ended June 30,
(in millions, except for per share data)2021202020212020
(Unaudited)
Revenues
Earned premiums$4,460 $4,234 $8,803 $8,625 
Fee income375 298 730 618 
Net investment income581 339 1,090 798 
Net realized capital gains (losses)147 109 227 (122)
Other revenues26 88 38 105 
Total revenues5,589 5,068 10,888 10,024 
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses2,786 2,847 6,136 5,763 
Amortization of deferred policy acquisition costs ("DAC")417 429 833 866 
Insurance operating costs and other expenses1,202 1,125 2,346 2,301 
Interest expense57 57 114 121 
Amortization of other intangible assets17 18 35 37 
Restructuring and other costs11 
Total benefits, losses and expenses4,479 4,476 9,475 9,088 
Income before income taxes1,110 592 1,413 936 
 Income tax expense205 124 259 195 
Net income905 468 1,154 741 
Preferred stock dividends10 10 
Net income available to common stockholders$900 $463 $1,144 $731 
Net income available to common stockholders per common share
Basic$2.54 $1.29 $3.21 $2.04 
Diluted$2.51 $1.29 $3.17 $2.03 
See Notes to Condensed Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended June 30,Six Months Ended June 30,
(in millions)2021202020212020
 (Unaudited)
Net income$905 $468 $1,154 $741 
Other comprehensive income (loss) ("OCI"):
Change in net unrealized gain on fixed maturities295 1,428 (630)371 
Change in unrealized losses on fixed maturities for which an allowance for credit losses ("ACL") has been recorded
Change in net gain on cash flow hedging instruments(5)(5)39 
Change in foreign currency translation adjustments(7)
Changes in pension and other postretirement plan adjustments14 12 27 23 
Other comprehensive income (loss), net of tax306 1,436 (600)427 
Comprehensive income$1,211 $1,904 $554 $1,168 
See Notes to Condensed Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Balance Sheets
(in millions, except for share and per share data)June 30,
2021
December 31, 2020
 (Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $41,220 and $41,561, and ACL of $4 and $23)$44,023 $45,035 
Equity securities, at fair value1,693 1,438 
Mortgage loans (net of ACL of $24 and $38)4,876 4,493 
Limited partnerships and other alternative investments2,565 2,082 
Other investments232 201 
Short-term investments3,398 3,283 
Total investments56,787 56,532 
Cash177 151 
Restricted cash131 88 
Premiums receivable and agents' balances (net of ACL of $134 and $152)4,622 4,268 
Reinsurance recoverables (net of allowance for uncollectible reinsurance of $99 and $108)6,217 6,011 
Deferred policy acquisition costs852 789 
Deferred income taxes, net151 46 
Goodwill1,911 1,911 
Property and equipment, net1,067 1,122 
Other intangible assets, net904 950 
Other assets1,733 2,066 
Assets held for sale180 177 
Total assets$74,732 $74,111 
Liabilities
Unpaid losses and loss adjustment expenses$38,702 $37,855 
Reserve for future policy benefits611 638 
Other policyholder funds and benefits payable685 701 
Unearned premiums7,167 6,629 
Long-term debt4,354 4,352 
Other liabilities4,805 5,222 
Liabilities held for sale164 158 
Total liabilities56,488 55,555 
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at June 30, 2021 and December 31, 2020, aggregate liquidation preference of $345334 334 
Common stock, $0.01 par value —1,500,000,000 shares authorized, 384,923,222 shares issued at June 30, 2021 and December 31, 2020
Additional paid-in capital4,330 4,322 
Retained earnings14,813 13,918 
Treasury stock, at cost 35,925,386 and 26,434,682 shares(1,807)(1,192)
Accumulated other comprehensive income, net of tax570 1,170 
Total stockholders’ equity18,244 18,556 
Total liabilities and stockholders’ equity$74,732 $74,111 
See Notes to Condensed Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
 Three Months Ended June 30,Six Months Ended June 30,
(in millions, except for share and per share data)2021202020212020
 (Unaudited)
Preferred Stock$334 $334 $334 $334 
Common Stock
Additional Paid-in Capital
Additional Paid-in Capital, beginning of period4,310 4,286 4,322 4,312 
Issuance of shares under incentive and stock compensation plans(2)(5)(71)(84)
Stock-based compensation plans expense22 18 79 71 
Additional Paid-in Capital, end of period4,330 4,299 4,330 4,299 
Retained Earnings
Retained Earnings, beginning of period14,036 12,819 13,918 12,685 
Cumulative effect of accounting changes, net of tax(18)
Adjusted balance, beginning of period14,036 12,819 13,918 12,667 
Net income905 468 1,154 741 
Dividends declared on preferred stock(5)(5)(10)(10)
Dividends declared on common stock(123)(115)(249)(231)
Retained Earnings, end of period14,813 13,167 14,813 13,167 
Treasury Stock, at cost
Treasury Stock, at cost, beginning of period(1,246)(1,220)(1,192)(1,117)
Treasury stock acquired(568)(691)(150)
Issuance of shares under incentive and stock compensation plans102 91 
Net shares acquired related to employee incentive and stock compensation plans(1)(26)(35)
Treasury Stock, at cost, end of period(1,807)(1,211)(1,807)(1,211)
Accumulated Other Comprehensive Income (Loss), net of tax
Accumulated Other Comprehensive Income, net of tax, beginning of period264 (957)1,170 52 
Total other comprehensive income306 1,436 (600)427 
Accumulated Other Comprehensive Income (Loss), net of tax, end of period570 479 570 479 
Total Stockholders’ Equity$18,244 $17,072 $18,244 $17,072 
Preferred Shares Outstanding
Preferred Shares Outstanding, beginning of period13,800 13,800 13,800 13,800 
Issuance of preferred shares
Preferred Shares Outstanding, end of period13,800 13,800 13,800 13,800 
Common Shares Outstanding
Common Shares Outstanding, beginning of period (in thousands)357,517 357,934 358,489 359,570 
Treasury stock acquired(8,650)(11,036)(2,661)
Issuance of shares under incentive and stock compensation plans143 175 2,057 1,860 
Return of shares under incentive and stock compensation plans to treasury stock(12)(10)(512)(670)
Common Shares Outstanding, at end of period348,998 358,099 348,998 358,099 
Cash dividends declared per common share$0.350 $0.325 $0.700 $0.650 
Cash dividends declared per preferred share$375.00 $375.00 $750.00 $750.00 
See Notes to Condensed Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
 Six Months Ended June 30,
(in millions)20212020
Operating Activities(Unaudited)
Net income$1,154 $741 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital losses (gains)(227)122 
Amortization of deferred policy acquisition costs833 866 
Additions to deferred policy acquisition costs(885)(856)
Depreciation and amortization347 269 
Other operating activities, net(88)95 
Change in assets and liabilities:
Increase in reinsurance recoverables(220)(123)
Net change in accrued and deferred income taxes(24)175 
Increase in insurance liabilities1,330 597 
Net change in other assets and other liabilities(623)(619)
Net cash provided by operating activities1,597 1,267 
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale11,370 9,023 
Equity securities, at fair value317 1,353 
Mortgage loans858 536 
Partnerships340 43 
Payments for the purchase of:
Fixed maturities, available-for-sale(10,716)(8,362)
Equity securities, at fair value(922)(671)
Mortgage loans(1,229)(762)
Partnerships(441)(187)
Net proceeds from (payments for) derivatives(5)139 
Net additions of property and equipment(47)(51)
Net payments for short-term investments(102)(883)
Other investing activities, net(2)37 
Net cash provided by (used for) investing activities(579)215 
Financing Activities
Deposits and other additions to investment and universal life-type contracts42 29 
Withdrawals and other deductions from investment and universal life-type contracts(37)(26)
Net decrease in securities loaned or sold under agreements to repurchase(418)
Repayment of debt(500)
Net issuance (return) of shares under incentive and stock compensation plans(28)
Treasury stock acquired(691)(150)
Dividends paid on preferred stock(10)(10)
Dividends paid on common stock(242)(224)
Net cash used for financing activities(933)(1,327)
Foreign exchange rate effect on cash(45)
Net increase in cash and restricted cash, including cash classified within assets held for sale86 110 
Less: Net increase in cash classified within assets held for sale17 
Net increase in cash and restricted cash69 110 
Cash and restricted cash – beginning of period239 262 
Cash and restricted cash– end of period$308 $372 
Supplemental Disclosure of Cash Flow Information
Income tax paid$233 $
Interest paid$107 $124 
See Notes to Condensed Consolidated Financial Statements.
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Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
(Unaudited)




1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Hartford Financial Services Group, Inc. is a holding company for insurance and financial services subsidiaries that provide property and casualty insurance, group life and disability products and mutual funds and exchange-traded products to individual and business customers in the United States as well as in the United Kingdom, continental Europe and other international locations (collectively, “The Hartford”, the “Company”, “we” or “our”).
On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For further discussion of this transaction see Note 16 - Business Disposition.
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2020 Form 10-K Annual Report. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year.
The accompanying Condensed Consolidated Financial Statements and Notes are unaudited. These financial statements reflect all adjustments (generally consisting only of normal accruals) which are, in the opinion of management, necessary for the fair statement of the financial position, results of operations and cash flows for the interim periods. The
Company's significant accounting policies are summarized in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report.
CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., and entities in which the Company directly or indirectly has a controlling financial interest. Entities in which the Company has significant influence over the operating and financing decisions but does not control are reported using the equity method. Intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining property and casualty and group long-term disability insurance product reserves, net of reinsurance; evaluation of goodwill for impairment; valuation of investments and derivative instruments; and contingencies relating to corporate litigation and regulatory matters.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial information to conform to the current year presentation.
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Note 2 - Earnings Per Common Share
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


2. EARNINGS PER COMMON SHARE
Computation of Basic and Diluted Earnings per Common Share
Three Months Ended June 30,Six Months Ended June 30,
(In millions, except for per share data)2021202020212020
Earnings
Net income$905 $468 $1,154 $741 
Less: Preferred stock dividends10 10 
Net income available to common stockholders$900 $463 $1,144 $731 
Shares
Weighted average common shares outstanding, basic353.7 358.1 356.0 358.3 
Dilutive effect of stock-based awards under compensation plans4.8 1.2 4.4 1.9 
Weighted average common shares outstanding and dilutive potential common shares358.5 359.3 360.4 360.2 
Net income available to common stockholders per common share
Basic$2.54 $1.29 $3.21 $2.04 
Diluted$2.51 $1.29 $3.17 $2.03 
3. SEGMENT INFORMATION
The Company currently conducts business principally in 5 reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate Category.

Net Income (Loss)

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Commercial Lines$569 $(66)$698 $55 
Personal Lines118 371 253 469 
Property & Casualty Other Operations17 10 
Group Benefits170 101 179 205 
Hartford Funds52 39 99 75 
Corporate(21)18 (79)(73)
Net income905 468 1,154 741 
Preferred stock dividends10 10 
Net income available to common stockholders$900 $463 $1,144 $731 
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Note 3 - Segment Information
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenues
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Earned premiums and fee income:
Commercial Lines
Workers’ compensation$768 $720 $1,506 $1,536 
Liability402 337 777 680 
Marine57 67 115 132 
Package business409 383 802 760 
Property205 185 405 390 
Professional liability158 149 313 292 
Bond71 68 140 138 
Assumed reinsurance84 72 152 138 
Automobile198 181 386 369 
Total Commercial Lines2,352 2,162 4,596 4,435 
Personal Lines
Automobile515 462 1,027 1,005 
Homeowners231 241 461 481 
Total Personal Lines [1]746 703 1,488 1,486 
Group Benefits
Group disability744 719 1,483 1,445 
Group life604 632 1,206 1,239 
Other79 72 156 130 
Total Group Benefits1,427 1,423 2,845 2,814 
Hartford Funds
Mutual fund and Exchange-Traded Products ("ETP")272 207 531 432 
Talcott Resolution life and annuity separate accounts [2]24 20 47 42 
Total Hartford Funds296 227 578 474 
Corporate14 17 26 34 
Total earned premiums and fee income4,835 4,532 9,533 9,243 
Net investment income581 339 1,090 798 
Net realized capital gains (losses)147 109 227 (122)
Other revenues26 88 38 105 
Total revenues$5,589 $5,068 $10,888 $10,024 
[1]For the three months ended June 30, 2021 and 2020, AARP members accounted for earned premiums of $682 and $633, respectively. For the six months ended June 30, 2021 and 2020, AARP members accounted for earned premiums of $1.36 billion and $1.34 billion, respectively.
[2]Represents revenues earned for investment advisory services on the life and annuity separate account AUM sold in May 2018 that is still managed by the Company's Hartford Funds segment.
14

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Note 3 - Segment Information
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue from Non-Insurance Contracts with Customers
Three Months Ended June 30,Six Months Ended June 30,
Revenue Line Item2021202020212020
Commercial Lines
Installment billing feesFee income$$$17 $13 
Personal Lines
Installment billing feesFee income16 18 
Insurance servicing revenuesOther revenues21 21 40 40 
Group Benefits
Administrative servicesFee income49 45 93 88 
Hartford Funds
Advisor, distribution and other management feesFee income270 207 527 431 
Other feesFee income26 20 51 43 
Corporate
Investment management and other feesFee income14 12 26 25 
Transition service revenuesOther revenues
Total non-insurance revenues with customers$396 $319 $770 $660 
4. FAIR VALUE MEASUREMENTS
The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. The fair value hierarchy levels are as follows:
Level 1    Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date.
Level 2    Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.
Level 3    Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.
The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.
15

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Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of June 30, 2021
TotalQuoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
Asset backed securities ("ABS")$1,321 $$1,307 $14 
Collateralized loan obligations ("CLOs")3,100 2,725 375 
Commercial mortgage-backed securities ("CMBS")4,095 4,009 86 
Corporate19,161 18,020 1,141 
Foreign government/government agencies873 873 
Municipal9,161 9,161 
Residential mortgage-backed securities ("RMBS")3,520 3,218 302 
U.S. Treasuries2,792 250 2,542 
Total fixed maturities44,023 250 41,855 1,918 
Equity securities, at fair value1,693 1,061 558 74 
Derivative assets
Credit derivatives13 13 
Interest rate derivatives
Total derivative assets [1]14 14 
Short-term investments3,398 2,204 1,176 18 
Total assets accounted for at fair value on a recurring basis$49,128 $3,515 $43,603 $2,010 
Liabilities accounted for at fair value on a recurring basis
Derivative liabilities
Credit derivatives$(2)$$(2)$
Foreign exchange derivatives(4)(4)
Interest rate derivatives(53)(53)
Total derivative liabilities [2](59)(59)
Total liabilities accounted for at fair value on a recurring basis$(59)$0 $(59)$0 
16

