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

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

Commission File Number: 001-13958

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		13-3317783 (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)

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 þ 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 October 27, 2011 there were outstanding 445,739,799 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 SEPTEMBER 30, 2011

TABLE OF CONTENTS

Item				Description		Page
				Part I. FINANCIAL INFORMATION
1.				Financial Statements
				Report of Independent Registered Public Accounting Firm			5
				Condensed Consolidated Statements of Operations — For the Three and Nine Months Ended September 30, 2011 and 2010			6
				Condensed Consolidated Balance Sheets — As of September 30, 2011 and December 31, 2010			7
				Condensed Consolidated Statements of Changes in Stockholders’ Equity — For the Nine Months Ended September 30, 2011 and 2010			8
				Condensed Consolidated Statements of Comprehensive Income — For the Three and Nine Months Ended September 30, 2011 and 2010			9
				Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2011 and 2010			10
				Notes to Condensed Consolidated Financial Statements			11
2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			61
3.				Quantitative and Qualitative Disclosures About Market Risk			121
4.				Controls and Procedures			121
				Part II. OTHER INFORMATION
1.				Legal Proceedings			122
1A.				Risk Factors			124
2.				Unregistered Sales of Equity Securities and Use of Proceeds			124
6.				Exhibits			124
				Signature			125
				Exhibits Index			126
Exhibit 15.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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 our current expectations and assumptions regarding economic, competitive, legislative and other developments. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the “Company” or “The Hartford”). Future developments may not be in line with management’s expectations or may have unanticipated effects. Actual results could differ materially from expectations, depending on the evolution of various factors, including those set forth in Part I, Item 1A, Risk Factors in The Hartford’s 2010 Form 10-K Annual Report. These important risks and uncertainties include:

•

challenges related to the Company’s current operating environment, including continuing uncertainty about the strength and speed of the recovery in the United States and other key economies and the impact of governmental stimulus and austerity initiatives, sovereign credit concerns, including the potential consequences associated with downgrades to the credit ratings of debt issued by the United States government, and other developments on financial, commodity and credit markets and consumer spending and investment;

•

the success of our initiatives relating to the realignment of our business in 2010 and plans to improve the profitability and long-term growth prospects of our key divisions, including through opportunistic acquisitions or divestitures, and the impact of regulatory or other constraints on our ability to complete these initiatives and deploy capital among our businesses as and when planned;

•

market risks associated with our business, including changes in interest rates, credit spreads, equity prices, foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in key sectors such as the global real estate market;

•

volatility in our earnings resulting from our adjustment of our risk management program to emphasize protection of statutory surplus, and cash flows;

•

the impact on our statutory capital of various factors, including many that are outside the Company’s control, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;

•

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;

•

the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations;

•

the subjective determinations that underlie the Company’s evaluation of other-than-temporary impairments on available-for-sale securities;

•

losses due to nonperformance or defaults by others;

•

the potential for further acceleration of deferred policy acquisition cost amortization;

•

the potential for further impairments of our goodwill or the potential for changes in valuation allowances against deferred tax assets;

•

the possible occurrence of terrorist attacks and the Company’s ability to contain its exposure, including the effect of the absence or insufficiency of applicable terrorism legislation on coverage;

•

the difficulty in predicting the Company’s potential exposure for asbestos and environmental claims;

•

the possibility of a pandemic, earthquake, or other natural or man-made disaster that may adversely affect our businesses and cost and availability of reinsurance;

•

weather and other natural physical events, including the severity and frequency of storms, hail, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns;

•

the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;

•

the possibility of unfavorable loss development;

•

actions by our competitors, many of which are larger or have greater financial resources than we do;

•

the restrictions, oversight, costs and other consequences of being a savings and loan holding company, including from the supervision, regulation and examination by The Federal Reserve as the Company’s regulator and the Office of the Controller of the Currency as regulator of Federal Trust Bank;

•

the cost and other effects of increased regulation as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), which will, among other effects, vest a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, and may affect our ability as a savings and loan holding company to manage our general account by limiting or eliminating investments in certain private equity and hedge funds;

•

the potential effect of other domestic and foreign regulatory developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels, including changes to statutory reserves and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products or changes in U.S. federal or other tax laws that affect the relative attractiveness of our investment products;

