UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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

For the transition period from                      to                     

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 28, 2009, there were outstanding 325,430,976 shares of Common Stock, $0.01 par value per share, of the registrant.

 

 

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

TABLE OF CONTENTS

Item		Description		Page
		Part I. FINANCIAL INFORMATION
1.		Financial Statements
		Report of Independent Registered Public Accounting Firm			3
		Condensed Consolidated Statements of Operations — For the Three Months Ended March 31, 2009 and 2008			4
		Condensed Consolidated Balance Sheets — As of March 31, 2009 and December 31, 2008			5
		Condensed Consolidated Statements of Changes in Equity — For the Three Months Ended March 31, 2009 and 2008			6
		Condensed Consolidated Statements of Comprehensive Loss — For the Three Months Ended March 31, 2009 and 2008			6
		Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2009 and 2008			7
		Notes to Condensed Consolidated Financial Statements			8
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
3.		Quantitative and Qualitative Disclosures About Market Risk			129
4.		Controls and Procedures			129
		Part II. OTHER INFORMATION
1.		Legal Proceedings			130
1A.		Risk Factors			132
2.		Unregistered Sales of Equity Securities and Use of Proceeds			132
4.		Submission of Matters to a Vote of Security Holders			133
6.		Exhibits			133
		Signature			134
		Exhibits Index			135
Exhibit 10.01
Exhibit 15.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying condensed consolidated balance sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the “Company”) as of March 31, 2009, and the related condensed consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the three-month periods ended March 31, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2008, and the related consolidated statements of operations, changes in stockholders’ equity, comprehensive loss, and cash flows for the year then ended prior to retrospective adjustment for the adoption of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, described in Note 1, (not presented herein); and in our report dated February 11, 2009 (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for the fair value measurement of financial instruments in 2008, and defined benefit pension and other postretirement plans in 2006), we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2008 consolidated balance sheet of the Company (not presented herein). In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted condensed consolidated balance sheet as of December 31, 2008.

DELOITTE & TOUCHE LLP
Hartford, Connecticut
April 29, 2009

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions, except for per share data)		2009				2008
		(Unaudited)
Revenues
Earned premiums		$	3,829			$	3,843
Fee income			1,167				1,337
Net investment income (loss)
Securities available-for-sale and other			920				1,193
Equity securities, held for trading			(724	)			(3,578	)
Total net investment income (loss)			196				(2,385	)
Other revenues			118				120
Net realized capital gains (losses)			84				(1,371	)
Total revenues			5,394				1,544
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses			4,637				3,357
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities			(724	)			(3,578	)
Amortization of deferred policy acquisition costs and present value of future profits			2,259				468
Insurance operating costs and expenses			898				950
Interest expense			120				67
Goodwill impairment			32				—
Other expenses			189				189
Total benefits, losses and expenses			7,411				1,453
Income (loss) before income taxes			(2,017	)			91
Income tax benefit			(808	)			(54	)
Net income (loss)		$	(1,209	)		$	145
Earnings (Loss) per share
Basic		$	(3.77	)		$	0.46
Diluted		$	(3.77	)		$	0.46
Weighted average common shares outstanding			320.8				313.8
Weighted average common shares outstanding and dilutive potential common shares			320.8				315.7
Cash dividends declared per share		$	0.05			$	0.53