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Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2020
Total
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS$1,564 $$1,564 $
CLOs2,780 2,420 360 
CMBS4,484 4,407 77 
Corporate20,273 19,392 881 
Foreign government/government agencies919 913 
Municipal9,503 9,503 
RMBS4,107 3,726 381 
U.S. Treasuries1,405 529 876 
Total fixed maturities45,035 529 42,801 1,705 
Equity securities, at fair value1,438 872 496 70 
Derivative assets
Credit derivatives21 21 
Foreign exchange derivatives
Interest rate derivatives
Total derivative assets [1]23 23 
Short-term investments3,283 2,663 590 30 
Total assets accounted for at fair value on a recurring basis$49,779 $4,064 $43,910 $1,805 
Liabilities accounted for at fair value on a recurring basis
Derivative liabilities
Foreign exchange derivatives(14)(14)
Interest rate derivatives(70)(70)
Total derivative liabilities [2](84)(84)
Total liabilities accounted for at fair value on a recurring basis$(84)$0 $(84)$0 
[1]Includes derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law. See footnote 2 to this table for derivative liabilities.
[2]Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law.
The Company has overseas deposits in Other Investments of $57 and $54 as of June 30, 2021 and December 31, 2020, respectively, which are measured at fair value using the net asset value as a practical expedient.
FIXED MATURITIES, EQUITY SECURITIES, SHORT-TERM INVESTMENTS, AND DERIVATIVES
Valuation Techniques
The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order:
Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1.
Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, such as municipal securities and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3.
17

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Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an independent public security index, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the significant inputs are observable or can be corroborated with observable data.
Independent broker quotes, which are typically non-binding, use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3.
The fair value of derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and over-the-counter ("OTC") cleared derivatives may be used and in other cases independent broker quotes may be used. The pricing valuation models primarily use inputs that are observable in the market or can be corroborated by observable market data. The valuation of certain derivatives may include significant inputs that are unobservable, such as volatility levels, and reflect the Company’s view of what other market participants would use when pricing such instruments.
Valuation Controls
The process for determining the fair value of investments is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company. The purpose of the Valuation Committee is to provide oversight of the pricing policy, procedures and controls, including approval of valuation methodologies and pricing sources. The Valuation Committee reviews market data trends, pricing statistics and trading statistics to ensure that prices are reasonable and consistent with our fair value framework. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews. Controls include, but are not limited to, reviewing daily and monthly price changes, stale prices, and missing prices and comparing new trade prices to third-party pricing services, weekly price changes to published bond prices of a corporate bond index, and daily OTC derivative market valuations to counterparty valuations. The Company has a dedicated pricing unit that works with trading and investment professionals to challenge the price received by a third party pricing source if the Company believes that the valuation received does not accurately reflect the fair value. New valuation models and changes to current models require approval by the Valuation Committee. In addition, the Company’s enterprise-wide Operational Risk Management function provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models.
Valuation Inputs
Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries, money market funds, exchange-traded equity securities, open-ended mutual funds, certain short-term investments, and exchange traded futures and option contracts.
18

|
Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives
Level 2
Primary Observable Inputs
Level 3
Primary Unobservable Inputs
Fixed Maturity Investments
Structured securities (includes ABS, CLOs, CMBS and RMBS)
• Benchmark yields and spreads
• Monthly payment information
• Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions
• Credit default swap indices

Other inputs for ABS, CLOs and RMBS:
• Estimate of future principal prepayments, derived from the characteristics of the underlying structure
• Prepayment speeds previously experienced at the interest rate levels projected for the collateral
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve

Other inputs for less liquid securities or those that trade less actively, including subprime RMBS:
• Estimated cash flows
• Credit spreads, which include illiquidity premium
• Constant prepayment rates
• Constant default rates
• Loss severity
Corporates
• Benchmark yields and spreads
• Reported trades, bids, offers of the same or similar securities
• Issuer spreads and credit default swap curves

Other inputs for investment grade privately placed securities that utilize internal matrix pricing:
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve

Other inputs for below investment grade privately placed securities and private bank loans:
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
U.S. Treasuries, Municipals, and Foreign government/government agencies
• Benchmark yields and spreads
• Issuer credit default swap curves
• Political events in emerging market economies
• Municipal Securities Rulemaking Board reported trades and material event notices
• Issuer financial statements
• Credit spreads beyond observable curve
• Interest rates beyond observable curve
Equity Securities
• Quoted prices in markets that are not active• For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable
Short-term Investments
• Benchmark yields and spreads
• Reported trades, bids, offers
• Issuer spreads and credit default swap curves
• Material event notices and new issue money market rates
 • Independent broker quotes
Derivatives
Credit derivatives
• Swap yield curve
• Credit default swap curves
Not applicable
Foreign exchange derivatives
• Swap yield curve
• Currency spot and forward rates
• Cross currency basis curves
Not applicable
Interest rate derivatives
• Swap yield curveNot applicable
19

|
Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Significant Unobservable Inputs for Level 3 - Securities
Assets accounted for at fair value on a recurring basisFair
Value
Predominant
Valuation
Technique
Significant
Unobservable Input
MinimumMaximumWeighted Average [1]Impact of
Increase in
Input on Fair Value [2]
As of June 30, 2021
CLOs [3]$266 Discounted cash flowsSpread229 bps328 bps312 bpsDecrease
CMBS [3]$66 Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)195 bps645 bps326 bpsDecrease
Corporate [4]$1,051 Discounted cash flowsSpread88 bps965 bps275 bpsDecrease
RMBS [3]$285 Discounted cash flowsSpread [6]38 bps259 bps94 bpsDecrease
Constant prepayment rate [6]0%12%6% Decrease [5]
Constant default rate [6]1%6%3%Decrease
Loss severity [6]0%100%70%Decrease
As of December 31, 2020
CLOs [3]$340 Discounted cash flowsSpread304 bps305 bps304 bpsDecrease
CMBS [3]$20 Discounted cash flowsSpread (encompasses prepayment, default risk and loss severity)255 bps975 bps688 bpsDecrease
Corporate [4]$749 Discounted cash flowsSpread110 bps692 bps293 bpsDecrease
RMBS [3]$364 Discounted cash flowsSpread [6]7 bps937 bps119 bpsDecrease
Constant prepayment rate [6]0%10%5%Decrease [5]
Constant default rate [6]2%6%3%Decrease
Loss severity [6]0%100%84%Decrease
[1]The weighted average is determined based on the fair value of the securities.
[2]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
[3]Excludes securities for which the Company bases fair value on broker quotations.
[4]Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value.
[5]Decrease for above market rate coupons and increase for below market rate coupons.
[6]Generally, a change in the assumption used for the constant default rate would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rate and would have resulted in wider spreads.
As of June 30, 2021 and December 31, 2020, the fair values of the Company's level 3 derivatives were less than $1 for both periods.
The table above excludes certain securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. As of June 30, 2021, 0 significant adjustments were made by the Company to broker prices received.

LEVEL 3 ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS USING SIGNIFICANT UNOBSERVABLE INPUTS
The Company uses derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified within the same fair value hierarchy level as the associated asset or liability. Therefore, the realized and unrealized gains and losses on derivatives reported in the Level 3 rollforward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.
20

|
Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the
Three Months Ended June 30, 2021
Total realized/unrealized gains (losses)
Fair value as of March 31, 2021Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of June 30, 2021
Assets
Fixed Maturities, AFS
ABS$$$$13 $$$$(5)$14 
CLOs426 119 (30)(140)375 
CMBS61 38 (1)(19)86 
Corporate944 176 (69)(37)124 1,141 
RMBS481 (1)29 (57)(10)(140)302 
Total Fixed Maturities, AFS1,918 375 (157)(47)129 (304)1,918 
Equity Securities, at fair value70 (1)74 
Short-term investments16 18 
Total Assets$2,004 $3 $3 $380 $(158)$(47)$129 $(304)$2,010 
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the
 Six Months Ended June 30, 2021
Total realized/unrealized gains (losses)
Fair value as of January 1, 2021Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of June 30, 2021
Assets
Fixed Maturities, AFS
ABS$$$$19 $$$$(5)$14 
CLOs360 259 (45)(199)375 
CMBS77 39 (3)(34)86 
Corporate881 (11)249 (76)(44)172 (36)1,141 
Foreign Govt./Govt. Agencies(6)
RMBS381 (2)180 (103)(14)(140)302 
Total Fixed Maturities, AFS1,705 (11)746 (227)(64)177 (414)1,918 
Equity Securities, at fair value70 (1)— 74 
Short-term investments30 (14)18 
Total Assets$1,805 $8 $(11)$751 $(242)$(64)$177 $(414)$2,010 


70
21

|
Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the
 Three Months Ended June 30, 2020
Total realized/unrealized gains (losses)
Fair value as of March 31, 2020Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of June 30, 2020
Assets
Fixed Maturities, AFS
ABS$19 $$$23 $$$$(19)$23 
CLOs83 19 (7)99 
CMBS18 (1)20 
Corporate709 (22)61 22 (28)(19)412 (26)1,109 
Foreign Govt./Govt. Agencies(3)
RMBS487 13 21 (42)479 
Total Fixed Maturities, AFS1,319 (22)78 88 (78)(19)412 (48)1,730 
Equity Securities, at fair value69 (3)66 
Short-term investments14 14 
Total Assets$1,402 $(25)$78 $88 $(78)$(19)$412 $(48)$1,810 
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the
 Six Months Ended June 30, 2020
Total realized/unrealized gains (losses)
Fair value as of January 1, 2020Included in net income [1]Included in OCI [2]PurchasesSettlementsSalesTransfers into Level 3 [3]Transfers out of Level 3 [3]Fair value as of June 30, 2020
Assets
Fixed Maturities, AFS
ABS$15 $$(1)$43 $$$$(34)$23 
CLOs95 (2)19 (13)99 
CMBS13 (2)20 
Corporate732 (32)(19)116 (64)(27)459 (56)1,109 
Foreign Govt./Govt. Agencies(3)
RMBS560 (12)26 (88)(7)479 
Total Fixed Maturities, AFS1,414 (32)(34)217 (167)(34)459 (93)1,730 
Equity Securities, at fair value73 (10)66 
Short-term investments15 (1)14 
Total Assets$1,502 $(42)$(34)$220 $(168)$(34)$459 $(93)$1,810 
Liabilities
Contingent Consideration$(22)$12 $$$10 $$$$
Derivatives, net [4]
Equity(15)36 (21)
Total Derivatives, net [4](15)36 (21)
Total Liabilities$(37)$48 $0 $0 $(11)$0 $0 $0 $0 
[1]Amounts in these columns are generally reported in net realized capital gains (losses). All amounts are before income taxes.
[2]All amounts are before income taxes.
[3]Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
[4]Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Condensed Consolidated Balance Sheets in other investments and other liabilities.
22

|
Note 4 - Fair Value Measurements
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Changes in Unrealized Gains (Losses) for Financial Instruments Classified as
Level 3 Still Held at End of Period
Three Months Ended June 30,Six Months Ended June 30,
20212020202120202021202020212020
Changes in Unrealized Gain/(Loss) included in Net Income [1] [2]Changes in Unrealized Gain/(Loss) included in OCI [3]Changes in Unrealized Gain/(Loss) included in Net Income [1] [2]Changes in Unrealized Gain/(Loss) included in OCI [3]
Assets
Fixed Maturities, AFS
CLOs$$$$$$$$(2)
CMBS
Corporate61 (8)(12)
RMBS(1)13 (2)(11)
Total Fixed Maturities, AFS78 (8)(25)
Equity Securities, at fair value(3)(9)
Total Assets$2 $(3)$3 $78 $2 $(9)$(8)$(25)
Liabilities
Contingent Consideration$$$$$$12 $$
Total Liabilities$0 $0 $0 $0 $0 $12 $0 $0 
[1]All amounts in these rows are reported in net realized capital gains (losses). All amounts are before income taxes.
[2]Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.
[3]Changes in unrealized gain (loss) on fixed maturities, AFS are reported in changes in net unrealized gain on securities in the Condensed Consolidated Statements of Comprehensive Income.
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE
Financial Assets and Liabilities Not Carried at Fair Value
June 30, 2021December 31, 2020
Fair Value Hierarchy LevelCarrying Amount [1]Fair ValueFair Value Hierarchy LevelCarrying Amount [1]Fair Value
Assets
Mortgage loansLevel 3$4,876 $5,110 Level 3$4,493 $4,792 
Liabilities
Other policyholder funds and benefits payableLevel 3$685 $687 Level 3$701 $703 
Senior notes [2]Level 2$3,264 $4,153 Level 2$3,262 $4,363 
Junior subordinated debentures [2]Level 2$1,090 $1,121 Level 2$1,090 $1,107 
[1]As of June 30, 2021 and December 31, 2020, carrying amount of mortgage loans is net of ACL of $24 and $38, respectively.
[2]Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.
23