•

the Company’s ability to distribute its products through distribution channels, both current and future;

•

the uncertain effects of emerging claim and coverage issues;

•

regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends;

•

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;

•

the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster or other unanticipated events;

•

the risk that our framework for managing business risks may not be effective in mitigating material risk and loss;

•

the potential for difficulties arising from outsourcing relationships;

•

the impact of potential changes in federal or state tax laws, including changes affecting the availability of the separate account dividend received deduction;

•

the impact of potential changes in accounting principles and related financial reporting requirements;

•

the Company’s ability to protect its intellectual property and defend against claims of infringement;

•

unfavorable judicial or legislative developments; and

•

other factors described in such forward-looking statements.

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.

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 September 30, 2011, and the related condensed consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2011 and 2010 and statements of changes in stockholders’ equity, and cash flows for the nine-month periods ended September 30, 2011 and 2010. 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, 2010, and the related consolidated statements of operations, changes in equity, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2011 (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for variable interest entities and embedded credit derivatives as required by accounting guidance adopted in 2010, for other-than-temporary impairments as required by accounting guidance adopted in 2009, and for the fair value measurement of financial instruments as required by accounting guidance adopted in 2008), 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, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP

Hartford, Connecticut
November 2, 2011

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions, except for per share data)		2011				2010				2011				2010
		(Unaudited)								(Unaudited)
Revenues
Earned premiums		$	3,518			$	3,513			$	10,582			$	10,546
Fee income			1,192				1,164				3,620				3,530
Net investment income (loss):
Securities available-for-sale and other			1,062				1,073				3,274				3,275
Equity securities, trading			(1,890	)			1,043				(1,684	)			(905	)
Total net investment income (loss)			(828	)			2,116				1,590				2,370
Net realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses			(71	)			(146	)			(221	)			(778	)
OTTI losses recognized in other comprehensive income (“OCI”)			11				31				83				403
Net OTTI losses recognized in earnings			(60	)			(115	)			(138	)			(375	)
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings			635				(142	)			379				(147	)
Total net realized capital gains (losses)			575				(257	)			241				(522	)
Other revenues			63				66				188				195
Total revenues			4,520				6,602				16,221				16,119
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses			4,006				3,037				11,160				9,762
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities			(1,889	)			1,043				(1,683	)			(905	)
Amortization of deferred policy acquisition costs and present value of future profits			1,320				431				2,819				2,013
Insurance operating costs and other expenses			1,059				1,046				3,403				3,272
Interest expense			128				128				384				380
Total benefits, losses and expenses			4,624				5,685				16,083				14,522
Income (loss) from continuing operations before income taxes			(104	)			917				138				1,597
Income tax expense (benefit)			(101	)			252				(312	)			437
Income (loss) from continuing operations, net of tax			(3	)			665				450				1,160
Income (loss) from discontinued operations, net of tax			3				1				85				(99	)
Net income		$	—			$	666			$	535			$	1,061
Preferred stock dividends and accretion of discount			10				10				31				504
Net income (loss) available to common shareholders		$	(10	)		$	656			$	504			$	557
Income (loss) from continuing operations, net of tax, available to common shareholders per common share
Basic		$	(0.03	)		$	1.47			$	0.94			$	1.54
Diluted		$	(0.03	)		$	1.34			$	0.87			$	1.42
Net income (loss) available to common shareholders per common share
Basic		$	(0.02	)		$	1.48			$	1.13			$	1.30
Diluted		$	(0.02	)		$	1.34			$	1.05			$	1.21
Cash dividends declared per common share		$	0.10			$	0.05			$	0.30			$	0.15