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		March 31,				December 31,
(In millions, except for share and per share data)		2009				2008
		(Unaudited)
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost of $76,259 and $78,238)		$	62,563			$	65,112
Equity securities, held for trading, at fair value (cost of $32,447 and $35,278)			27,813				30,820
Equity securities, available-for-sale, at fair value (cost of $1,318 and $1,554)			1,080				1,458
Policy loans, at outstanding balance			2,197				2,208
Mortgage loans on real estate			6,389				6,469
Limited partnerships and other alternative investments			1,981				2,295
Other investments			3,121				1,723
Short-term investments			11,189				10,022
Total investments			116,333				120,107
Cash			1,851				1,811
Premiums receivable and agents’ balances			3,568				3,604
Reinsurance recoverables			6,514				6,357
Deferred policy acquisition costs and present value of future profits			12,077				13,248
Deferred income taxes			6,300				5,239
Goodwill			1,036				1,060
Property and equipment, net			1,062				1,075
Other assets			2,689				4,898
Separate account assets			124,738				130,184
Total assets		$	276,168			$	287,583
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
Property and casualty		$	21,804			$	21,933
Life			18,562				16,747
Other policyholder funds and benefits payable			52,952				53,753
Other policyholder funds and benefits payable — International variable annuities			27,793				30,799
Unearned premiums			5,366				5,379
Short-term debt			419				398
Long-term debt			5,757				5,823
Consumer notes			1,202				1,210
Other liabilities			9,688				11,997
Separate account liabilities			124,738				130,184
Total liabilities			268,281				278,223
Commitments and Contingencies (Note 9)
Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 0 and 6,048,387 shares issued			—				—
Common stock, $0.01 par value — 750,000,000 shares authorized, 354,098,996 and 329,920,310 shares issued			4				3
Additional paid-in capital			7,600				7,569
Retained earnings			10,111				11,336
Treasury stock, at cost — 28,664,237 and 29,341,378 shares			(2,054	)			(2,120	)
Accumulated other comprehensive loss, net of tax			(7,801	)			(7,520	)
Total stockholders’ equity			7,860				9,268
Noncontrolling interest			27				92
Total equity			7,887				9,360
Total liabilities and equity		$	276,168			$	287,583

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions, except for share data)		2009				2008
		(Unaudited)
Preferred Stock		$	—			$	—
Common Stock			4				3
Additional Paid-in Capital
Balance at beginning of period			7,569				6,627
Issuance of shares under incentive and stock compensation plans			(51	)			(50	)
Reclassification of warrants from other liabilities to equity			93				—
Tax (expense) benefit on employee stock options and awards			(11	)			4
Balance at end of period			7,600				6,581
Retained Earnings
Balance at beginning of period, before cumulative effect of accounting change, net of tax			11,336				14,686
Cumulative effect of accounting change, net of tax			—				(3	)
Balance at beginning of period, as adjusted			11,336				14,683
Net income (loss)			(1,209	)			145
Dividends declared on common stock			(16	)			(167	)
Balance at end of period			10,111				14,661
Treasury Stock, at Cost
Balance at beginning of period			(2,120	)			(1,254	)
Issuance of shares under incentive and stock compensation plans from treasury stock			69				87
Return of shares under incentive and stock compensation plans to treasury stock			(3	)			(17	)
Balance at end of period			(2,054	)			(1,184	)
Accumulated Other Comprehensive Loss, Net of Tax
Balance at beginning of period			(7,520	)			(858	)
Total other comprehensive loss			(281	)			(1,367	)
Balance at end of period			(7,801	)			(2,225	)
Total stockholders’ equity			7,860				17,836
Noncontrolling interest (Note 13)
Balance at beginning of period			92				92
Change in noncontrolling interest ownership			(64	)			20
Noncontrolling loss			(1	)			(23	)
Balance at end of period			27				89
Total Equity		$	7,887			$	17,925
Outstanding Common Shares (in thousands)
Balance at beginning of period			300,579				313,842
Treasury stock acquired			(15	)			—
Conversion of preferred to common shares			24,194				—
Issuance of shares under incentive and stock compensation plans			860				930
Return of shares under incentive and stock compensation plans to treasury stock			(183	)			(237	)
Balance at end of period			325,435				314,535

Condensed Consolidated Statements of Comprehensive Loss

		Three Months Ended
		March 31,
(In millions)		2009				2008
		(Unaudited)
Comprehensive Income (Loss)
Net income (loss)		$	(1,209	)		$	145
Other comprehensive income (loss)
Change in net unrealized loss on securities			(33	)			(1,606	)
Change in net gain/loss on cash-flow hedging instruments			(48	)			90
Change in foreign currency translation adjustments			(209	)			142
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs			9				7
Total other comprehensive loss			(281	)			(1,367	)
Total comprehensive loss		$	(1,490	)		$	(1,222	)

