HARTFORD INSURANCE GROUP, INC. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in millions except for per share data, unless otherwise stated) The Hartford provides projections and other forward-looking information in the following discussions, which contain many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the cautionary statements set forth on pages 4 and 5 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion; Part I, Item 1A, Risk Factors in The Hartford’s 2020 Form 10-K Annual Report; and our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For discussion of this transaction, see Note 17 - Business Disposition of Notes to Condensed Consolidated Financial Statements. Certain reclassifications have been made to historical financial information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to conform to the current period presentation. The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful. INDEX Description Page Key Performance Measures and Ratios 54 The Hartford's Operations 60 F inancial Highlights 64 Consolidated Results of Operations 65 Investment Results 71 Critical Accounting Estimates 73 Commercial Lines 79 Personal Lines 84 Property & Casualty Other Operations 89 Group Benefits 90 Hartford Funds 93 Corporate 95 Enterprise Risk Management 96 Capital Resources and Liquidity 108 Impact of New Accounting Standards 115 Throughout the MD&A, we use certain terms and abbreviations, the more commonly used are summarized in the Acronyms section. KEY PERFORMANCE MEASURES AND RATIOS The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these ratios and measures are useful in understanding the underlying trends in The Hartford’s businesses. However, these key performance indicators should only be used in conjunction with, and not in lieu of, the results presented in the segment discussions that follow in this MD&A. These ratios and measures may not be comparable to other performance measures used by the Company’s competitors. 54 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations DEFINITIONS OF NON-GAAP AND OTHER MEASURES AND RATIOS Assets Under Management ("AUM")- Include mutual fund and exchange-traded products ("ETP") assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the Company’s mutual fund and ETP revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows. Book Value per Diluted Share excluding accumulated other comprehensive income ("AOCI")- This is a non-GAAP per share measure that i s calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure. Combined Ratio- The sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses. Core Earnings- The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings: • Certain realized gains and losses - Some realized gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. • Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business. • Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business. • Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business. • Integration and other non-recurring M&A costs - These costs, including transaction costs incurred in connection with an acquired business, are incurred over a short period of time and do not represent an ongoing operating expense of the business. • Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition. • Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business. • Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards. • Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses. In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding. Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company’s performance. 55 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of Net Income to Core Earnings Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income $ 482 $ 459 $ 1,636 $ 1,200 Preferred stock dividends 6 6 16 16 Net income available to common stockholders 476 453 1,620 1,184 Adjustments to reconcile net income available to common stockholders to core earnings: Net realized losses (gains) excluded from core earnings, before tax (68) (6) (293) 119 Restructuring and other costs, before tax (12) 87 (1) 87 Integration and other non-recurring M&A costs, before tax 8 14 53 40 Change in deferred gain on retroactive reinsurance, before tax 28 14 73 97 Income tax expense (benefit) [1] 10 (35) 29 (77) Core earnings $ 442 $ 527 $ 1,481 $ 1,450 [1] Primarily represents the federal income tax expense (benefit) related to before tax items not included in core earnings and includes the effect of changes in net deferred taxes due to changes in enacted tax rates. Core Earnings Margin- The Hartford uses the non-GAAP measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin, calculated by dividing net income by revenues, is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses) as well as other items excluded in the calculation of core earnings. Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits. Current Accident Year Catastrophe Ratio- A component of the loss and loss adjustment expense ratio, represents the ratio of catastrophe losses incurred in the current accident year (net of reinsurance) to earned premiums. For U.S. events, a catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers, as defined by the Property Claim Services office of Verisk. For international events, the Company's approach is similar, informed, in part, by how Lloyd's of London defines catastrophes. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"). The current accident year catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums. Expense Ratio- For the underwriting segments of Commercial Lines and Personal Lines is the ratio of underwriting expenses less fee income, to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs ("DAC") and insurance operating costs and expenses, including certain centralized services costs and bad debt expense. DAC include commissions, taxes, licenses and fees and other incremental direct underwriting expenses and are amortized over the policy term. The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses including amortization of intangibles and amortization of DAC, to premiums and other considerations, excluding buyout premiums. The expense ratio for Commercial Lines, Personal Lines and Group Benefits does not include integration and other transaction costs associated with an acquired business. Fee Income- Is largely driven from amounts earned as a result of contractually defined percentages of assets under management in our Hartford Funds business. These fees are generally earned on a daily basis. Therefore, the growth in assets under management either through positive net flows or favorable market performance will have a favorable impact on fee income. Conversely, either negative net flows or unfavorable market performance will reduce fee income. Gross New Business Premium- Represents the amount of premiums charged, before ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Gross new business premium plus gross renewal written premium less ceded reinsurance equals total written premium. Loss and Loss Adjustment Expense Ratio- A measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses and loss adjustment expenses incurred for both the current and prior accident years. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity ("ROE") fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment. The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property 56 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the rate-making process, adjust the assumption as appropriate for the particular state, product or coverage. Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- A measure of the cost of non-catastrophe loss and loss adjustment expenses incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year development. Loss Ratio, excluding Buyouts- Utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses, excluding those related to buyout premiums, to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts. Mutual Fund and Exchange-Traded Product Assets- Are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s Condensed Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows. Net New Business Premium- Represents the amount of premiums charged, after ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Net new business premium plus renewal written premium equals total written premium. Policy Count Retention- Represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the previous calendar period before considering policies cancelled subsequent to renewal. Policy count retention is affected by a number of factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew policies because of specific policy underwriting concerns or because of a decision to reduce premium writings in certain classes of business or states. Policy count retention is also affected by advertising and rate actions taken by competitors. Policy Count Retention, Net of Cancellations- Represents the ratio of the number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous calendar period. Policies in Force- Represents the number of policies with coverage in effect as of the end of the period. The number of policies in force is a growth measure used for Personal Lines and standard commercial lines (small commercial and middle market lines within middle & large commercial) within Commercial Lines and is affected by both new business growth and policy count retention. Policyholder Dividend Ratio- The ratio of policyholder dividends to earned premium. Prior Accident Year Loss and Loss Adjustment Expense Ratio- Represents the increase (decrease) in the estimated cost of settling catastrophe and non-catastrophe claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums. Reinstatement Premiums- Represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of the Company ceding losses to reinsurers. Renewal Earned Price Increase (Decrease)- Written premiums are earned over the policy term, which is six months for certain Personal Lines automobile business and twelve months for substantially all of the remainder of the Company’s Property and Casualty business. Since the Company earns premiums over the six to twelve month term of the policies, renewal earned price increases (decreases) lag renewal written price increases (decreases) by six to twelve months. Renewal Written Price Increase (Decrease)- For Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on commercial lines policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy since the prior year on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for 57 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance carriers increases. Renewal written price statistics are subject to change from period to period, based on a number of factors, including changes in actuarial estimates and the effect of subsequent cancellations and non-renewals, and modifications made to better reflect ultimate pricing achieved. Return on Assets (“ROA”), Core Earnings- The Company uses this non-GAAP financial measure to evaluate, and believes is an important measure of, the Hartford Funds segment’s operating performance. ROA, core earnings is calculated by dividing annualized core earnings by a daily average AUM. ROA is the most directly comparable U.S. GAAP measure. The Company believes that ROA, core earnings, provides investors with a valuable measure of the performance of the Hartford Funds segment because it reveals trends in our business that may be obscured by the effect of items excluded in the calculation of core earnings. ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our Hartford Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, and ROA, core earnings when reviewing the Hartford Funds segment performance. A reconciliation of ROA to ROA, core earnings is set forth in the Results of Operations section within MD&A - Hartford Funds. Underlying Combined Ratio- This non-GAAP financial measure of underwriting results represents the combined ratio before catastrophes, prior accident year development and current accident year change in loss reserves upon acquisition of a business. Combined ratio is the most directly comparable GAAP measure. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes and current accident year change in loss reserves upon acquisition of a business. The Company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. The changes to loss reserves upon acquisition of a business are excluded from underlying combined ratio because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition as such trends are valuable to our investors' ability to assess the Company's financial performance. A reconciliation of combined ratio to underlying combined ratio is set forth in the Results of Operations section within MD&A - Commercial Lines and Personal Lines. Underwriting Gain (Loss)- The Hartford's management evaluates profitability of the Commercial and Personal Lines segments primarily on the basis of underwriting gain or loss. Underwriting gain (loss) is a before tax non-GAAP measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of The Hartford's pricing. Underwriting profitability over time is also greatly influenced by The Hartford's underwriting discipline, as management strives to manage exposure to loss through favorable risk selection and diversification, effective management of claims, use of reinsurance and its ability to manage its expenses. The Hartford believes that the measure underwriting gain (loss) provides investors with a valuable measure of profitability, before tax, derived from underwriting activities, which are managed separately from the Company's investing activities. 58 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of Net Income to Underwriting Gain (Loss) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Commercial Lines Net income $ 357 $ 323 $ 1,055 $ 378 Adjustments to reconcile net income to underwriting gain (loss): Net servicing income (2) (1) (11) (2) Net investment income (421) (316) (1,130) (797) Net realized losses (gains) (51) 26 (142) 105 Other expense 5 8 15 25 Income tax expense 82 52 228 71 Underwriting gain (loss) $ (30) $ 92 $ 15 $ (220) Personal Lines Net income $ 51 $ 79 $ 304 $ 548 Adjustments to reconcile net income to underwriting gain (loss): Net servicing income (6) (5) (15) (10) Net investment income (44) (41) (119) (110) Net realized losses (4) (3) (17) 12 Other income 1 2 1 1 Income tax expense 12 20 76 142 Underwriting gain $ 10 $ 52 $ 230 $ 583 P&C Other Ops Net income $ 22 $ 2 $ 26 $ 12 Adjustments to reconcile net income to underwriting gain (loss): Net investment income (22) (14) (58) (40) Net realized losses (2) (2) (7) 3 Income tax expense 5 1 5 2 Underwriting gain (loss) $ 3 $ (13) $ (34) $ (23) Written and Earned Premiums- Written premium represents the amount of premiums charged for policies issued, net of reinsurance, during a fiscal period. Premiums are considered earned and are included in the financial results on a pro rata basis over the policy period. Management believes that written premium is a performance measure that is useful to investors as it reflects current trends in the Company’s sale of property and casualty insurance products. Written and earned premium are recorded net of ceded reinsurance premium. Traditional life and disability insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums together with net investment income earned are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of premium remaining in-force from year-to-year. 59 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations THE HARTFORD’S OPERATIONS The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, certain M&A costs, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries. In addition, up until June 30, 2021, Corporate included a 9.7% ownership interest in Hopmeadow Holdings LP, the legal entity that acquired Talcott Resolution in May 2018 (Hopmeadow Holdings, LP, Talcott Resolution Life Inc., and its subsidiaries are collectively referred to as "Talcott Resolution"). The sale of Talcott Resolution was completed on June 30, 2021. The Company received a total of $217 in connection with the sale of its 9.7% ownership interest, resulting in a realized gain of $46 before tax for the nine months ended September 30, 2021. The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) management fees on mutual fund and ETP assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force. The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments and the Lloyd's Syndicate 1221's ("Lloyd's Syndicate") ability to write business is subject to Lloyd's approval for its premium capacity each year. Most of Personal Lines written premium is associated with our exclusive licensing agreement with AARP. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. In 2020, the Company extended this agreement through December 31, 2032. Similar to property and casualty, profitability of the Group Benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss and expense trends emerge adversely during the rate guarantee period or if investment returns are lower than expected at the time the products were sold. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly from expected investment yields, affecting profitability of the business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies. The financial results of the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and product type. Changes in assets under management are driven by the two main factors of net flows and the market return of the funds, which are heavily influenced by the return realized in the equity and bond markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis. The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losses and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities, asset-backed securities and collateralized loan obligations. The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit 60 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations risk and interest rate sensitivity of invested assets, while generating sufficient net of tax income to meet policyholder and corporate obligations. Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations. IMPACT OF COVID-19 ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND LIQUIDITY Impact to written and earned premiums Despite the rollout of vaccines and states largely lifting restrictions allowing business to re-open, the COVID-19 pandemic continues to pose a threat to the economic recovery of the U.S. and other countries in which we operate. As one of the largest providers of small business insurance in the U.S., we were negatively affected by economic effects of the pandemic on small businesses beginning in March of 2020. An improvement in economic conditions in the three and nine months ended September 30, 2021 has contributed to an increase of 14% and 10% respectively, in our small commercial written premiums. Our middle & large commercial business was also negatively affected by COVID-19 and written premium in that line has rebounded with an increase of 18% and 11%, respectively, in the three and nine month period. Overall, Commercial Lines written premium increased $333, or 15%, and $757, or 11%, respectively, in the three and nine months ended September 30, 2021 with growth in workers' compensation, small commercial package business, general liability, U.S. wholesale, U.S. financial lines and global reinsurance. Personal Lines written premium declined 2% and 1%, respectively, for the three and nine months ended September 30, 2021 due to the effect of non-renewed premium exceeding new business, partially offset in the nine month period by the effect of premium credits given in the second quarter of 2020. In Group Benefits, fully insured ongoing premium increased 4% and 3%, respectively, in the three and nine months ended September 30, 2021, primarily due to higher in-force employer group disability premiums and higher supplemental health product premiums. Impact to direct benefits, losses and loss adjustment expenses from COVID-19 claims Total direct COVID-19 and excess mortality claims were higher in the first nine months of 2021 compared to the comparable period in 2020 largely due to an increase in excess mortality claims in our group life business given the high level of deaths in the first nine months of 2021, partially offset by commercial property COVID-19 losses incurred in the second quarter of 2020. For the three months ended September 30, For the nine months ended September 30, 2021 2020 2021 2020 Excess mortality claims on group life $ 212 $ 42 $ 422 $ 87 COVID-19 short-term disability claims [1] 16 (14) 23 (14) Workers' compensation COVID-19 claims — 17 20 52 Global specialty financial lines and other 3 20 10 57 Commercial property — — — 141 Total direct COVID-19 and excess mortality claims $ 231 $ 65 $ 475 $ 323 [1]The nine months ended September 30, 2020 included both short-term disability and New York paid family leave claims related to COVID-19. For the three and nine months ended September 30, 2020, lower incurred losses due to fewer elective procedures during the early stages of the pandemic more than offset direct COVID-19 incurred losses. Excess mortality in the group life business includes both claims where COVID-19 is specifically listed as the cause of death and indirect impacts of the pandemic such as causes of death due to patients deferring regular treatments of chronic conditions. The incidence of excess mortality claims is subject to significant uncertainty as it is dependent on a number of factors difficult to predict including, among others, the ultimate vaccination rate of the population, the effectiveness of the vaccines, how long the Delta variant surge will last, the potential spread of new COVID-19 variants, the percentage of those infected who are of working age and the strain on the health care system preventing timely treatment of chronic illnesses. Within P&C, direct COVID-19 incurred losses in the nine months ended September 30, 2021 were predominantly on workers' compensation claims incurred in the first quarter. We incur COVID-19 workers’ compensation losses when it is determined that workers were exposed to COVID-19 out of and in the course of their employment and in other cases where states have passed laws providing for the presumption of coverage for certain industry classes, including health care and other essential workers. Apart from COVID-19 workers' compensation claims, net of favorable frequency, and incurred losses within financial lines, P&C COVID-19 incurred losses in the nine months ended September 30, 2020 primarily included $141 for property claims. There were no COVID-19 P&C property losses incurred in the three or nine months ended September 30, 2021. Nearly all of our property insurance policies require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses. Other impacts from COVID-19 In Personal Lines automobile, miles driven and average claim severity have begun to increase again as we emerge from the pandemic which has increased automobile loss costs in 2021. In addition, as the effects of favorable claim frequency from lower miles driven during the pandemic are factored into rates, we expect lower earned pricing increases resulting in a higher 61 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations expected automobile loss ratio in 2021 than in 2020. Refer to Personal Lines Results of Operations for discussion of pricing and loss cost trends for the three and nine months ended September 30, 2021. As we emerge from the pandemic, inflationary pressures in the economy have resulted in increased claim severity in 2021 in automobile and property lines of business in both Commercial Lines and Personal Lines. As expectations of inflationary pressures have increased, interest rates have risen in 2021 and higher interest rates reduce the fair value of our investments in fixed maturity securities, AFS. Aided by some improvement in the economy and the effect of the government’s economic stimulus payments to our customers, in the three and nine months ended September 30, 2021, we recorded decreases of $10 and $28, respectively, in the ACL on premiums receivable, reflecting a lower expectation of credit losses, though there remains an elevated risk of uncollectible premiums receivable relative to historical trends if economic conditions do not improve further. As we emerge from the pandemic, we expect travel costs and certain employee benefits costs will increase relative to the lower level of those costs we incurred when shelter-in-place orders were in effect. For information about resources the Company has to manage capital and liquidity, refer to the Capital Resources & Liquidity section of MD&A. For additional information about the potential economic impacts to the Company of the COVID-19 pandemic, see the risk factor "The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity" in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. OPERATIONAL TRANSFORMATION AND COST REDUCTION PLAN In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020, the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Through reduction of its headcount, IT investments to further enhance our capabilities, and other activities, relative to 2019, the Company expects to achieve a reduction in annual insurance operating costs and other expenses of approximately $540 by 2022 and $625 by 2023. To achieve those expected savings, we expect to incur approximately $395 over the course of the program, with $203 expensed cumulatively through September 30, 2021, and expected expenses of $15 over the last three months of 2021, $68 in 2022 and $110 after 2022, with the expenses after 2022 consisting mostly of amortization of internal use software, non-capitalized IT costs and capitalized real estate costs. Included in the estimated costs of $395, we expect to incur restructuring costs of approximately $133, including $49 of employee severance, and approximately $84 of other costs, including consulting expenses, lease termination expenses and the cost to retire certain IT applications. Restructuring costs are reported as a charge to net income but not in core earnings. The following table presents Hartford Next program costs incurred, including restructuring costs, and expense savings relative to 2019 realized in the nine months ended September 30, 2021 and expected annual costs and expense savings relative to 2019 for the full year in 2021 and 2022: 62 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Hartford Next Costs and Expense Savings Nine months ended September 30, 2021 Estimate for 2021 Estimate for 2022 Employee severance $ (24) $ (24) $ — IT costs to retire applications 6 9 12 Professional fees and other expenses 17 20 10 Estimated restructuring costs (1) 5 22 Non-capitalized IT costs 38 41 24 Other costs 13 18 16 Amortization of capitalized IT development costs [1] — — 5 Amortization of capitalized real estate [2] — — 1 Estimated costs within core earnings 51 59 46 Total Hartford Next program costs $ 50 $ 64 $ 68 Cumulative savings for the period relative to 2019 $ (306) $ (400) $ (540) Net expense (savings) before tax: $ (256) $ (336) $ (472) Net expense (savings) before tax: Accounted for within core earnings $ (255) $ (341) $ (494) Restructuring costs recognized outside of core earnings (1) 5 22 Net expense (savings) before tax $ (256) $ (336) $ (472) [1] Does not include approximately $50 of IT asset amortization after 2022. [2]Does not include approximately $20 of real estate amortization after 2022. 