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		September 30,				December 31,
(In millions, except for share and per share data)		2011				2010
		(Unaudited)
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $77,838 and $78,419) (includes variable interest entity assets, at fair value, of $154 and $406)		$	80,263			$	77,820
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets of $338 and $323)			1,323				649
Equity securities, trading, at fair value (cost of $33,565 and $33,899)			30,770				32,820
Equity securities, available-for-sale, at fair value (cost of $1,093 and $1,013)			989				973
Mortgage loans (net of allowances for loan losses of $147 and $155)			5,590				4,489
Policy loans, at outstanding balance			2,176				2,181
Limited partnerships and other alternative investments (includes variable interest entity assets of $7 and $14)			2,506				1,918
Other investments			2,857				1,617
Short-term investments			9,704				8,528
Total investments			136,178				130,995
Cash			2,589				2,062
Premiums receivable and agents’ balances, net			3,525				3,273
Reinsurance recoverables, net			5,253				4,862
Deferred policy acquisition costs and present value of future profits			8,729				9,857
Deferred income taxes, net			1,611				3,725
Goodwill			1,036				1,051
Property and equipment, net			1,029				1,150
Other assets			1,725				1,629
Separate account assets			143,923				159,742
Total assets		$	305,598			$	318,346
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses		$	41,034			$	39,598
Other policyholder funds and benefits payable			45,868				44,550
Other policyholder funds and benefits payable — international variable annuities			30,734				32,793
Unearned premiums			5,409				5,176
Short-term debt			400				400
Long-term debt			6,217				6,207
Consumer notes			349				382
Other liabilities (includes variable interest entity liabilities of $461 and $394)			8,883				9,187
Separate account liabilities			143,923				159,742
Total liabilities			282,817				298,035
Commitments and Contingencies (Note 9)
Stockholders’ Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 575,000 shares issued, liquidation preference $1,000 per share			556				556
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 469,754,771 shares issued			5				5
Additional paid-in capital			10,395				10,448
Retained earnings			12,447				12,077
Treasury stock, at cost — 24,241,076 and 25,205,283 shares			(1,687	)			(1,774	)
Accumulated other comprehensive income (loss), net of tax			1,065				(1,001	)
Total stockholders’ equity			22,781				20,311
Total liabilities and stockholders’ equity		$	305,598			$	318,346

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Nine Months Ended
		September 30,
(In millions, except for share data)		2011				2010
		(Unaudited)
Preferred Stock, at beginning of period		$	556			$	2,960
Issuance of mandatory convertible preferred stock			—				556
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury			—				440
Redemption of preferred stock issued to the U.S. Treasury			—				(3,400	)
Preferred Stock, at end of period			556				556
Common Stock			5				5
Additional Paid-in Capital, at beginning of period			10,448				8,985
Issuance of common shares under public offering			—				1,599
Issuance of shares under incentive and stock compensation plans			(43	)			(123	)
Tax expense on employee stock options and awards			(10	)			(6	)
Additional Paid-in Capital, at end of period			10,395				10,455
Retained Earnings, at beginning of period, before cumulative effect of accounting change, net of tax			12,077				11,164
Cumulative effect of accounting change, net of tax			—				26
Retained Earnings, at beginning of period, as adjusted			12,077				11,190
Net income			535				1,061
Cumulative effect of accounting changes, net of tax			—				(194	)
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury			—				(440	)
Dividends on preferred stock			(31	)			(64	)
Dividends declared on common stock			(134	)			(65	)
Retained Earnings, at end of period			12,447				11,488
Treasury Stock, at Cost, at beginning of period			(1,774	)			(1,936	)
Issuance of shares under incentive and stock compensation plans from treasury stock			94				150
Return of shares under incentive and stock compensation plans and other to treasury stock			(7	)			(3	)
Treasury Stock, at Cost, at end of period			(1,687	)			(1,789	)
Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period			(1,001	)			(3,312	)
Cumulative effect of accounting changes, net of tax			—				194
Total other comprehensive income			2,066				3,312
Accumulated Other Comprehensive Income, Net of Tax, at end of period			1,065				194
Noncontrolling Interest, at beginning of period			—				29
Recognition of noncontrolling interest in other liabilities			—				(29	)
Noncontrolling Interest, at end of period			—				—
Total Stockholders’ Equity		$	22,781			$	20,909
Preferred Shares Outstanding, at beginning of period (in thousands)			575				3,400
Redemption of shares issued to the U.S. Treasury			—				(3,400	)
Issuance of mandatory convertible preferred shares			—				575
Preferred Shares Outstanding, at end of period			575				575
Common Shares Outstanding, at beginning of period (in thousands)			444,549				383,007
Issuance of shares under public offering			—				59,590
Issuance of shares under incentive and stock compensation plans			1,203				1,901
Return of shares under incentive and stock compensation plans and other to treasury stock			(238	)			(132	)
Common Shares Outstanding, at end of period			445,514				444,366