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions)		2009				2008
		(Unaudited)
Operating Activities
Net income (loss)		$	(1,209	)		$	145
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Amortization of deferred policy acquisition costs and present value of future profits			2,259				468
Additions to deferred policy acquisition costs and present value of future profits			(734	)			(956	)
Change in:
Reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums			1,700				189
Reinsurance recoverables			(334	)			54
Receivables and other assets			(21	)			(60	)
Payables and accruals			(396	)			(525	)
Accrued and deferred income taxes			(276	)			(154	)
Net realized capital (gains) losses			(84	)			1,371
Net receipts to investment contracts related to policyholder funds — International variable annuities			(387	)			(3,175	)
Net decrease in equity securities, held for trading			449				3,036
Depreciation and amortization			137				190
Goodwill impairment			32				—
Other, net			(126	)			(16	)
Net cash provided by operating activities			1,010				567
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale			22,195				8,020
Equity securities, available-for-sale			311				48
Mortgage loans			27				118
Partnerships			153				28
Derivatives			610				144
Payments for the purchase of:
Fixed maturities, available-for-sale			(22,655	)			(9,038	)
Equity securities, available-for-sale			(207	)			(180	)
Mortgage loans			(20	)			(210	)
Partnerships			(81	)			(162	)
Proceeds from business sold			8				—
Purchase price of businesses acquired			(8	)			(94	)
Change in policy loans, net			11				(57	)
Change in payables for collateral under securities lending, net			(1,450	)			93
Change in all other securities, net			144				(463	)
Additions to property and equipment, net			(49	)			(67	)
Net cash used for investing activities			(1,011	)			(1,820	)
Financing Activities
Deposits and other additions to investment and universal life-type contracts			2,872				5,707
Withdrawals and other deductions from investment and universal life-type contracts			(4,715	)			(6,499	)
Net transfers from separate accounts related to investment and universal life-type contracts			2,136				1,677
Issuance of long-term debt			—				496
Payments on capital lease obligations			(24	)			(26	)
Change in short-term debt			(21	)			—
Proceeds from issuance of consumer notes			—				162
Repayments at maturity of consumer notes			(8	)			—
Proceeds from issuance of shares under incentive and stock compensation plans			7				19
Excess tax expense on stock-based compensation			(11	)			—
Return of shares under incentive and stock compensation plans to treasury stock			(3	)			(17	)
Dividends paid on preferred stock			(8	)			—
Dividends paid on common stock			(99	)			(169	)
Net cash provided by financing activities			126				1,350
Foreign exchange rate effect on cash			(85	)			140
Net increase in cash			40				237
Cash — beginning of period			1,811				2,011
Cash — end of period		$	1,851			$	2,248
Supplemental Disclosure of Cash Flow Information
Net Cash Paid (Received) During the Period For:
Income taxes		$	(598	)		$	—
Interest		$	70			$	45

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
(Unaudited)

1. Basis of Presentation and Accounting Policies

Basis of Presentation

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

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

The accompanying condensed consolidated financial statements and notes as of March 31, 2009, and for the three months ended March 31, 2009 and 2008 are unaudited. These financial statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations, and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in The Hartford’s 2008 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

Consolidation

The condensed consolidated financial statements include the accounts of The Hartford Financial Services Group, Inc., companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities in which the Company is the primary beneficiary. The Company determines if it is the primary beneficiary using both qualitative and quantitative analyses. Entities in which The Hartford does not have a controlling financial interest but in which the Company has significant influence over the operating and financing decisions are reported using the equity method. All material 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 reserves, net of reinsurance; life estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; living benefits required to be fair valued; valuation of investments and derivative instruments; evaluation of other-than-temporary impairments on available-for-sale securities; pension and other postretirement benefit obligations; contingencies relating to corporate litigation and regulatory matters; and goodwill impairment. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the condensed consolidated financial statements.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements included in The Hartford’s 2008 Form 10-K Annual Report.