63 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL HIGHLIGHTS Net Income Available to Common Stockholders Net Income Available to Common Stockholders per Diluted Share Book Value per Diluted Share Ý Increased $23 or 5% Ý Increased $0.10 or 8% Ý Increased $0.14 or 0.3% + Increase in net investment income + Increase in net income available to common stockholders + Reduction in outstanding shares due to share repurchases + Higher earned premiums in Commercial Lines and a lower P&C current accident year loss ratio before COVID-19 + Share repurchases - Decrease in common stockholders' equity largely due to a decrease in AOCI, primarily driven by a decrease in net unrealized gains on available for sale securities, partially offset by net income in excess of common stockholder dividends and share repurchases - Increase in dilutive shares under stock-based compensation largely due to an increase in the quarterly average stock price + Lower restructuring costs + Increase in net realized gains + Decrease in P&C COVID-19 incurred losses - Increase in excess mortality losses in group life - A change to unfavorable P&C prior accident year reserve development - Increase in current accident year catastrophe losses - Increase in P&C underwriting expenses and Group Benefits insurance operating costs and other expenses Investment Yield, After Tax Property & Casualty Combined Ratio Group Benefits Net Income Margin Ý Increased 70 bps Ý Increased 4.8 points Þ Decreased 6.2 points + Greater returns on limited partnerships and other alternative investments + A change to unfavorable prior accident year reserve development - Higher excess mortality in group life - Lower reinvestment rates + Higher personal automobile claim frequency and severity - A higher group disability loss ratio due to higher short-term disability claim incidence as the prior year benefited from fewer elective procedures during the early stages of the pandemic + Higher current accident year catastrophe losses - Lower current accident year loss ratio before COVID-19 in global specialty, workers' compensation, and non-catastrophe property - A higher expense ratio + Increase in net investment income - Decrease in COVID-19 incurred losses 64 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CONSOLIDATED RESULTS OF OPERATIONS The Consolidated Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the related Notes as well as with the segment operating results sections of MD&A. Consolidated Results of Operations Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Earned premiums $ 4,565 $ 4,347 5 % $ 13,368 $ 12,972 3 % Fee income 377 323 17 % 1,107 941 18 % Net investment income 650 492 32 % 1,740 1,290 35 % Net realized gains (losses) 70 6 NM 297 (116) NM Other revenues 24 3 NM 62 108 (43 %) Total revenues 5,686 5,171 10 % 16,574 15,195 9 % Benefits, losses and loss adjustment expenses 3,420 2,962 15 % 9,556 8,725 10 % Amortization of deferred policy acquisition costs 419 421 — % 1,252 1,287 (3 %) Insurance operating costs and other expenses 1,200 1,093 10 % 3,546 3,394 4 % Interest expense 58 58 — % 172 179 (4 %) Amortization of other intangible assets 18 18 — % 53 55 (4 %) Restructuring and other costs (12) 87 (114 %) (1) 87 (101 %) Total benefits, losses and expenses 5,103 4,639 10 % 14,578 13,727 6 % Income, before tax 583 532 10 % 1,996 1,468 36 % Income tax expense 101 73 38 % 360 268 34 % Net income 482 459 5 % 1,636 1,200 36 % Preferred stock dividends 6 6 — % 16 16 — % Net income available to common stockholders $ 476 $ 453 5 % $ 1,620 $ 1,184 37 % Three months ended September 30, 2021 compared to the three months ended September 30, 2020 Net income available to common stockholders increased by $23, primarily driven by: • An increase in net investment income of $158 before tax driven by higher returns on limited partnerships and other alternative investments; • Higher Commercial Lines earned premiums, including higher audit and endorsement premiums; • $87 before tax of restructuring costs in the 2020 period related to the Hartford Next operational transformation and cost reduction initiative and a $12 before tax reduction of such costs in the 2021 period; • An improvement in the P&C underlying combined ratio, driven by lower current accident year loss ratios before catastrophes in Commercial Lines, including a decrease in COVID-19 incurred losses from $37 before tax in third quarter 2020 to $3 before tax in third quarter 2021, partially offset by higher personal automobile loss costs; • A $64 before tax increase in net realized gains; and • An increase in earnings from Hartford Funds. These increases were largely offset by: • An increase in excess mortality losses in group life of $170 before tax, including deaths specifically attributable to COVID-19, and higher short-term disability losses related to COVID-19; • A change from favorable to unfavorable P&C prior accident year development, primarily due to an increase in reserves in the 2021 period for sexual molestation and sexual abuse claims related to claims against the Boy Scouts of America ("BSA"); and • A $71 before tax increase in current accident year catastrophe losses, primarily driven by losses from hurricane Ida. For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial 65 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations condition, results of operations and liquidity section of this MD&A. REVENUE Earned Premiums Earned premiums increased by $218, or 5%, primarily due to: • An increase in Property and Casualty reflecting a 9% increase in Commercial Lines and a 4% decrease in Personal Lines. Contributing to the increase in Commercial Lines was the effect of higher audit and endorsement premiums given the economic recovery in 2021. The decrease in Personal Lines was due to the effect of non-renewals outpacing new business; and • An increase in Group Benefits earned premium within group disability and higher supplemental health product premiums. Fee income increased driven by Hartford Funds as a result of higher daily average assets under management due to an increase in equity market levels and net inflows over the previous 12 months. Other revenues increased by $21, primarily driven by a $21 before tax loss on the previously owned Talcott Resolution investment in third quarter 2020. Net Investment Income Net investment income increased primarily due to: • Greater income from limited partnerships and other alternative investments primarily driven by higher valuations and cash distributions within private equity funds and sales of underlying investments within real estate funds; • A higher level of invested assets; and • Higher dividend income from equity investments. These increases were partially offset by a lower yield on fixed maturity investments resulting from reinvesting at lower rates. Net realized gains improved by $64 from third quarter of 2020, primarily driven by: • A loss of $51 before tax in the 2020 period related to the sale of the Company’s Continental Europe Operations, which the Company agreed to sell in September of 2020; • Higher net realized gains on sales of fixed maturity securities; and • Gains on non-qualifying interest rate derivatives in 2021 due to an increase in interest rates. These improvements were partially offset by: • Lower net realized and unrealized gains on equity securities driven by greater valuation increases in the prior year period; and • A net increase in ACL on mortgage loans in 2021 driven by net additions of new loans compared to a decrease in the ACL on mortgage loans in 2020. For further discussion of investment results, see MD&A - Investment Results, Net Realized Gains and MD&A - Investment Results, Net Investment Income. 66 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations BENEFITS, LOSSES AND EXPENSES Losses and LAE Incurred for P&C Benefits, losses and loss adjustment expenses increased $458, or 15%, due to: • An increase in Property & Casualty of $264, which was attributable to: – A $165 change to P&C net unfavorable prior accident year reserve development in 2021 from net favorable prior accident year reserve development in 2020. Prior accident year reserve development in 2021 was an unfavorable $90 before tax, including $28 before tax of adverse development for Navigators related to 2018 and prior accident years that has been economically ceded to NICO but recorded as a deferred gain. Unfavorable development before deferred gain was driven by an increase in the BSA settlement announced in September 2021, partially offset by reserve decreases for workers' compensation, personal automobile liability, package business and bond. Prior accident year reserve development in third quarter 2020 was a net favorable $75 before tax and primarily included a reduction in reserves in workers’ compensation, personal automobile, professional liability, and package business. Due to recognizing a deferred gain on retroactive reinsurance, the $75 of net favorable reserve development in third quarter 2020 included $14 before tax of adverse development for Navigators related to 2018 and prior accident years that has been recorded as a deferred gain; – A $71 increase in current accident year catastrophe losses. Catastrophe losses of $300 in the third quarter of 2021 were principally from hurricane Ida and, to a lesser extent, losses from tropical storms, California wildfires and wind and hail events in the Midwest and Mountain West. Catastrophe losses in the third quarter of 2020 were primarily from wildfires in California and Oregon, hurricane Laura on the Gulf Coast, tropical storm Isaias on the East Coast, a Midwest derecho and other wind and hail events, mostly in the Central Losses and LAE Incurred for Group Benefits Plains. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance; and – An increase in P&C current accident year ("CAY") loss and loss adjustment expenses before catastrophes primarily due to higher personal automobile claim costs and the impact of higher earned premium; partially offset by lower current accident year loss ratios in Commercial Lines, including lower COVID-19 incurred losses. • An increase in Group Benefits of $194 primarily driven by a higher level of excess mortality losses in group life, the effect of an increase in earned premiums and higher short-term disability COVID-19 related losses as the prior year period benefited from fewer elective procedures during the early stages of the pandemic. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our Financial Condition, Results of Operations and Liquidity section of this MD&A. Amortization of deferred policy acquisition costs was relatively flat year over year with an increase in Commercial Lines offset by decreases in Personal Lines and Group Benefits. Insurance operating costs and other expenses increased primarily due to: • Higher variable costs of the Hartford Funds business due to higher daily average assets under management; • Higher variable incentive compensation costs; • An increase in supplemental and contingent commissions; and • Increases in technology costs, AARP direct marketing costs in Personal Lines and costs in Group Benefits to handle elevated claim levels resulting from the pandemic. 67 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations These increases were partially offset by: • Lower staffing and other costs driven by the Company’s Hartford Next operational and transformation cost reduction plan. Restructuring and other costs declined primarily due to $78 of severance costs recorded in the 2020 period related to the Hartford Next initiative. For further discussion of impacts resulting from the Hartford Next initiative, see MD&A - The Hartford's Operations, Operational Transformation and Cost Reduction Plan and Note 18 - Restructuring and Other Costs of Notes to Condensed Consolidated Financial Statements. Income tax expense increased primarily due to an increase in income before tax as well as permanent tax benefits in the 2020 period related to the sale of the Continental Europe Operations and the carryback of losses related to the Navigators Group acquisition. For further discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. Nine months ended September 30,2021 compared to the nine months ended September 30, 2020 Net income available to common stockholders increased by $436 primarily driven by: • An increase in net investment income of $450 before tax driven by higher returns on limited partnerships and other alternative investments; • A $413 before tax change from net realized losses in 2020 to net realized gains in 2021, primarily driven by changes in valuation and sales of equity securities from losses in the 2020 period to gains in the 2021 period; • An improvement in the P&C underlying combined ratio, including a reduction in COVID-19 incurred losses from $250 before tax in the 2020 period to $30 before tax in the 2021 period, a lower loss ratio before COVID-19 in Commercial Lines, partially offset by higher personal automobile claim frequency; • Higher Commercial Lines earned premiums, including higher audit and endorsement premiums, and higher earned premiums in Group Benefits; • An $88 before tax decrease in restructuring costs related to the Hartford Next operational transformation and cost reduction plan; and • An increase in earnings from Hartford Funds. These increases were partially offset by: • A $490 before tax change from net favorable P&C prior accident year development in the 2020 period to net unfavorable development in the 2021 period, primarily driven by greater increases to reserves for sexual molestation and sexual abuse claims and lower reserve decreases for catastrophes in the 2021 period; • A $335 before tax increase in excess mortality, including deaths specifically attributable to COVID-19, and greater short-term disability losses related to COVID-19; • A $91 before tax increase in current accident year catastrophe losses, primarily driven by losses from hurricane Ida; and • Lower income from the Talcott Resolution investment, which was divested on June 30, 2021. For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. In addition, for further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. REVENUE Earned Premiums [1] For the nine months ended September 30, 2020, the total includes $9 in Corporate. Earned premiums increased primarily due to: • An increase in P&C reflecting a 5% increase in Commercial Lines and a 1% decrease in Personal Lines as the effect of non-renewals outpacing new business in Personal Lines was partially offset by the effect of $81 in COVID-related premium credits in the 2020 period. Contributing to the increase in Commercial Lines was the effect of higher audit and endorsement premiums given the economic recovery in 2021; and • An increase in Group Benefits earned premium of 2% year over year due to an increase in group disability and higher supplemental health product premiums, partially offset by the effect of buyout premium in the 2020 period. Fee income increased driven by Hartford Funds as a result of higher daily average assets under management due to an 68 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations increase in equity market levels and net inflows. Other revenues decreased by $46, primarily driven by lower income of $54 from the Talcott Resolution investment, which was divested on June 30, 2021. Net Investment Income Net investment income increased primarily due to: • Greater income from limited partnerships and other alternative investments primarily driven by higher valuations and cash distributions within private equity funds and sales of underlying investments within real estate funds; • A higher level of invested assets; • Greater income from non-routine income items, including make-whole payments and yield adjustments on prepayable securities; and • Higher income from equity investments. These increases were partially offset by: • A lower yield on fixed maturity investments resulting from reinvesting at lower rates and a lower yield on floating rate investments. Net realized gains (losses) increased primarily driven by: • Gains on equity securities in the 2021 period driven by appreciation in value compared to losses on equity securities in the 2020 period, partially offset by net realized gains in the 2020 period upon termination of derivatives used to hedge against a decline in equity market levels; • A net reduction in ACL on mortgage loans and fixed maturities in the 2021 period due to an improved economic outlook and valuation increases of corporate securities, compared to increases in the ACL on mortgage loans and fixed maturities in the 2020 period; • A $46 before tax net realized gain in 2021 resulting from sale of the Company's 9.7% previously owned interest in Talcott Resolution; and • A lower level of losses in 2021 than in 2020 related to the pending sale of the Continental Europe Operations. These improvements were partially offset by: • Lower net realized gains on sales of fixed maturity securities. For further discussion of investment results, see MD&A - Investment Results, Net Realized Gains and MD&A - Investment Results, Net Investment Income. 69 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations BENEFITS, LOSSES AND EXPENSES Losses and LAE Incurred for P&C Benefits, losses and loss adjustment expenses increased due to: • An increase in incurred losses for Property & Casualty of $471 which was driven by: – An unfavorable change of $490 in P&C net prior accident year reserve development. Prior accident year reserve development in the 2021 period was a net unfavorable $170 before tax, driven by reserve increases for sexual molestation and sexual abuse claims, primarily to reflect claims made against the Boy Scouts of America ("BSA"), partially offset by reserve decreases in catastrophes, workers' compensation, package business, personal automobile, commercial property, and bond. Prior accident year development in the 2021 period also included $73 before tax of adverse development for Navigators related to 2018 and prior accident years. Prior accident year reserve development in 2020 was a favorable $320 before tax, driven by $413 of reserve reductions related to catastrophes, including decreases in estimated losses arising from wind and hail events in 2018 and 2019 and from the 2017 and 2018 California wildfires, including a $289 before tax subrogation benefit from PG&E. Apart from catastrophes, reserve development in the nine months ended September 30, 2020 primarily included a $129 before tax reserve increase for sexual molestation and abuse claims and $97 before tax of adverse development for Navigators related to 2018 and prior accident years, for which the Company recognized a deferred gain. For further discussion, see Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements; – An increase in current accident year catastrophe losses of $91, before tax. Catastrophe losses in the 2021 period were principally from hurricane Ida as well as from tornado, wind and hail events in Texas, the Midwest and Southeast, and from February winter storms, primarily in the South. Catastrophe losses in 2020 were primarily from wildfires in California and Losses and LAE Incurred for Group Benefits Oregon, Tropical Storm Isaias and Hurricane Laura losses in third quarter 2020, the civil unrest during the second quarter of 2020 and from tornado, wind and hail events in the South, Midwest and Central Plains. – Partially offset by a decrease in P&C current accident year ("CAY") loss and loss adjustment expenses before catastrophes primarily due to a $220 before tax decrease in COVID-19 incurred losses, and lower current accident year loss ratios before COVID-19 in global specialty and workers’ compensation, partially offset by higher personal automobile claim frequency, higher non-catastrophe property losses and the effect of higher earned premiums. • An increase in Group Benefits of $369 driven by higher excess mortality in group life, the effect of an increase in earned premiums and higher short-term disability claim incidence as the prior year period benefited from fewer elective procedures during the early stages of the pandemic, partially offset by a higher New York Paid Family Leave risk assessment refund in the 2021 period. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our Financial Condition, Results of Operations and Liquidity section of this MD&A. Amortization of deferred policy acquisition costs decreased from the prior year period due primarily to reductions in Commercial Lines and Personal Lines with the decrease in Commercial Lines due to lower average commissions and the decrease in Personal Lines due to lower earned premiums. Insurance operating costs and other expenses increased due to: • Higher variable costs of the Hartford Funds business due to higher daily average assets under management; • Higher variable incentive compensation costs; • An increase in supplemental and contingent commissions; 70 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations • Increased costs in Group Benefits to handle elevated claim levels resulting from the pandemic, higher technology costs and increased AARP direct marketing costs in Personal Lines; and • Legal and consulting costs associated with the unsolicited proposals from Chubb Limited (“Chubb”) to acquire the Company. These increases were partially offset by: • Lower staffing and other costs driven by the Company’s Hartford Next operational transformation and cost reduction plan; and • A decrease in the ACL on uncollectible premiums receivable in Property & Casualty and Group Benefits in the 2021 period compared to an increase in the 2020 period due to the economic impacts of COVID-19. Restructuring and other costs decreased as the prior year period included severance costs related to the Company's Hartford Next operational transformation and cost reduction plan. For further discussion of impacts resulting from the Hartford Next initiative, see MD&A - The Hartford's Operations, The Hartford's Operations, Operational Transformation and Cost Reduction Plan and Note 18 - Restructuring and Other Costs of Notes to Condensed Consolidated Financial Statements. Income tax expense increased primarily due to an increase in income before tax. For further discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. INVESTMENT RESULTS Composition of Invested Assets September 30, 2021 December 31, 2020 Amount Percent Amount Percent Fixed maturities, available-for-sale ("AFS"), at fair value $ 43,942 76.3 % $ 45,035 79.7 % Equity securities, at fair value 1,616 2.8 % 1,438 2.5 % Mortgage loans (net of ACL of $26 and $38) 5,106 8.9 % 4,493 7.9 % Limited partnerships and other alternative investments 2,961 5.1 % 2,082 3.7 % Other investments [1] 337 0.6 % 201 0.4 % Short-term investments 3,612 6.3 % 3,283 5.8 % Total investments $ 57,574 100.0 % $ 56,532 100.0 % [1] Primarily consists of fixed maturities, at fair value using the fair value option ("FVO"), equity fund investments, overseas deposits, consolidated investment funds and derivative instruments which are carried at fair value. September 30, 2021 compared to December 31, 2020 Total investments increased primarily due to an increase in limited partnerships and other alternative investments as well as mortgage loans, largely offset by a decrease in fixed maturities, AFS. Limited partnerships and other alternative investments increased primarily driven by increased valuations and additional investments in real estate joint ventures. Mortgage loans increased largely due to funding of industrial, retail, and multifamily commercial whole loans. Fixed maturities, AFS decreased primarily due to a decrease in valuations due to higher interest rates, partially offset by tighter credit spreads. 71 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Investment Income Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Before tax) Amount Yield [1] Amount Yield [1] Amount Yield [1] Amount Yield [1] Fixed maturities [2] $ 332 3.1 % $ 359 3.4 % $ 1,019 3.1 % $ 1,093 3.5 % Equity securities 23 6.2 % 9 4.5 % 43 3.9 % 27 3.4 % Mortgage loans 45 3.7 % 44 3.9 % 133 3.7 % 128 3.9 % Limited partnerships and other alternative investments 259 39.6 % 83 18.3 % 562 33.7 % 70 5.2 % Other [3] 11 14 43 23 Investment expense (20) (17) (60) (51) Total net investment income $ 650 4.8 % $ 492 3.8 % $ 1,740 4.3 % $ 1,290 3.4 % Total net investment income excluding limited partnerships and other alternative investments $ 391 3.0 % $ 409 3.3 % $ 1,178 3.1 % $ 1,220 3.3 % [1] Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost, as applicable, excluding repurchase agreement and securities lending collateral, if any, and derivatives book value. [2] Includes net investment income on short-term investments. [3] Primarily includes changes in fair value of certain equity fund investments and income from derivatives that qualify for hedge accounting and are used to hedge fixed maturities. Three months ended September 30, 2021 compared to the three months ended September 30, 2020 Total net investment income increased primarily due to: • Greater income from limited partnerships and other alternative investments primarily driven by higher valuations and cash distributions within private equity funds and sales of underlying investments within real estate funds; • A higher level of invested assets; and • Higher dividend income from equity investments. These increases were partially offset by a lower yield on fixed maturities resulting from reinvesting at lower rates. Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 Total net investment income increased primarily due to: • Greater income from limited partnerships and other alternative investments primarily driven by higher valuations and cash distributions within private equity funds and sales of underlying investments within real estate funds; • A higher level of invested assets; • Greater income from non-routine items, including make-whole payments and yield adjustments on prepayable securities; and • Higher income from equity investments. These increases were partially offset by a lower yield on fixed maturities resulting from reinvesting at lower rates and a lower yield on floating rate investments. Annualized net investment income yield, excluding limited partnerships and other alternative investments and non-routine items on fixed maturities, which include income items such as make-whole payments and yield adjustments on prepayable securities, was down primarily due to lower reinvestment rates. Average reinvestment rates, on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities, for the three and nine months ended September 30, 2021, were 2.6% and 2.5%, respectively, which were below the average yield of sales and maturities of 3.1% and 3.0%, respectively. Average reinvestment rates for the three and nine months ended September 30, 2020, were 2.1% and 2.5%, respectively, which were below the average yield of sales and maturities of 3.5% for the same periods. For the 2021 calendar year, we expect the annualized net investment income yield, excluding limited partnerships and other alternative investments and non-routine items on fixed maturities, to be lower than the portfolio yield earned in 2020, due to lower reinvestment rates and a lower yield on short-term investments. The estimated impact on net investment income yield is subject to change due to evolving market conditions and active portfolio management. 72 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Realized Gains (Losses) Three Months Ended September 30, Nine Months Ended September 30, (Before tax) 2021 2020 2021 2020 Gross gains on sales $ 63 $ 27 $ 162 $ 201 Gross losses on sales (8) (12) (54) (42) Equity securities [1] 3 42 134 (269) Net credit losses on fixed maturities, AFS [2] — (1) 4 (33) Change in ACL on mortgage loans [3] (2) 5 12 (19) Intent-to-sell impairments [2] — — — (5) Other, net [4] 14 (55) 39 51 Net realized gains (losses) $ 70 $ 6 $ 297 $ (116) [1] The net unrealized gains (losses) on equity securities included in net realized gains (losses) related to equity securities still held as of September 30, 2021, were $(17) and $92 for the three and nine months ended September 30, 2021, respectively. The net unrealized gains on equity securities included in net realized gains (losses) related to equity securities still held as of September 30, 2020, were $36 and $6 for the three and nine months ended September 30, 2020 respectively. [2] See Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A. [3] See ACL on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A. [4] For both the three and nine months ended September 30, 2021 includes gains (losses) from transactional foreign currency revaluation of $6 and $(1), respectively, non-qualifying derivatives of $10 and $16, respectively, and an additional loss of $(2) and $(20), respectively, on the pending sale of Continental Europe Operations. For the nine months ended September 30, 2021, there was also a gain of $46 on the sale of the Company's previously owned interest in Talcott Resolution. For the three and nine months ended September 30, 2020, includes gains (losses) from transactional foreign currency revaluation of $(4) and $6, respectively, non-qualifying derivatives of $(2) and $97, respectively, and a loss of $51 related to the pending sale of the Continental Europe Operations. Three and nine months ended September 30, 2021 Gross gains and losses on sales were primarily due to an overall reduction to corporate securities and tax-exempt municipals, in addition to sales of U.S. treasuries for duration and risk management. Equity securities net gains for the nine months ended September 30, 2021 were primarily driven by appreciation in value due to higher equity market levels. Other, net gains and losses for the nine month period ended September 30, 2021, included a gain of $46 on the sale of the Company's 9.7% retained interest in Talcott Resolution, and a loss of $20 related to the pending sale of the Company's Continental Europe Operations, which the Company agreed to sell in September of 2020. Also included for the three and nine month periods ended September 30, 2021 were gains of $9 on interest rate derivatives driven by an increase in interest rates. Three and nine months ended September 30, 2020 Gross gains and losses on sales were primarily driven by sales of U.S. treasury securities for duration and/or liquidity management and issuer-specific sales of corporate securities and tax-exempt municipal bonds. Equity securities net gains for the three month period ended September 30, 2020 were primarily driven by mark-to-market gains due to an increase in equity market levels. For the nine month period ended September 30, 2020, net losses were driven by mark-to-market losses due to the decline in equity market levels in the first quarter and losses incurred on sales across multiple issuers as the Company reduced its exposure to equity securities. Other, net gains for the three month period were primarily due to a loss of $51, before tax, on the sale of the Company's Continental Europe Operations which the Company agreed to sell in September of 2020, while the nine month period also included $75 of realized gains on terminated derivatives used to hedge against a decline in equity market levels and $21 of gains on interest rate derivatives due to a decline in interest rates. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past have differed, from those estimates. The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability: • property and casualty insurance product reserves, net of reinsurance; • group benefit long-term disability ("LTD") reserves, net of reinsurance; • evaluation of goodwill for impairment; • valuation of investments and derivative instruments including evaluation of credit losses on fixed maturities, AFS and ACL on mortgage loans; 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 73 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Condensed Consolidated Financial Statements. In developing these estimates, management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements. The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2020 Form 10-K Annual Report. In addition, Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. The following discussion updates certain of the Company’s critical accounting estimates as of September 30, 2021. | PROPERTY & CASUALTY INSURANCE PRODUCT RESERVES, NET OF REINSURANCE P&C Loss and Loss Adjustment Expense Reserves, Net of Reinsurance, by Segment as of September 30, 2021 Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve estimates are adjusted after consideration of numerous factors, including but not limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, adjustments are made more quickly to more mature accident years and less volatile lines of business. Such adjustments of reserves are referred to as “prior accident year development”. Increases in previous estimates of ultimate loss costs are referred to as either an increase in prior accident year reserves or as unfavorable reserve development. Decreases in previous estimates of ultimate loss costs are referred to as either a decrease in prior accident year reserves or as favorable reserve development. Reserve development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow. 74 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2021 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 25,058 $ 1,836 $ 2,728 $ 29,622 Reinsurance and other recoverables 4,271 28 1,426 5,725 Beginning liabilities for unpaid losses and loss adjustment expenses, net 20,787 1,808 1,302 23,897 Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes 3,986 1,340 — 5,326 Current accident year ("CAY") catastrophes 490 152 — 642 Prior accident year development ("PYD") [1] 255 (113) 28 170 Total provision for unpaid losses and loss adjustment expenses 4,731 1,379 28 6,138 Change in deferred gain on retroactive reinsurance included in other liabilities [1] (73) — — (73) Payments (3,154) (1,394) (156) (4,704) Foreign currency adjustment 1 — — 1 Ending liabilities for unpaid losses and loss adjustment expenses, net 22,292 1,793 1,174 25,259 Reinsurance and other recoverables 4,514 35 1,382 5,931 Ending liabilities for unpaid losses and loss adjustment expenses, gross $ 26,806 $ 1,828 $ 2,556 $ 31,190 Earned premiums and fee income $ 7,053 $ 2,240 Loss and loss expense paid ratio [2] 44.7 62.2 Loss and loss expense incurred ratio 67.3 62.2 Prior accident year development (pts) [3] 3.6 (5.1) [1] Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADCs which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from National Indemnity Company ("NICO"). For additional information regarding the two adverse development cover reinsurance agreements, refer to Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. [2] The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income. [3] “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. Current Accident Year Catastrophe Losses, Net of Reinsurance Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Commercial Lines Personal Lines Total Commercial Lines Personal Lines Total Wind and hail $ 31 $ 17 $ 48 $ 129 $ 72 $ 201 Winter storms [1] (2) — (2) 152 18 170 Hurricanes and tropical storms 166 44 210 167 45 212 Wildfires 4 17 21 4 17 21 Catastrophes before assumed reinsurance 199 78 277 452 152 604 Global assumed reinsurance business [2] 23 — 23 38 — 38 Total catastrophe losses $ 222 $ 78 $ 300 $ 490 $ 152 $ 642 [1] Includes catastrophe losses from the February winter storms in Texas and other areas within Commercial Lines and Personal Lines of $207 and $24, respectively, gross of reinsurance, and $152 and $18, respectively, net of reinsurance under the Company's per occurrence property catastrophe treaty covering events other than earthquakes and named hurricanes and tropical storms. The reinsurance covers 70% of up to $250 of losses in excess of $100 from such events occurring within a seven day time period, subject to a $50 annual aggregate deductible. These recoveries do not inure to the benefit of the aggregate property catastrophe treaty reinsurers. For further information on the treaty, refer to Enterprise Risk Management — Insurance Risk section of this MD&A. [2] Catastrophe losses incurred on global assumed reinsurance business are not covered under the Company's aggregate property catastrophe treaty. For further information on the treaty, refer to Enterprise Risk Management — Insurance Risk section of this MD&A. 75 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2021 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (30) $ — $ — $ (30) Workers’ compensation discount accretion 8 — — 8 General liability 144 — — 144 Marine (1) — — (1) Package business (20) — — (20) Commercial property (4) — — (4) Professional liability — — — — Bond (12) — — (12) Assumed reinsurance — — — — Automobile liability 9 (30) — (21) Homeowners — 1 — 1 Catastrophes — — — — Uncollectible reinsurance — — — — Other reserve re-estimates, net — 2 (5) (3) Prior accident year development before change in deferred gain 94 (27) (5) 62 Change in deferred gain on retroactive reinsurance included in other liabilities 28 — — 28 Total prior accident year development $ 122 $ (27) $ (5) $ 90 Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2021 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (113) $ — $ — $ (113) Workers’ compensation discount accretion 26 — — 26 General liability 451 — — 451 Marine — — — — Package business (66) — — (66) Commercial property (24) — — (24) Professional liability (7) — — (7) Bond (26) — — (26) Assumed reinsurance — — — — Automobile liability 9 (73) — (64) Homeowners — 2 — 2 Net asbestos reserves — — — — Net environmental reserves — — — — Catastrophes (57) (41) — (98) Uncollectible reinsurance (5) — (5) (10) Other reserve re-estimates, net (6) (1) 33 26 Prior accident year development before change in deferred gain 182 (113) 28 97 Change in deferred gain on retroactive reinsurance included in other liabilities 73 — — 73 Total prior accident year development $ 255 $ (113) $ 28 $ 170 76 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 23,363 $ 2,201 $ 2,697 $ 28,261 Reinsurance and other recoverables [1] 4,029 68 1,178 5,275 Beginning liabilities for unpaid losses and loss adjustment expenses, net 19,334 2,133 1,519 22,986 Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes 4,186 1,255 — 5,441 Current accident year catastrophes 355 196 — 551 Prior accident year development [2] 61 (396) 15 (320) Total provision for unpaid losses and loss adjustment expenses 4,602 1,055 15 5,672 Change in deferred gain on retroactive reinsurance included in other liabilities [2] (97) — — (97) Payments (3,271) (1,310) (204) (4,785) Net reserves transferred to liabilities held for sale (43) — — (43) Foreign currency adjustment (3) — — (3) Ending liabilities for unpaid losses and loss adjustment expenses, net 20,522 1,878 1,330 23,730 Reinsurance and other recoverables 4,261 27 1,133 5,421 Ending liabilities for unpaid losses and loss adjustment expenses, gross $ 24,783 $ 1,905 $ 2,463 $ 29,151 Earned premiums and fee income $ 6,694 $ 2,273 Loss and loss expense paid ratio [3] 48.9 57.6 Loss and loss expense incurred ratio 68.9 47.0 Prior accident year development (pts) [4] 0.9 (17.6) [1] Includes a cumulative effect adjustment of $1 and $(1) for Commercial Lines and Property & Casualty Other Operations respectively, representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2020 Form 10-K Annual Report. [2] Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADC which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the two adverse development cover reinsurance agreements, refer to Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. [3] The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income. [4] “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. Current Accident Year Catastrophe Losses, Net of Reinsurance Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Commercial Lines Personal Lines Total Commercial Lines Personal Lines Total Wind and hail $ 26 $ 18 $ 44 $ 160 $ 90 $ 250 Civil Unrest (3) — (3) 107 — 107 Hurricanes and Tropical Storms 61 41 102 62 42 104 Wildfires 22 63 85 24 64 88 Other 1 — 1 2 — 2 Total catastrophe losses $ 107 $ 122 $ 229 $ 355 $ 196 $ 551 77 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (34) $ — $ — $ (34) Workers’ compensation discount accretion 9 — — 9 General liability (2) — — (2) Marine — — — — Package business (18) — — (18) Commercial property (4) — — (4) Professional liability (21) — — (21) Bond — — — — Assumed Reinsurance — — — — Automobile liability — (32) — (32) Homeowners — 3 — 3 Net asbestos reserves — — — — Net environmental reserves — — — — Catastrophes — — — — Uncollectible reinsurance — — (6) (6) Other reserve re-estimates, net (1) — 17 16 Prior accident year development before change in deferred gain (71) (29) 11 (89) Change in deferred gain on retroactive reinsurance included in other liabilities 14 — — 14 Total prior accident year development $ (57) $ (29) $ 11 $ (75) Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (72) $ — $ — $ (72) Workers’ compensation discount accretion 27 — — 27 General liability 112 — — 112 Marine 1 — — 1 Package business (24) — — (24) Commercial property (6) — — (6) Professional liability (16) — — (16) Bond (10) — — (10) Assumed reinsurance (7) — — (7) Automobile liability 27 (53) — (26) Homeowners — 3 — 3 Net asbestos reserves — — — — Net environmental reserves — — — — Catastrophes (72) (341) — (413) Uncollectible reinsurance — — (8) (8) Other reserve re-estimates, net 4 (5) 23 22 Total prior accident year development (36) (396) 15 (417) Change in deferred gain on retroactive reinsurance included in other liabilities 97 — — 97 Total prior accident year development $ 61 $ (396) $ 15 $ (320) For discussion of the factors contributing to unfavorable (favorable) prior accident year reserve development for both the 2021 and 2020 nine month periods, please refer to Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. 78 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SEGMENT OPERATING SUMMARIES | COMMERCIAL LINES - RESULTS OF OPERATIONS Underwriting Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Written premiums $ 2,532 $ 2,199 15 % $ 7,529 $ 6,772 11 % Change in unearned premium reserve 83 (52) NM 501 99 NM Earned premiums 2,449 2,251 9 % 7,028 6,673 5 % Fee income 8 8 — % 25 21 19 % Losses and loss adjustment expenses Current accident year before catastrophes 1,351 1,366 (1 %) 3,986 4,181 (5 %) Current accident year catastrophes [1] 222 107 107 % 490 355 38 % Prior accident year development [1] 122 (57) NM 255 61 NM Total losses and loss adjustment expenses 1,695 1,416 20 % 4,731 4,597 3 % Amortization of deferred policy acquisition costs 348 344 1 % 1,038 1,051 (1 %) Underwriting expenses 432 391 10 % 1,231 1,221 1 % Amortization of other intangible assets 7 8 (13 %) 21 22 (5 %) Dividends to policyholders 5 8 (38 %) 17 23 (26 %) Underwriting gain (loss) (30) 92 (133 %) 15 (220) 107 % Net servicing income 2 1 100 % 11 2 NM Net investment income [2] 421 316 33 % 1,130 797 42 % Net realized gains (losses) [2] 51 (26) NM 142 (105) NM Other expenses (5) (8) 38 % (15) (25) 40 % Income before income taxes 439 375 17 % 1,283 449 186 % Income tax expense [3] 82 52 58 % 228 71 NM Net income $ 357 $ 323 11 % $ 1,055 $ 378 179 % [1] For additional information on current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves Development, Net of Reinsurance and Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. [2] For discussion of consolidated investment results, see MD&A - Investment Results. [3] For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. 