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2011				2010				2011				2010
		(Unaudited)								(Unaudited)
Comprehensive Income
Net income		$	—			$	666			$	535			$	1,061
Other comprehensive income (loss)
Change in net unrealized gain / loss on securities			871				1,064				1,717				2,642
Change in OTTI losses recognized in other comprehensive income			10				44				11				97
Change in net gain / loss on cash-flow hedging instruments			154				79				157				308
Change in foreign currency translation adjustments			83				164				109				205
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs			24				28				72				60
Total other comprehensive income			1,142				1,379				2,066				3,312
Total comprehensive income		$	1,142			$	2,045			$	2,601			$	4,373

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Nine Months Ended
		September 30,
(In millions)		2011				2010
		(Unaudited)
Operating Activities
Net income		$	535			$	1,061
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred policy acquisition costs and present value of future profits			2,819				2,027
Additions to deferred policy acquisition costs and present value of future profits			(1,961	)			(1,999	)
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums			1,309				(17	)
Change in reinsurance recoverables			(31	)			247
Change in receivables and other assets			(452	)			(29	)
Change in payables and accruals			(141	)			(92	)
Change in accrued and deferred income taxes			(472	)			(5	)
Net realized capital (gains) losses			(360	)			526
Net receipts (disbursements) from investment contracts related to policyholder funds - international variable annuities			(2,059	)			174
Net (increase) decrease in equity securities, trading			2,050				(174	)
Depreciation and amortization			532				449
Goodwill impairment			—				153
Other operating activities, net			(145	)			(76	)
Net cash provided by operating activities			1,624				2,245
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale			26,124				37,320
Fixed maturities, fair value option			40				—
Equity securities, available-for-sale			130				207
Mortgage loans			366				1,517
Partnerships			151				312
Payments for the purchase of:
Fixed maturities, available-for-sale			(26,513	)			(39,485	)
Fixed maturities, fair value option			(664	)			—
Equity securities, available-for-sale			(200	)			(135	)
Mortgage loans			(1,503	)			(273	)
Partnerships			(594	)			(226	)
Proceeds from business sold			278				130
Derivatives, net			1,603				504
Change in policy loans, net			5				(6	)
Change in payables for collateral under securities lending, net			—				(46	)
Other investing activities, net			(119	)			(105	)
Net cash used for investing activities			(896	)			(286	)
Financing Activities
Deposits and other additions to investment and universal life-type contracts			8,419				9,458
Withdrawals and other deductions from investment and universal life-type contracts			(16,123	)			(16,426	)
Net transfers from separate accounts related to investment and universal life-type contracts			7,661				5,998
Proceeds from issuance of long-term debt			—				1,090
Repayments at maturity for long-term debt and payments on capital lease obligations			—				(343	)
Repayments at maturity or settlement of consumer notes			(33	)			(752	)
Net proceeds from issuance of mandatory convertible preferred stock			—				556
Net proceeds from issuance of common shares under public offering			—				1,600
Redemption of preferred stock issued to the U.S. Treasury			—				(3,400	)
Proceeds from net issuance of shares under incentive and stock compensation plans, excess tax benefit and other			6				17
Dividends paid on preferred stock			(32	)			(75	)
Dividends paid on common stock			(107	)			(62	)
Changes in bank deposits and payments on bank advances			(30	)			(56	)
Net cash used for financing activities			(239	)			(2,395	)
Foreign exchange rate effect on cash			38				1
Net increase (decrease) in cash			527				(435	)
Cash — beginning of period			2,062				2,142
Cash — end of period		$	2,589			$	1,707
Supplemental Disclosure of Cash Flow Information
Income taxes paid		$	245			$	249
Interest paid		$	340			$	324

See Notes to Condensed Consolidated Financial Statements

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

1. Basis of Presentation and Accounting Policies

Basis of Presentation

The Hartford Financial Services Group, Inc. is a holding company for insurance and financial services subsidiaries that provide investment products and life and property and casualty insurance to both individual and business customers in the United States (collectively, “The Hartford” or the “Company”). Also, The Hartford continues to administer business previously sold in Japan and the U.K.