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

1. Basis of Presentation and Accounting Policies (continued)

Adoption of New Accounting Standards

Fair Value Measurements

In February 2008, the Financial Accounting Standards Board (“FASB”) issued Financial Statement of Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”) which delays the effective date of Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial liabilities. Examples of applicable nonfinancial assets and nonfinancial liabilities to which FSP FAS 157-2 applies include, but are not limited to:

•		Nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination that are not subsequently remeasured at fair value;
•		Reporting units measured at fair value in the goodwill impairment test as described in SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and nonfinancial assets and nonfinancial liabilities measured at fair value in the SFAS 142 goodwill impairment test, if applicable; and
•		Nonfinancial long-lived assets measured at fair value for impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The Company applied the provisions of SFAS 157 to the nonfinancial assets, nonfinancial liabilities and reporting units within the scope of FSP FAS 157-2 on January 1, 2009. The Company’s adoption of FAS 157 did not materially impact the fair values of nonfinancial assets, nonfinancial liabilities and reporting units within the scope of this FSP.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and expands disclosures about an entity’s derivative and hedging activities with the intent of providing users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures. The Company adopted SFAS 161 on January 1, 2009. See Note 5 for the expanded disclosures related to derivative instruments and hedging activities.

Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). This statement amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. Noncontrolling interest refers to the minority interest portion of the equity of a subsidiary that is not attributable directly or indirectly to a parent. SFAS 160 establishes accounting and reporting standards that require for-profit entities that prepare consolidated financial statements to: (a) present noncontrolling interests as a component of equity, separate from the parent’s equity, (b) separately present the amount of consolidated net income attributable to noncontrolling interests in the income statement, (c) consistently account for changes in a parent’s ownership interests in a subsidiary in which the parent entity has a controlling financial interest as equity transactions, (d) require an entity to measure at fair value its remaining interest in a subsidiary that is deconsolidated, and (e) require an entity to provide sufficient disclosures that identify and clearly distinguish between interests of the parent and interests of noncontrolling owners. SFAS 160 applies to all for-profit entities that prepare consolidated financial statements, and affects those for-profit entities that have outstanding noncontrolling interests in one or more subsidiaries or that deconsolidate a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited. The Company adopted SFAS 160 on January 1, 2009. Upon adoption, the Company reclassified $92 of noncontrolling interest, recorded in other liabilities, to equity as of January 1, 2008. See the Company’s Condensed Consolidated Statement of Changes in Equity. The adoption of SFAS 160 did not have a material effect on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss and the adoption of SFAS 160 did not impact the Company’s accounting for separate account assets and liabilities. The FASB has added the following topic to the Emerging Issues Task Force (“EITF”) agenda, “Consideration of an Insurer’s Accounting for Majority Owned Investments When the Ownership Is Through a Separate Account”. This topic will be discussed at a future EITF meeting. The FASB has expressed three separate views on the treatment of noncontrolling interest in majority owned separate accounts, upon implementation of SFAS 160, all of which are acceptable to the United States Securities and Exchange Commission. The Company follows one of these three acceptable views and currently excludes the noncontrolling interest from its majority owned separate accounts. The resolution of this EITF agenda item on the Company’s accounting for separate account assets and liabilities is not known at this time.