79 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Premium Measures Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Small Commercial: Net new business premium $ 165 $ 129 $ 511 $ 404 Policy count retention [1] 84 % 84 % 84 % 83 % Policy count retention, net of cancellations [1] 93 % 79 % 87 % 84 % Renewal written price increases 3.2 % 1.6 % 2.9 % 1.9 % Renewal earned price increases 2.7 % 2.2 % 2.4 % 2.1 % Policies in-force as of end of period (in thousands) 1,352 1,278 Middle Market [2]: Net new business premium $ 139 $ 131 $ 408 $ 355 Policy count retention [1] 87 % 79 % 83 % 79 % Policy count retention, net of cancellations [1] 90 % 77 % 84 % 78 % Renewal written price increases 6.0 % 8.0 % 6.1 % 7.7 % Renewal earned price increases 7.2 % 7.2 % 7.6 % 6.0 % Policies in-force as of end of period (in thousands) 61 59 Global Specialty: Global specialty gross new business premium [3] $ 234 $ 185 $ 687 $ 568 U.S. global specialty renewal written price increases 9.9 % 20.5 % 12.4 % 17.0 % U.S. global specialty renewal earned price increases 16.0 % 15.0 % 17.7 % 11.5 % International global specialty renewal written price increases [4] 17.3 % 52.6 % 22.7 % 38.8 % International global specialty renewal earned price increases [4] 38.3 % 47.3 % 48.4 % 35.8 % [1] Policy count retention represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the previous calendar year period before considering policies cancelled subsequent to renewal. Policy count retention, net of cancellations, represents the ratio of the number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous calendar year period. [2] Except for net new business premium, metrics for middle market exclude loss sensitive and programs businesses. [3] Excludes Global Re and Continental Europe Operations and is before ceded reinsurance. [4] Excludes offshore energy policies, political violence and terrorism policies, and any business under which the managing agent of our Lloyd's Syndicate delegates underwriting authority to coverholders and other third parties. Underwriting Ratios Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Loss and loss adjustment expense ratio Current accident year before catastrophes 55.2 60.7 (5.5) 56.7 62.7 (6.0) Current accident year catastrophes 9.1 4.8 4.3 7.0 5.3 1.7 Prior accident year development 5.0 (2.5) 7.5 3.6 0.9 2.7 Total loss and loss adjustment expense ratio 69.2 62.9 6.3 67.3 68.9 (1.6) Expense ratio 31.8 32.7 (0.9) 32.2 34.1 (1.9) Policyholder dividend ratio 0.2 0.4 (0.2) 0.2 0.3 (0.1) Combined ratio 101.2 95.9 5.3 99.8 103.3 (3.5) Impact of current accident year catastrophes and prior year development (14.1) (2.3) (11.8) (10.6) (6.2) (4.4) Underlying combined ratio 87.2 93.7 (6.5) 89.2 97.1 (7.9) 80 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Income Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net income for the three months ended September 30, 2021 increased, primarily due to an increase in net investment income and a change from net realized losses to net realized gains, partially offset by a change from an underwriting gain to an underwriting loss. Net income for the nine months ended September 30, 2021 increased primarily due to higher net investment income, a change from an underwriting loss to an underwriting gain and a change from net realized losses to net realized gains. For further discussion of investment results, see MD&A - Investment Results. Underwriting Gain (Loss) Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Underwriting loss for the three month period ended September 30, 2021 compared to an underwriting gain for the prior year three month period with the deterioration primarily driven by a change to net unfavorable prior accident year development in the 2021 period, principally driven by the new agreement-in-principle to settle BSA claims in third quarter 2021, higher current accident year catastrophes, driven by hurricane Ida, and increased underwriting expenses, partially offset by the impact of higher earned premiums and lower current accident year losses before catastrophes, including a reduction in direct COVID-19 incurred losses. Underwriting expenses increased in 2021 as higher commissions, incentive compensation and technology costs were partially offset by cost savings from Hartford Next and a decrease in the allowance for credit losses on premiums receivable in the 2021 period compared to an increase in the 2020 period. Underwriting gain for the nine month period ended September 30, 2021 compared to an underwriting loss for the prior year nine month period with the improvement primarily due to lower current accident year losses before catastrophes, driven by $250 before tax of COVID-19 incurred losses in the first nine months of 2020 compared with $30 before tax of COVID-19 incurred losses in the first nine months of 2021, and the impact of higher earned premium, partially offset by higher net unfavorable prior accident year development and higher current accident year catastrophes in the current year period. Amortization of deferred policy acquisition costs decreased from the prior year period primarily due to lower average base commissions despite higher earned premiums. Underwriting expenses increased due to higher contingent and supplemental commissions, incentive compensation and technology costs, partially offset by a decrease in the allowance for credit losses on premiums receivable in the 2021 period compared to an increase in the 2020 period and savings from Hartford Next initiatives. 81 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Earned Premiums [1] Other earned premiums of $12 and $10, for the three months ended September 30, 2020, and 2021, respectively, and $33 and $32 for the nine months ended September 30, 2020 and 2021, respectively, is included in the total. Written Premiums [1] Other written premiums of $10 and $11, for the three months ended September 30, 2020, and 2021, respectively, and $31 and $32 for the nine months ended September 30, 2020 and 2021, respectively, is included in the total. Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Earned premiums for the three and nine month periods increased in 2021 due to written premium increases over the prior 12 months as well as due to higher premiums from audits and endorsements, principally in workers’ compensation due to an increasing exposure base from higher payrolls as the economy recovers from the pandemic. Written premiums for the three and nine month periods increased in 2021 driven by growth in small commercial, middle & large commercial and global specialty across most lines of business. The Company recognized renewal written pricing increases in all lines in third quarter 2021 with moderating price increases in middle market and global specialty. In global specialty, our U.S. wholesale book achieved an approximate 14% renewal written price increase, led by excess casualty and property. Global specialty international lines achieved a 17% price increase, led by D&O. In small commercial, renewal written price increases were higher in 2021 than 2020, with workers' compensation pricing slightly positive in the third quarter of 2021 due to rising wages, along with mid-single digit increases in most other lines. In middle market, the Company recognized high single-digit to low double-digit rate increases in most middle market lines other than workers’ compensation, which experienced low single-digit written pricing increases. New business premium increased in 2021 in both the three and nine month periods driven by growth in small commercial, led by increases in package business and workers' compensation. In addition, new business growth in middle & large commercial was led by construction and general liability in the three month period and nearly all lines grew in the nine month period. Global specialty gross new business premium increased in both the three and nine month periods driven by financial lines and wholesale. • Small commercial written premium increased in 2021 in all lines in the three month period and in all lines except automobile in the nine month period, with the most growth in package business and workers’ compensation. • Middle & large commercial written premium increased in 2021 in both the three and nine month periods driven by growth in most lines of business, with the most significant growth in general industries, large and complex solutions and industry verticals. • Global specialty written premium increased in 2021 in both the three and nine month periods driven by growth in U.S. wholesale, global reinsurance and financial lines. 82 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Current Accident Year Loss and LAE Ratio before Catastrophes Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Current accident year loss and LAE ratio before catastrophes decreased in 2021 in the three month period primarily due to lower loss ratios in global specialty, workers’ compensation, general liability and non-catastrophe property losses written as part of small commercial package business. Current accident year loss and LAE ratio before catastrophes decreased in 2021 in the nine month period primarily due to lower COVID-19 incurred losses in 2021 as well as due to lower loss ratios in global specialty, workers’ compensation, and general liability. The lower loss ratios in global specialty for both periods were largely the result of rate and underwriting actions to improve profitability in those lines and was driven by international, global reinsurance, U.S. wholesale and U.S. financial lines. The three months ended September 30, 2021 included $3 before tax of COVID-19 incurred losses, all within financial and other lines. The nine months ended September 30, 2021 included COVID-19 incurred losses of $30 before tax, including losses of $20 in workers’ compensation and $10 in financial and other lines. The three month period in 2020 included COVID-19 incurred losses of $37 before tax, including $17 of losses in workers' compensation, net of favorable frequency on other workers' compensation claims, and $20 of losses in financial and other lines. The nine month period in 2020 included COVID-19 incurred losses of $250 before tax, including losses of $141 in property, $52 in workers’ compensation, net of favorable frequency on other workers' compensation claims, and $57 in financial and other lines. Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in the nine months ended September 30, 2020 were $101 of losses arising from a small number of property policies that do not require direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption as well as a reserve of $40 for legal defense costs. Workers’ compensation COVID-19 incurred losses include claims in both states with presumptive coverage and in other states where the claimant must prove their COVID-19 illness was contracted at work. Financial lines COVID-19 claims include exposures in D&O, E&O and employment practices liability and the recessionary impacts on the surety book of business. Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Current accident year catastrophe losses for the three months ended September 30, 2021 included losses from hurricane Ida and, to a lesser extent, losses from tropical storms and wind and hail events in the Midwest and Mountain West. Current accident year catastrophe losses for the three months ended September 30, 2020 included losses from hurricane Laura, Pacific Coast wildfires, tropical storm Isaias, a Midwest derecho, and other wind and hail events mostly in the Central Plains. Current accident year catastrophe losses for the nine months ended September 30, 2021 included losses from hurricane Ida, tropical storms and February winter storms primarily in the South, with the remaining losses largely from tornado, wind and hail events, mostly concentrated in Texas, the Southeast and Midwest. Current accident year catastrophe losses for the nine months ended September 30, 2020 were primarily from civil unrest, hurricane Laura, Pacific Coast wildfires, tropical storm Isaias and from tornado, wind and hail events in the South, Midwest and Central Plains. Prior accident year development was net unfavorable for the three and nine months ended September 30, 2021. Reserve development in both 2021 periods included an increase in general liability that included a reserve increase related to the settlement with Boy Scouts of America on sexual molestation and sexual abuse claims, partially offset by reserve decreases for workers' compensation, package business, bond and, for the nine month period, reserve decreases for catastrophes and commercial property. 83 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net favorable reserve development for the three month period in 2020 included reserve decreases for workers' compensation, package business and professional liability. Net unfavorable reserve development for the nine months ended September 30, 2020 included reserve increases for general liability driven primarily by increases in reserves for sexual molestation and abuse claims, and increases in commercial automobile liability reserves, partially offset by reserve decreases for workers' compensation, catastrophes and package business. Favorable development on prior year catastrophe reserves in the nine month period in 2020 was due to recognizing a $29 before tax subrogation benefit from a settlement with PG&E over certain of the 2017 and 2018 California wildfires and a reduction in estimated catastrophe losses from a number of wind and hail events that occurred in 2018 and 2019. Prior accident year development in the three and nine month periods of both 2021 and 2020 included reserve increases related to Navigators Group on 2018 and prior accident years that was economically ceded to NICO but for which the benefit was not recognized in earnings as it has been recorded as a deferred gain on retroactive reinsurance. | PERSONAL LINES - RESULTS OF OPERATIONS Underwriting Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Written premiums $ 765 $ 781 (2 %) $ 2,240 $ 2,263 (1 %) Change in unearned premium reserve 21 2 NM 24 16 50 % Earned premiums 744 779 (4 %) 2,216 2,247 (1 %) Fee income 8 8 — % 24 26 (8 %) Losses and loss adjustment expenses Current accident year before catastrophes 479 436 10 % 1,340 1,255 7 % Current accident year catastrophes [1] 78 122 (36 %) 152 196 (22 %) Prior accident year development [1] (27) (29) 7 % (113) (396) 71 % Total losses and loss adjustment expenses 530 529 — % 1,379 1,055 31 % Amortization of DAC 57 60 (5 %) 173 185 (6 %) Underwriting expenses 154 146 5 % 456 447 2 % Amortization of other intangible assets 1 — NM 2 3 (33 %) Underwriting gain 10 52 (81 %) 230 583 (61 %) Net servicing income [2] 6 5 20 % 15 10 50 % Net investment income [3] 44 41 7 % 119 110 8 % Net realized gains (losses) [3] 4 3 33 % 17 (12) NM Other expenses (1) (2) 50 % (1) (1) — % Income before income taxes 63 99 (36 %) 380 690 (45 %) Income tax expense [4] 12 20 (40 %) 76 142 (46 %) Net income $ 51 $ 79 (35 %) $ 304 $ 548 (45) % [1] For additional information on current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance and Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. [2] Includes servicing revenues of $22 and $23 for the three months ended September 30, 2021 and 2020, respectively, and $62 and $63 for the nine months ended September 30, 2021 and 2020, respectively. Includes servicing expenses of $16 and $18 for the three months ended September 30, 2021 and 2020, respectively, and $47 and $53 for the nine months ended September 30, 2021 and 2020, respectively. [3] For discussion of consolidated investment results, see MD&A - Investment Results. [4] For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. 84 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Written and Earned Premiums Three Months Ended September 30, Nine Months Ended September 30, Written Premiums 2021 2020 Change 2021 2020 Change Product Line Automobile $ 516 $ 529 (2 %) $ 1,539 $ 1,544 — % Homeowners 249 252 (1 %) 701 719 (3 %) Total $ 765 $ 781 (2 %) $ 2,240 $ 2,263 (1 %) Earned Premiums Product Line Automobile $ 511 $ 541 (6 %) $ 1,527 $ 1,533 — % Homeowners 233 238 (2 %) 689 714 (4 %) Total $ 744 $ 779 (4 %) $ 2,216 $ 2,247 (1 %) Premium Measures Three Months Ended September 30, Nine Months Ended September 30, Premium Measures 2021 2020 2021 2020 Policies in-force end of period (in thousands) Automobile 1,328 1,392 Homeowners 786 846 Net new business premium Automobile $ 58 $ 55 $ 167 $ 178 Homeowners $ 17 $ 16 $ 46 $ 51 Policy count retention [1] Automobile 84 % 85 % 85 % 84 % Homeowners 84 % 85 % 85 % 84 % Policy count retention, net of cancellations [1] [2] Automobile 87 % 84 % 83 % 86 % Homeowners 86 % 84 % 84 % 86 % Renewal written price increase Automobile 2.2 % 2.1 % 2.1 % 2.6 % Homeowners 8.1 % 7.1 % 8.6 % 5.7 % Renewal earned price increase Automobile 2.0 % 3.1 % 2.0 % 3.7 % Homeowners 8.6 % 5.3 % 7.9 % 5.6 % [1] Policy count retention represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the previous calendar period before considering policies cancelled subsequent to renewal. Policy count retention, net of cancellations, represents the ratio of the number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous calendar period. [2]Policy count retention, net of cancellations decreased in the three month period ended September 30, 2020 largely due to policy cancellations for non-payment of premium that had been temporarily suspended to provide policyholders additional time to pay their premium (until May 31, 2020 in most states). 85 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Underwriting Ratios Three Months Ended September 30, Nine Months Ended September 30, Underwriting Ratios 2021 2020 Change 2021 2020 Change Loss and loss adjustment expense ratio Current accident year before catastrophes 64.4 56.0 8.4 60.5 55.9 4.6 Current accident year catastrophes 10.5 15.7 (5.2) 6.9 8.7 (1.8) Prior year development (3.6) (3.7) 0.1 (5.1) (17.6) 12.5 Total loss and loss adjustment expense ratio 71.2 67.9 3.3 62.2 47.0 15.2 Expense ratio 27.4 25.4 2.0 27.4 27.1 0.3 Combined ratio 98.7 93.3 5.4 89.6 74.1 15.5 Impact of current accident year catastrophes and prior year development (6.9) (12.0) 5.1 (1.8) 8.9 (10.7) Underlying combined ratio 91.8 81.4 10.4 87.9 83.0 4.9 Product Combined Ratios Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Automobile Combined ratio 96.5 81.3 15.2 89.8 84.6 5.2 Underlying combined ratio 99.7 84.9 14.8 92.7 87.4 5.3 Homeowners Combined ratio 103.4 122.9 (19.5) 90.8 52.1 38.7 Underlying combined ratio 74.6 74.0 0.6 77.0 73.4 3.6 Net Income Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net income decreased in both the three and nine month periods, largely driven by a decrease in underwriting gain, partially offset by an increase in net investment income and, for the nine month period, a change from net realized losses to net realized gains and an increase in net servicing income. Underwriting Gain Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Underwriting gain decreased in both the three and nine month periods, primarily due to higher personal automobile loss costs, an increase in underwriting expenses, the effect of a decrease in earned premiums and, for the nine month period, higher current accident year non-catastrophe property losses and less favorable prior accident year reserve development, partially offset by lower current accident year catastrophe losses in both the three and nine-month periods. Contributing to the increase in underwriting expenses in both the three and nine 86 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations month periods was higher costs for AARP direct marketing, incentive compensation, and technology, partially offset by cost savings from the Hartford Next initiative. Earned Premiums Written Premiums Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Earned premiums decreased in both the three and nine month periods due to the effect of a decline in written premium over the prior twelve months in both Agency channels and in AARP Direct. For the nine month period, the decrease was partially offset by the effect of $81 of premium credits given to automobile policyholders in the second quarter of 2020 in recognition of shelter-in-place guidelines that reduced miles driven in 2020. Written premiums decreased in automobile for both the three and nine month periods due to the effect of non-renewed premium exceeding new business which, for the nine month period, was partially offset by the effect of the premium credits given in the 2020 period. Written premium declined in homeowners in both the three and nine month periods due to the effect of non-renewed premium exceeding new business. Both new business and policy count retention, net of cancellations, increased in the three month period while decreasing in the nine month period. Policy count retention, net of cancellations, was depressed in third quarter 2020 due to processing cancellations for non-payment of premium that had been suspended in second quarter 2020. Renewal written pricing increases were relatively flat in automobile for the three months period and modestly lower for the nine month period. Renewal written pricing increases for homeowners were higher for both the three and nine month periods in response to recent loss cost trends. Policies in-force decreased in the 2021 period in both automobile and homeowners driven by not generating enough new business to offset the loss of non-renewed policies. Current Accident Year Loss and LAE Ratio before Catastrophes Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Current accident year Loss and LAE ratio before catastrophes increased in automobile and was flat in homeowners for the three month period and increased in both automobile and homeowners for the nine month period. The increase in automobile for both the three and nine month periods was principally due to higher claim frequency with miles driven increasing as we emerge from the pandemic and an increase in average claim severity. For the three month period, the homeowners current accident year loss and LAE ratio before catastrophes was essentially flat to prior year. Earned pricing 87 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations increases and lower weather and non-weather frequency were offset by an increase in both weather and non-weather severity. For the nine month period, the homeowners current accident year loss and LAE ratio before catastrophes increased due to an increase in severity, partially offset by the effect of earned pricing increases. Contributing to the increase in homeowners severity was the effect of higher rebuilding costs and a greater number of large losses. Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Current accident year catastrophe losses decreased for the both the three and nine month periods. Current accident year catastrophe losses for the third quarter of 2021 primarily included losses from hurricane Ida, California wildfires, tropical storms and wind and hail events in the Midwest and Mountain West. Current accident year catastrophe losses for the nine months ended September 30, 2021 included losses from hurricane Ida, tropical storms, California wildfires, and February winter storms, primarily in the South, with the remaining losses largely from tornado, wind and hail events, mostly concentrated in Texas, the Southeast, Midwest and Mountain West. Current accident year catastrophe losses for the three months ended September 30, 2020 were primarily from Pacific Coast wildfires, tropical storm Isaias, hurricane Laura, a Midwest derecho, and other wind and hail events, mostly in the Central Plains. Current accident year catastrophe losses for the nine months ended September 30, 2020 were primarily from Pacific Coast wildfires, tropical storm Isaias, hurricane Laura, and various tornado, wind and hail events in the South, Midwest and Central Plains. Prior accident year development was relatively flat in the three month period and less favorable in the nine month period, with the decrease in the nine month period largely due to lower reserve reductions for prior year catastrophes. Prior accident year development was favorable for both the three and nine months ended September 30, 2021, with reserve reductions in personal automobile liability and, for the nine month period, a reduction in catastrophe reserves including the benefit of higher expected subrogation recoveries related to the 2017 and 2018 California wildfires. Prior accident year development was favorable in both the three and nine month periods ended September 30, 2020 with reserve reductions in personal automobile liability and, for the nine month period, a reduction in catastrophe reserves. The reduction in catastrophe reserves for the nine months ended September 30, 2020 was driven by lower estimated losses for the 2017 and 2018 California wildfires, including a $260 subrogation benefit from PG&E, as well as a reduction in losses for various 2018 and 2019 wind and hail events. 