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 September 30, 2011, and for the three and nine months ended September 30, 2011 and 2010 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 2010 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 (“VIEs”) in which the Company is required to consolidate. Entities in which the Company has significant influence over the operating and financing decisions but are not required to consolidate are reported using the equity method. Material intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated. For further discussions on variable interest entities see Note 5 of the Notes to Condensed Consolidated Financial Statements.

Discontinued Operations

The Company is presenting the operations of certain businesses that meet the criteria for reporting as discontinued operations. Amounts for prior periods have been retrospectively reclassified. See Note 12 of the Notes to Condensed Consolidated Financial Statements for information on the specific subsidiaries and related impacts.

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 insurance product reserves, net of reinsurance; estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; goodwill impairment; valuation of investments and derivative instruments; pension and other postretirement benefit obligations; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in The Hartford’s 2010 Form 10-K Annual Report, which should be read in conjunction with these accompanying Condensed Consolidated Financial Statements.

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

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued guidance clarifying the definition of acquisition costs that are eligible for deferral. Acquisition costs are to include only those costs that are directly related to the successful acquisition or renewal of insurance contracts; incremental direct costs of contract acquisition that are incurred in transactions with either independent third parties or employees; and advertising costs meeting the capitalization criteria for direct-response advertising.

This guidance will be effective for fiscal years beginning after December 15, 2011, and interim periods within those years. This guidance may be applied prospectively upon the date of adoption, with retrospective application permitted, but not required. Early adoption as of the beginning of a fiscal year is permitted.

The Company intends to adopt this guidance retrospectively on January 1, 2012, resulting in a write down of the Company’s deferred acquisition costs relating to those costs which no longer meet the revised guidance as summarized above. The Company estimates the cumulative effect of the retrospective adoption of this guidance will reduce stockholders’ equity as of December 31, 2010 between $1.4 billion and $1.7 billion after-tax. The actual impact may be different.

Income Taxes

A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Tax expense (benefit) at U.S. Federal statutory rate		$	(36	)		$	321			$	48			$	559
Tax-exempt interest			(37	)			(38	)			(112	)			(116	)
Dividends-received deduction			(42	)			(34	)			(169	)			(115	)
Valuation allowance			6				—				(83	)			86
Other			8				3				4				23
Income tax expense (benefit)		$	(101	)		$	252			$	(312	)		$	437

The separate account dividends-received deduction (“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 and level of policy owner equity account balances. 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. The Company evaluates its DRD computations on a quarterly basis.

The Company’s unrecognized tax benefits were unchanged during the nine months ended September 30, 2011, remaining at $48 as of September 30, 2011. This entire amount, if it were recognized, would affect the effective tax rate in the period it is released.

The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). Audits have been concluded for all years through 2006. The audit of the years 2007 - 2009 commenced during 2010 and is expected to conclude by the end of 2012. In addition, in the second quarter of 2011 the Company recorded a tax benefit of $52 as a result of a resolution of a tax matter with the IRS for the computation of DRD for years 1998, 2000 and 2001.

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

1. Basis of Presentation and Accounting Policies (continued)

The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. The deferred tax asset valuation allowance was $90, relating mostly to foreign net operating losses, as of September 30, 2011 and was $173 as of December 31, 2010. In assessing the need for a valuation allowance, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in open carry back years, as well as other tax planning strategies. These tax planning strategies include holding a portion of debt securities with market value losses until recovery, selling appreciated securities to offset capital losses, business considerations such as asset-liability matching, and sales of certain corporate assets. Management views such tax planning strategies as prudent and feasible, and would implement them, if necessary, to realize the deferred tax asset. Based on the availability of additional tax planning strategies identified in the second quarter of 2011, the Company released $86, or 100% of the valuation allowance associated with investment realized capital losses. Future economic conditions and debt market volatility, including increases in interest rates, can adversely impact the Company’s tax planning strategies and in particular the Company’s ability to utilize tax benefits on previously recognized realized capital losses.