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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS
Net Realized Capital Gains (Losses)
 Three Months Ended June 30,Six Months Ended June 30,
(Before tax)2021202020212020
Gross gains on sales$68 $96 $99 $174 
Gross losses on sales(15)(22)(46)(30)
Equity securities [1]88 75 131 (311)
Net credit losses on fixed maturities, AFS(20)(32)
Change in ACL on mortgage loans10 (22)14 (24)
Intent-to-sell impairments(5)
Other, net [2](4)25 106 
Net realized capital gains (losses)$147 $109 $227 $(122)
[1] The net unrealized gains on equity securities included in net realized capital gains (losses) related to equity securities still held as of June 30, 2021, were $80 and $118 for the three and six months ended June 30, 2021 respectively. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of June 30, 2020, were $67 and $(34) for the three and six months ended June 30, 2020 respectively.
[2] For the three and six months ended June 30, 2021 includes gains (losses) from transactional foreign currency revaluation of $0 and $(7) and gains (losses) on non-qualifying derivatives of $(29) and $6, respectively. For the same periods, also includes a gain of $46 on the sale of Talcott Resolution, and, an additional gain (loss) of $(19) and $(18), respectively, on the pending sale of Continental Europe Operations. For the three and six months ended June 30, 2020, includes gains (losses) from transactional foreign currency revaluation of $0 and $10, respectively. For the same periods, also includes gains (losses) on non-qualifying derivatives of $7 and $99, respectively.
Proceeds from the sales of fixed maturities, AFS totaled $4.0 billion and $8.2 billion for the three and six months ended June 30, 2021 respectively, and $4.1 billion and $7.2 billion for the three and six months ended June 30, 2020, respectively.
Accrued Interest Receivable on Fixed Maturities, AFS and Mortgage Loans
As of June 30, 2021 and December 31, 2020, the Company reported accrued interest receivable related to fixed maturities, AFS of $323 and $327, respectively, and accrued interest receivable related to mortgage loans of $15 and $14, respectively. These amounts are recorded in other assets on the Condensed Consolidated Balance Sheets and are not included in the carrying value of the fixed maturities or mortgage loans. The Company does not include the current accrued interest receivable balance when estimating the ACL. The Company has a policy to write-off accrued interest receivable balances that are more than 90 days past due. Write-offs of accrued interest receivable are recorded as a credit loss component of net realized capital gains and losses.
Interest income on fixed maturities and mortgage loans is accrued unless it is past due over 90 days or management deems the interest uncollectible.
Recognition and Presentation of Intent-to-Sell Impairments and ACL on Fixed Maturities, AFS
The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, AFS in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value on the impairment date and
the amortized cost basis of the fixed maturity before recognizing the impairment.
When fixed maturities are in an unrealized loss position and the Company does not record an intent-to-sell impairment, the Company will record an ACL for the portion of the unrealized loss due to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in OCI. The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized capital gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity is determined to be uncollectible.
Developing the Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company's considerations include, but are not limited to, (a) changes in the financial condition of the issuer and/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security.
For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, instrument-specific developments including changes in credit ratings, industry earnings multiples and the
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
issuer’s ability to restructure, access capital markets, and execute asset sales.
For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ratios ("LTVs"),
average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value.
ACL on Fixed Maturities, AFS by Type
Three Months Ended June 30, 2021Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
(Before tax)CorporateTotalCorporateTotalCorporateTotalCorporateTotal
Balance as of beginning of period$19 $19 $12 $12 $23 $23 $$
Credit losses on fixed maturities where an allowance was not previously recorded23 23 35 35 
Reduction due to sales(15)(15)(2)(2)(15)(15)(2)(2)
Net increases (decreases) on fixed maturities where an allowance was previously recorded(1)(1)(6)(6)(1)(1)
Balance as of end of period$4 $4 $32 $32 $4 $4 $32 $32 
Fixed Maturities, AFS, by Type
June 30, 2021December 31, 2020

Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value

Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
ABS$1,295 $$26 $$1,321 $1,525 $$39 $$1,564 
CLOs3,092 (1)3,100 2,780 (7)2,780 
CMBS3,853 250 (8)4,095 4,219 286 (21)4,484 
Corporate17,740 (4)1,457 (32)19,161 18,401 (23)1,926 (31)20,273 
Foreign govt./govt. agencies824 52 (3)873 842 77 919 
Municipal8,281 882 (2)9,161 8,564 940 (1)9,503 
RMBS3,436 92 (8)3,520 3,966 144 (3)4,107 
U.S. Treasuries2,699 96 (3)2,792 1,264 141 1,405 
Total fixed maturities, AFS$41,220 $(4)$2,864 $(57)$44,023 $41,561 $(23)$3,560 $(63)$45,035 
Fixed Maturities, AFS, by Contractual Maturity Year
June 30, 2021December 31, 2020
Amortized CostFair ValueAmortized CostFair Value
One year or less$1,224 $1,241 $1,411 $1,432 
Over one year through five years7,949 8,376 7,832 8,286 
Over five years through ten years8,817 9,323 7,622 8,354 
Over ten years11,554 13,047 12,206 14,028 
Subtotal29,544 31,987 29,071 32,100 
Mortgage-backed and asset-backed securities11,676 12,036 12,490 12,935 
Total fixed maturities, AFS$41,220 $44,023 $41,561 $45,035 
Estimated maturities may differ from contractual maturities due to call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.
Concentration of Credit Risk
The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where
applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company had 0 investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity as of June 30, 2021 or December 31, 2020 other than U.S. government securities and certain U.S. government agencies.
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unrealized Losses on Fixed Maturities, AFS
Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of June 30, 2021
Less Than 12 Months12 Months or MoreTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
ABS$137 $$$$137 $
CLOs703 (1)251 954 (1)
CMBS130 (1)91 (7)221 (8)
Corporate1,436 (23)207 (9)1,643 (32)
Foreign govt./govt. agencies153 (3)153 (3)
Municipal263 (2)263 (2)
RMBS725 (8)731 (8)
U.S. Treasuries377 (3)377 (3)
Total fixed maturities, AFS in an unrealized loss position$3,924 $(41)$555 $(16)$4,479 $(57)

Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2020
 Less Than 12 Months12 Months or MoreTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
ABS$44 $$$$44 $
CLOs758 (2)715 (5)1,473 (7)
CMBS410 (17)19 (4)429 (21)
Corporate466 (13)212 (18)678 (31)
Foreign govt./govt. agencies24 24 
Municipal34 (1)34 (1)
RMBS461 (3)21 482 (3)
U.S. Treasuries39 39 
Total fixed maturities, AFS in an unrealized loss position$2,236 $(36)$967 $(27)$3,203 $(63)
As of June 30, 2021, fixed maturities, AFS in an unrealized loss position consisted of 787 instruments, primarily in the corporate sectors, most notably financial services, technology and communications, capital goods, and utilities, as well as CMBS and RMBS which were depressed largely due to higher interest rates and/or wider credit spreads since the purchase date. As of June 30, 2021, 96% of these fixed maturities were depressed less than 20% of cost or amortized cost. The unrealized losses remained relatively flat compared to December 31, 2020.
Most of the fixed maturities depressed for twelve months or more relate to the corporate and CMBS sectors which were primarily depressed because current market spreads are wider than at the respective purchase dates. Additionally, certain corporate fixed maturities were also depressed because of their variable-rate coupons and long-dated maturities. The Company neither has an intention to sell nor does it expect to be required to sell the fixed maturities outlined in the preceding discussion. The decision to record credit losses on fixed maturities, AFS in the form of an ACL requires us to make qualitative and quantitative estimates of expected future cash flows. Given the uncertainty about the ultimate impact of the COVID-19 pandemic on issuers of these securities, actual cash flows could ultimately deviate significantly from our expectations resulting in realized losses in future periods.
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MORTGAGE LOANS
ACL on Mortgage Loans
The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios use macroeconomic data provided by an internationally recognized economics firm that generates forecasts of varying economic factors such as GDP growth, unemployment and interest rates. The economic scenarios are projected over 10 years. The first two to four years of the 10-year period assume a specific modeled economic scenario (including moderate upside, moderate recession and severe recession scenarios) and then revert to historical long-term assumptions over the remaining period. Using these economic scenarios, the forecasting model projects property-specific operating income and capitalization rates used to estimate the value of a future operating income stream. The operating income and the property valuations derived from capitalization rates are compared to loan payment and principal amounts to create debt service coverage ratios ("DSCRs") and loan-to-value ratios ("LTVs") over the forecast period. The model overlays historical data about mortgage loan performance based on DSCRs and LTVs and projects the probability of default, amount of loss given a default and resulting expected loss through maturity for each loan under each economic scenario. Economic scenarios are probability-weighted based on a statistical analysis of the forecasted economic factors and qualitative analysis. The Company records the change in the ACL on mortgage loans based on the weighted-average expected credit losses across the selected economic scenarios.
When a borrower is experiencing financial difficulty, including when foreclosure is probable, the Company measures an ACL on individual mortgage loans. The ACL is established for any shortfall between the amortized cost of the loan and the fair value of the collateral less costs to sell. Estimates of collectibility from an individual borrower require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates. As of June 30, 2021, the Company did 0t have any mortgage loans for which an ACL was established on an individual basis.
There were 0 mortgage loans held-for-sale as of June 30, 2021 or December 31, 2020. For the three and six months ended June 30, 2021 and 2020, respectively, the Company had 0 mortgage loans that have had extensions or restructurings other than what is allowable under the original terms of the contract.
ACL on Mortgage Loans
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
ACL as of beginning of period$34 $21 $38 $0 
Cumulative effect of accounting changes [1]19 
Adjusted beginning ACL34 21 38 19 
Current period provision (release)(10)22 (14)24 
ACL as of June 30,$24 $43 $24 $43 
[1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information, see the Financial Instruments - Credit Losses section within Note 1 - Basis of Presentation and Significant Accounting Policies, included in The Hartford's 2020 Form 10-K Annual Report.
During 2020, the Company increased the estimate of the ACL in response to significant economic stress experienced as a result of the COVID-19 pandemic. The decrease in the allowance for the three and six months ended June 30, 2021, is the result of improved economic scenarios, including improved GDP growth and unemployment, and higher property valuations as compared to the prior periods. We continue to monitor the impact on our mortgage loan portfolio from borrower behavior in response to the economic stress. Borrowers with lower LTVs have an incentive to continue to make payments of principal and/or interest in order to preserve the equity they have in the underlying commercial real estate properties.
The weighted-average LTV ratio of the Company’s mortgage loan portfolio was 54% as of June 30, 2021, while the weighted-average LTV ratio at origination of these loans was 60%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan with property values based on appraisals updated no less than annually. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments and are updated no less than annually through reviews of underlying properties.
Mortgage Loans LTV & DSCR by Origination Year as of June 30, 2021
202120202019201820172016 & PriorTotal
Loan-to-valueAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized Cost [1]Avg. DSCR
65% - 80%$0x$57 2.13x$187 1.61x$175 1.25x$45 1.75x$140 1.51x$604 1.54x
Less than 65%713 2.93x642 2.69x730 2.71x428 2.22x421 1.85x1,362 2.51x4,296 2.55x
Total mortgage loans$713 2.93x$699 2.64x$917 2.49x$603 1.93x$466 1.84x$1,502 2.42x$4,900 2.42x
[1] Amortized cost of mortgage loans excludes ACL of $24.
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2020
202020192018201720162015 & PriorTotal
Loan-to-valueAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized CostAvg. DSCRAmortized Cost [1]Avg. DSCR
65% - 80%$28 1.62x$243 1.58x$212 1.33x$45 2.02x$51 1.92x$115 1.74x$694 1.59x
Less than 65%659 2.56x676 2.85x410 2.25x446 1.89x235 2.99x1,411 3.01x3,837 2.69x
Total mortgage loans$687 2.52x$919 2.51x$622 1.94x$491 1.90x$286 2.80x$1,526 2.92x$4,531 2.52x
[1] Amortized cost of mortgage loans excludes ACL of $38.
Mortgage Loans by Region
June 30, 2021December 31, 2020
Amortized CostPercent of TotalAmortized CostPercent of Total
East North Central$293 6.0 %$290 6.4 %
Middle Atlantic289 5.9 %291 6.4 %
Mountain345 7.0 %254 5.6 %
New England395 8.1 %397 8.8 %
Pacific1,196 24.4 %1,001 22.1 %
South Atlantic1,246 25.4 %1,038 22.9 %
West North Central44 0.9 %44 1.0 %
West South Central373 7.6 %433 9.5 %
Other [1]719 14.7 %783 17.3 %
Total mortgage loans4,900 100.0 %4,531 100.0 %
ACL(24)(38)
Total mortgage loans, net of ACL$4,876 $4,493 
[1]Primarily represents loans collateralized by multiple properties in various regions.
Mortgage Loans by Property Type
June 30, 2021December 31, 2020
Amortized CostPercent of TotalAmortized CostPercent of Total
Commercial
Industrial$1,622 33.1 %$1,339 29.5 %
Multifamily1,609 32.8 %1,498 33.1 %
Office652 13.3 %774 17.1 %
Retail [1]901 18.4 %788 17.4 %
Single Family76 1.6 %92 2.0 %
Other40 0.8 %40 0.9 %
Total mortgage loans4,900 100.0 %4,531 100.0 %
ACL(24)(38)
Total mortgage loans, net of ACL$4,876 $4,493 
[1]Primarily comprised of grocery-anchored retail centers, with no exposure to regional shopping malls.
Past-Due Mortgage Loans
Mortgage loans are considered past due if a payment of principal or interest is not received according to the contractual terms of the loan agreement, which typically includes a grace period. As of June 30, 2021 and December 31, 2020, the Company held 0 mortgage loans considered past due.
Mortgage Servicing
The Company originates, sells and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of June 30, 2021, under this program, the Company serviced mortgage loans with a total outstanding principal of $7.5 billion, of which $3.8 billion was serviced on behalf of third parties and $3.7 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. As of December 31, 2020, the Company serviced mortgage loans with a total outstanding principal balance of $6.9 billion, of which $3.7 billion was serviced on behalf of third parties and $3.2 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or fair value and were $0 as of June 30, 2021 and December 31, 2020, because servicing fees were market-level fees at origination and remain adequate to compensate the Company for servicing the loans.
VARIABLE INTEREST ENTITIES
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager.
A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated VIEs
As of June 30, 2021 and December 31, 2020, the Company did 0t hold any securities for which it is the primary beneficiary.
Non-Consolidated VIEs
The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of June 30, 2021 and December 31, 2020 was limited to the total carrying value of $1.6 billion and $1.3 billion, respectively, which are included in limited partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, the Company has outstanding commitments totaling $1.0 billion and $768, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. For further discussion of these investments, see Equity Method Investments within Note 6 - Investments of Notes to Consolidated Financial Statements included in the Company’s 2020 Form 10-K Annual Report.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in ABS, CLOs, CMBS, and RMBS and are reported in fixed maturities, available-for-sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS, OTHER COLLATERAL TRANSACTIONS AND RESTRICTED INVESTMENTS
Securities Lending
Under a securities lending program, the Company lends certain fixed maturities within the corporate, foreign government/government agencies, and municipal sectors as well as equity securities to qualifying third-party borrowers in return for collateral in the form of cash or securities. For domestic and non-domestic loaned securities, respectively, borrowers provide
collateral of 102% and 105% of the fair value of the securities lent at the time of the loan. Borrowers will return the securities to the Company for cash or securities collateral at maturity dates generally of 90 days or less. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, except in the event of default by the counterparty, and is not reflected on the Company’s Condensed Consolidated Balance Sheets. Additional collateral is obtained if the fair value of the collateral falls below 100% of the fair value of the loaned securities. The agreements are continuous and do not have stated maturity dates and provide the counterparty the right to sell or re-pledge the securities loaned. If cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. Income associated with securities lending transactions is reported as a component of net investment income in the Company’s Condensed Consolidated Statements of Operations. While the Company did have securities on loan as part of a securities lending program during 2020, as of June 30, 2021 and December 31, 2020, the Company did 0t have any securities on loan as part of a securities lending program.
Reverse Repurchase Agreements
From time to time, the Company enters into reverse repurchase agreements where the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The maturity of these transactions is generally within one year. The agreements require additional collateral to be transferred to the Company under specified conditions and the Company has the right to sell or re-pledge the securities received. The Company accounts for reverse repurchase agreements as collateralized financing. As of June 30, 2021 and December 31, 2020, the Company reported $18 and $30, respectively, within short-term investments on the Condensed Consolidated Balance Sheets representing a receivable for the amount of cash transferred to purchase the securities.
Other Collateral Transactions
As of June 30, 2021 and December 31, 2020, the Company pledged collateral of $9 and $34, respectively, of U.S. government securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement. Amounts also include collateral related to letters of credit.
For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section in Note 6 - Derivatives of Notes to Condensed Consolidated Financial Statements.
Other Restricted Investments
The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of June 30, 2021 and December 31, 2020, the fair value of securities on deposit was $2.5 billion and $2.6 billion, respectively.
In addition, as of June 30, 2021, the Company held fixed maturities and short-term investments of $685 and $2, respectively, in trust for the benefit of syndicate policyholders, held fixed maturities of $172 in a Lloyd's of London ("Lloyd's") trust account to provide a portion of the required capital, and
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Note 5 - Investments
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
maintained other investments of $57 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. As of December 31, 2020, the Company held fixed maturities and short-term investments of $661 and $26, respectively, in trust for the benefit of syndicate policyholders, held fixed maturities of $175 in a Lloyd's trust account to provide a portion of the required capital, and maintained other investments of $54 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. Lloyd's is an insurance market-place operating worldwide. Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate").
Equity Method Investments
On June 30, 2021, Hopmeadow Holdings LP, the legal entity that acquired Talcott Resolution in May 2018 (collectively referred to as "Talcott Resolution"), was sold and, as a result, the Company sold its retained 9.7% interest. The Company received a total $217 in connection with the sale of its 9.7% ownership interest, resulting in a realized gain on sale of $46 before tax for the three and six months ended June 30, 2021.
6. DERIVATIVES
The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions or income generation covered call transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies.
STRATEGIES THAT QUALIFY FOR HEDGE ACCOUNTING
Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements, included in The Hartford’s 2020 Form 10-K Annual Report. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or debt instruments issued.
Cash Flow Hedges
Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on variable-rate fixed maturity securities to fixed rates. The Company has also entered into interest rate swaps to convert the variable interest payments on 3 month LIBOR + 2.125% junior subordinated debt to fixed interest payments. For further information, see the Junior Subordinated Debentures section within Note 14 - Debt of Notes to the Consolidated Financial Statements, included in The Hartford's 2020 Form 10-K Annual Report.
Foreign currency swaps are used to convert foreign currency denominated cash flows related to certain investment receipts to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.
The Company also previously entered into forward starting swap agreements to hedge the interest rate exposure related to the future purchase of fixed-rate securities, primarily to hedge
interest rate risk inherent in the assumptions used to price certain group benefits liabilities.
NON-QUALIFYING STRATEGIES
Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include hedges of interest rate, foreign currency and equity risk of certain fixed maturities and equities. In addition, hedging and replication strategies that utilize credit default swaps do not qualify for hedge accounting. The non-qualifying strategies include:
Credit Contracts
Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty or the Company should the referenced security issuers experience a credit event, as defined in the contract. The Company also enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.
Interest Rate Swaps, Swaptions and Futures
The Company uses interest rate swaps, swaptions and futures to manage interest rate duration between assets and liabilities. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap going forward. As of June 30, 2021 and December 31, 2020, the notional amount of interest rate swaps in offsetting relationships was $7.2 billion and $7.6 billion, respectively.
Foreign Currency Swaps and Forwards
The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.
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Note 6 - Derivatives
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equity Index Options
The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company also enters into covered call options on equity securities to generate additional return.
DERIVATIVE BALANCE SHEET CLASSIFICATION
For reporting purposes, the Company has elected to offset within assets or liabilities, based upon the net of the fair value amounts, income accruals and related cash collateral receivables and payables of OTC derivative instruments
executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk.
Derivative Balance Sheet Presentation
Net Derivatives
Asset
Derivatives
Liability Derivatives
Notional AmountFair ValueFair ValueFair Value
Hedge Designation/ Derivative TypeJun. 30, 2021Dec. 31, 2020Jun. 30, 2021Dec. 31, 2020Jun. 30, 2021Dec. 31, 2020Jun. 30, 2021Dec. 31, 2020
Cash flow hedges
Interest rate swaps$2,340 $2,340 $$$$$$
Foreign currency swaps297 286 (4)(13)(9)(16)
Total cash flow hedges2,637 2,626 (4)(13)5 3 (9)(16)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures8,004 8,335 (52)(69)(57)(73)
Foreign exchange contracts
Foreign currency swaps and forwards280 269 
Credit contracts
Credit derivatives that purchase credit protection
Credit derivatives that assume credit risk [1]225 675 11 21 11 21 
Credit derivatives in offsetting positions214 218 (4)(5)
Total non-qualifying strategies8,729 9,503 (41)(48)20 30 (61)(78)
Total cash flow hedges and non-qualifying strategies$11,366 $12,129 $(45)$(61)$25 $33 $(70)$(94)
Balance Sheet Location
Fixed maturities, available-for-sale$280 $269 $$$$$$
Other investments1,386 9,585 14 23 17 25 (3)(2)
Other liabilities9,700 2,275 (59)(84)(67)(92)
Total derivatives$11,366 $12,129 $(45)$(61)$25 $33 $(70)$(94)
[1]The derivative instruments related to this strategy are held for other investment purposes.
Offsetting of Derivative Assets/Liabilities
The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and
payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.
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Note 6 - Derivatives
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Offsetting Derivative Assets and Liabilities
(i)(ii)(iii) = (i) - (ii)(iv)(v) = (iii) - (iv)
Net Amounts Presented in the Statement of Financial PositionCollateral Disallowed for Offset in the Statement of Financial Position
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in the Statement of Financial PositionDerivative Assets [1] (Liabilities) [2]Accrued Interest and Cash Collateral (Received) [3] Pledged [2]Financial Collateral (Received) Pledged [4]Net Amount
As of June 30, 2021
Other investments$25 $24 $14 $(13)$$
Other liabilities$(70)$(9)$(59)$(2)$(58)$(3)
As of December 31, 2020
Other investments$33 $31 $23 $(21)$$
Other liabilities$(94)$(6)$(84)$(4)$(83)$(5)
[1]Included in other investments in the Company's Condensed Consolidated Balance Sheets.
[2]Included in other liabilities in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.
[3]Included in other investments in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.
[4]Excludes collateral associated with exchange-traded derivative instruments.
CASH FLOW HEDGES
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Gain (Loss) Recognized in OCI
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Interest rate swaps$(4)$$$36 
Foreign currency swaps(4)11 24 
Total$3 $0 $17 $60 