88 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | PROPERTY & CASUALTY OTHER OPERATIONS - RESULTS OF OPERATIONS Underwriting Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Losses and loss adjustment expenses Prior accident year development [1] $ (5) $ 11 (145 %) $ 28 $ 15 87 % Total losses and loss adjustment expenses (5) 11 (145 %) 28 15 87 % Underwriting expenses 2 2 — % 6 8 (25 %) Underwriting gain (loss) 3 (13) 123 % (34) (23) (48 %) Net investment income [2] 22 14 57 % 58 40 45 % Net realized gains (losses) [2] 2 2 — % 7 (3) NM Income before income taxes 27 3 NM 31 14 121 % Income tax expense [3] 5 1 NM 5 2 150 % Net income $ 22 $ 2 NM $ 26 $ 12 117 % [1] For additional information on prior accident year development, see Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. [2] For discussion of consolidated investment results, see MD&A - Investment Results. [3] For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. Net income Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net income increased in the three months ended September 30, 2021, primarily from favorable prior accident year reserve development in the 2021 period compared to unfavorable prior accident year reserve development in the 2020 period, as well as higher net investment income. Net income increased in the nine months ended September 30, 2021, primarily due to higher net investment income and a change from net realized losses to net realized gains, partially offset by higher unfavorable prior accident year reserve development. Underwriting gain in the three months ended September 30, 2021 compared to an underwriting loss in the prior year period primarily due to favorable prior accident year development in the current year period compared to unfavorable prior accident year development in the prior year period that was primarily driven by reserve increases for runoff assumed reinsurance business. Underwriting loss increased in the nine months ended September 30, 2021, due to an increase in unfavorable prior accident year development, with unfavorable development in the 2021 period driven by an increase in reserves for sexual molestation and sexual abuse claims, primarily on assumed reinsurance, partially offset by a reduction in the allowance for uncollectible reinsurance Asbestos and environmental reserve comprehensive annual reviews will occur in the fourth quarter of 2021. For information on A&E reserves, see MD&A - Critical Accounting Estimates, Asbestos and Environmental Reserves included in the Company's 2020 Form 10-K Annual Report. 89 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | GROUP BENEFITS - RESULTS OF OPERATIONS Operating Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Premiums and other considerations $ 1,415 $ 1,361 4 % $ 4,260 $ 4,175 2 % Net investment income [1] 159 117 36 % 422 324 30 % Net realized gains [1] 13 9 44 % 60 4 NM Total revenues 1,587 1,487 7 % 4,742 4,503 5 % Benefits, losses and loss adjustment expenses 1,199 1,005 19 % 3,414 3,045 12 % Amortization of DAC 11 13 (15 %) 32 39 (18 %) Insurance operating costs and other expenses 336 312 8 % 1,015 991 2 % Amortization of other intangible assets 10 10 — % 30 30 — % Total benefits, losses and expenses 1,556 1,340 16 % 4,491 4,105 9 % Income before income taxes 31 147 (79 %) 251 398 (37 %) Income tax expense [2] 3 28 (89 %) 44 74 (41 %) Net income $ 28 $ 119 (76 %) $ 207 $ 324 (36 %) [1] For discussion of consolidated investment results, see MD&A - Investment Results. [2] For discussion of income taxes, see Note 12 - Income Taxes of Notes to the Condensed Consolidated Financial Statements. Premiums and Other Considerations Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Fully insured – ongoing premiums $ 1,372 $ 1,316 4 % $ 4,122 $ 3,988 3 % Buyout premiums — 1 (100 %) 2 55 (96 %) Fee income 43 44 (2 %) 136 132 3 % Total premiums and other considerations $ 1,415 $ 1,361 4 % $ 4,260 $ 4,175 2 % Fully insured ongoing sales, excluding buyouts $ 82 $ 134 (39 %) $ 693 $ 668 4 % Ratios, Excluding Buyouts Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Group disability loss ratio 68.4 % 65.3 % 3.1 67.0 % 66.4 % 0.6 Group life loss ratio 110.9 % 87.5 % 23.4 100.9 % 82.6 % 18.3 Total loss ratio 84.7 % 73.8 % 10.9 80.1 % 72.6 % 7.5 Expense ratio [1] 25.2 % 24.3 % 0.9 25.2 % 25.4 % (0.2) [1]Integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business are not included in the expense ratio. 90 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Margin Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Net income margin 1.8 % 8.0 % (6.2) 4.4 % 7.2 % (2.8) Adjustments to reconcile net income margin to core earnings margin: Net realized losses (gains) excluded from core earnings, before tax (0.9 %) (0.6 %) (0.3) (1.3 %) (0.1 %) (1.2) Integration and other non-recurring M&A costs, before tax 0.1 % 0.3 % (0.2) 0.1 % 0.3 % (0.2) Income tax benefit 0.2 % 0.2 % — 0.3 % — % 0.3 Impact of excluding buyouts from denominator of core earnings margin — % — % — — % 0.1 % (0.1) Core earnings margin 1.2 % 7.9 % (6.7) 3.5 % 7.5 % (4.0) Net Income Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net income decreased from the third quarter of 2020 largely driven by an increase in excess mortality losses and short-term disability losses related to COVID-19 and higher operating expenses, partially offset by higher net investment income and increased premium volume. For the nine month period ended September 30, 2021, net income decreased largely driven by higher excess mortality and short-term disability losses and higher operating expenses, partially offset by an increase in net investment income, an increase in net realized gains and increased premium volume. Insurance operating costs and other expenses for both the three and nine month periods were higher year over year as an increase in incentive compensation, technology costs and claim costs to handle elevated claim levels resulting from the pandemic was partially offset by lower staffing and other costs due to the Hartford Next operational transformation and cost reduction program and a decrease in integration costs. In the three month period, expenses were also unfavorably impacted by a lower decrease in the allowance for credit losses on premiums receivable. In the nine month period, a decrease in the allowance for credit losses on premiums receivable in the current year compared to an increase in the allowance in the prior year. Fully Insured Ongoing Premiums [1] Other of $70 and $79 is included in the three months ended September 30, 2020, and 2021, respectively, and $200 and $235 for the nine months ended September 30, 2020 and 2021, respectively, which includes other group coverages such as retiree health insurance, critical illness, accident, hospital indemnity and participant accident coverages. Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Fully insured ongoing premiums increased primarily due to an increase in exposure on existing accounts as our customers emerge from the pandemic, as well as strong persistency and sales. Fully insured ongoing sales, excluding buyouts decreased for the three month period, as the prior year included two large national account sales. For the nine month period, fully insured ongoing sales, excluding buyouts, increased with increases in group disability and other partially offset by a decrease in group life. 91 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Ratios Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Total loss ratio increased 10.9 points for the three month period reflecting a higher loss ratio in both group life and group disability. The group life loss ratio increased 23.4 points compared to prior year due to increased excess mortality, partially offset by reserve strengthening related to late reported death claims in the third quarter of 2020. Excess mortality recognized in the three months ended September 30, 2021 was $212, or 35.9 points, compared to $42, or 7.1 points, in the same prior year period. Included in the excess mortality estimate for the three months ended September 30, 2021 were estimated losses of $233, or 39.4 points, for claims with dates of loss in the third quarter, partially offset by favorable development of $21, or 3.6 points, on excess mortality estimates related to prior quarters, the majority of which relates to favorable development on second quarter 2021 claims. The disability loss ratio increased 3.1 points due to an increase in short-term disability claim incidence as the prior year period was more favorably impacted by fewer elective procedures during the early stages of the pandemic. The increased short-term disability claim incidence is partially offset by lower long-term disability claim incidence and stronger recoveries related to prior incurral year reserves. Total loss ratio increased 7.5 points for the nine month period reflecting a higher group life loss ratio and a slightly higher group disability loss ratio. The group life loss ratio increased 18.3 points driven by a 18.7 point increase in excess mortality claims compared to the nine month period ended September 30, 2020. For the nine month period ended September 30, 2021 and 2020, excess mortality losses were $422 and $87, respectively. The group disability loss ratio increased 0.6 points due to an increase in short-term disability claim incidence as the prior year period was more favorably impacted by fewer elective procedures during the early stages of the pandemic. The increased short-term disability claim incidence was partially offset by a higher New York Paid Family Leave risk adjustment recognized in the 2021 period . Expense ratio increased for the three month period and was relatively flat for the nine month period. Both the three and nine month periods included an increase in incentive compensation, technology costs and claim costs to handle elevated claim levels resulting from the pandemic, offset by lower staffing and other costs as a result of the Hartford Next operational transformation and cost reduction program, and higher earned premiums. The three month period included a lower decrease in the allowance for credit losses on premium receivables. The nine month period included a decrease in the allowance for credit losses on premiums receivable compared to an increase in the allowance in the prior year period. 92 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | HARTFORD FUNDS - RESULTS OF OPERATIONS Operating Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Fee income and other revenue $ 306 $ 250 22 % $ 884 $ 724 22 % Net investment income 2 1 100 % 3 3 — % Net realized gains (losses) (3) 5 (160 %) 1 2 (50 %) Total revenues 305 256 19 % 888 729 22 % Amortization of DAC 3 4 (25 %) 9 11 (18 %) Operating costs and other expenses 232 197 18 % 684 569 20 % Total benefits, losses and expenses 235 201 17 % 693 580 19 % Income before income taxes 70 55 27 % 195 149 31 % Income tax expense [1] 14 11 27 % 40 30 33 % Net income $ 56 $ 44 27 % $ 155 $ 119 30 % Daily average Hartford Funds AUM $ 155,041 $ 122,528 27 % $ 149,599 $ 117,693 27 % ROA [2] 14.4 14.4 — % 13.8 13.5 2 % Adjustment to reconcile ROA to ROA, core earnings: Effect of net realized losses excluded from core earnings, before tax 0.8 (1.6) 150 % (0.1) (0.2) 50 % Effect of income tax expense (benefit) (0.2) 0.3 (167 %) — — — % ROA, core earnings [2] 15.0 13.1 15 % 13.7 13.3 3 % [1] For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. [2]Represents annualized earnings divided by a daily average of assets under management, as measured in basis points. Hartford Funds Segment AUM Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Mutual Fund and ETP AUM - beginning of period $ 138,511 $ 104,721 32 % $ 124,627 $ 112,533 11 % Sales - mutual fund 7,086 5,878 21 % 24,938 21,505 16 % Redemptions - mutual fund (6,778) (7,064) 4 % (21,506) (24,599) 13 % Net flows - ETP (13) (80) 84 % 77 (271) 128 % Net flows - mutual fund and ETP 295 (1,266) 123 % 3,509 (3,365) NM Change in market value and other (1,520) 6,586 (123 %) 9,150 873 NM Mutual fund and ETP AUM - end of period 137,286 110,041 25 % 137,286 110,041 25 % Talcott Resolution life and annuity separate account AUM [1] 14,800 13,669 8 % 14,800 13,669 8 % Hartford Funds AUM - end of period $ 152,086 $ 123,710 23 % $ 152,086 $ 123,710 23 % [1]Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment. Mutual Fund and ETP AUM by Asset Class As of September 30, 2021 2020 Change Equity $ 91,600 $ 70,649 30 % Fixed Income 19,632 15,655 25 % Multi-Strategy Investments [1] 22,925 21,116 9 % Exchange-traded Products 3,129 2,621 19 % Mutual Fund and ETP AUM $ 137,286 $ 110,041 25 % [1] Includes balanced, allocation, and alternative investment products. 93 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Income Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net income increased for the three month period primarily due to higher fee income as a result of an increase in daily average assets under management, partially offset by higher variable costs and a change from net realized gains to net realized losses. Realized gains (losses) consist of changes in the market value of Company assets invested in certain funds, which was driven by changes in equity markets. For the nine month period, net income increased primarily due to higher fee income, partially offset by higher variable costs and the effect of a $12 reduction in contingent consideration payable associated with the acquisition of Lattice that was recognized in first quarter 2020. Hartford Funds AUM September 30, 2021 compared to September 30, 2020 Hartford Funds AUM increased primarily due to net inflows and an increase in market values over the previous twelve months. For the nine months ended September 30, 2021, the Company recognized net inflows on mutual fund and ETP of $3.5 billion, compared to net outflows of $3.4 billion for the nine months ended September 30, 2020. 94 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | CORPORATE - RESULTS OF OPERATIONS Operating Summary Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Fee income [1] $ 12 $ 13 (8 %) $ 38 $ 38 — % Other revenue (loss) — (21) 100 % (10) 54 (119 %) Net investment income 2 3 (33 %) 8 16 (50 %) Net realized gains (losses) 3 13 (77 %) 70 (2) NM Total revenues 17 8 113 % 106 106 — % Benefits, losses and loss adjustment expenses [2] 1 1 — % 4 13 (69 %) Insurance operating costs and other expenses [1] 17 9 89 % 75 59 27 % Interest expense [3] 58 58 — % 172 179 (4 %) Restructuring and other costs (12) 87 (114 %) (1) 87 (101 %) Total benefits, losses and expenses 64 155 (59 %) 250 338 (26 %) Loss before income taxes (47) (147) 68 % (144) (232) 38 % Income tax benefit [4] (15) (39) 62 % (33) (51) 35 % Net loss (32) (108) 70 % (111) (181) 39 % Preferred stock dividends 6 6 — % 16 16 — % Net loss available to common stockholders $ (38) $ (114) 67 % $ (127) $ (197) 36 % [1] Includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution. [2] Includes benefits expense on life and annuity business previously underwritten by the Company. [3] For discussion of debt, see Note 11 - Debt of Notes to the Condensed Consolidated Financial Statements and Note 14- Debt of Notes to Consolidated Financial Statements in The Hartford's 2020 Form 10-K Annual Report. [4] For discussion of income taxes, see Note 12 - Income Taxes of Notes to the Condensed Consolidated Financial Statements. Net Loss Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Net loss available to common stockholders for the third quarter of 2021 decreased from the third quarter of 2020 primarily due to a decrease in restructuring and other costs and the effect of a loss from the Company’s previously owned equity interest in Talcott Resolution in the 2020 period, partially offset by a decrease in net realized gains. Net loss available to common stockholders decreased in the nine month period as a decrease in restructuring and other costs and a change from net realized losses to net realized gains was partially offset by a change from income to loss from the Company’s previously owned equity interest in Talcott Resolution, an increase in operating costs and other expenses and lower net investment income. Income (loss) from the Company’s previously owned equity interest in Talcott Resolution was $(21) for the three months ended September 30, 2020 and was $(11) and $43, respectively, for the nine months ended September 30, 2021 and 2020. The increase in operating costs and other expenses for the nine month period was primarily driven by legal and consulting costs associated with the unsolicited proposals from Chubb Limited to acquire the Company, partially offset by lower consulting fees. Net realized gains for the nine months ended September 30, 2021 included a $46 gain on sale of the Company’s 9.7% retained equity interest in Talcott Resolution. 95 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Interest Expense Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 Interest expense was flat year over year for the three month period and decreased for the nine month period primarily due to the repayment of our 5.5% senior notes in March of 2020. ENTERPRISE RISK MANAGEMENT The Company’s Board of Directors has ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management is tasked with the day-to-day management of the Company’s risks. The Company manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) oversees the risk profile and risk management practices of the Company. The Company's enterprise risk management ("ERM") function supports the ERCC and functional committees, and is tasked with, among other things: • risk identification and assessment; • the development of risk appetites, tolerances, and limits; • risk monitoring; and • internal and external risk reporting. The Company categorizes its main risks as insurance risk, operational risk and financial risk. Insurance risk and financial risk are described in more detail below. Operational risk, including cybersecurity and business resiliency response to COVID-19, and specific risk tolerances for natural catastrophes and pandemic risk are described in the ERM section of the MD&A in The Hartford’s 2020 Form 10-K Annual Report. | INSURANCE RISK Insurance risk is the risk of losses of both a catastrophic and non-catastrophic nature on the P&C and Group Benefits products the Company has sold. Catastrophe insurance risk is the exposure arising from both natural (e.g., weather, earthquakes, wildfires, pandemics) and man-made catastrophes (e.g., terrorism, cyber-attacks) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios. Sources of Insurance Risk Non-catastrophe insurance risks exist within each of the Company's segments except Hartford Funds and include: • Property- Risk of loss to personal or commercial property from automobile related accidents, weather, explosions, smoke, shaking, fire, theft, vandalism, inadequate installation, faulty equipment, collisions and falling objects, and/or machinery mechanical breakdown resulting in physical damage and other covered perils. • Liability- Risk of loss from automobile related accidents, uninsured and underinsured drivers, lawsuits from accidents, defective products, breach of warranty, negligent acts by professional practitioners, environmental claims, latent exposures, fraud, coercion, forgery, failure to fulfill obligations per contract surety, liability from errors and omissions, losses from political and credit coverages, losses from derivative lawsuits, and other securities actions and covered perils. • Mortality- Risk of loss from unexpected trends in insured deaths impacting timing of payouts from group life insurance, personal or commercial automobile related accidents, and death of employees or executives during the course of employment, while on disability, or while collecting workers compensation benefits. • Morbidity- Risk of loss to an insured from illness incurred during the course of employment or illness from other covered perils. • Disability- Risk of loss incurred from personal or commercial automobile related losses, accidents arising outside of the workplace, injuries or accidents incurred during the course of employment, or from equipment, with each loss resulting in short term or long-term disability payments. • Longevity- Risk of loss from increased life expectancy trends among policyholders receiving long-term benefit payments. • Cyber Insurance - Risk of loss to property, breach of data and business interruption from various types of cyber-attacks. 96 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Catastrophe risk primarily arises in the property, automobile, workers' compensation, casualty, group life, and group disability lines of business. Impact Non-catastrophe insurance risk can arise from unexpected loss experience, underpriced business and/or underestimation of loss reserves and can have significant effects on the Company’s earnings. Catastrophe insurance risk can arise from various unpredictable events and can have significant effects on the Company's earnings and may result in losses that could constrain its liquidity. Management The Company's policies and procedures for managing these risks include disciplined underwriting protocols, exposure controls, sophisticated risk-based pricing, risk modeling, risk transfer, and capital management strategies. The Company has established underwriting guidelines for both individual risks, including individual policy limits, and risks in the aggregate, including aggregate exposure limits by geographic zone and peril. The Company uses both internal and third-party models to estimate the potential loss resulting from various catastrophe events and the potential financial impact those events would have on the Company's financial position and results of operations across its businesses. In addition, certain insurance products offered by The Hartford provide coverage for losses incurred due to cyber events and the Company has assessed and modeled how those products would respond to different events in order to manage its aggregate exposure to losses incurred under the insurance policies we sell. The Company models numerous deterministic scenarios including losses caused by malware, data breach, distributed denial of service attacks, intrusions of cloud environments and attacks of power grids. Among specific risk tolerances set by the Company, risk limits are set for natural catastrophes, terrorism risk and pandemic risk. Reinsurance as a Risk Management Strategy The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers' compensation exposures, and individual risk (including facultative reinsurance) or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program (“TRIPRA”) and other reinsurance programs relating to particular risks or specific lines of business. Reinsurance for Catastrophes- The Company utilizes various reinsurance programs to mitigate catastrophe losses including excess of loss occurrence-based treaties covering property and workers’ compensation, and an aggregate property catastrophe treaty as well as individual risk agreements (including facultative reinsurance) that reinsure losses from specific classes or lines of business. The aggregate property catastrophe treaty covers the aggregate of catastrophe events designated by the Property Claim Services office of Verisk and, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand, in excess of a $700 retention. The occurrence-based property catastrophe treaties respond in excess of $100 per occurrence for all perils other than named storm and earthquake (subject to a $50 annual aggregate deductible). The Company has per risk and quota share reinsurance that would respond to certain COVID-19 related losses; however, communicable diseases are excluded from our per occurrence property catastrophe treaty, aggregate property treaty and workers' compensation catastrophe treaty that incepted on January 1, 2021. The Company has reinsurance in place to cover individual group life losses in excess of $1 per person. 