Included in the Company’s September 30, 2011 $1.6 billion net deferred tax asset is $1.8 billion relating to items treated as ordinary for federal income tax purposes, and a $187 net deferred tax liability for items classified as capital in nature. The $187 capital items are comprised of $577 of gross deferred tax assets related to realized capital losses and $764 of gross deferred tax liabilities related to net unrealized capital gains.

Also, for the nine months ended September 30, 2010, the Company incurred a $19 charge related to a decrease in deferred tax assets as a result of federal legislation that will reduce the tax deduction available to the Company related to retiree health care costs beginning in 2013.

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

2. Earnings (Loss) Per Common Share

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions, except for per share data)		2011				2010				2011				2010
Earnings
Income (loss) from continuing operations
Income (loss) from continuing operations, net of tax		$	(3	)		$	665			$	450			$	1,160
Less: Preferred stock dividends and accretion of discount			10				10				31				504
Income (loss) from continuing operations, net of tax, available to common shareholders			(13	)			655				419				656
Add: Dilutive effect of preferred stock dividends			—				10				—				—
Income (loss) from continuing operations, net of tax, available to common shareholders and assumed conversion of preferred shares		$	(13	)		$	665			$	419			$	656
Income (loss) from discontinued operations, net of tax		$	3			$	1			$	85			$	(99	)
Net income
Net income		$	—			$	666			$	535			$	1,061
Less: Preferred stock dividends and accretion of discount			10				10				31				504
Net income (loss) available to common shareholders			(10	)			656				504				557
Add: Dilutive effect of preferred stock dividends			—				10				—				—
Net income (loss) available to common shareholders and assumed conversion of preferred shares		$	(10	)		$	666			$	504			$	557
Shares
Weighted average common shares outstanding, basic			445.3				444.1				445.0				427.2
Dilutive effect of warrants			—				29.0				34.8				32.6
Dilutive effect of stock compensation plans			—				1.4				1.2				1.3
Dilutive effect of mandatory convertible preferred shares			—				20.8				—				—
Weighted average shares outstanding and dilutive potential common shares			445.3				495.3				481.0				461.1
Earnings (loss) per common share
Basic
Income (loss) from continuing operations, net of tax, available to common shareholders		$	(0.03	)		$	1.47			$	0.94			$	1.54
Income (loss) from discontinued operations, net of tax			0.01				0.01				0.19				(0.24	)
Net income (loss) available to common shareholders		$	(0.02	)		$	1.48			$	1.13			$	1.30
Diluted
Income (loss) from continuing operations, net of tax, available to common shareholders		$	(0.03	)		$	1.34			$	0.87			$	1.42
Income (loss) from discontinued operations, net of tax			0.01				—				0.18				(0.21	)
Net income (loss) available to common shareholders		$	(0.02	)		$	1.34			$	1.05			$	1.21

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

2. Earnings (Loss) Per Common Share (continued)

The declaration of a quarterly common stock dividend of $0.10 during the first, second and third quarters of 2011 triggered a provision in The Hartford’s Warrant Agreement with The Bank of New York Mellon, relating to warrants to purchase common stock issued in connection with the Company’s participation in the Capital Purchase Program, resulting in an adjustment to the warrant exercise price. The warrant exercise price at September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010 was $9.729, $9.754, $9.773 and $9.790, respectively.

As a result of the losses available to common shareholders in the three months ended September 30, 2011, the Company is required to use basic weighted average common shares outstanding in the calculation of the three months ended September 30, 2011 diluted loss per share, since the inclusion of 27.4 million shares for warrants, 0.7 million shares for stock compensation plans and 20.7 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 494.1 million.

For the nine months ended September 30, 2011, 20.8 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculations. Assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 501.8 million.

For the nine months ended September 30, 2010, 14.9 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. Assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 476.0 million.

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

3. Segment Information

The Hartford is organized into three customer-oriented divisions, Commercial Markets, Consumer Markets and Wealth Management, conducting business principally in seven reporting segments. The Company’s seven reporting segments, as well as the Corporate and Other category, are as follows:

Commercial Markets

Property & Casualty Commercial

Property & Casualty Commercial provides workers’ compensation, property, automobile, marine, livestock, liability and umbrella coverages primarily throughout the United States (“U.S.”), along with a variety of customized insurance products and risk management services including professional liability, fidelity, surety and specialty casualty coverages.