Gain (Loss) Reclassified from AOCI into Income
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net Investment IncomeInterest ExpenseNet Investment IncomeInterest ExpenseNet Investment IncomeInterest ExpenseNet Investment IncomeInterest Expense
Interest rate swaps$10 $(3)$$(2)$20 $(5)$10 $(2)
Foreign currency swaps1 0 1 0 2 0 2 0 
Total$11 $(3)$8 $(2)$22 $(5)$12 $(2)
Total amounts presented on the Condensed Consolidated Statement of Operations$581 $57 $339 $57 $1,090 $114 $798 $121 
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Note 6 - Derivatives
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2021, the before tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $33. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities and long-term debt that will occur over the next twelve months. At that time, the Company will recognize the deferred net gains (losses) as an adjustment to net investment income and interest expense over the term of the investment cash flows.
During the three and six months ended June 30, 2021 and 2020, the Company had 0 net reclassifications from AOCI to
earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.
NON-QUALIFYING STRATEGIES
For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses).
Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Foreign exchange contracts
Foreign currency swaps and forwards$$$$
Interest rate contracts
Interest rate swaps, swaptions, and futures(32)21 
Credit contracts
Credit derivatives that purchase credit protection(2)
Credit derivatives that assume credit risk(4)
Equity contracts
Equity index swaps and options75 
Total [1]$(29)$7 $6 $99 
[1]Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option.
33

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Note 6 - Derivatives
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Credit Risk Assumed through Credit Derivatives
The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the
occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.
Credit Risk Assumed Derivatives by Type
Underlying Referenced Credit
Obligation(s) [1]
Notional
Amount
[2]
Fair
Value
Weighted
Average
Years to
Maturity
Type
Average
Credit
Rating
Offsetting
Notional
Amount [3]
Offsetting
Fair
Value [3]
As of June 30, 2021
Single name credit default swaps
Investment grade risk exposure$50 $5 yearsCorporate CreditA$$
Basket credit default swaps [4]
Investment grade risk exposure100 5 yearsCorporate CreditBBB+
Below investment grade risk exposure75 5 yearsCorporate CreditB+
Investment grade risk exposure100 7 yearsCMBS CreditAAA100 (1)
Below investment grade risk exposure(3)Less than 1 yearCMBS CreditB-
Total [5]$332 $9 $107 $2 
As of December 31, 2020
Single name credit default swaps
Investment grade risk exposure$175 $5 yearsCorporate CreditA-$$
Basket credit default swaps [4]
Investment grade risk exposure500 12 5 yearsCorporate CreditBBB+
Investment grade risk exposure100 8 yearsCMBS CreditAAA100 (1)
Below investment grade risk exposure(4)Less than 1 yearCMBS CreditCCC+
Total [5]$784 $18 $109 $3 
[1]The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.
[2]Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements and applicable law, which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.
[3]The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.
[4]Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.
[5]Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option.
DERIVATIVE COLLATERAL ARRANGEMENTS
The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of June 30, 2021 and December 31, 2020, the Company has pledged cash collateral associated with derivative instruments of $1 and $0,
respectively. In general, collateral receivable is recorded in other assets or other liabilities on the Company's Condensed Consolidated Balance Sheets as determined by the Company's election to offset on the balance sheet. As of June 30, 2021 and December 31, 2020, the Company pledged securities collateral associated with derivative instruments with a fair value of $58 and $90, respectively, which have been included in fixed maturities on the Company's Condensed Consolidated Balance Sheets. The counterparties generally have the right to sell or re-
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Note 6 - Derivatives
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
pledge these securities.
In addition, as of June 30, 2021 and December 31, 2020, the Company has pledged initial margin of securities related to OTC-cleared and exchange traded derivatives with a fair value of $105 and $83, respectively, which are included within fixed maturities on the Company's Condensed Consolidated Balance Sheets.
As of June 30, 2021 and December 31, 2020, the Company accepted cash collateral associated with derivative instruments of $15 and $24, respectively, which was invested and recorded in the Company's Condensed Consolidated Balance Sheets in
fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of June 30, 2021 and December 31, 2020, with a fair value of $1 as of both dates, which the Company has the right to sell or repledge. As of June 30, 2021 and December 31, 2020, the Company had 0 repledged securities and 0 securities held as collateral have been sold. Non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Condensed Consolidated Balance Sheets.
7. PREMIUMS RECEIVABLE AND AGENTS' BALANCES
Premiums Receivable and Agents' Balances
As of June 30, 2021As of December 31, 2020
Premiums receivable, excluding receivables for losses within a deductible and retrospectively-rated policy premiums$4,228 $3,851 
Receivables for loss within a deductible and retrospectively-rated policy premiums, by credit quality:
AAA
AA139 142 
A56 62 
BBB163 185 
BB105 115 
Below BB65 65 
Total receivables for losses within a deductible and retrospectively-rated policy premiums528 569 
Total Premiums Receivable and Agents' Balances, Gross4,756 4,420 
ACL(134)(152)
Total Premiums Receivable and Agents' Balances, Net of ACL$4,622 $4,268 
ACL on Premiums Receivable and Agents' Balances
Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods. The Company had an immaterial amount of receivables with a due date of more than one year that are past-due.
Premium receivable and agents' balances, excluding receivables for losses within a deductible and retrospectively-rated policy premiums, are primarily comprised of premiums due from policyholders, which are typically collectible within one year or less. For these balances, the ACL is estimated based on an aging of receivables and recent historical credit loss and collection experience, adjusted for current economic conditions and reasonable and supportable forecasts, when appropriate.
A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated
plans. Under some commercial insurance contracts with a large deductible, the Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are utilized primarily for workers' compensation coverage, whereby the ultimate premium is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and oversight.
The ACL for receivables for loss within a deductible and retrospectively-rated policy premiums is estimated as the amount of the receivable exposed to loss multiplied by estimated factors for probability of default and the amount of loss given a default. The probability of default is assigned based on each policyholder's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The exposure amount is estimated net of collateral and other credit enhancement, considering the nature of the collateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical corporate defaults for receivables with similar durations estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors through multiple economic cycles. The Company's evaluation of the required ACL for receivables for loss within a deductible and retrospectively-rated policy premiums considers the current economic environment as well as the probability-weighted macroeconomic scenarios similar to the approach used for estimating the ACL for mortgage loans. See Note 5 - Investments.
During the three and six months ended June 30, 2021, the ACL on premiums receivable decreased as the provision required on premiums written in the quarter was more than offset by write-offs and a reduction in the provision reflecting lessening expected impacts of COVID-19 relative to prior assumptions in certain lines of business. The three and six months ended June
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Note 7 - Premiums Receivable and Agents' Balances
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
30, 2020 reflected an increase in the ACL primarily due to increasing expected impacts of COVID-19.
Rollforward of ACL on Premiums Receivable and Agents' Balances for the Three Months Ended
June 30, 2021June 30, 2020
Premiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsReceivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsTotalPremiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsReceivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsTotal
Beginning ACL$108 $36 $144 $98 $41 $139 
Current period provision (release)48 51 
Current period write-offs(15)(15)(8)(8)
Current period recoveries
Ending ACL$97 $37 $134 $139 $44 $183 
Rollforward of ACL on Premiums Receivable and Agents' Balances for the Six Months Ended
June 30, 2021June 30, 2020
Premiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsReceivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsTotalPremiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsReceivables for Loss within a Deductible and Retrospectively-Rated Policy PremiumsTotal
Beginning ACL$117 $35 $152 $85 $60 $145 
Cumulative effect of accounting change [1](2)(21)(23)
Adjusted beginning ACL117 35 152 83 39 122 
Current period provision (release)76 81 
Current period write-offs(30)(30)(23)(23)
Current period recoveries
Ending ACL$97 $37 $134 $139 $44 $183 
[1]Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. The adjusted beginning ACL was based on the Company's historical loss information adjusted for current conditions and the forecasted economic environment at the time the guidance was adopted. For further information, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report.
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Note 8 - Reinsurance
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. REINSURANCE
The Company cedes insurance risk to reinsurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.
REINSURANCE RECOVERABLES
Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment
expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported ("IBNR") unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.
Reinsurance Recoverables by Credit Quality Indicator
As of June 30, 2021As of December 31, 2020
Property and CasualtyGroup BenefitsCorporateTotalProperty and CasualtyGroup BenefitsCorporateTotal
A.M. Best Financial Strength Rating
A++$1,704 $$$1,704 $1,598 $$$1,598 
A+1,881 239 282 2,402 1,788 230 305 2,323 
A682 682 638 638 
A-34 43 37 46 
B++652 655 666 669 
Below B++21 0 22 21 0 22 
Total Rated by A.M. Best4,974 249 285 5,508 4,748 240 308 5,296 
Mandatory (Assigned) and Voluntary Risk Pools254 0 0 254 259 0 0 259 
Captives306 306 305 305 
Other not rated companies241 248 254 259 
Gross Reinsurance Recoverables5,775 256 285 6,316 5,566 245 308 6,119 
Allowance for uncollectible reinsurance(96)(1)(2)(99)(105)(1)(2)(108)
Net Reinsurance Recoverables$5,679 $255 $283 $6,217 $5,461 $244 $306 $6,011 
Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days. There were 0 write-offs for the three and six months ended June 30, 2021, 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 or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in
disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers.
Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.
The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. The ACL is estimated as the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability of default and the amount of loss given a default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed on a quarterly basis and any significant changes are
37