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

1. Basis of Presentation and Accounting Policies (continued)

Future Adoption of New Accounting Standards

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). This FSP clarifies that the measurement objective in determining fair value when the volume and level of activity for the asset or liability have significantly decreased, is the price that would be received to sell the asset in an orderly transaction between willing market participants under current market conditions, and not the value in a hypothetical active market. The FSP includes additional factors for determining whether there has been a significant decrease in the volume and level of activity for an asset or liability compared to normal activity for that asset or liability (or similar assets or liabilities) and provides additional guidance in estimating fair value in those instances. The FSP requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The FSP further requires an entity to disclose any change in valuation techniques, the related inputs, and the effects resulting from the application of the FSP.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). The FSP replaces the existing requirement for debt securities, that in order for an entity to conclude impairment is not other-than-temporary, it must have the intent and ability to hold an impaired security for a period sufficient to allow for recovery in value of the investment. To conclude impairment is not other-than-temporary, the FSP requires management assert that it does not have the intent to sell the security and that it is more likely than not it will not have to sell the security before recovery of its cost basis. The FSP also changes the presentation in the financial statements of non-credit related impairment amounts for instruments within its scope. When the entity asserts it does not have the intent to sell the security and it is more likely than not it will not have to sell the security before recovery of its cost basis, only the credit related impairment losses are to be recorded in earnings; non-credit losses are to be recorded in accumulated other comprehensive income. The FSP also expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities.

FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March, 15, 2009, provided both FSPs are adopted concurrently. The Company will adopt both FSPs for the interim period ending on June 30, 2009. The Company has not yet determined the effect of the adoption of these FSPs on the Company’s condensed consolidated financial statements.

Income Taxes

The effective tax rate for the three months ended March 31, 2009 and 2008 was 40% and (59%), respectively. The principal causes of the difference between the effective rate and the U.S. statutory rate of 35% were tax-exempt interest earned on invested assets and the separate account dividends received deduction (“DRD”). This caused an increase in the tax benefit on the 2009 pre-tax loss, whereas the negative effective tax rate in 2008 is a result of a tax benefit on pre-tax income.

The separate account DRD is estimated for the current year using information from the prior year-end, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. Given recent financial markets’ volatility, the Company is reviewing its DRD computations on a quarterly basis. The Company recorded benefits related to the separate account DRD of $38 and $41 in the three months ended March 31, 2009 and 2008, respectively.

The Company’s unrecognized tax benefits decreased by $8 during the first three months of 2009 as a result of the settlement of the 2002-2003 Internal Revenue Service (“IRS”) audit, bringing the total unrecognized tax benefits to $83 as of March 31, 2009. This entire amount, if it were recognized, would increase the effective tax rate for the applicable periods.

The Company’s federal income tax returns are routinely audited by the IRS. During the first quarter of 2009, the Company received notification of the approval by the Joint Committee on Taxation of the results of the 2002 through 2003 examination. As a result, the Company recorded a tax benefit of $7. The 2004 through 2006 examination began during the second quarter of 2008, and is expected to close in early 2010. In addition, the Company is working with the IRS on a possible settlement of a DRD issue related to prior periods which, if settled, may result in the booking of tax benefits in 2009. Such benefits are not expected to be material to the statement of operations.

The Company’s deferred tax asset valuation allowance has been determined pursuant to the provisions of FASB SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), including the Company’s estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. In assessing the need for a valuation allowance, management considered future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and taxable income in prior carry back years as defined in SFAS 109, as well as tax planning strategies that include holding debt securities with market value losses until maturity, selling appreciated securities to offset capital losses, and sales of certain corporate assets. Such tax planning strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset.

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

2. Earnings (Loss) Per Share

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

		Three Months Ended												Three Months Ended
		March 31, 2009												March 31, 2008
		Net								Per Share				Net								Per Share
(Shares in millions)		Loss				Shares				Amount				Income				Shares				Amount
Basic Earnings (Loss) per Share
Net income (loss) available to common shareholders		$	(1,209	)			320.8			$	(3.77	)		$	145				313.8			$	0.46
Diluted Earnings (Loss) per Share [1]
Stock compensation plans			—				—								—				1.9
Net income (loss) available to common shareholders plus assumed conversions		$	(1,209	)			320.8			$	(3.77	)		$	145				315.7			$	0.46

3. Segment Information

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

Life

Life is organized into four groups which are comprised of six reporting segments: The Retail Products Group (“Retail”) and Individual Life segments make up the Individual Markets Group. The Retirement Plans and Group Benefits segments make up the Employer Markets Group. The Institutional Solutions Group (“Institutional”) and International segments each make up their own group.