Group Benefits

Group Benefits provides employers, associations, affinity groups and financial institutions with group life, accident and disability coverage, along with other products and services, including voluntary benefits and group retiree health.

Consumer Markets

Consumer Markets provides standard automobile, homeowners and home-based business coverages to individuals across the U.S., including a special program designed exclusively for members of AARP. Consumer Markets also operates a member contact center for health insurance products offered through the AARP Health program.

Wealth Management

Global Annuity

Global Annuity offers individual variable, fixed market value adjusted (“fixed MVA”) and single premium immediate annuities in the U.S., a range of products to institutional investors, including but not limited to, stable value contracts, and administers investments, retirement savings and other insurance and savings products to individuals and groups outside the U.S., primarily in Japan and Europe.

Life Insurance

Life Insurance sells a variety of life insurance products, including variable universal life, universal life, and term life, as well as private placement life insurance (“PPLI”) owned by corporations and high net worth individuals.

Retirement Plans

Retirement Plans provides products and services to corporations pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), and products and services to municipalities and not-for-profit organizations under Sections 457 and 403(b) of the Code, collectively referred to as government plans.

Mutual Funds

Mutual Funds offers retail mutual funds, investment-only mutual funds and college savings plans under Section 529 of the Code (collectively referred to as non-proprietary) and proprietary mutual funds supporting insurance products issued by The Hartford.

Corporate and Other

The Hartford includes in Corporate and Other the Company’s debt financing and related interest expense, as well as other capital raising activities; banking operations; certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries; and certain purchase accounting adjustments and other charges not allocated to the segments. Also included in Corporate and Other is the Company’s management of certain property and casualty operations that have discontinued writing new business and substantially all of the Company’s asbestos and environmental exposures, collectively referred to as Other Operations.

Financial Measures and Other Segment Information

The following table presents net income (loss) for each reporting segment, as well as the Corporate and Other category.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Property & Casualty Commercial		$	52			$	306			$	500			$	782
Group Benefits			25				46				77				145
Consumer Markets			(16	)			70				(80	)			113
Global Annuity			49				175				327				141
Life Insurance			(3	)			97				98				224
Retirement Plans			(32	)			30				13				38
Mutual Funds			24				18				79				67
Corporate and Other			(99	)			(76	)			(479	)			(449	)
Net income		$	—			$	666			$	535			$	1,061

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

3. Segment Information (continued)

The following table presents revenues by product line for each reporting segment, as well as the Corporate and Other category.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Earned premiums, fees, and other considerations
Property & Casualty Commercial
Workers’ compensation		$	721			$	605			$	2,071			$	1,754
Property			129				137				398				412
Automobile			146				149				437				453
Package business			289				281				857				842
Liability			135				129				404				405
Fidelity and surety			55				56				164				169
Professional liability			78				82				237				243
Total Property & Casualty Commercial			1,553				1,439				4,568				4,278
Group Benefits
Group disability			467				487				1,460				1,520
Group life and accident			501				513				1,529				1,539
Other			48				58				147				175
Total Group Benefits			1,016				1,058				3,136				3,234
Consumer Markets
Automobile			649				698				1,978				2,122
Homeowners			281				287				847				854
Total Consumer Markets [1]			930				985				2,825				2,976
Global Annuity
Variable annuity			600				629				1,870				1,855
Fixed / MVA and other annuity			29				24				56				49
Institutional investment products			(5	)			4				(7	)			21
Total Global Annuity			624				657				1,919				1,925
Life Insurance
Variable life			122				113				304				315
Universal life			109				72				324				282
Term / other life			13				12				37				36
PPLI			42				46				131				129
Total Life Insurance			286				243				796				762
Retirement Plans
401(k)			82				77				254				233
Government plans			11				12				37				32
Total Retirement Plans			93				89				291				265
Mutual Funds
Non-proprietary			138				144				461				447
Proprietary			15				15				45				46
Total Mutual Funds			153				159				506				493
Corporate and Other			55				47				161				143
Total earned premiums, fees, and other considerations			4,710				4,677				14,202				14,076
Net investment income (loss):
Securities available-for-sale and other			1,062				1,073				3,274				3,275
Equity securities, trading			(1,890	)			1,043				(1,684	)			(905	)
Total net investment income (loss)			(828	)			2,116				1,590				2,370
Net realized capital gains (losses)			575				(257	)			241				(522	)
Other revenues			63				66				188				195
Total revenues		$	4,520			$	6,602			$	16,221			$	16,119