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Note 8 - Reinsurance
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reflected in an updated estimate. The probability of default factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors of corporations through multiple economic cycles or, in the case of purchased annuities funding structured settlements accounted for as reinsurance, historical recovery rates for annuity contract holders.
As shown in the table above, a portion of the total gross reinsurance recoverable balance relates to the Company’s participation in various mandatory (assigned) and voluntary risk pools. Reinsurance recoverables due from pools are backed by the financial position of all insurance companies participating in the pools and the credit backing the reinsurance recoverable is not limited to the financial strength of each pool. The mandatory
pools generally are funded through policy assessments or surcharges and if any participant in the pool defaults, remaining liabilities are apportioned among the other members.
The Company's evaluation of the required ACL for reinsurance recoverables considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 5 - Investments. Insurance companies, including reinsurers, are regulated and hold risk-based capital ("RBC") to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance recoverables. As a result, there is limited history of losses from insurer defaults. The decrease in the ACL for the six months ended June 30, 2021 was primarily due to higher than expected recovery from one reinsurer on which the Company had recognized an ACL.
Allowance for Uncollectible Reinsurance for the Three Months Ended
June 30, 2021June 30, 2020
Property and CasualtyGroup BenefitsCorporateTotalProperty and CasualtyGroup BenefitsCorporateTotal
Beginning allowance for uncollectible reinsurance$95 $1 $2 $98 $114 $1 $2 $117 
Beginning allowance for disputed amounts56 0 0 56 65 0 0 $65 
Beginning ACL39 1 2 42 49 1 2 52 
Current period provision (release)1 0 0 1 
Current period gross recoveries0 0 0 0 1 0 0 1 
Ending ACL40 1 2 43 51 1 2 54 
Ending allowance for disputed amounts56 56 57 0 0 57 
Ending allowance for uncollectible reinsurance$96 $1 $2 $99 $108 $1 $2 $111 
Allowance for Uncollectible Reinsurance for the Six Months Ended
June 30, 2021June 30, 2020
Property and CasualtyGroup BenefitsCorporateTotalProperty and CasualtyGroup BenefitsCorporateTotal
Beginning allowance for uncollectible reinsurance$105 $1 $2 $108 $114 $0 $0 $114 
Beginning allowance for disputed amounts53 0 0 53 66 0 0 $66 
Beginning ACL52 1 2 55 48 0 0 48 
Cumulative effect of accounting change [1]0 1 1 2 
Adjusted beginning ACL52 1 2 55 48 1 1 50 
Current period provision (release)(12)(12)2 0 1 3 
Current period gross recoveries0 0 0 0 1 0 0 1 
Ending ACL40 1 2 43 51 1 2 54 
Ending allowance for disputed amounts56 56 57 0 0 57 
Ending allowance for uncollectible reinsurance$96 $1 $2 $99 $108 $1 $2 $111 
[1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report.
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Note 9 - Reserves for Unpaid Losses and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
PROPERTY AND CASUALTY INSURANCE PRODUCTS
Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
 For the six months ended June 30,
 20212020
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$29,622 $28,261 
Reinsurance and other recoverables5,725 5,275 
Beginning liabilities for unpaid losses and loss adjustment expenses, net23,897 22,986 
Provision for unpaid losses and loss adjustment expenses  
Current accident year3,838 3,962 
Prior accident year development [1]80 (245)
Total provision for unpaid losses and loss adjustment expenses3,918 3,717 
Change in deferred gain on retroactive reinsurance included in other liabilities [1](45)(83)
Payments  
Current accident year(864)(778)
Prior accident years(2,222)(2,575)
Total payments(3,086)(3,353)
Foreign currency adjustment(7)(10)
Ending liabilities for unpaid losses and loss adjustment expenses, net24,677 23,257 
Reinsurance and other recoverables5,905 5,427 
Ending liabilities for unpaid losses and loss adjustment expenses, gross$30,582 $28,684 
[1] Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADC which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the two adverse development cover reinsurance agreements, refer to Adverse Development Covers discussion below.
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Note 9 - Reserves for Unpaid Losses and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unfavorable (Favorable) Prior Accident Year Development
For the six months ended June 30,
20212020
Workers’ compensation$(83)$(38)
Workers’ compensation discount accretion18 18 
General liability307 114 
Marine
Package business(46)(6)
Commercial property(20)(2)
Professional liability(7)
Bond(14)(10)
Assumed reinsurance(7)
Automobile liability - Commercial Lines27 
Automobile liability - Personal Lines(43)(21)
Homeowners
Catastrophes(98)(413)
Uncollectible reinsurance(10)(2)
Other reserve re-estimates, net29 
Prior accident year development before change in deferred gain35 (328)
Change in deferred gain on retroactive reinsurance included in other liabilities [1]45 83 
Total prior accident year development$80 $(245)
[1] The change in deferred gain for the six months ended June 30, 2021 and 2020 included $45 and $83, respectively, of adverse development on Navigators 2018 and prior accident year reserves, primarily driven by professional liability in the 2021 period and professional liability, marine, general liability, prior accident year catastrophes, and assumed reinsurance in the 2020 period.
Re-estimates of prior accident year reserves for the six months ended June 30, 2021
Workers’ compensation reserves were decreased primarily within small commercial and middle & large commercial accounts for the 2013 through 2017 accident years driven by lower than previously estimated claim severity.
General liability reserves were increased including an increase for sexual molestation and sexual abuse claims above the amount of reserves previously recorded for this exposure, primarily to reflect an increase in reserves for claims made against the Boy Scouts of America ("BSA") as discussed further below, partially offset by reserve decreases for other mass torts and extra contractual liability claims.
Package business reserves decreased largely due to lower estimated loss adjustment expenses for accident years 2014 to 2018 and a reduction in estimated reserves for extra contractual liability claims.
Commercial property reserves were decreased primarily due to favorable development for the 2020 accident year in both middle & large commercial and global specialty.
Professional liability reserves were decreased due to lower estimated severity in both large and middle market directors’ and officers’ (“D&O”) insurance for older accident years. More than offsetting this favorable reserve development were reserve increases on legacy Navigators public company directors’ and officers’ insurance for 2018 and prior accident years which is reflected within the change in deferred gain on retroactive reinsurance in the above table.
Bond reserves were reduced mostly due to favorable emergence on contract surety claims driven by higher than previously anticipated recoveries, largely for the 2016 to 2017 accident years.
Automobile liability reserves were decreased in Personal Lines principally due to lower estimated severity on AARP Direct and Agency claims, primarily within accident years 2015 to 2020, and a reduction in estimated reserves for extra contractual liability claims.
Catastrophes reserves were decreased in both Commercial and Personal Lines primarily driven by a reduction in reserves for 2019 and 2020 wind and hail events, lower estimated losses from 2017 and 2018 hurricanes and a reduction in estimated losses from the 2017 and 2018 California wildfires, including an expected recovery of subrogation from a utility related to the 2018 Woolsey wildfire in California.
Uncollectible reinsurance reserves were decreased due to a higher than expected recovery from one reinsurer on which the Company had recognized an allowance for credit losses.
Other reserve re-estimates, net, were increased primarily due to an increase in reserves for sexual molestation and sexual abuse claims within P&C Other Operations, principally on assumed reinsurance.
Re-estimates of prior accident year reserves for the six months ended June 30, 2020
Workers’ compensation reserves were reduced on
national account business within middle & large commercial, driven by lower than previously estimated claim severity for the 2014 and prior accident years and were reduced in small commercial due to lower than expected claim severity for the 2013 to 2018 accident years.
General liability reserves were increased in first
quarter 2020, primarily related to guaranteed cost construction business for accident years 2016 to 2019 as incurred losses are developing higher than previously expected for premises and operations claims and product liability claims, partly due to a change in industry mix and a heavier concentration of losses in California than initially assumed. General liability reserves were also increased in second quarter 2020 on primary layer construction account business mainly related to the 2018 accident year and is largely included as a component of the change in deferred gain under retroactive reinsurance in the above table. In addition, the Company recorded an increase in reserves for sexual molestation and abuse claims in the second quarter of 2020 related to cases brought against religious and other institutions that were insureds of the Company. During the second quarter of 2020, the Company increased these reserves by $102 considering the impact of recent bankruptcy filings and
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Note 9 - Reserves for Unpaid Losses and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
an expected increase in claim incidence largely driven by legislation passed in a number of states that provides an opportunity for claimants to file claims for a period of time despite the fact that the original statute of limitations had expired.
Marine reserves were increased principally due to an
increase in domestic marine liability, mostly in accident years 2017 and 2018 due to a higher number of large losses. The increase in marine reserves is included as a component of the change in deferred gain under retroactive reinsurance in the above table.
Commercial property reserves were decreased for accident year 2019 due to favorable developments on marine and middle market property claims.
Professional liability reserves were increased
primarily due to an increase in large D&O losses within Global Specialty, principally in the 2016 and 2017 accident years. The reserve increases within Global Specialty are included as a component of the change in deferred gain under retroactive reinsurance in the above table.
Assumed reinsurance reserves were increased for
accident year 2018 mostly due to higher accident and health reserve estimates for medical professionals on assumed casualty business. These reserve increases are included as a component of the change in deferred gain under retroactive reinsurance in the above table.
Automobile liability reserves were decreased in
Personal Lines principally due to lower than previously expected AARP Direct automobile liability claim severity for the 2017 and 2018 accident years. Automobile liability reserves were increased in Commercial Lines primarily due to higher than expected large losses on national accounts in the first quarter of 2020 related to accident years 2015 to 2017 and due to large losses within middle & large commercial, primarily within the 2018 and 2019 accident years.
Catastrophes reserves were reduced, primarily due to a reduction in estimated reserves for 2017 and 2018 California wildfires and a reduction in estimated catastrophes for wind and hail events in the 2018 and 2019 accident years, partially offset by an increase in reserves for 2019 typhoons Hagibis and Faxai in Asia. The reduction in reserves for the 2017 and 2018 wildfires was largely due to recognizing a $289 subrogation benefit in the second quarter of 2020 from PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”).
Settlement Agreement with Boy Scouts of America
On April 16, 2021, the Company announced that it had entered into a Settlement Agreement and Release (the “Agreement”) with BSA pursuant to which The Hartford would pay $650 for sexual molestation and sexual abuse claims associated with liability policies issued by various Hartford writing companies in the 1970s and early 1980s. The Agreement was contingent on a number of conditions, including confirmation of a BSA global plan of reorganization that incorporated the Agreement. On July 2, 2021, BSA filed papers with the Bankruptcy Court requesting to be excused from its obligations under the Agreement. The Company opposes BSA’s requested relief and has argued that legally BSA cannot be excused from performance of its
obligations under the Agreement. Even in the absence of a settlement with BSA, the Company continues to believe that $650 is a reasonable estimate of the settlement value of its exposure to sexual molestation and sexual abuse claims pertaining to the BSA and its local councils. Nonetheless, given uncertainties associated with BSA's request to be excused from its obligations under the Agreement, the large number of claims filed against BSA in the bankruptcy, the complex, disputed coverage issues involved with the Company’s policies issued to BSA and its local councils, and the inherent unpredictability of related litigation, and court ordered mediation, it is possible that adverse outcomes, if any, could have a material adverse effect on the Company’s consolidated operating results.
Adverse Development Covers
The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.
Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid have been recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid result in a deferred gain. As of June 30, 2021, the Company has incurred $860 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $640 of available limit remaining under the A&E ADC. As a result, the Company has recorded a $210 deferred gain within other liabilities, representing the difference between the reinsurance recoverable of $860 and ceded premium paid of $650. The deferred gain is recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims will result in charges against earnings which may be significant.
Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO, on behalf of Navigators Insurers. Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in
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Note 9 - Reserves for Unpaid Losses and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018.
As of June 30, 2021, the Company has recorded a reinsurance recoverable under the Navigators ADC of $254, as estimated cumulative loss development on the 2018 and prior accident year reserves of $354 exceed the $100 deductible. While the
reinsurance recoverable is $254, the Company has also recorded a $163 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a deferred gain. Of the $163 of cumulative ceded losses in excess of ceded premium paid, $45 was recognized as a deferred gain in 2021 and $83 was recognized as a deferred gain in 2020. As the Company has ceded $254 of the $300 available limit, there is $46 of remaining limit available as of June 30, 2021.
GROUP LIFE, DISABILITY AND ACCIDENT PRODUCTS
Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
For the six months ended June 30,
20212020
Beginning liabilities for unpaid losses and loss adjustment expenses, gross$8,233 $8,256 
Reinsurance recoverables [1]237 246 
Beginning liabilities for unpaid losses and loss adjustment expenses, net7,996 8,010 
Provision for unpaid losses and loss adjustment expenses
Current incurral year2,464 2,297 
Prior year's discount accretion106 111 
Prior incurral year development [2](282)(315)
Total provision for unpaid losses and loss adjustment expenses [3]2,288 2,093 
Payments
Current incurral year(1,000)(871)
Prior incurral years(1,414)(1,290)
Total payments(2,414)(2,161)
Ending liabilities for unpaid losses and loss adjustment expenses, net7,870 7,942 
Reinsurance recoverables250 244 
Ending liabilities for unpaid losses and loss adjustment expenses, gross$8,120 $8,186 
[1]Includes a cumulative effect adjustment of $(1) representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to 2020 10-K, Note 1 - Basis of Presentation and Significant Accounting Policies.
[2]Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.
[3]Includes unallocated loss adjustment expenses ("ULAE") of $87 and $89 for the six months ended June 30, 2021 and 2020, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.
Re-estimates of prior incurral years reserves for the six months ended June 30, 2021
Group disability- Prior period reserve estimates decreased by approximately $240 largely driven by group long-term disability claim incidence lower than prior assumptions together with strong recoveries on prior incurral year claims. Also contributing was group short-term disability non-COVID-19 claim incidence lower than previously expected and a New York Paid Family Leave program refund.
Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $30 largely driven by lower-than-previously expected claim incidence in both group life premium waiver and group accidental death & dismemberment.
Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $10 driven by lower-than-previously expected claim incidence during the pandemic.
Re-estimates of prior incurral years reserves for the six months ended June 30, 2020
Group disability- Prior period reserve estimates decreased by approximately $230 largely driven by group long-term disability lower claim incidence and higher recoveries on prior incurral year claims, and a refund on the New York Paid Family Leave program.
Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $65 largely driven by lower prior year mortality than prior assumptions in group life and lower-than-previously expected claim incidence in group life premium waiver.
Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $20 driven by lower-than-expected emergence of prior year claims, especially for voluntary critical Illness and voluntary accident products.
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Note 10 - Reserve for Future Policy Benefits
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. RESERVE FOR FUTURE POLICY BENEFITS
Changes in Reserves for Future Policy Benefits[1]
For the six months ended June 30,
20212020
Beginning liability balance$638 $635 
Incurred33 53 
Paid(54)(42)
Change in unrealized investment gains and losses(6)
Ending liability balance$611 $652 
Ending reinsurance recoverable asset$24 $27 
[1] Reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits segment and reserves for run-off structured settlement and terminal funding agreement liabilities which are in the Corporate category.
11. INCOME TAXES
INCOME TAX EXPENSE
Income Tax Rate Reconciliation
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Tax provision at U.S. federal statutory rate$233 $125 $297 $197 
Tax-exempt interest(10)(12)(21)(24)
Increase in deferred tax valuation allowance13 
Sale of business(5)(5)
Tax law change(7)(7)
Other(12)(12)
Provision for income taxes$205 $124 $259 $195 