97 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Primary Catastrophe Treaty Reinsurance Coverages as of September 30, 2021 [1] Portion of losses reinsured Portion of losses retained by The Hartford Per Occurrence Property Catastrophe Treaty from 1/1/2021 to 12/31/2021 [2] Losses of $0 to $100 None 100% retained Losses of $100 to $350 for earthquakes and named hurricanes and tropical storms [6] None 100% retained Losses of $100 to $350 from one event other than earthquakes and named hurricanes and tropical storms (subject to a $50 Annual Aggregate Deductible ("AAD")) [6] 70% of $250 in excess of $100 30% co-participation Losses of $350 to $500 from one event (all perils) 75% of $150 in excess of $350 25% co-participation Losses of $500 to $1.1 billion from one event [3] (all perils) 90% of $600 in excess $500 10% co-participation Aggregate Property Catastrophe Treaty for 1/1/2021 to 12/31/2021 [4] $0 to $700 of aggregate losses None 100% retained $700 to $900 of aggregate losses 100% None Workers' Compensation Catastrophe Treaty for 1/1/2021 to 12/31/2021 Losses of $0 to $100 from one event None 100% retained Losses of $100 to $450 from one event [5] 80% of $350 in excess of $100 20% co-participation [1] These treaties do not cover the assumed reinsurance business which purchases its own retrocessional coverage. [2] In addition to the Per Occurrence Property Catastrophe Treaty, for Florida wind events, The Hartford has purchased the mandatory FHCF reinsurance for the annual period starting at July 1,2021. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford Insurance Company of the Midwest, with coverage estimated at approximately $55 of per event losses in excess of a $24 retention (estimates are based on best available information at this time and are periodically updated as information is made available by Florida). [3] Portions of this layer of coverage extend beyond a traditional one year term. [4] The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all catastrophe events (up to $350 per event), either designated by the Property Claim Services office of Verisk or, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand. All catastrophe losses, except assumed reinsurance business losses, apply toward satisfying the $700 attachment point under the aggregate treaty. [5] In addition to the limits shown, the workers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of $30 in per event losses in excess of a $20 retention. [6] Named hurricanes and tropical storms are defined as any storm or storm system declared to be a hurricane or tropical storm by the US National Hurricane Center, US Weather Prediction Center, or their successor organizations (being divisions of the US National Weather Service). In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other reinsurance agreements that cover property catastrophe losses. The Per Occurrence Property Catastrophe Treaty, and Workers' Compensation Catastrophe Treaty include a provision to reinstate one limit in the event that a catastrophe loss exhausts limits on one or more layers under the treaties. Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through TRIPRA to the end of 2027. TRIPRA provides a backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, for losses that exceed a threshold of industry losses of $200. Under the program, in any one calendar year, the federal government will pay a percentage of losses incurred from a certified act of terrorism after an insurer's losses exceed 20% of the Company's eligible direct commercial earned premiums of the prior calendar year up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. The percentage of losses paid by the federal government is 80%. The Company's estimated deductible under the program is $1.6 billion for 2021. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid. Reinsurance for A&E and Navigators Group Reserve Development - The Company has two adverse development cover (“ADC”) reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years (the “A&E ADC”) and the other covers substantially all reserve development of Navigators Insurance Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”). For more information on the A&E ADC and the Navigators ADC, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements, included in The Hartford's 2020 Form 10-K Annual Report and Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. 98 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | FINANCIAL RISK Financial risks include direct and indirect risks to the Company's financial objectives from events that impact financial market conditions and the value of financial assets. Some events may cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's invested assets. Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored and managed, with risks mitigated where appropriate. The Company uses various risk management strategies, including limiting aggregation of risk, portfolio re-balancing and hedging with over-the-counter and exchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve the following Company-approved objectives: hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; and engaging in income generation covered call transactions and synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management. The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity, and foreign currency exchange. Liquidity Risk Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due. Sources of Liquidity Risk Sources of liquidity risk include funding risk, company-specific liquidity risk and market liquidity risk resulting from differences in the amount and timing of sources and uses of cash as well as company-specific and general market conditions. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value. Impact Inadequate capital resources and liquidity could negatively affect the Company’s overall financial strength and its ability to generate cash flows from its businesses, borrow funds at competitive rates, and raise new capital to meet operating and growth needs. Management The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions. The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability of liquid assets among legal entities. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact operating cash flows or liquid assets. The liquidity requirements of The Hartford Financial Services Group, Inc. ("HFSG Holding Company") have been and will continue to be met by the HFSG Holding Company's fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities as needed. The Company maintains multiple sources of contingent liquidity including a revolving credit facility, an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates, and access to collateralized advances from the Federal Home Loan Bank of Boston ("FHLBB") for certain affiliates. The Company's CFO has primary responsibility for liquidity risk. Refer to the Capital Resources & Liquidity section of MD&A for the discussion of what the Company is doing to manage liquidity during the COVID-19 pandemic. Credit Risk and Counterparty Risk Credit risk is the risk to earnings or capital due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with contractually agreed upon terms. Credit risk is comprised of three major factors: the risk of change in credit quality, or credit migration risk; the risk of default; and the risk of a change in value due to changes in credit spreads. Sources of Credit Risk The majority of the Company’s credit risk is concentrated in its investment holdings and use of derivatives, but it is also present in the Company’s ceded reinsurance activities and various insurance products. Impact A decline in creditworthiness is typically reflected as an increase in an investment’s credit spread and an associated decline in the investment's fair value, potentially resulting in recording an ACL and an increased probability of a realized loss upon sale. In certain instances, counterparties may default on their obligations and the Company may realize a loss on default. Premiums receivable, including premiums for retrospectively rated plans, reinsurance recoverable and deductible losses recoverable are also subject to credit risk based on the counterparty’s inability to pay. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on Our Financial Condition, Results of Operations and Liquidity section of this MD&A. Management The objective of the Company’s enterprise credit risk management strategy is to identify, quantify and manage credit risk in aggregate and to limit potential losses in accordance with the Company's credit risk management policy. The Company manages its credit risk by managing aggregations of risk, holding a diversified mix of issuers and counterparties across its investment, reinsurance and insurance portfolios and limiting exposure to any specific reinsurer or counterparty. Potential credit losses can be mitigated through diversification (e.g., geographic regions, asset types, industry sectors), hedging and the use of collateral to reduce net credit exposure. The Company manages credit risk through the use of various surveillance, analyses and governance processes. The investment, derivatives and reinsurance areas have formal policies and procedures for counterparty approvals and authorizations, which establish criteria defining minimum levels of creditworthiness and financial stability for eligible counterparties. Potential investments are subject to underwriting 99 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations reviews and private securities are subject to management approval. Mitigation strategies vary across the three sources of credit risk, but may include: • Investing in a portfolio of high-quality and diverse securities; • Selling investments subject to credit risk; • Hedging through use of credit default swaps; • Clearing derivative transactions through central clearing houses that require daily variation margin; • Entering into derivative and reinsurance contracts only with strong creditworthy institutions; • Requiring collateral; and • Non-renewing policies/contracts or reinsurance treaties. The Company has developed credit exposure thresholds which are based upon counterparty ratings. Aggregate counterparty credit quality and exposure are monitored on a daily basis utilizing an enterprise-wide credit exposure information system that contains data on issuers, ratings, exposures, and credit limits. Exposures are tracked on a current and potential basis and aggregated by ultimate parent of the counterparty across investments, reinsurance receivables, insurance products with credit risk, and derivatives. As of September 30, 2021, the Company had no investment exposure to any credit concentration risk of a single issuer or counterparty greater than 10% of the Company’s stockholders' equity, other than the U.S. government and certain U.S. government agencies. For further discussion of concentration of credit risk in the investment portfolio, see the Concentration of Credit Risk section in Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. Credit Risk of Derivatives The Company uses various derivative counterparties in executing its derivative transactions. The use of counterparties creates credit risk that the counterparty may not perform in accordance with the terms of the derivative transaction. Downgrades to the credit ratings of the Company’s insurance operating companies may have adverse implications for its use of derivatives. In some cases, downgrades may give derivative counterparties for over-the-counter ("OTC") derivatives and clearing brokers for OTC-cleared derivatives the right to cancel and settle outstanding derivative trades or require additional collateral to be posted. In addition, downgrades may result in counterparties and clearing brokers becoming unwilling to engage in or clear additional derivatives or may require additional collateralization before entering into any new trades. The Company also has derivative counterparty exposure policies which limit the Company’s exposure to credit risk. Credit exposures are generally quantified based on the prior business day’s net fair value, including income accruals, of all derivative positions transacted with a single counterparty for each separate legal entity. The Company enters into collateral arrangements in connection with its derivatives positions and collateral is pledged to or held by, or on behalf of, the Company to the extent the exposure is greater than zero, subject to minimum transfer thresholds. For the nine months ended September 30, 2021, the Company incurred no losses on derivative instruments due to counterparty default. For further discussion, see the Derivative Commitments section of Note 13 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements. Use of Credit Derivatives The Company may also use credit default swaps to manage credit exposure or to assume credit risk to enhance yield. Credit Risk Reduced Through Credit Derivatives The Company uses credit derivatives to purchase credit protection with respect to a single entity or referenced index. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio. Credit Risk Assumed Through Credit Derivatives The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. These swaps primarily reference investment grade single corporate issuers and indexes. For further information on credit derivatives, see Note 6 - Derivatives of Notes to Condensed Consolidated Financial Statements. Credit Risk of Business Operations The Company is subject to credit risk related to the Company's commercial business that is written with large deductible policies or retrospectively-rated plans (referred to as "loss sensitive business"). The Company’s results of operations could be adversely affected if a significant portion of such contract holders failed to reimburse the Company for the deductible amount or the retrospectively rated policyholders failed to pay additional premiums owed. While the Company attempts to manage the risks discussed above through underwriting, credit analysis, collateral requirements, provision for bad debt, and other oversight mechanisms, the Company’s efforts may not be successful. Interest Rate Risk Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities arising from movements in interest rates. Interest rate risk encompasses exposures with respect to changes in the level of interest rates, the shape of the term structure of rates and the volatility of interest rates. Interest rate risk does not include exposure to changes in credit spreads. Sources of Interest Rate Risk The Company has exposure to interest rate risk arising from investments in fixed maturities and commercial mortgage loans, issuances by the Company of debt securities, preferred stock and similar securities, discount rate assumptions associated with the Company’s claim reserves and pension and other post-retirement benefit obligations, and assets that support the Company's pension and other post-retirement benefit plans. Impact Changes in interest rates from current levels can have both favorable and unfavorable effects for the Company. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on Our Financial 100 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Condition, Results of Operations and Liquidity section of this MD&A. Management The Company manages its exposure to interest rate risk by constructing investment portfolios that seek to protect the Company from the economic impact associated with changes in interest rates by setting portfolio duration targets that are aligned with the duration of the liabilities that they support. The Company analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios. Key metrics that the Company uses to quantify its exposure to interest rate risk inherent in its invested assets and the associated liabilities include duration, convexity and key rate duration. The Company utilizes a variety of derivative instruments to mitigate interest rate risk associated with its investment portfolio or to hedge liabilities. Interest rate caps, floors, swaps, swaptions, and futures may be used to manage portfolio duration. Equity Risk Equity risk is the risk of financial loss due to changes in the value of global equities or equity indices. Sources of Equity Risk The Company has exposure to equity risk from invested assets, assets that support the Company’s pension and other post-retirement benefit plans, and fee income derived from Hartford Funds assets under management. In addition, up until June 30, 2021, the Company had equity exposure through a 9.7% ownership interest in Talcott Resolution. The sale of Talcott Resolution was completed on June 30, 2021, and the Company received a total of $217 in connection with the sale of its 9.7% ownership interest, resulting in a realized gain of $46. Impact The investment portfolio is exposed to losses from market declines affecting equity securities and derivatives, which could negatively impact the Company's reported earnings. In addition, investments in limited partnerships and other alternative investments generally have a level of correlation to domestic equity market levels and can expose the Company to losses in earnings if valuations decline; however, earnings impacts are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. For assets supporting pension and other post-retirement benefit plans, the Company may be required to make additional plan contributions if equity investments in the plan portfolios decline in value. Hartford Funds earnings are also significantly influenced by the U.S. and other equity markets. Generally, declines in equity markets will reduce the value of average daily assets under management and the amount of fee income generated from those assets. Increases in equity markets will generally have the inverse impact. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on Our Financial Condition, Results of Operations and Liquidity section of this MD&A. Management The Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, and, at times, hedging of changes in equity indices. For assets supporting pension and other post-retirement benefit plans, the asset allocation mix is reviewed on a periodic basis. In order to minimize risk, the pension plans maintain a listing of permissible and prohibited investments and impose concentration limits and investment quality requirements on permissible investment options. Foreign Currency Exchange Risk Foreign currency exchange risk is the risk of financial loss due to changes in the relative value between currencies. Sources of Currency Risk The Company has foreign currency exchange risk in non-U.S. dollar denominated cash, fixed maturities, equities, and derivative instruments. In addition, the Company has non-U.S. subsidiaries, some with functional currencies other than U.S. dollar, and which transact business in multiple currencies resulting in assets and liabilities denominated in foreign currencies. Impact Changes in relative values between currencies can create variability in cash flows and realized or unrealized gains and losses on changes in the fair value of assets and liabilities. Management The Company manages its foreign currency exchange risk primarily through asset-liability matching and through the use of derivative instruments. However, legal entity capital is invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations. The foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using foreign currency swaps and forwards. Investment Portfolio Risk The following table presents the Company’s fixed maturities, AFS, by credit quality. The credit ratings referenced throughout this section are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. Accrued interest receivable related to fixed maturities are recorded in other assets on the Condensed Consolidated Balance Sheets and are not included in the amortized cost or fair value of the fixed maturities. For further information refer to Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. 101 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Fixed Maturities, AFS by Credit Quality September 30, 2021 December 31, 2020 Amortized Cost Fair Value Percent of Total Fair Value Amortized Cost Fair Value Percent of Total Fair Value United States Government/Government agencies $ 6,433 $ 6,640 15.1 % $ 4,872 $ 5,214 11.6 % AAA 5,941 6,183 14.1 % 6,482 6,848 15.2 % AA 7,338 7,794 17.7 % 7,840 8,453 18.8 % A 10,260 11,068 25.2 % 10,500 11,595 25.7 % BBB 9,199 9,895 22.5 % 9,831 10,856 24.1 % BB & below 2,314 2,362 5.4 % 2,036 2,069 4.6 % Total fixed maturities, AFS $ 41,485 $ 43,942 100.0 % $ 41,561 $ 45,035 100.0 % The fair value of fixed maturities, AFS decreased as compared to December 31, 2020, primarily due to a decrease in valuations due to higher interest rates, partially offset by tighter credit spreads. Fixed maturities, FVO, included within other investments on the Condensed Consolidated Balance Sheets, are not included in the preceding table. For further discussion on FVO securities, see Note 4 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements. 102 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Fixed Maturities, AFS by Type September 30, 2021 December 31, 2020 Amortized Cost ACL Gross Unrealized Gains Gross Unrealized Losses Fair Value Percent of Total Fair Value Amortized Cost ACL Gross Unrealized Gains Gross Unrealized Losses Fair Value Percent of Total Fair Value Asset-backed securities ("ABS") Consumer loans $ 1,026 $ — $ 17 $ — $ 1,043 2.4 % $ 1,396 $ — $ 35 $ — $ 1,431 3.2 % Other 161 — 3 — 164 0.3 % 129 — 4 — 133 0.3 % Collateralized loan obligations ("CLOs") 3,002 — 10 (1) 3,011 6.9 % 2,780 — 7 (7) 2,780 6.2 % CMBS Agency [1] 1,489 — 90 (3) 1,576 3.6 % 1,779 — 117 (6) 1,890 4.2 % Bonds 2,238 — 126 (5) 2,359 5.3 % 2,160 — 159 (13) 2,306 5.1 % Interest only 242 — 15 (1) 256 0.6 % 280 — 10 (2) 288 0.6 % Corporate Basic industry 755 — 45 (2) 798 1.8 % 727 — 69 (1) 795 1.8 % Capital goods 1,426 — 99 (5) 1,520 3.5 % 1,488 — 148 (11) 1,625 3.6 % Consumer cyclical 1,253 — 72 (3) 1,322 3.0 % 1,434 (1) 108 (1) 1,540 3.4 % Consumer non-cyclical 2,571 — 196 (4) 2,763 6.3 % 2,878 — 314 (4) 3,188 7.1 % Energy 1,434 (1) 128 (1) 1,560 3.6 % 1,474 (1) 147 (4) 1,616 3.6 % Financial services 4,329 — 265 (10) 4,584 10.4 % 4,523 (21) 398 (4) 4,896 10.9 % Tech./comm. 2,715 (3) 255 (9) 2,958 6.7 % 2,651 — 370 (3) 3,018 6.7 % Transportation 730 — 53 (1) 782 1.8 % 747 — 85 (3) 829 1.8 % Utilities 1,854 — 168 (6) 2,016 4.6 % 1,999 — 250 — 2,249 5.0 % Other 530 — 29 (1) 558 1.3 % 480 — 37 — 517 1.1 % Foreign govt./govt. agencies 916 — 40 (3) 953 2.2 % 842 — 77 — 919 2.0 % Municipal bonds Taxable 1,073 — 96 (2) 1,167 2.7 % 1,084 — 109 (1) 1,192 2.6 % Tax-exempt 7,040 — 680 (9) 7,711 17.5 % 7,480 — 831 — 8,311 18.5 % RMBS Agency 1,455 — 60 (6) 1,509 3.4 % 1,829 — 92 (2) 1,919 4.3 % Non-agency 1,538 — 18 (5) 1,551 3.5 % 1,755 — 41 (1) 1,795 4.0 % Alt-A 15 — 1 — 16 — % 27 — 2 — 29 0.1 % Sub-prime 204 — 6 — 210 0.5 % 355 — 9 — 364 0.8 % U.S. Treasuries 3,489 — 83 (17) 3,555 8.1 % 1,264 — 141 — 1,405 3.1 % Total fixed maturities, AFS $ 41,485 $ (4) $ 2,555 $ (94) $ 43,942 100.0 % $ 41,561 $ (23) $ 3,560 $ (63) $ 45,035 100.0 % Fixed maturities, FVO [2] $ 75 $ — [1] Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government. [2] Included within other investments on the Condensed Consolidated Balance Sheets. The fair value of fixed maturities, AFS decreased as compared with December 31, 2020, primarily due to a decrease in valuations due to higher interest rates, partially offset by tighter credit spreads. The Company decreased holdings of corporate bonds, RMBS, consumer loans, agency CMBS, and tax-exempt municipal bonds, while increasing holdings in U.S. treasuries and CLOs. Commercial & Residential Real Estate The following table presents the Company’s exposure to CMBS and RMBS by current credit quality included in the preceding Fixed Maturities, AFS by Type table. 