[1]		For the three months ended September 30, 2011 and 2010, AARP members accounted for earned premiums of $687 and $712, respectively. For the nine months ended September 30, 2011 and 2010, AARP members accounted for earned premiums of $2.1 billion and $2.1 billion, respectively.

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits

The following financial instruments are carried at fair value in the Company’s Condensed Consolidated Financial Statements: fixed maturity and equity securities, available-for-sale (“AFS”); fixed maturities at fair value using fair value option (“FVO”); equity securities, trading; short-term investments; freestanding and embedded derivatives; separate account assets; and certain other liabilities.

The following section and Note 4a apply the fair value hierarchy and disclosure requirements for the Company’s financial instruments that are carried at fair value. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).

Level 1		Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity securities, open-ended mutual funds reported in separate account assets and derivative securities, including futures and certain option contracts.
Level 2		Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most fixed maturities and preferred stocks, including those reported in separate account assets, are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are exchange traded equity securities, investment grade private placement securities and derivative instruments that are priced using models with significant observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs.
Level 3		Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below-prime loans and below investment grade private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivative securities, including customized guaranteed minimum withdrawal benefit (“GMWB”) hedging derivatives (see Note 4a for further information on GMWB product related financial instruments), equity derivatives, long dated derivatives, swaps with optionality, certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain one or more significant unobservable inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.

In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. Transfers of securities among the levels occur at the beginning of the reporting period. Transfers between Level 1 and Level 2 were not material for the three and nine months ended September 30, 2011 and 2010. In most cases, both observable (e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such as they are primarily priced by independent brokers and/or within illiquid markets.

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

4. Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued)

These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements. The following tables present assets and (liabilities) carried at fair value by hierarchy level, excluding those related to the Company’s living benefits and associated hedging programs, which are reported in Note 4a.

		September 30, 2011
						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, AFS
ABS		$	3,504			$	—			$	3,034			$	470
CDOs			2,465				—				—				2,465
CMBS			6,960				—				6,306				654
Corporate			43,316				—				41,097				2,219
Foreign government/government agencies			1,944				—				1,867				77
States, municipalities and political subdivisions (“Municipal”)			13,164				—				12,753				411
RMBS			5,336				—				4,229				1,107
U.S. Treasuries			3,574				574				3,000				—
Total fixed maturities, AFS			80,263				574				72,286				7,403
Fixed maturities, FVO			1,323				—				831				492
Equity securities, trading			30,770				1,953				28,817				—
Equity securities, AFS			989				346				550				93
Derivative assets
Credit derivatives			(26	)			—				(24	)			(2	)
Equity derivatives			35				—				—				35
Foreign exchange derivatives			724				—				724				—
Interest rate derivatives			267				—				228				39
Other derivative contracts			29				—				—				29
Total derivative assets [1]			1,029				—				928				101
Short-term investments			9,704				337				9,367				—
Separate account assets [2]			136,113				97,722				37,207				1,184
Total assets accounted for at fair value on a recurring basis		$	260,191			$	100,932			$	149,986			$	9,273
Percentage of level to total			100	%			39	%			57	%			4	%
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Equity linked notes		$	(6	)		$	—			$	—			$	(6	)
Derivative liabilities
Credit derivatives			(542	)			—				(1	)			(541	)
Equity derivatives			1				—				—				1
Foreign exchange derivatives			(12	)			—				(12	)			—
Interest rate derivatives			(310	)			—				(262	)			(48	)
Total derivative liabilities [3]			(863	)			—				(275	)			(588	)
Other liabilities			(13	)			—				—				(13	)
Consumer notes [4]			(4	)			—				—				(4	)
Total liabilities accounted for at fair value on a recurring basis		$	( 886	)		$	—			$	( 275	)		$	( 611	)