OTHER TAX MATTERS
Unrecognized tax benefits were $15 and $14 at the beginning and end of the periods ended June 30, 2021 and 2020, respectively. The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release. The Company believes it is reasonably possible approximately $5 of its currently unrecognized tax benefits associated with dividends from segregated asset accounts of the life and annuity business sold in 2018 may be recognized by the end of 2021 as a result of a lapse in the applicable statute of limitations. This liability is subject to a tax indemnification agreement and has a corresponding receivable included in other
assets which would also be taken down upon lapse of the statute of limitations.
On June 10, 2021, the United Kingdom enacted Finance Bill 2021, which included an increase in the corporate tax rate from 19% to 25%, effective April 1, 2023. In the three and six months ended June 30, 2021, the Company recorded a tax benefit of $7, which reflects the estimated benefit of the change in tax rate on the deferred tax assets and liabilities of its U.K. subsidiaries.
As of June 30, 2021, the Company has foreign net operating losses of $17 for which a valuation allowance of $3 has been established. While the foreign net operating losses ("NOLs") do not expire, this assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions.
Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies which management views as prudent and feasible.
The federal income tax audits for the Company have been completed through 2013, and the Company is not currently under federal income tax examination for any open years. The statute of limitations is closed through the 2016 tax year with the exception of NOL carryforwards utilized in open tax years. Management believes that adequate provision has been made in the Company's Condensed Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.
12. COMMITMENTS AND CONTINGENCIES
Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management establishes liabilities for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated liability at the low end of the range of losses.
LITIGATION
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought
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Note 12 - Commitments and Contingencies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties related to sexual molestation and sexual abuse claims discussed in Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of this Form 10-Q and in Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses, of the Company's Annual Report on Form 10-K for the year ended December 31, 2020, and in the following discussion under the caption “COVID-19 Pandemic Business Income Insurance Coverage Litigation” and under the caption “Run-off Asbestos and Environmental Claims,” management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford.
The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. In addition to the matter described below, these actions include putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper sales or underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, disability, life and inland marine. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
COVID-19 Pandemic Business Income Insurance Coverage Litigation
Like many others in the property and casualty insurance industry, beginning in April 2020, various direct and indirect subsidiaries of the Company (collectively the "Hartford Writing Companies”), and in some instances the Company itself, have been served as defendants in lawsuits seeking insurance coverage under commercial insurance policies issued by the Hartford Writing Companies for alleged losses resulting from the shutdown or suspension of their businesses due to the spread of COVID-19. More than 250 such lawsuits have been filed, of which more than 50 purport to be filed on behalf of broad nationwide or statewide classes of policyholders. These lawsuits have been filed in state and federal courts in roughly 34 states. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts, interest, and attorneys' fees.
Many of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages.
The Company and its subsidiaries deny the allegations and continue to vigorously defend these suits. The Hartford Writing Companies maintain that they have no coverage obligations with respect to these suits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the clear terms of the applicable insurance policies. Although the policy terms vary depending, among other things, upon the size, nature, and location of the policyholder’s business, in general, the claims at issue in these lawsuits were denied because the claimant identified no direct physical damage or loss to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. In addition, the vast majority of the policies at issue expressly exclude from coverage any loss caused directly or indirectly by the presence, growth, proliferation, spread or activity of a virus, subject to a narrow set of exceptions not applicable in connection with this pandemic, and contain a pollution and contamination exclusion that, among other things, expressly excludes from coverage any loss caused by material that threatens human health or welfare.
In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present numerous uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any state or nationwide classes will be certified, and the size and scope of any such classes. The legal theories advocated by plaintiffs vary significantly by case as do the state laws that govern the policy interpretation. These lawsuits are at various stages of litigation; some are in the earliest stages of litigation, many complaints are in the process of being amended, some have been dismissed voluntarily and may be refiled, while others have been dismissed through rulings in favor of the Hartford Writing Companies. Discovery is underway in certain single plaintiff cases and class actions. More than 30 policyholders have appealed dismissals in favor of the Hartford Writing Companies. While these appeals are at various stages of the process, no decisions have been issued at this time. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, almost none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss, and, in any event, the Company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the large number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate, could have a material adverse effect on the Company’s consolidated operating results.
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Note 12 - Commitments and Contingencies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Run-off Asbestos and Environmental Claims
The Company continues to receive A&E claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.
The vast majority of the Company's exposure to A&E relates to Run-off A&E, reported within the P&C Other Operations segment. In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments. 
Prior to 1986, the Company wrote several different categories of insurance contracts that may cover A&E claims. First, the Company wrote primary policies providing the first layer of coverage in an insured’s liability program. Second, the Company wrote excess and umbrella policies providing higher layers of coverage for losses that exhaust the limits of underlying coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other insurers writing primary, excess, umbrella and reinsurance coverages.
Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid gross losses and expenses related to environmental and particularly asbestos claims. The degree of variability of gross reserve estimates for these exposures is significantly greater than for other more traditional exposures.
In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent emerging legal doctrines. Furthermore, over time, insurers, including the Company, have experienced significant changes in the rate at which asbestos claims are brought, the claims experience of particular insureds, and the value of claims, making predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy proceedings, including “pre-packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some policyholders have asserted new classes of claims for coverages to which an aggregate limit of liability may not apply. Further uncertainties include insolvencies of other carriers and unanticipated developments pertaining to the Company’s ability to recover reinsurance for A&E claims. Management believes these issues are not likely to be resolved in the near future.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims, and uncertainty as to the monetary amount being sought by the claimant from the insured.
The reporting pattern for assumed reinsurance claims, including those related to A&E claims, is much longer than for direct claims. In many instances, it takes months or years to determine that the policyholder’s own obligations have been met and how
the reinsurance in question may apply to such claims. The delay in reporting reinsurance claims and exposures adds to the uncertainty of estimating the related reserves.
It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of A&E claims.
Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the ultimate cost of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for A&E exposures. For this reason, the Company principally relies on exposure-based analysis to estimate the ultimate costs of these claims, both gross and net of reinsurance, and regularly evaluates new account information in assessing its potential A&E exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity.
While the Company believes that its current A&E reserves are appropriate, significant uncertainties limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not estimable now, could be material to The Hartford’s consolidated operating results and liquidity.
For its Run-off A&E, as of June 30, 2021, the Company reported $646 of net asbestos reserves and $74 of net environmental reserves. In addition, the Company has recorded a $210 deferred gain within other liabilities for losses economically ceded to NICO but for which the benefit is not recognized in earnings until later periods. While the Company believes that its current Run-off A&E reserves are appropriate, significant uncertainties limit our ability to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not reasonably estimable now, could be material to The Hartford's consolidated operating results and liquidity.
The Company’s A&E ADC reinsurance agreement with NICO reinsures substantially all A&E reserve development for 2016 and prior accident years, including Run-off A&E and A&E reserves included in Commercial Lines and Personal Lines. The A&E ADC has a coverage limit of $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion. As of June 30, 2021, the Company has incurred $860 in cumulative adverse development on A&E reserves that have been ceded under the A&E ADC treaty with NICO, leaving $640 of coverage available for future adverse net reserve development, if any. Cumulative adverse development of A&E claims for accident years 2016 and prior could ultimately exceed the $1.5 billion treaty limit in which case any adverse development in excess of the treaty limit would be absorbed as a charge to earnings by the Company. In these scenarios, the effect of these charges could be material to the Company’s consolidated operating results and liquidity. For more information on the A&E ADC, refer to Note 12, Reserve for
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Note 12 - Commitments and Contingencies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report.
DERIVATIVE COMMITMENTS
Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and, in certain instances, enable the counterparties to terminate the agreements and demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of June 30, 2021 was $59 for which the legal entities have posted collateral of $58 in the normal course of business. Based on derivative market values as of June 30, 2021, a downgrade of the current financial strength ratings by either Moody's or S&P would 0t require additional assets to be posted as collateral. This requirement could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the additional collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.
13. EQUITY
EQUITY REPURCHASE PROGRAM
During the six months ended June 30, 2021, the Company repurchased $691 (11 million shares) of common stock under the share repurchase program that is effective January 1, 2021 until December 31, 2022 as authorized by the Board of Directors in December 2020. The share repurchase program was initially authorized at $1.5 billion and, in April 2021, the Company announced an increase in the share repurchase authorization to $2.5 billion, which remains effective until December 31, 2022. During the period July 1, 2021 through July 27, 2021, the Company repurchased $116 (1.9 million shares) under this repurchase program. The timing of future repurchases will be dependent on several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, the Company's blackout periods, and other considerations.
During the six months ended June 30, 2020, The Company repurchased $150 (2.7 million shares) of common stock under the previous share repurchase program that expired December 31, 2020.
14. CHANGES IN AND RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in AOCI, Net of Tax for the Three Months Ended June 30, 2021
Changes in
Net Unrealized Gain on Fixed MaturitiesUnrealized Loss on Fixed Maturities with ACLNet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI,
net of tax
Beginning balance$1,909 $(2)$17 $44 $(1,704)$264 
OCI before reclassifications337 (1)339 
Amounts reclassified from AOCI(42)(6)15 (33)
     OCI, net of tax295 (5)14 306 
Ending balance$2,204 $(2)$12 $46 $(1,690)$570 

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Note 14 - Accumulated Other Comprehensive Income (Loss), Net of Tax
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Changes in AOCI, Net of Tax for the Six Months Ended June 30, 2021
Changes in
Net Unrealized Gain on Fixed MaturitiesUnrealized Loss on Fixed Maturities with ACLNet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI,
net of tax
Beginning balance$2,834 $(2)$12 $43 $(1,717)$1,170 
OCI before reclassifications(585)13 (1)(570)
Amounts reclassified from AOCI(45)(13)28 (30)
     OCI, net of tax(630)27 (600)
Ending balance$2,204 $(2)$12 $46 $(1,690)$570 

Reclassifications from AOCI
Three Months Ended June 30, 2021Six Months Ended June 30, 2021Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Fixed Maturities
Available-for-sale fixed maturities$53 $57 Net realized capital gains (losses)
53 57 Total before tax
11 12  Income tax expense
$42 $45 Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps$10 20 Net investment income
Interest rate swaps(3)(5)Interest expense
Foreign currency swapsNet investment income
8 17 Total before tax
 Income tax expense
$6 $13 Net income
Pension and Other Postretirement Plan Adjustments
Amortization of prior service credit$$Insurance operating costs and other expenses
Amortization of actuarial loss(20)(39)Insurance operating costs and other expenses
(19)(36)Total before tax
(4)(8) Income tax expense
$(15)$(28)Net income
Total amounts reclassified from AOCI$33 $30 Net income
Changes in AOCI, Net of Tax for the Three Months Ended June 30, 2020
Changes in
Net Unrealized Gain on Fixed MaturitiesNet Unrealized Loss on Fixed Maturities with ACLNet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan AdjustmentsAOCI,
net of tax
Beginning balance$627 $(2)$53 $26 $(1,661)$(957)
OCI before reclassifications1,469 1,470 
Amounts reclassified from AOCI(41)(5)12 (34)
     OCI, net of tax1,428 (5)12 1,436 
Ending balance$2,055 $(2)$48 $27 $(1,649)$479 