103 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Exposure to CMBS & RMBS Bonds as of September 30, 2021 AAA AA A BBB BB and Below Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value CMBS Agency [1] $ 1,485 $ 1,572 $ 4 $ 4 $ — $ — $ — $ — $ — $ — $ 1,489 $ 1,576 Bonds 951 1,011 576 609 440 462 183 190 88 87 2,238 2,359 Interest Only 143 152 90 94 — — 8 9 1 1 242 256 Total CMBS 2,579 2,735 670 707 440 462 191 199 89 88 3,969 4,191 RMBS Agency 1,433 1,486 22 23 — — — — — — 1,455 1,509 Non-Agency 576 589 458 461 376 374 114 113 14 14 1,538 1,551 Alt-A 1 1 — — — — — — 14 15 15 16 Sub-Prime 8 8 34 35 71 73 28 29 63 65 204 210 Total RMBS 2,018 2,084 514 519 447 447 142 142 91 94 3,212 3,286 Total CMBS & RMBS $ 4,597 $ 4,819 $ 1,184 $ 1,226 $ 887 $ 909 $ 333 $ 341 $ 180 $ 182 $ 7,181 $ 7,477 Exposure to CMBS & RMBS Bonds as of December 31, 2020 AAA AA A BBB BB and Below Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value CMBS Agency [1] $ 1,771 $ 1,882 $ 8 $ 8 $ — $ — $ — $ — $ — $ — $ 1,779 $ 1,890 Bonds 1,009 1,101 541 582 423 430 170 179 17 14 2,160 2,306 Interest Only 177 183 90 93 8 7 4 4 1 1 280 288 Total CMBS 2,957 3,166 639 683 431 437 174 183 18 15 4,219 4,484 RMBS Agency 1,807 1,894 22 25 — — — — — — 1,829 1,919 Non-Agency 1,034 1,063 371 380 313 315 36 36 1 1 1,755 1,795 Alt-A — — 3 3 2 2 2 2 20 22 27 29 Sub-Prime 1 1 25 26 114 116 102 105 113 116 355 364 Total RMBS 2,842 2,958 421 434 429 433 140 143 134 139 3,966 4,107 Total CMBS & RMBS $ 5,799 $ 6,124 $ 1,060 $ 1,117 $ 860 $ 870 $ 314 $ 326 $ 152 $ 154 $ 8,185 $ 8,591 [1] Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government. The Company also has exposure to commercial mortgage loans. These loans are collateralized by real estate properties that are diversified both geographically throughout the United States and by property type. These commercial loans are originated by the Company as high quality whole loans, and the Company may sell participation interests in one or more loans to third parties. A loan participation interest represents a pro-rata share in interest and principal payments generated by the participated loan, and the relationship between the Company as loan originator, lead participant and servicer and the third party as a participant are governed by a participation agreement. As of September 30, 2021, mortgage loans had an amortized cost of $5.1 billion and carrying value of $5.1 billion, with an ACL of $26. As of December 31, 2020, mortgage loans had an amortized cost of $4.5 billion and carrying value of $4.5 billion, with an ACL of $38. The decrease in the allowance is primarily attributable to improved economic scenarios, partially offset by an increase driven by net additions of new loans. The Company funded $949 of commercial mortgage loans with a weighted average loan-to-value (“LTV”) ratio of 56% and a weighted average yield of 2.8% during the nine months ended September 30, 2021. The Company continues to originate commercial mortgage loans in high growth markets across the country focusing primarily on institutional-quality industrial, retail, and multi-family properties with strong LTV ratios. There were no mortgage loans held for sale as of September 30, 2021 or December 31, 2020. Municipal Bonds The following table presents the Company's exposure to municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table. 104 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Available For Sale Investments in Municipal Bonds September 30, 2021 December 31, 2020 Amortized Cost Fair Value Weighted Average Credit Quality Amortized Cost Fair Value Weighted Average Credit Quality General Obligation $ 1,010 $ 1,129 AA $ 1,082 $ 1,232 AA+ Pre-refunded [1] 679 715 AAA 889 940 AAA Revenue Transportation 1,617 1,791 A 1,441 1,636 A+ Health Care 1,250 1,370 A+ 1,273 1,407 A+ Leasing [2] 855 916 AA 905 985 AA- Education 702 770 AA+ 732 824 AA Water & Sewer 509 543 AA 644 694 AA Sales Tax 363 424 AA 394 464 AA Power 318 356 A+ 401 450 A+ Housing 106 111 AA 102 109 AA+ Other 704 753 AA- 701 762 A+ Total Revenue 6,424 7,034 AA- 6,593 7,331 AA- Total Municipal $ 8,113 $ 8,878 AA- $ 8,564 $ 9,503 AA- [1] Pre-refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest. [2] Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality, or the municipality may be obligated to appropriate general tax revenues to make lease payments. As of September 30, 2021, the largest issuer concentrations were the State of California, the New York City Municipal Water Finance Authority, and the Pennsylvania State Turnpike Commission, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. As of December 31, 2020, the largest issuer concentrations were the New York State Dormitory Authority, the Commonwealth of Massachusetts, and the New York City Municipal Water Finance Authority, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. In total, municipal bonds make up 15% of the fair value of the Company's investment portfolio. While COVID-19 has had an impact on many municipal issuers, credit fundamentals in this sector have broadly stabilized due to an unprecedented influx of federal relief funds and a strong economic recovery in the second half of 2020 and year-to-date in 2021. Limited Partnerships and Other Alternative Investments The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity funds. Real estate funds consist of investments primarily in real estate joint ventures and, to a lesser extent, equity funds. Private equity funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small to mid-sized non-public businesses with high growth potential and strong owner sponsorship, as well as limited exposure to public markets. Income or losses on investments in limited partnerships and alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. 105 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Limited Partnerships and Other Alternative Investments - Net Investment Income Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Amount Yield [1] Amount Yield [1] Amount Yield [1] Amount Yield [1] Hedge funds $ 7 15.6 % $ 6 15.1 % $ 26 19.7 % $ 4 3.9 % Real estate funds 85 39.3 % 19 18.6 % 111 20.4 % 33 10.7 % Private equity funds 144 53.0 % 37 16.9 % 358 52.8 % 29 4.5 % Other alternative investments [2] 23 19.4 % 21 22.2 % 67 21.3 % 4 1.3 % Total $ 259 39.6 % $ 83 18.3 % $ 562 33.7 % $ 70 5.2 % [1]Yields calculated using annualized net investment income divided by the monthly average invested assets. Investments in Limited Partnerships and Other Alternative Investments September 30, 2021 December 31, 2020 Amount Percent Amount Percent Hedge funds $ 215 7.3 % $ 158 7.6 % Real estate funds 1,073 36.2 % 563 27.0 % Private equity and other funds 1,192 40.3 % 944 45.4 % Other alternative investments [2] 481 16.2 % 417 20.0 % Total $ 2,961 100.0 % $ 2,082 100.0 % [2]Consists of an insurer-owned life insurance policy which is primarily invested in fixed income, private equity, and hedge funds. Fixed Maturities, AFS — Unrealized Loss Aging The total gross unrealized losses were $94 as of September 30, 2021 and have increased $31, from December 31, 2020, primarily due to higher interest rates, partially offset by tighter credit spreads. As of September 30, 2021, $91 of the gross unrealized losses were associated with fixed maturities, AFS depressed less than 20% of amortized cost. The remaining $3 of gross unrealized losses were associated with fixed maturities, AFS depressed greater than 20%, primarily related to commercial real estate securities that were purchased at tighter credit spreads. As part of the Company’s ongoing investment monitoring process, the Company has reviewed its fixed maturities, AFS in an unrealized loss position and concluded that these fixed maturities are temporarily depressed and are expected to recover in value as the investments approach maturity or as market spreads tighten. For these fixed maturities in an unrealized loss position where an ACL has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the investment. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these Investments. For further information regarding the Company’s ACL analysis, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments section below. Unrealized Loss Aging for Fixed Maturities, AFS Securities September 30, 2021 December 31, 2020 Consecutive Months Items Amortized Cost ACL Unrealized Loss Fair Value Items Amortized Cost ACL Unrealized Loss Fair Value Three months or less 560 $ 6,346 $ — $ (49) $ 6,297 102 $ 625 $ — $ (3) $ 622 Greater than three to six months 116 660 — (3) 657 46 367 — (5) 362 Greater than six to nine months 180 1,102 — (22) 1,080 8 6 — (1) 5 Greater than nine to eleven months 26 89 — (3) 86 186 1,275 (1) (27) 1,247 Twelve months or more 175 586 — (17) 569 205 994 — (27) 967 Total 1,057 $ 8,783 $ — $ (94) $ 8,689 547 $ 3,267 $ (1) $ (63) $ 3,203 106 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unrealized Loss Aging for Fixed Maturities, AFS Continuously Depressed Over 20% September 30, 2021 December 31, 2020 Consecutive Months Items Amortized Cost Unrealized Loss Fair Value Items Amortized Cost Unrealized Loss Fair Value Three months or less — $ — $ — $ — 2 $ 2 $ (1) $ 1 Greater than six to nine months — — — — 1 46 (10) 36 Greater than nine to eleven months 1 2 (1) 1 2 5 (1) 4 Twelve months or more 21 4 (2) 2 24 5 (2) 3 Total 22 $ 6 $ (3) $ 3 29 $ 58 $ (14) $ 44 Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments Three and nine months ended September 30, 2021 There were no changes to the ACL for the three months ended September 30, 2021. For the nine months ended September 30, 2021, the Company recorded a net decrease in the ACL of $4, driven by increases in the fair value of corporate issuers that had an ACL in prior periods, partially offset by new expected credit losses on a media/entertainment company. Unrealized losses on securities with an ACL recognized in other comprehensive income were less than $1 for both the three and nine months ended September 30, 2021. For further information, refer to Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. There were no intent-to-sell impairments in the three and nine months ended September 30, 2021. The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific trends, as well as our expectations with respect to security specific developments. Future intent-to-sell impairments or credit losses may develop as the result of changes in our intent to sell specific securities that are in an unrealized loss position or if modeling assumptions, such as macroeconomic factors or security specific developments, change unfavorably from our current modeling assumptions, resulting in lower cash flow expectations. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. Three and nine months ended September 30, 2020 The Company recorded net credit losses on fixed maturities, AFS of $1 and $33, respectively, for the three and nine months ended September 30, 2020. The losses for the three months ended September 30, 2020, were primarily attributable to one tax-exempt municipal bond impacted by COVID-19, partially offset by increases in the fair value of securities that had an ACL recorded in prior periods. For the nine months ended September 30, 2020, net credit losses primarily include an increase in ACL for corporate fixed maturities, mainly one private regional and commercial aircraft lessor and one cruise line issuer. Unrealized losses on securities with an ACL recognized in other comprehensive income were $0 and $1 for the three and nine months ended September 30, 2020. Intent-to-sell impairments were $0 and $5 for the three and nine months ended September 30, 2020, respectively, with impairments in the nine month period primarily related to one corporate issuer in the energy sector and one issuer with exposure to India. ACL on Mortgage Loans Three and nine months ended September 30, 2021 The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. For further information, refer to Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. For the three and nine months ended September 30, 2021, the Company recorded an increase (decrease) in the ACL on mortgage loans of $2 and ($12), respectively. The increase in the allowance for the three months ended September 30, 2021, was driven by net additions of new loans. The decrease in the allowance for the nine months ended September 30, 2021, was primarily the result of improved economic scenarios, partially offset by an increase driven by net additions of new loans. The Company did not record an ACL on any individual mortgage loans. Three and nine months ended September 30, 2020 For the three and nine months ended September 30, 2020, the Company recorded an increase (decrease) in the ACL on mortgage loans of ($5) and $19, respectively. The decrease in the allowance for the three months ended September 30, 2020, was the result of improved property valuations in certain industry sectors that have been less impacted by the COVID-19 pandemic and modestly improved economic forecasts. The increase in the allowance for the nine months ended September 30, 2020, was due to the effects of the COVID-19 pandemic and its impacts on the economic forecasts, as well as lower estimated property values and operating income. The Company did not record an ACL on any individual mortgage loans. 107 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CAPITAL RESOURCES AND LIQUIDITY The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months. | SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY Capital available to the holding company as of September 30, 2021: • $2.1 billion in fixed maturities, short-term investments, investment sales receivable and cash at The HFSG Holding Company. • A senior unsecured revolving credit facility that provides for borrowing capacity up to $750 of unsecured credit through March 29, 2023 (which was subsequently extended through October 27, 2026). As of September 30, 2021, there were no borrowings outstanding; and • An intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. As of September 30, 2021, there were no borrowings outstanding. 2021 expected dividends and other sources of capital: The future payment of dividends from our subsidiaries is dependent on several factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity. • P&C - The Company's U.S. property and casualty insurance subsidiaries have dividend capacity of $1.7 billion for 2021, with approximately $1.1 billion of net dividends expected in 2021, including $780 paid to HFSG Holding Company through September 30, 2021. • Group Benefits - HLA has dividend capacity of $295 in 2021 with approximately $295 of dividends expected in 2021, including $220 paid to HFSG Holding Company through September 30, 2021. • Hartford Funds - HFSG Holding Company expects to receive approximately $165 in dividends from Hartford Funds in 2021, including $121 received through September 30, 2021. • As part of the sale of Talcott Resolution, which was completed on June 30, 2021, the Company received $217 of proceeds. Expected liquidity requirements for the next twelve months as of September 30, 2021: • $220 of interest on debt; • $21 dividends on preferred stock, subject to the discretion of the Board of Directors; • $520 of common stockholders' dividends, subject to the discretion of the Board of Directors and before share repurchases; and • $600 7.875% junior subordinated debentures expected to be called at par in April of 2022. Equity repurchase program: During the nine months ended September 30, 2021, the Company repurchased 19 million common shares for $1.2 billion under the share repurchase program authorized in December 2020, which is effective through December 31, 2022. The share repurchase program was initially authorized at $1.5 billion and, in April 2021, was increased to $2.5 billion. In October 2021, the Company announced an additional increase in the share repurchase authorization to $3.0 billion, which remains effective until December 31, 2022. The Company expects to utilize approximately $1.5 billion of this share repurchase authorization during 2021, subject to market conditions. During the period October 1, 2021 through October 27, 2021, the Company repurchased approximately 1.5 million common shares for $108. The timing of any future repurchases will be dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, the Company's blackout periods, and other considerations. | LIQUIDITY REQUIREMENTS AND SOURCES OF CAPITAL The Hartford Financial Services Group, Inc. ("HFSG Holding Company") The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. will primarily be met by HFSG Holding Company's fixed maturities; short-term investments and cash; and dividends, principally from its subsidiaries. The Company maintains sufficient liquidity and has a variety of contingent liquidity resources to manage liquidity across a range of economic scenarios. We continue to expect to successfully manage our liquidity throughout the pandemic. The HFSG Holding Company expects to continue to receive dividends from its operating subsidiaries in the future and manages the capital and surplus in each of its operating subsidiaries to be sufficient under significant economic stress scenarios. Dividends from subsidiaries and other sources of 108 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations funds at the Holding Company may be used to repurchase shares under the authorized share repurchase program at the discretion of management. Under significant economic stress scenarios that could arise due to the COVID-19 pandemic, the Company has the ability to meet short-term cash requirements, if needed, by borrowing under its revolving credit facility or by having its insurance subsidiaries take collateralized advances under a facility with the Federal Home Loan Bank of Boston (“FHLBB”). The Company could also choose to have its insurance subsidiaries sell certain highly liquid, high quality fixed maturities or the Company could issue debt in the public markets under its shelf registration. During the second quarter, the Company contributed €15 million ($18) to Navigators Holdings (Europe) N.V., a Belgium holding company. Debt On September 21, 2021, The Hartford issued $ 600 of 2.9 % senior notes (“2.9% Notes”) due September 15, 2051 for net proceeds of approximately $ 588 , after deducting underwriting discounts and expenses from the offering. Interest is payable semi-annually in arrears on March 15 and September 15, commencing March 15, 2022. The Hartford, at its option, can redeem the 2.9% Notes at any time, in whole or part, at a redemption price equal to the greater of 100% of the principal amount being redeemed or a make-whole amount based on a comparable maturity US Treasury plus 20 basis points, plus any accrued and unpaid interest, except the 2.9% Notes may be redeemed at par within six months of maturity. The Hartford intends to use the net proceeds along with other available resources to repay The Hartford's $600 7.875% junior subordinated debentures (“7.875% Notes”), which are redeemable at par on or after April 15, 2022. The Hartford expects to recognize a loss on extinguishment of debt of $9, before tax, on redemption. For additional information on Debt, see Note 11 - Debt of Notes to Condensed Consolidated Financial Statements. | DIVIDENDS The Hartford's Board of Directors declared the following quarterly dividends since July 1, 2021: Common Stock Dividends Declared Record Payable Amount per share July 21, 2021 September 1, 2021 October 4, 2021 $ 0.350 October 28, 2021 December 1, 2021 January 4, 2022 $ 0.385 Preferred Stock Dividends Declared Record Payable Amount per share July 21, 2021 November 1, 2021 November 15, 2021 $ 375.00 There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its stockholders. For a discussion of restrictions on dividends to the HFSG Holding Company from its insurance subsidiaries, see the following "Dividends from Subsidiaries" discussion. For a discussion of potential restrictions on the HFSG Holding Company's ability to pay dividends, see the risk factor "Our ability to declare and pay dividends is subject to limitations" in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. | DIVIDENDS FROM SUBSIDIARIES Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. Upon the acquisition of Navigators Group, the Company’s principal insurance subsidiaries are domiciled in the United States, the United Kingdom, and Belgium. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s statutory policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. Property casualty insurers domiciled in New York, including Navigators Insurance Company ("NIC") and Navigators Specialty Insurance Company ("NSIC"), generally may not, without notice to and approval by the state insurance commissioner, pay dividends out of earned surplus in any twelve-month period that exceeds the lesser of (i) 10% of the insurer’s statutory policyholders’ surplus as of the most recent financial statement on file, or (ii) 100% of its adjusted net investment income, as defined, for the same twelve month period. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to, expected earnings and capitalization of the subsidiaries, regulatory capital requirements and liquidity requirements of the individual operating company. Corporate members of Lloyd's syndicates may pay dividends to its parent to the extent of available profits that have been distributed from the syndicate in excess of the Funds at Lloyd's ("FAL") capital requirement. The FAL is determined based on the syndicate’s solvency capital requirement ("SCR") under the E.U.'s Solvency II capital adequacy model, the current regulatory framework governing UK domiciled insurers, plus a Lloyd’s specific economic capital assessment. 109 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Insurers domiciled in the United Kingdom may pay dividends to their parent out of their statutory profits subject to restrictions imposed under U.K. Company law and Solvency II. Belgium domiciled insurers may only pay dividends if, at the end of their previous fiscal year, the total amount of their assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law. Through the first nine months of 2021, HFSG Holding Company received approximately $1.1 billion of net dividends from its subsidiaries, including $220 from HLA, $121 from Hartford Funds and $780 from its U.S. P&C subsidiaries, excluding $100 of P&C dividends that were subsequently contributed to a P&C subsidiary and $37 of P&C dividends related to interest payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company. Over the remainder of 2021, the Company anticipates receiving approximately $325 of net dividends from its U.S. P&C subsidiaries, approximately $75 of dividends from HLA and approximately $45 of dividends from Hartford Funds. | OTHER SOURCES OF CAPITAL FOR THE HFSG HOLDING COMPANY The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support its competitive position in the financial services marketplace (see the "Ratings" section below for further discussion), and stockholder returns. As a result, the Company may from time to time raise capital from the issuance of debt, common equity, preferred stock, equity-related debt or other capital securities and is continuously evaluating strategic opportunities. The issuance of debt, common equity, equity-related debt or other capital securities could result in the dilution of stockholder interests or reduced net income to common shareholders due to additional interest expense or preferred stock dividends. Shelf Registrations The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement. For further information regarding Shelf Registrations, see Note 14 - Debt of Notes to Consolidated Financial Statement in The Hartford's 2020 Form 10-K Annual Report. Revolving Credit Facility In 2018, The Hartford entered into a senior unsecured revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit through March 29, 2023. As of September 30, 2021, no borrowings were outstanding and no letters of credit were issued under the Credit Facility and The Hartford was in compliance with all financial covenants. On October 27, 2021, The Hartford amended and restated the Credit Facility and extended it through October 27, 2026. For further information regarding the Credit Facility, see Note 11 – Debt of Notes to Condensed Consolidated Financial Statements and Note 14 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2020 Form 10-K Annual Report. Intercompany Liquidity Agreements The Company has $2.0 billion available under an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. The Connecticut Department of Insurance ("CTDOI") granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including the HFSG Holding Company, as admitted assets for statutory accounting purposes. As of September 30, 2021 there were no amounts outstanding at the HFSG Holding Company. Collateralized Advances with Federal Home Loan Bank of Boston The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company (“HLA”), are members of the FHLBB. Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. Advances may be used to support general corporate purposes, which would be presented as short- or long-term debt, or to earn incremental investment income, which would be presented in other liabilities consistent with other collateralized financing transactions. As of September 30, 2021, there were no advances outstanding. For further information regarding collateralized advances with FHLBB, see Note 14 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2020 Form 10-K Annual Report. Lloyd's Letter of Credit Facilities The Hartford has entered into a committed credit facility agreement with a syndicate of lenders (the "Club Facility") as well as a non-committed $25 credit facility with a lender (the "Bilateral Facility"). The Club Facility has two tranches with one tranche extending a $104 commitment and the other tranche extending a £85 million ($115 as of September 30, 2021) commitment. As of September 30, 2021, letters of credit with an aggregate face amount of $104 and £83.5 million, or $113, were outstanding under the Club Facility and no letters of credit were outstanding under the Bilateral Facility. Among other covenants, the Club Facility and Bilateral Facility contain financial covenants regarding The Hartford's consolidated net worth and financial leverage and that limit the amount of letters of credit that can support Funds and Lloyd's, consistent with Lloyd's requirements. As of September 30, 2021, The Hartford was in compliance with all financial covenants of both facilities. For further information regarding the Club Facility and the Bilateral Facility, see Note 14 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2020 Form 10-K Annual Report. 110 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company does not have a 2021 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. Based on the funded status of the U.S. qualified defined benefit pension plan, the Company does not anticipate making a contribution to the plan in 2021 . | DERIVATIVE COMMITMENTS Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could terminate agreements and demand immediate settlement of the outstanding net derivative positions transacted under each agreement. For further information, refer to Note 13 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements. As of September 30, 2021, no derivative positions would be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings. This could change as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. | INSURANCE OPERATIONS While subject to variability period to period, underwriting and investment cash flows continue to provide sufficient liquidity to meet anticipated demands over the next twelve months. For information about the impact of COVID-19 on the Company's cash flows see the Risk Factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. For a discussion and tabular presentation of the Company’s contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A included in The Hartford’s 2020 Form 10-K Annual Report. The principal sources of operating funds are premiums, fees earned from assets under management and investment income, while investing cash flows primarily originate from maturities and sales of invested assets. The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting and insurance operating costs, to pay taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company. The Company’s insurance operations consist of property and casualty insurance products (collectively referred to as “Property & Casualty Operations”) and Group Benefits. The Company's insurance operations hold fixed maturity securities including a significant short-term investment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs. Liquidity requirements that are unable to be funded by the Company's insurance operations' short-term investments would be satisfied with current operating funds, including premiums or investing cash flows, which includes proceeds received through the sale of invested assets. A sale of invested assets could result in significant realized losses. The following tables represent the fixed maturity holdings, including the aforementioned cash and short-term investments available to meet liquidity needs, for each of the Company’s insurance operations. Property & Casualty As of September 30, 2021 Fixed maturities $ 33,715 Short-term investments 1,232 Cash 199 Less: Derivative collateral 41 Total $ 35,105 Group Benefits Operations As of September 30, 2021 Fixed maturities $ 9,923 Short-term investments 224 Cash 20 Less: Derivative collateral 25 Total $ 10,142 | OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS There have been no material changes to the Company’s off-balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s 2020 Form 10-K Annual Report. 111 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | CAPITALIZATION Capital Structure September 30, 2021 December 31, 2020 Change Long-term debt $ 4,943 $ 4,352 14 % Total debt 4,943 4,352 14 % Common stockholders' equity excluding AOCI, net of tax 17,221 17,052 1 % Preferred stock 334 334 — % AOCI, net of tax 307 1,170 (74 %) Total stockholders’ equity 17,862 18,556 (4 %) Total capitalization $ 22,805 $ 22,908 — % Debt to stockholders’ equity 28 % 23 % Debt to capitalization 22 % 19 % Total capitalization decreased $103 as of September 30, 2021 compared to December 31, 2020 primarily due to share repurchases in the period and a decrease in AOCI, partially offset by net income in excess of stockholder dividends and an increase in long-term debt due to the issuance of the 2.9% Notes. For additional information on AOCI, net of tax, including unrealized gains from securities, see Note 15 - Changes In and Reclassifications From Accumulated Other Comprehensive Income (Loss) and Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. For additional information on debt, see Note 14 - Debt of Notes to Consolidated Financial Statement in The Hartford's 2020 Form 10-K Annual Report. | CASH FLOW[1] Nine Months Ended September 30, 2021 2020 Net cash provided by operating activities $ 2,889 $ 2,655 Net cash used for investing activities $ (1,748) $ (1,007) Net cash used for financing activities $ (963) $ (1,579) Cash and restricted cash– end of period $ 397 $ 270 [1] Cash activities in 2021 include cash flows related to Continental Europe Operations classified as held for sale beginning in the third quarter of 2020. See Note 17 - Business Disposition of Notes to Condensed Consolidated Financial Statements for discussion of this transaction. Cash provided by operating activities increased in 2021 as compared to the prior year period primarily driven by lower operating expenses paid including lower payroll and employee related expenditures, greater cash distributions from limited partnerships, a decline in P&C losses and loss adjustment expenses paid, the impact of Personal Lines premium refunds in the 2020 period, and an increase in Commercial Lines premiums received. Positive cash flow impacts were partially offset by an increase in income taxes paid and an increase in Group Benefits loss and loss adjustment expenses paid in excess of premiums received. Cash used for investing activities increased in 2021 as compared to the prior year as a result of a decrease from net proceeds to net payments for equity securities, an increase in net payments for partnerships, an increase in net payments for mortgage loans, and a decrease in net proceeds for derivatives, partially offset by an increase from net payments to net proceeds for fixed maturities, a decrease in net payments for short term investments and consideration received from the sale of the Company's equity interest in Talcott Resolution. Cash used for financing activities decreased primarily due to proceeds from the issuance of debt in 2021, debt repayments in the 2020 period, and a decrease in cash used for securities lending transactions, partially offset by an increase in share repurchases in 2021. Operating cash flow for the nine months ended September 30, 2021 has been adequate to meet liquidity requirements. | EQUITY MARKETS For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk section in this MD&A and the Financial Risk on Statutory Capital section of the MD&A in the Company's 2020 Form 10-K Annual Report. | RATINGS Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the 112 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Company's ability to access financing and its cost of borrowing. There can be no assurance that the Company’s ratings will continue for any given period of time, or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s competitive position, ability to access financing, and its cost of borrowing, may be adversely impacted. On July 21, 2021, Moody's upgraded the insurance financial strength rating of HLA to A1 from A2. The upgrade reflects HLA’s leading market position in the group benefits and disability business, its distribution capabilities and consistent profitability, as well as implicit support from The Hartford. Insurance Financial Strength Ratings as of October 27, 2021 A.M. Best Standard & Poor’s Moody’s Hartford Fire Insurance Company A+ A+ A1 Hartford Life and Accident Insurance Company A+ A+ A1 Navigators Insurance Company A+ A Not Rated Other Ratings: The Hartford Financial Services Group, Inc.: Senior debt a- BBB+ Baa1 These ratings are not a recommendation to buy, sell or hold any of The Hartford's securities and they may be revised or revoked at any time at the sole discretion of the rating organization. Each agency's rating should be evaluated independently of any other agency's rating. The system and number of rating categories can vary across rating agencies. Among other factors, rating agencies consider the level of statutory capital and surplus of our U.S. insurance subsidiaries as well as the level of a measure of GAAP capital held by the Company in determining the Company's financial strength and credit ratings. Rating agencies may implement changes to their capital formulas that have the effect of increasing the amount of capital we must hold in order to maintain our current ratings. See Risk Factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. | STATUTORY CAPITAL U.S. Statutory Capital Rollforward for the Company's Insurance Subsidiaries Property and Casualty Insurance Subsidiaries [1] [2] Group Benefits Insurance Subsidiary Total U.S statutory capital at January 1, 2021 $ 10,795 $ 2,601 $ 13,396 Statutory income 1,015 58 1,073 Contributions from (dividends to) parent (780) (220) (1,000) Other items 364 42 406 Net change to U.S. statutory capital 599 (120) 479 U.S statutory capital at September 30, 2021 $ 11,394 $ 2,481 $ 13,875 [1] The statutory capital for property and casualty insurance subsidiaries in this table does not include the value of an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company. [2] Excludes insurance operations in the U.K. and Continental Europe. | CONTINGENCIES Legal Proceedings For a discussion regarding The Hartford’s legal proceedings, see the information contained in Note 13 -Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements. Legislative and Regulatory Developments COVID-19 Global Pandemic State and federal retroactive business interruption coverage and other insurance regulatory relief initiatives- State and federal lawmakers are continuing to consider legislation and regulation in response to COVID-19. There have been proposals to impose retroactive coverage of COVID-19 claims under existing business interruption coverage provisions. If such proposals were enacted, they could represent a material exposure for the Company. Further, some states have adopted, or are considering incorporating, a presumption that if certain workers become infected with COVID-19, such infection would constitute an occupational disease triggering workers’ compensation coverage. In addition, state insurance regulators, including California, New Jersey and New York, have encouraged (and in some cases required) insurers to offer immediate relief to policyholders including refunding and offering discounts for drivers, incorporating flexible payment solutions for families, individuals, and businesses, providing additional time to make payments, waiving insurance premium late fees, pausing cancellation of coverage for personal and commercial policies due to non-payment and policy expiration, and suspending 113 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations personal automobile exclusions for restaurant employees who are transitioning to meal delivery services using their personal automobile policy as coverage. The Hartford offered consumer financial relief including a 15 percent refund on policyholders’ April and May 2020 personal automobile insurance premiums, waived late payments fees for a period of time for business and personal insurance customers and temporarily suspended policy cancellations for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments. As the COVID-19 global pandemic continues, regulators may require us or we may elect to provide additional consumer and/or business financial relief. We may also see this manifest in the review and approval of new rate filings, with regulators applying heightened scrutiny even when rate reductions are proposed. The duration and scope of such regulatory/Company actions are uncertain, and the impacts of such actions could adversely affect the Company’s insurance business. Federal pandemic risk insurance- Congress is considering possible action for future pandemic risk insurance coverage through a risk sharing mechanism between insurers and the federal government. Timing for any Congressional action with respect to these efforts is uncertain at this time. If such a program were to be enacted, it could represent a significant obligation for the Company in terms of deductible and co-share obligations. American Rescue Plan Act of 2021- On March 11, 2021, President Biden signed the $1.9 trillion American Rescue Plan. The comprehensive bill includes provisions on taxes, healthcare, unemployment benefits, direct payments, state and local funding and other issues. The American Rescue Plan also directed billions of dollars towards the Paycheck Protection Program ("PPP") and Targeted Economic Injury Disaster Loan Advance payments to support small businesses across the nation. Additionally, this law directed $28.6 billion for the Restaurant Revitalization Fund for industry-focused grants. On March 30, 2021, President Biden signed the PPP Extension Act of 2021 which set a new application deadline of May 31, 2021 allowing the Small Business Administration (SBA) to continue processing applications for up to 30 days past the May 31 deadline. Federal emergency leave legislation- On March 18, 2020, the Families First Coronavirus Response Act ("FFCRA") was signed into law by the President, and was effective from April 1, 2020 to December 31, 2020. This legislation included a number of funding provisions and worker protections including mandated emergency paid sick leave and paid family and medical leave programs. For private employers with fewer than 500 employees, and most public employers, new programs were put in place to guarantee individuals 10 days of paid sick leave, and up to 10 weeks of paid family and medical leave to deal directly with COVID-19. Eligible employers have access to a tax credit to reimburse for costs related to the emergency leave programs. On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law and included a bipartisan COVID-19 relief bill. Although the mandatory paid leave provisions from the FFCRA expired on December 31, 2020, the new law extended FFCRA tax credits through March 31, 2021, for covered employers that voluntarily continued to offer paid leave under the FFCRA framework. As part of the American Rescue Plan, Congress again extended certain FFCRA refundable tax credits between April 1 and September 30, 2021, for covered employers who voluntarily offer emergency paid leave for reasons described under FFCRA. The American Rescue Plan also expands the allowable leaves of absence for purposes of qualifying for the tax credit. The Hartford is providing support for the administration of the family and medical leave component of these voluntary company FFCRA-type leaves for our Group Benefits customers. Congress also approved a $2 trillion Coronavirus Aid, Relief and Economic Security ("CARES") Act. The bill, signed into law on March 27, 2020, focused on providing financial support for small businesses, individuals, emergency workers, airlines and other industries of national security. The CARES Act included several technical corrections to the emergency leave programs and created advance refunding credits, which allow the U.S. Treasury to develop regulations or guidance to permit advancement of the tax credit for both the emergency paid sick leave and paid family and medical leave. While we do not anticipate further emergency Congressional legislative action on paid leave, we continue to closely monitor the federal legislative landscape for possible activity. Federal tax legislation- In response to the COVID-19 Global Pandemic, Congress, various states and other global jurisdictions have passed numerous pieces of legislation which contain a number of changes to the tax laws in order to aid impacted businesses and individuals, as well as provide economic stimulus. The Company deferred the employer’s portion of the Social Security tax on wages from March 27, 2020 to year-end 2020. Such deferred amounts are due and payable over a two-year period, 50% by December 31, 2021 and 50% by December 31, 2022. The U.S. Treasury and IRS continue to develop guidance implementing these new tax law provisions, and Congress may consider additional technical corrections to these laws. Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. Biden Administration Build Back Better Agenda Over the last several months the Biden Administration has been calling for Congressional action on the President’s Build Back Better Agenda. The Build Back Better plan outlines funding across traditional infrastructure verticals such as roads, bridges, and highways plus spending for human infrastructure including a national Paid Family and Medical Leave program, clean energy initiatives, and childcare. While Congress is currently considering these proposals, the extent to which the proposed programs will be funded remains unclear. The bipartisan “Infrastructure Investment and Jobs Act,” which supports traditional infrastructure spending is awaiting a final vote in the U.S. House of Representatives. The delay in passage is largely due to the ongoing debate over the second legislative vehicle under development for funding of human infrastructure programs, which could move through Congress via the budget reconciliation process. Notably, a national Paid Family and Medical Leave program could affect existing state-based disability and paid leave programs or other products and services that the Company provides through its Group Benefits business. 114 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations If enacted, the effect of the provisions of the Build Back Better Agenda on the Company’s operations and ability to attract new business and retain existing customers is unclear. Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act") It is unclear whether the Administration, Congress or the courts will seek to reverse, amend or alter the ongoing operation of the Affordable Care Act ("ACA"). If such actions were to occur, they may have an impact on various aspects of our business, including our insurance businesses. It is unclear what an amended ACA would entail, and to what extent there may be a transition period for the phase out of the ACA. The impact to The Hartford as an employer would be consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business from the enactment of the ACA. We will continue to monitor the impact of the ACA and any reforms on consumer, broker and medical provider behavior for leading indicators of changes in medical costs or loss payments primarily on the Company's workers' compensation and disability liabilities. US and International Tax Reform At the end of 2017, the Tax Cuts and Jobs Act of 2017 ("TCJA") was enacted. The TCJA made significant reforms to the U.S. tax code. The major areas of interest to the Company included the reduction of the corporate tax rate from 35% to 21% and the repeal of the corporate alternative minimum tax ("AMT") and the refunding of AMT credits. As Congress debates action on various spending initiatives, it is considering a variety of proposals to fund the cost of the spending with certain revenue raising measures, including a possible increase in the corporate tax rate and other changes to taxes owed on income earned outside of the U.S. These and other tax proposals and regulatory initiatives that have been or are being considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. For additional information on risks to the Company related to TCJA and other tax proposals, see the risk factor entitled "Changes in federal or state tax laws could adversely affect our business, financial condition, results of operations and liquidity" under "Risk Factors" in Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. On October 8 th , the Organization for Economic Cooperation and Development ("OECD") announced that 136 of 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting had agreed to an updated final agreement to address tax challenges arising from the digitalization of the economy, including the implementation of a global minimum tax. Since this is dependent on each country implementing the convention through domestic legislation, it is unclear at this point how quickly or uniformly such implementation might occur. IMPACT OF NEW ACCOUNTING STANDARDS For a discussion of accounting standards, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in The Hartford’s 2020 Form 10-K Annual Report. 115 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ACRONYMS A&E Asbestos and Environmental HIMCO Hartford Investment Management Company ABS Asset Backed Securities IBNR Incurred But Not Reported ACL Allowance for Credit Losses IT Information Technology ADC Adverse Development Cover LCL Liability for Credit Losses AFS Available-For-Sale LIBOR London Inter-Bank Offered Rate ALAE Allocated Loss Adjustment Expenses LTD Long-Term Disability AMT Alternative Minimum Tax LTV Loan-to-Value AOCI Accumulated Other Comprehensive Income MD&A Management's Discussion and Analysis AUM Assets Under Management NAIC National Association of Insurance Commissioners CAY Current Accident Year NIC Navigators Insurance Company CLO Collateralized Loan Obligation NICO National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. (“Berkshire”) CMBS Commercial Mortgage-Backed Securities NM Not Meaningful DAC Deferred Policy Acquisition Costs NOLs Net Operating Loss Carryforwards or Carrybacks DSCR Debt Service Coverage Ratio NSIC Navigators Specialty Insurance Company ERCC Enterprise Risk and Capital Committee OCI Other Comprehensive Income ETF Exchange-Traded Funds OTC Over-the-Counter ETP Exchange-Traded Products P&C Property and Casualty FAL Funds at Lloyd's PYD Prior Year Development FASB Financial Accounting Standards Board RBC Risk-Based Capital FHLBB Federal Home Loan Bank of Boston RMBS Residential Mortgage-Backed Securities GAAP Generally Accepted Accounting Principles ROA Return on Assets GB Group Benefits ROE Return on Equity HFSG Hartford Financial Services Group, Inc. SCR Solvency Capital Requirement HHI Hartford Holdings, Inc. ULAE Unallocated Loss Adjustment Expenses 116 | Table of Contents Part I - Item 4. Controls and Procedures