Life charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Inter-segment revenues primarily occur between Life’s Other category and the reporting segments. These amounts primarily include interest income on allocated surplus and interest charges on excess separate account surplus. In addition, during the first quarter of 2009, Institutional and International entered into a $1.5 billion funding agreement. The resulting interest income and interest expense in International and Institutional, respectively, are eliminated in consolidation.

Property & Casualty

Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively, “Ongoing Operations”); and the Other Operations segment. For the three months ended March 31, 2009 and 2008, AARP accounted for earned premiums of $703 and $687, respectively, in Personal Lines.

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

		Three Months Ended
Net assumed (ceded) earned premiums under		March 31,
inter-segment arrangements		2009				2008
Personal Lines		$	(1	)		$	(1	)
Small Commercial			(6	)			(8	)
Middle Market			(6	)			(8	)
Specialty Commercial			13				17
Total		$	—			$	—

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

3. Segment Information (continued)

Financial Measures and Other Segment Information

For further discussion of the types of products offered by each segment, see Note 3 of Notes to Consolidated Financial Statements included in The Hartford’s 2008 Form 10-K Annual Report.

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

The following tables present revenues and net income (loss) by segment. Underwriting results are presented for the Personal Lines, Small Commercial, Middle Market and Specialty Commercial segments, while net income (loss) is presented for each of Life’s reporting segments, total Property & Casualty, Ongoing Operations, Other Operations, and Corporate.

Revenues

		Three Months Ended
		March 31,
		2009				2008
Life
Retail		$	1,205			$	176
Individual Life			319				256
Total Individual Markets Group			1,524				432
Retirement Plans			91				122
Group Benefits			1,232				1,144
Total Employer Markets Group			1,323				1,266
International [1]			472				147
Institutional			203				304
Other [1]			14				11
Total Life segment revenues			3,536				2,160
Net investment loss on equity securities, held for trading [2]			(724	)			(3,578	)
Total Life			2,812				(1,418	)
Property & Casualty
Ongoing Operations
Earned premiums
Personal Lines			979				983
Small Commercial			652				687
Middle Market			548				593
Specialty Commercial			332				350
Ongoing Operations earned premiums			2,511				2,613
Net investment income			185				310
Other revenues [3]			118				120
Net realized capital losses			(289	)			(134	)
Total Ongoing Operations			2,525				2,909
Other Operations			6				38
Total Property & Casualty			2,531				2,947
Corporate			51				15
Total revenues		$	5,394			$	1,544

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

3. Segment Information (continued)

Net Income (Loss)

		Three Months Ended
		March 31,
		2009				2008
Life
Retail		$	(744	)		$	(77	)
Individual Life			(18	)			20
Total Individual Markets Group			(762	)			(57	)
Retirement Plans			(88	)			(5	)
Group Benefits			69				46
Total Employer Markets Group			(19	)			41
International [1]			(293	)			8
Institutional [1]			(174	)			(120	)
Other [1]			(10	)			(27	)
Total Life			(1,258	)			(155	)
Property & Casualty
Ongoing Operations
Underwriting results
Personal Lines			75				105
Small Commercial			87				119
Middle Market			69				55
Specialty Commercial			23				39
Total Ongoing Operations underwriting results			254				318
Net servicing income (loss) [2]			8				(1	)
Net investment income			185				310
Net realized capital losses			(289	)			(134	)
Other expenses			(50	)			(57	)
Income tax (expense) benefit			3				(124	)
Ongoing Operations			111				312
Other Operations			1				14
Total Property & Casualty			112				326
Corporate			(63	)			(26	)
Net income (loss)		$	(1,209	)		$	145

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

4. Fair Value Measurements

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3). The following table presents assets and (liabilities) carried at fair value by SFAS 157 Hierarchy Level.