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Note 14 - Accumulated Other Comprehensive Income (Loss), Net of Tax
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Changes in AOCI, Net of Tax for the Six Months Ended June 30, 2020
Changes in
Net Unrealized Gain on Fixed MaturitiesNet Unrealized Loss on Fixed Maturities with ACLNet Gain on Cash Flow Hedging InstrumentsForeign Currency Translation AdjustmentsPension and Other Postretirement Plan Adjustments
AOCI,
net of tax
Beginning balance$1,684 $(3)$9 $34 $(1,672)$52 
OCI before reclassifications454 47 (7)(1)494 
Amounts reclassified from AOCI(83)(8)24 (67)
     OCI, net of tax371 39 (7)23 427 
Ending balance$2,055 $(2)$48 $27 $(1,649)$479 

Reclassifications from AOCI
Three Months Ended June 30, 2020Six Months Ended June 30, 2020Affected Line Item in the Condensed Consolidated Statement of Operations
Net Unrealized Gain on Fixed Maturities
Available-for-sale fixed maturities$52 $105 Net realized capital gains (losses)
52 105 Total before tax
11 22  Income tax expense
$41 $83 Net income
Net Gains on Cash Flow Hedging Instruments
Interest rate swaps$10 Net investment income
Interest rate swaps(2)(2)Interest expense
Foreign currency swapsNet investment income
6 10 Total before tax
 Income tax expense
$5 $8 Net income
Pension and Other Postretirement Plan Adjustments
Amortization of prior service credit$$Insurance operating costs and other expenses
Amortization of actuarial loss(16)(33)Insurance operating costs and other expenses
(15)(30)Total before tax
(3)(6) Income tax expense
$(12)$(24)Net income
Total amounts reclassified from AOCI$34 $67 Net income
15. EMPLOYEE BENEFIT PLANS
The Company’s employee benefit plans are described in Note 19 - Employee Benefit Plans of Notes to Consolidated Financial Statements included in The Hartford’s 2020 Annual Report on Form 10-K. Net periodic cost (benefit) is recognized in insurance
operating costs and other expenses in the condensed consolidated statement of operations.
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Note 15 - Employee Benefit Plans
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Cost (Benefit)
Pension BenefitsOther Postretirement Benefits
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20212020202120202021202020212020
Service cost$$$$$$$$
Interest cost23 32 47 64 
Expected return on plan assets(51)(54)(102)(108)(1)(1)(2)(2)
Amortization of prior service credit(1)(1)(3)(3)
Amortization of actuarial loss18 15 35 30 
Net periodic cost (benefit)$(9)$(6)$(18)$(12)$1 $0 $1 $1 
16. BUSINESS DISPOSITION
Sale of Continental Europe Operations
On September 30, 2020, the Company entered into a definitive agreement to sell its Continental Europe Operations consisting of multiple arrangements designed as a single transaction. The Continental Europe Operations are included in the Commercial Lines reporting segment. Revenues and earnings are not material to the Company's consolidated results of operations for the three and six months ended June 30, 2021 and 2020. The
pending sale resulted in an estimated loss on the sale of approximately $66, before tax, including $18, before tax, in the six months ended June 30, 2021, which was recorded within net realized capital gains (losses). The accrual for the estimated before tax loss is included as a reduction of the carrying value of assets held for sale in the Company's Condensed Consolidated Balance Sheets as of June 30, 2021. The transaction is expected to close in the second half of 2021, subject to customary closing conditions, including regulatory approvals.
Carrying Value of Assets and Liabilities to be Transferred in Connection With the Sale [1]
As of June 30, 2021As of December 31, 2020
Assets
Investments and cash$156 $142 
Reinsurance recoverables and other24 35 
Total assets held for sale180 177 
Liabilities
Unpaid losses and loss adjustment expenses76 84 
Unearned premiums22 31 
Other liabilities66 43 
Total liabilities held for sale$164 $158 
[1] As of June 30, 2021 and December 31, 2020, the estimated fair value of the disposal group was $12 and $14, respectively, based on the estimated consideration to be received less cost to sell. Within the disposal group, as of June 30, 2021 and December 31, 2020, investments in fixed maturities and short-term investments, which are measured at fair value on a recurring basis, had a fair value of $81 and $84, respectively, of which $0 and $1, respectively, was based on quoted prices in active markets for identical assets and $81 and $83, respectively, was based on significant observable inputs.The remaining fair value less costs to sell for the disposal group as of June 30, 2021 and December 31, 2020 was ($69) and ($70), respectively, which is measured on a nonrecurring basis using significant unobservable inputs. See Note 4—Fair Value Measurements for more information.
17. RESTRUCTURING AND OTHER COSTS
In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020 the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Hartford Next is intended to reduce annual insurance operating costs and other expenses through reduction of the Company's headcount, investment in information technology ("IT") to further enhance our capabilities,
and other activities. The activities are expected to be substantially complete by the end of 2022.
Termination benefits related to workforce reductions and professional fees are included within restructuring and other costs in the Condensed Consolidated Statement of Operations and unpaid restructuring costs are included in other liabilities in the June 30, 2021 Condensed Consolidated Balance Sheet. In the second quarter of 2021, the severance benefits accrual was
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Note 17 - Restructuring and Other Costs
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reduced $9 due to recent experience of higher than expected voluntary attrition. Subsequent to June 30, 2021, the Company expects to incur additional costs including amortization of right of use assets and other lease exit costs, other IT costs to retire applications, professional fees and other expenses. Total restructuring and other costs are expected to be approximately
$152, before tax, and are being recognized in Corporate for segment reporting. The estimated restructuring and other costs for future periods do not include all costs associated with the real estate consolidation plan as those plans are still being finalized.
Restructuring and Other Costs, Before Tax
Incurred in the Three Months Ended June 30, 2021Incurred in the Six Months Ended June 30, 2021Cumulative Incurred Through June 30, 2021Total Amount Expected to be Incurred
Severance benefits$(9)$(9)$64 $64 
IT costs27 
Professional fees and other expenses16 45 61 
Total restructuring and other costs, before tax$0 $11 $115 $152 
Accrued Restructuring and Other Costs
Six Months Ended June 30, 2021
Severance Benefits and Related CostsIT CostsProfessional Fees and OtherTotal Restructuring and Other Costs Liability
Balance, beginning of period$54 $0 $0 $54 
Incurred(9)16 11 
Payments(8)(4)(15)(27)
Balance, end of period$37 $0 $1 $38 

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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in millions except for per share data, unless otherwise stated)
The Hartford provides projections and other forward-looking information in the following discussions, which contain many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the cautionary statements set forth on pages 4 and 5 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion; Part I, Item 1A, Risk Factors in The Hartford’s 2020 Form 10-K Annual Report; and our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For discussion of this transaction, see Note 16 - Business Disposition of Notes to Condensed Consolidated Financial Statements.
Certain reclassifications have been made to historical financial information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to conform to the current period presentation.
The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful.
INDEX
Throughout the MD&A, we use certain terms and abbreviations, the more commonly used are summarized in the Acronyms section.
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.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
DEFINITIONS OF NON-GAAP AND OTHER MEASURES AND RATIOS
Assets Under Management ("AUM")- Include mutual fund and exchange-traded products ("ETP") assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the Company’s mutual fund and ETP revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.
Book Value per Diluted Share excluding accumulated other comprehensive income ("AOCI")- This is a non-GAAP per share measure that is calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure.
Combined Ratio- The sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses.
Core Earnings- The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings:
Certain realized capital gains and losses - Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income.
Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business.

Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business.
Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business.
Integration and other non-recurring M&A costs - These costs, including transaction costs incurred in connection with an acquired business, are incurred over a short period of time and do not represent an ongoing 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.
Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business.
Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards.
Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses.
In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding.
Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company’s performance.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Net Income to Core Earnings
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net income$905 $468 $1,154 $741 
Preferred stock dividends10 10 
Net income available to common stockholders900 463 1,144 731 
Adjustments to reconcile net income available to common stockholders to core earnings:
Net realized capital losses (gains) excluded from core earnings, before tax(148)(107)(225)125 
Restructuring and other costs, before tax— — 11 — 
Integration and other non-recurring M&A costs, before tax36 13 45 26 
Change in deferred gain on retroactive reinsurance, before tax39 54 45 83 
Income tax expense (benefit) [1]15 19 (42)
Core earnings$836 $438 $1,039 $923 
[1] Primarily represents the federal income tax expense (benefit) related to before tax items not included in core earnings and includes the effect of changes in net deferred taxes due to changes in enacted tax rates.
Core Earnings Margin- The Hartford uses the non-GAAP measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin, calculated by dividing net income by revenues, is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses) as well as other items excluded in the calculation of core earnings. Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits.
Current Accident Year Catastrophe Ratio- A component of the loss and loss adjustment expense ratio, represents the ratio of catastrophe losses incurred in the current accident year (net of reinsurance) to earned premiums. For U.S. events, a catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers, as defined by the Property Claim 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.
Gross New Business Premium- Represents the amount of premiums charged, before ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Gross new business premium plus gross renewal written premium less ceded reinsurance equals total written premium.
Loss and Loss Adjustment Expense Ratio- A measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses and loss adjustment expenses incurred for both the current and prior accident years. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity ("ROE") fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, excluding those related to buyout premiums, to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts.
Mutual Fund and Exchange-Traded Product Assets- Are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s Condensed Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.
Net New Business Premium- Represents the amount of premiums charged, after ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Net new business premium plus renewal written premium equals total written premium.
Policy Count Retention- Represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the previous calendar period before considering policies cancelled subsequent to renewal. 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.
Policy Count Retention, Net of Cancellations- Represents the ratio of the number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous calendar period.
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.
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 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
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance carriers increases. Renewal written price statistics are subject to change from period to period, based on a number of factors, including changes in actuarial estimates and the effect of subsequent cancellations and non-renewals, and modifications made to better reflect ultimate pricing achieved.
Return on Assets (“ROA”), Core Earnings-The Company uses this non-GAAP financial measure to evaluate, and believes is an important measure of, the Hartford Funds segment’s operating performance. ROA, core earnings is calculated by dividing annualized core earnings by a daily average AUM. ROA is the most directly comparable U.S. GAAP measure. The Company believes that ROA, core earnings, provides investors with a valuable measure of the performance of the Hartford Funds segment because it reveals trends in our business that may be obscured by the effect of items excluded in the calculation of core earnings. ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our Hartford Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, and ROA, core earnings when reviewing the Hartford Funds segment performance. A reconciliation of ROA to ROA, core earnings is set forth in the Results of Operations section within MD&A - Hartford Funds.
Underlying Combined Ratio- This non-GAAP financial measure of underwriting results represents the combined ratio before catastrophes, prior accident year development and current accident year change in loss reserves upon acquisition of a business. Combined ratio is the most directly comparable GAAP measure. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes and current accident year change in loss reserves upon acquisition of a business. The Company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. The changes to loss reserves upon acquisition of a business are excluded from underlying combined ratio because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition as such trends are valuable to our investors' ability to assess the Company's financial performance.