		March 31, 2009
						Quoted Prices
						in Active				Significant				Significant
						Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, available-for-sale		$	62,563			$	1,066			$	50,223			$	11,274
Equity securities, held for trading			27,813				1,743				26,070				—
Equity securities, available-for-sale			1,080				236				334				510
Other investments
Customized derivatives used to hedge U.S. GMWB			937				—				—				937
Other derivatives used to hedge U.S. GMWB			1,249				—				(67	)			1,316
Macro hedge program			175				—				24				151
Other investments [1]			616				—				620				(4	)
Total other investments			2,977				—				577				2,400
Short-term investments			11,189				6,969				4,220				—
Reinsurance recoverable for U.S. GMWB			1,058				—				—				1,058
Separate account assets [2] [3]			119,224				87,230				31,355				639
Total assets accounted for at fair value on a recurring basis		$	225,904			$	97,244			$	112,779			$	15,881
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. GMWB		$	(5,829	)		$	—			$	—			$	(5,829	)
U.K. GMWB			(70	)			—				—				(70	)
Japan GMWB			(28	)			—				—				(28	)
Japan GMAB			(3	)			—				—				(3	)
Institutional notes			(25	)			—				—				(25	)
Equity linked notes			(5	)			—				—				(5	)
Total other policyholder funds and benefits payable			(5,960	)			—				—				(5,960	)
Other liabilities [4]
Other derivatives used to hedge U.S. GMWB			136				—				10				126
Macro hedge program			22				—				—				22
Other liabilities			(510	)			—				(134	)			(376	)
Total other liabilities			(352	)			—				(124	)			(228	)
Consumer notes [5]			(4	)			—				—				(4	)
Total liabilities accounted for at fair value on a recurring basis		$	(6,316	)		$	—			$	(124	)		$	(6,192	)

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

4. Fair Value Measurements (continued)

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the three months ended March 31, 2009.

																										Changes in
																										unrealized
																										gains (losses)
						Total																				included in net
						Realized/unrealized																				income related
						gains (losses)																				to financial
		Fair value				included in:								Purchases,				Transfers				Fair value				instruments
		as of				Net								issuances,				in and/or				as of				still held at
		December 31,				income								and				(out) of				March 31,				March 31,
Asset (Liability)		2008				[1], [2]				AOCI [3]				settlements				Level 3 [4]				2009				2009 [2]
Assets
Fixed maturities, available-for-sale		$	11,810			$	(221	)		$	(449	)		$	175			$	(41	)		$	11,274			$	(93	)
Equity securities, available-for-sale			541				(1	)			(75	)			(4	)			49				510				(1	)
Freestanding derivatives [5]
Customized derivatives used to hedge U.S. GMWB			941				(4	)			—				—				—				937				(4	)
Other freestanding derivatives used to hedge U.S. GMWB			1,696				133				—				(387	)			—				1,442				116
Macro hedge program			137				(21	)			—				57				—				173				(21	)
Other freestanding derivatives			(281	)			(90	)			(5	)			(1	)			(3	)			(380	)			(82	)
Total freestanding derivatives			2,493				18				(5	)			(331	)			(3	)			2,172				9
Reinsurance recoverable for U.S. GMWB [1]			1,302				(252	)			—				8				—				1,058				(252	)
Separate accounts [6]			786				(123	)			—				87				(111	)			639				(85	)
Supplemental Information:
Total freestanding derivatives used to hedge U.S. GMWB including those in Levels 1, 2 and 3 [7]		$	2,664			$	118			$	—			$	(460	)		$	—			$	2,322			$	118
Liabilities
Other policyholder funds and benefits payable accounted for at fair value [1]
U.S. GMWB		$	(6,526	)		$	728			$	—			$	(31	)		$	—			$	(5,829	)		$	728
U.K. GMWB			(64	)			(4	)			—				(2	)			—				(70	)			(4	)
Japan GMWB			(30	)			(1	)			4				(1	)			—				(28	)			(1	)
Japan GMAB			—				(2	)			—				(1	)			—				(3	)			(2	)
Institutional notes			(41	)			16				—				—				—				(25	)			16
Equity linked notes			(8	)			3				—				—				—				(5	)			3
Total other policyholder funds and benefits payable accounted for at fair value[1]			(6,669	)			740				4				(35	)			—				(5,960	)			740
Other Liabilities
Derivative Liabilities — Warrants [8]			(163	)			70				—				93				—				—				70
Consumer notes			(5	)			1				—				—				—				(4	)			1
Supplemental Information:
Net U.S. GMWB (Embedded derivatives, freestanding derivatives including those in Levels 1, 2 and 3 and reinsurance recoverable)[9]		$	(2,560	)		$	594			$	—			$	(483	)		$	—			$	(2,449	)		$	594

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

4. Fair Value Measurements (continued)

During the first quarter of 2009, the Company updated the following assumptions used in its estimates of fair value for living benefit obligations and related uncollateralized reinsurance recoverable assets:

•		Credit Standing Adjustment. This assumption makes an adjustment that market participants would make to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will not be fulfilled (“nonperformance risk”). As a result of sustained volatility in the Company’s credit default spreads, the Company changed its estimate of the Credit Standing Adjustment to incorporate observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. Prior to the first quarter of 2009, the Company calculated the Credit Standing Adjustment by using default rates provided by rating agencies, adjusted for market recoverability. The changes made in the first quarter of 2009, resulted in a realized gain of $383, before-tax, for U.S. GMWB liabilities and a realized loss of $185, before-tax, for uncollateralized reinsurance recoverable assets.
•		Behavior Risk Margin and Other Policyholder Behavior Assumptions. The behavior risk margin adds a margin that market participants would require for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions. During the first quarter of 2009, the Company revised certain adverse assumptions in the behavior risk margin for withdrawals, lapses and annuitization behavior as emerging policyholder behavior experience suggested the prior adverse policyholder behavior assumptions were no longer representative of an appropriate margin for risk. These changes, as well as other policyholder behavior assumption updates, resulted in a realized gain of $352, before-tax.

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

4. Fair Value Measurements (continued)

Assets (Liabilities) Carried at Fair Value by SFAS 157 Hierarchy Level

		December 31, 2008
						Quoted Prices
						in Active				Significant				Significant
						Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, available-for-sale		$	65,112			$	3,541			$	49,761			$	11,810
Equity securities, held for trading			30,820				1,634				29,186				—
Equity securities, available-for-sale			1,458				246				671				541
Other investments
Other derivatives used to hedge U.S. GMWB			600				—				13				587
Other investments [1]			976				—				1,005				(29	)
Total other investments			1,576				—				1,018				558
Short-term investments			10,022				7,025				2,997				—
Reinsurance recoverables for U.S. GMWB			1,302				—				—				1,302
Separate account assets [2] [3]			126,777				94,804				31,187				786
Total assets accounted for at fair value on a recurring basis		$	237,067			$	107,250			$	114,820			$	14,997
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. GMWB		$	(6,526	)		$	—			$	—			$	(6,526	)
U.K. GMWB			(64	)			—				—				(64	)
Japan GMAB			(30	)			—				—				(30	)
Institutional notes			(41	)			—				—				(41	)
Equity linked notes			(8	)			—				—				(8	)
Total other policyholder funds and benefits payable			(6,669	)			—				—				(6,669	)
Other liabilities [4]
Customized derivatives used to hedge U.S. GMWB			941				—				—				941
Other derivatives used to hedge U.S. GMWB			1,123				—				14				1,109
Macro hedge program			137				—				—				137
Other liabilities			(339	)			—				76				(415	)
Total other liabilities			1,862				—				90				1,772
Consumer notes [5]			(5	)			—				—				(5	)
Total liabilities accounted for at fair value on a recurring basis		$	(4,812	)		$	—			$	90			$	(4,902	)