A reconciliation of combined ratio to underlying combined ratio is set forth in the Results of Operations section within MD&A - Commercial Lines and Personal Lines.
Underwriting Gain (Loss)- The Hartford's management evaluates profitability of the Commercial and Personal Lines segments primarily on the basis of underwriting gain or loss. Underwriting gain (loss) is a before tax non-GAAP measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of The Hartford's pricing. Underwriting profitability over time is also greatly influenced by The Hartford's underwriting discipline, as management strives to manage exposure to loss through favorable risk selection and diversification, effective management of claims, use of reinsurance and its ability to manage its expenses. The Hartford believes that the measure underwriting gain (loss) provides investors with a valuable measure of profitability, before tax, derived from underwriting activities, which are managed separately from the Company's investing activities.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Net Income to Underwriting Gain (Loss)
 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Commercial Lines
Net income (loss)$569 $(66)$698 $55 
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income(7)— (9)(1)
Net investment income(382)(204)(709)(481)
Net realized capital losses (gains)(47)(64)(91)79 
Other expense11 10 17 
Income tax expense (benefit)122 (9)146 19 
Underwriting gain (loss)$261 $(332)$45 $(312)
Personal Lines
Net income$118 $371 $253 $469 
Adjustments to reconcile net income to underwriting gain (loss):
Net servicing income(5)(3)(9)(5)
Net investment income(40)(28)(75)(69)
Net realized capital losses(6)(8)(13)15 
Other income— (1)— (1)
Income tax expense29 97 64 122 
Underwriting gain$96 $428 $220 $531 
P&C Other Ops
Net income$17 $5 $4 $10 
Adjustments to reconcile net income to underwriting gain (loss):
Net investment income(20)(10)(36)(26)
Net realized capital losses(3)(2)(5)
Income tax expense— — 
Underwriting loss$(2)$(7)$(37)$(10)
Written and Earned Premiums- Written premium represents the amount of premiums charged for policies issued, net of reinsurance, during a fiscal period. Premiums are considered earned and are included in the financial results on a pro rata basis over the policy period. Management believes that written premium is a performance measure that is useful to investors as it reflects current trends in the Company’s sale of property and casualty insurance products. Written and earned premium are recorded net of ceded reinsurance premium.
Traditional life and disability insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums together with net investment income earned are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of premium remaining in-force from year-to-year.
THE HARTFORD’S OPERATIONS
The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, certain M&A costs, 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. In addition, up until June 30, 2021, Corporate included a 9.7% ownership interest in Hopmeadow Holdings LP, the legal entity that acquired Talcott Resolution in May 2018 (Hopmeadow Holdings, LP, Talcott Resolution Life Inc., and its subsidiaries are collectively referred
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
to as "Talcott Resolution"). The sale of Talcott Resolution was completed on June 30, 2021. The Company received a total of $217 in connection with the sale of its 9.7% ownership interest, resulting in a realized capital gain of $46 before tax for the three and six months ended June 30, 2021.
The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) management fees on mutual fund and ETP assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force.
The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments and the Lloyd's Syndicate 1221's ("Lloyd's Syndicate") ability to write business is subject to Lloyd's approval for its premium capacity each year. Most of Personal Lines written premium is associated with our exclusive licensing agreement with AARP. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. In 2020, the Company extended this agreement through December 31, 2032.
Similar to property and casualty, profitability of the Group Benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss and expense trends emerge adversely during the rate guarantee period or if investment returns are lower than expected at the time the products were sold. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company
employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly from expected investment yields, affecting profitability of the business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies.
The financial results of the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and product type. Changes in assets under management are driven by the two main factors of net flows and the market return of the funds, which are heavily influenced by the return realized in the equity and bond markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis.
The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losses and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities, asset-backed securities and collateralized loan obligations. The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient net of tax income to meet policyholder and corporate obligations. Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations.
IMPACT OF COVID-19 ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND LIQUIDITY
Impact to revenues
Written and Earned premiums
While we are beginning to emerge from the pandemic with economic stimulus measures being passed in the U.S. and other jurisdictions and progress being made to vaccinate the public from the COVID-19 virus, the COVID-19 pandemic continues to pose a threat to the economic recovery of the U.S. and other countries in which we operate. As one of the largest providers of small business insurance in the U.S., we were negatively affected by economic effects of the pandemic on
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
small businesses beginning in March of 2020. In 2021, economic conditions have improved and in the three and six months ended June 30, 2021, we experienced an increase of 11% and 8% respectively, in our small commercial written premiums. Our middle & large commercial business was also negatively affected by COVID-19 and written premium in that line has started to rebound with written premium up 20% and 8%, respectively, in the three and six month period. Overall, Commercial Lines written premium increased $329, or 15%, and $424, or 9%, respectively, in the three and sixth months ended June 30, 2021 with growth in workers' compensation, small commercial package business, general liability, U.S. wholesale, U.S. financial lines and global reinsurance.
Personal Lines written premium increased 3% for the three months and was relatively flat for the six months ended June 30, 2021 due to the effect of the premium credits given in 2020, partially offset by the effect of non-renewed premium exceeding new business.
In Group Benefits, fully insured ongoing premium increased 2% and 3%, respectively, in the three and six months ended June 30, 2021, primarily due to higher in-force employer group disability premiums and higher supplemental health product premiums.
Net investment income and realized capital gains (losses)
Total net investment income increased in the three and six months ended June 30, 2021 primarily due to greater income
from limited partnerships and other alternative investments and a higher level of invested assets, partially offset by a lower yield on fixed maturity investments resulting from lower reinvestment rates and a lower yield on floating rate investments. While longer term interest rates have risen year to date in 2021, a prolonged period of low interest rates could depress the Company's net investment income such that to earn the same level of return on equity we may have to charge higher premiums for the insurance products we sell unless loss costs similarly lessen.
Net realized capital gains (losses) on equity securities for the six months ended June 30, 2021 totaled $131 before tax, largely due to an increase in equity market levels since year end 2020. However, we may incur net realized capital losses on equity securities in future periods if we experience declines in equity market levels. In addition, if the economy does not recover as expected, we could experience elevated credit losses on fixed maturity securities, particularly related to highly leveraged companies, resulting in net realized capital losses.
Impact to direct benefits, losses and loss adjustment expenses from COVID-19 claims
Total direct COVID-19 and excess mortality claims were lower in the first six months of 2021 compared to the comparable period in 2020 largely due to commercial property COVID-19 losses incurred in the second quarter of 2020, partially offset by an increase in excess mortality claims in our group life business. Given the high level of infections and deaths in the first half of 2021, excess mortality claims for the six months ended June 30, 2021 were higher than the comparable period in 2020.
For the three months ended June 30,For the six months ended June 30,
2021202020212020
Excess mortality claims on group life$25 $45 $210 $45 
COVID-19 short-term disability claims and benefits under New York's disability and paid family leave legislation(6)(16)— 
Workers' compensation COVID-19 claims— 35 20 35 
Global specialty financial lines and other37 37 
Commercial property— 141 — 141 
Total direct COVID-19 and excess mortality claims$22 $242 $244 $258 
Within Group Benefits, the Company experienced excess mortality in its group life business, including those claims where COVID-19 is specifically listed as the cause of death. Within P&C, direct COVID-19 incurred losses in the 2021 period were predominantly on workers' compensation claims in the first quarter. We incur COVID-19 workers’ compensation losses when it is determined that workers were exposed to COVID-19 out of and in the course of their employment and in other cases where states have passed laws providing for the presumption of coverage for certain industry classes, including health care and other essential workers.
Apart from COVID-19 workers' compensation claims, net of favorable frequency, and incurred losses within financial lines, P&C COVID-19 incurred losses in the 2020 periods primarily included $141 for property claims. There were no COVID-19 P&C property losses incurred in the three or six months ended June 30, 2021. Nearly all of our property insurance policies
require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses.
Other impacts from COVID-19
In Personal Lines automobile, miles driven have begun to increase again as we emerge from the pandemic which has increased automobile loss costs in 2021. In addition, as the effects of favorable claim frequency from lower miles driven during the pandemic are factored into rates, we expect lower earned pricing increases resulting in a higher expected automobile loss ratio in 2021 than in 2020. Refer to Personal Lines Results of Operations for discussion of pricing and loss cost trends in the three and six months ended June 30, 2021.
Aided by some improvement in the economy and the effect of the government’s economic stimulus payments to our
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
customers, in the three and six months ended June 30, 2021, we recorded decreases of $10 and $18 in the ACL on premiums receivable, reflecting a lower expectation of credit losses, though there remains an elevated risk of uncollectible premiums receivable relative to historical trends if economic conditions do not improve further.
As we emerge from the pandemic, we expect travel costs and certain employee benefits costs will increase relative to the lower level of those costs we incurred when shelter-in-place orders were more broadly in effect.
For information about resources the Company has to manage capital and liquidity, refer to the Capital Resources & Liquidity section of MD&A.
For additional information about the potential economic impacts to the Company of the COVID-19 pandemic, see the risk factor "The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity" in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
OPERATIONAL TRANSFORMATION AND COST REDUCTION PLAN
In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020, the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Through reduction of its headcount, IT investments to further enhance our capabilities, and other activities, relative to 2019, the Company expects to achieve a reduction in annual insurance operating costs and other expenses of approximately $540 by 2022 and $625 by 2023.
To achieve those expected savings, we expect to incur $391 over the course of the program, with $196 expensed cumulatively through June 30, 2021, and expected expenses of $42 over the last six months of 2021, $77 in 2022 and $76 after 2022, with the expenses after 2022 consisting mostly of amortization of internal use software and capitalized real estate costs. Included in the estimated costs of $391, we expect to incur restructuring costs of approximately $152, including $64 of employee severance, and approximately $88 of other costs, including consulting expenses and the cost to retire certain IT applications. In the second quarter of 2021, total estimated employee severance costs were reduced by $9 due to recent experience of higher than expected voluntary attrition. Restructuring costs are reported as a charge to net income but not in core earnings.
The following table presents Hartford Next program costs incurred, including restructuring costs, and expense savings relative to 2019 realized in the six months ended June 30, 2021 and expected annual costs and expense savings relative to 2019 for the full year in 2021 and 2022:
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Hartford Next Costs and Expense Savings
Six months ended June 30, 2021Estimate for 2021Estimate for 2022
Employee severance$(9)$(9)$— 
IT costs to retire applications$$11 $14 
Professional fees and other expenses16 20 11 
Estimated restructuring costs11 22 25 
Non-capitalized IT costs24 44 31 
Other costs18 14 
Amortization of capitalized IT development costs [1]— 
Amortization of capitalized real estate [2]— — 
Estimated costs within core earnings32 63 52 
Total Hartford Next program costs$43 $85 $77 
Cumulative savings for the period relative to 2019$(195)$(390)$(540)
Net expense (savings) before tax:$(152)$(305)$(463)
Net expense (savings) before tax:
Accounted for within core earnings$(163)$(327)$(488)
Restructuring costs recognized outside of core earnings11 22 25 
Net expense (savings) before tax$(152)$(305)$(463)
[1]Does not include approximately $50 of IT asset amortization after 2022.
[2]Does not include approximately $19 of real estate amortization after 2022.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


FINANCIAL HIGHLIGHTS
Net Income Available to Common StockholdersNet Income Available to Common Stockholders per Diluted ShareBook Value per Diluted Share
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ÝIncreased $437 or 94%ÝIncreased $1.22 or 95%ÝIncreased $0.23 or 0.5%
+An increase in net investment income.+Increase in net income available to common stockholders.+Share repurchase activity.
+A decrease in P&C COVID-19 incurred losses.+Share repurchase activity.-Decrease in common stockholders' equity largely due to a decrease in AOCI, primarily driven by a decrease in net unrealized capital gains on available for sale securities.
+A decrease in current accident year catastrophe losses.-Increase in dilutive shares under stock-based compensation largely due to an increase in the quarterly average stock price.
+Lower current accident year loss ratio before COVID-19 and higher earned premiums in Commercial Lines.
+An increase in net realized capital gains.
-Lower P&C favorable prior accident year reserve development.
-Lower income from the retained Talcott Resolution investment, which was divested on June 30, 2021.

Investment Yield, After TaxProperty & Casualty Combined RatioGroup Benefits Net Income Margin
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ÝIncreased 140 bpsÞImproved 8.4 pointsÝIncreased 4.0 points
+Greater returns on limited partnerships and other alternative investments.-Lower current accident year catastrophe losses.+An increase in net investment income.
+A higher level of invested assets.-A decrease in COVID-19 incurred losses.+An increase in net realized capital gains.
-Lower reinvestment rates and lower yield on floating rate investments.-Lower current accident year loss ratio before COVID-19 in global specialty, workers' compensation, and general liability, partially offset by higher non-catastrophe property losses and higher personal automobile claim frequency.+Lower excess mortality in group life.
-A higher group disability loss ratio that was principally due to less favorable pandemic related short-term disability claim frequency.
-A lower expense ratio driven by higher earned premiums, lower staffing and other costs from Hartford Next and lower allowance for credit losses ("ACL") on uncollectible premiums receivable, partially offset by higher incentive compensation.
+Lower favorable prior accident year reserve development.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS
The Consolidated Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the related Notes as well as with the segment operating results sections of MD&A.
Consolidated Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
20212020Change20212020Change
Earned premiums$4,460 $4,234 %$8,803 $8,625 %
Fee income375 298 26 %730 618 18 %
Net investment income581 339 71 %1,090 798 37 %
Net realized capital gains (losses)147 109 35 %227 (122)NM
Other revenues26 88 (70 %)38 105 (64 %)
Total revenues5,589 5,068 10 %10,888 10,024 %
Benefits, losses and loss adjustment expenses2,786 2,847 (2 %)6,136 5,763 %
Amortization of deferred policy acquisition costs417 429 (3 %)833 866 (4 %)
Insurance operating costs and other expenses1,202 1,125 %2,346 2,301 %
Interest expense57 57 — %114 121 (6 %)
Amortization of other intangible assets17 18 (6 %)35 37 (5 %)
Restructuring and other costs— — — %11 — NM
Total benefits, losses and expenses4,479 4,476  %9,475 9,088 4 %
Income, before tax1,110 592 88 %1,413 936 51 %
Income tax expense205 124 65 %259 195 33 %
Net income905 468 93 %1,154 741 56 %
Preferred stock dividends— %10 10 — %
Net income available to common stockholders$900 $463 94 %$1,144 $731 56 %

Three months ended June 30, 2021 compared to the three months ended June 30, 2020
Net income available to common stockholders increased by $437, primarily driven by:
An increase in net investment income of $242 before tax driven by higher returns on limited partnerships and other alternative investments;
A $120 before tax decrease in current accident year catastrophe losses;
Higher Commercial Lines earned premiums, including higher audit and endorsement premiums;
An improvement in the P&C underlying combined ratio, including a decrease in COVID-19 incurred losses from $213 before tax in second quarter 2020 to $3 before tax in second quarter 2021 and a lower loss ratio before COVID-19 in Commercial Lines, partially offset by higher personal automobile claim frequency;
A decrease in excess mortality losses in group life, including deaths specifically attributable to COVID-19; and
A $38 before tax increase in net realized capital gains.
These increases were partially offset by:
A $119 before tax decrease in net favorable P&C prior accident year development, primarily due to higher reserve reductions related to prior year catastrophes in 2020, primarily relating to decreases in estimated losses arising from California wildfires, including a $289 before tax subrogation benefit from PG&E;
Lower income from the retained Talcott Resolution investment, which was divested on June 30, 2021; and
An increase in integration and other M&A costs.
For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
REVENUE
Earned Premiums
hig-20210630_g8.jpg
[1] For the three months ended June 30, 2020, the total includes $5 in Corporate.
Earned premiums increased by $226, or 5%, primarily due to:
An increase in Property and Casualty reflecting a 9% increase in Commercial Lines and a 6% increase in Personal Lines. Contributing to the increase in Commercial Lines was the effect of higher audit and endorsement premiums given the economic recovery in 2021. The increase in Personal Lines was due to $81 of COVID-related premium credits in 2020, partially offset by the effect of non-renewals outpacing new business; and
Group Benefits earned premium was flat year over year as an increase in group disability and higher supplemental health product premiums were offset by the effect of buyout premium in the 2020 period.
Fee income increased driven by Hartford Funds as a result of higher daily average assets under management due to an increase in equity market levels and net inflows.
Other revenues decreased by $62, primarily driven by lower income from the retained Talcott Resolution investment, which was divested on June 30, 2021, partially offset by an increase in Commercial Lines servicing revenue.
Net Investment Income
hig-20210630_g9.jpg
Net investment income increased primarily due to:
Greater income from limited partnerships and other alternative investments primarily driven by higher valuations and sales of underlying investments within private equity funds;
A higher level of invested assets; and
Partially offset by a lower yield on fixed maturity investments resulting from reinvesting at lower rates and a lower yield on floating rate investments.
Net realized capital gains (losses) of $147 improved by $38 from second quarter of 2020, primarily driven by:
A net reduction in ACL on mortgage loans and fixed maturities in 2021 due to an improved economic outlook and valuation increases of corporate securities, compared to increases in the ACL on mortgages and fixed maturities in 2020;
A $46 before tax net realized capital gain in 2021 resulting from sale of the Company's 9.7% retained interest in Talcott Resolution; and
Greater net realized capital gains on equity securities driven by valuation increases associated with a higher level of assets invested in equity securities in 2021.
These improvements were partially offset by:
Losses on non-qualifying interest rate derivatives in 2021 due to a decrease in interest rates;
Losses in 2021 related to the pending sale of the Continental Europe Operations; and
Lower net realized capital gains on sales of fixed maturity securities.
For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains and MD&A - Investment Results, Net Investment Income.
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Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
BENEFITS, LOSSES AND EXPENSES