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 2021 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 December 29, 2021, the Company completed the sale of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. and Assurances Contintales Contintale Verzekeringen N.V., collectively referred to as "Continental Europe Operations." 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 53 The Hartford's Operations 59 Financial Highlights 61 Consolidated Results of Operations 62 Investment Results 67 Critical Accounting Estimates 70 Commercial Lines 75 Personal Lines 80 Property & Casualty Other Operations 85 Group Benefits 86 Hartford Funds 88 Corporate 90 Enterprise Risk Management 91 Capital Resources and Liquidity 102 Impact of New Accounting Standards 109 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. 53 | 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 fund ("ETF") assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the segment’s revenues and expenses are based upon asset values. These revenues and expenses 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 before tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of before 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. 54 | 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, 2022 2021 2022 2021 Net income $ 339 $ 482 $ 1,226 $ 1,636 Preferred stock dividends 6 6 16 16 Net income available to common stockholders 333 476 1,210 1,620 Adjustments to reconcile net income available to common stockholders to core earnings: Net realized losses (gains) excluded from core earnings, before tax 166 (68) 648 (293) Restructuring and other costs, before tax 3 (12) 10 (1) Loss on extinguishment of debt, before tax — — 9 — Integration and other non-recurring M&A costs, before tax 5 8 16 53 Change in deferred gain on retroactive reinsurance, before tax — 28 — 73 Income tax expense (benefit) [1] (36) 10 (147) 29 Core earnings $ 471 $ 442 $ 1,746 $ 1,481 [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 major losses. 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 includes 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 net inflows or favorable market performance will have a favorable impact on fee income. Conversely, either net outflows 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. 55 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the rate-making process, adjust the assumption as appropriate for the particular state, product or coverage. Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- A measure of the cost of non-catastrophe loss and loss adjustment expenses incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year development. Loss Ratio, excluding Buyouts- Utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses, excluding those related to buyout premiums, to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts. Mutual Fund and Exchange-Traded Fund Assets- Are owned by the shareowners 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. Mutual fund and ETF assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues and expenses are based upon asset values. These revenues and expenses 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. 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 ("P&C") 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 and individual risk pricing decisions per unit of exposure on policies that renewed and, for small commercial and middle market business, includes amount of insurance. 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 impacting renewal policies during the period as previously filed with and approved by state regulators and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business 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 56 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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. 57 | 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, 2022 2021 2022 2021 Commercial Lines Net income $ 286 $ 357 $ 1,058 $ 1,055 Adjustments to reconcile net income to underwriting gain (loss): Net servicing income (2) (2) (3) (11) Net investment income (315) (421) (1,004) (1,130) Net realized losses (gains) 95 (51) 384 (142) Other expense 5 5 13 15 Income tax expense 84 82 280 228 Underwriting gain (loss) $ 153 $ (30) $ 728 $ 15 Personal Lines Net income (loss) $ (36) $ 51 $ 47 $ 304 Adjustments to reconcile net income to underwriting gain: Net servicing income (5) (6) (13) (15) Net investment income (31) (44) (99) (119) Net realized losses (gains) 11 (4) 38 (17) Other income (1) 1 — 1 Income tax expense (benefit) (10) 12 11 76 Underwriting gain (loss) $ (72) $ 10 $ (16) $ 230 P&C Other Operations Net income (loss) $ 6 $ 22 $ (6) $ 26 Adjustments to reconcile net income to underwriting loss: Net investment income (14) (22) (46) (58) Net realized losses (gains) 4 (2) 17 (7) Income tax expense (benefit) 2 5 (2) 5 Underwriting gain (loss) $ (2) $ 3 $ (37) $ (34) 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. 58 | 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 a portion of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries as well as certain affiliates. 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 to a new investor 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 in 2021. The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) management fees on mutual fund and ETF 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's 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, which is effective through December 31, 2032. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. 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 (" LTD") , 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 ETF businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and fund 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 ETF shareowners. Financial results are highly correlated to the growth in assets under management since these funds 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 ("AFS") 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 ("CLO"). The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of 59 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 Ukraine conflict on our results of operations From the Ukraine conflict, the Company incurred $27 of catastrophe losses, net of reinsurance, in the nine months ended September 30, 2022, all in the first quarter, that included exposures under political violence and terrorism (" PV&T ") policies, including aviation war, as well as under credit and political risk insurance ("CPRI") policies. Also in the first quarter of 2022, the Company recognized provisions for reinstatement premium of $11 as a result of estimated ceded incurred losses related to the conflict. The Company’s direct investment exposure is limited to bonds issued by Russian entities with an amortized cost of $12 and a fair value of $8 as of September 30, 2022, with an allowance for credit losses (" ACL ") of $4. The Company does not have any investments in Belarus or Ukraine. For a discussion of the risks associated with a deterioration in global economic conditions and/or geopolitical conditions, including due to military action, please refer to the Risk Factors in our 2021 Form 10-K, including one entitled “Unfavorable economic, political and global market conditions may adversely impact our business and results of operations” and another entitled “We are vulnerable to losses from catastrophes, both natural and man-made”. 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, Information Technology (" 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 $560 by 2022 and $625 by 2023. To achieve those expected savings, we expect to incur approximately $393 over the course of the program, with $273 expensed cumulatively through September 30, 2022, and expected expenses of $20 over the last three months of 2022, $43 in 2023, and $57 after 2023, with the expenses after 2023 consisting mostly of amortization of internal use software and capitalized real estate costs. Included in the estimated costs of $393, we expect to incur restructuring costs of approximately $127, including $41 of employee severance, $26 to retire certain IT applications, and $60 for consulting and lease termination expenses. 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 realized in the nine months ended September 30, 2022 and expected annual costs and expense savings for the full year in 2022 and 2023: Hartford Next Costs and Expense Savings Nine Months Ended September 30, 2022 Estimate for 2022 Estimate for 2023 Employee severance $ (7) $ (7) $ — IT costs to retire applications 6 9 5 Professional fees and other expenses 11 12 2 Estimated restructuring costs 10 14 7 Non-capitalized IT costs 34 45 20 Other costs 8 12 6 Amortization of capitalized IT development costs [1] 3 4 9 Amortization of capitalized real estate [2] 1 1 1 Estimated costs within core earnings 46 62 36 Total Hartford Next program costs $ 56 $ 76 $ 43 Cumulative savings for the period relative to 2019 (413) (560) (625) Net expense (savings) before tax: $ (357) $ (484) $ (582) Net expense (savings) before tax: Accounted for within core earnings $ (367) $ (498) $ (589) Restructuring costs recognized outside of core earnings 10 14 7 Net expense (savings) before tax $ (357) $ (484) $ (582) [1] Does not include approximately $34 of IT asset amortization after 2023. [2]Does not include approximately $18 of real estate amortization after 2023. 60 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations THIRD QUARTER FINANCIAL HIGHLIGHTS Net Income Available to Common Stockholders Net Income Available to Common Stockholders per Diluted Share Book Value per Diluted Share Þ Decreased $143 or 30% Þ Decreased $0.34 or 25% Þ Decreased $12.37 or 24.1% - A change to net realized losses - Decrease in net income available to common stockholders - Decrease in common stockholders' equity largely due to a decrease in AOCI, primarily driven by a change from net unrealized gains to net unrealized losses on available for sale securities as well as common stockholder dividends and share repurchases in excess of net income - Lower net investment income driven by lower income from limited partnerships - Higher current accident year loss ratios before catastrophes in Commercial Lines and Personal Lines + Share repurchase activity - Greater P&C underwriting expenses and Group Benefits insurance operating costs and other expenses + Reduction in outstanding shares due to share repurchases - Higher Group Benefits loss ratio, excluding the impact of excess mortality + In Group Benefits, lower excess mortality claims and the effect of higher premiums + A change to favorable P&C prior accident year reserve development + In Commercial Lines, higher earned premiums Investment Yield, After Tax Property & Casualty Combined Ratio Group Benefits Net Income Margin Þ Decreased 110 bps Þ Improved 2.8 points Ý Increased 3.6 points - Lower returns on limited partnerships and other alternative investments - A change to favorable prior accident year reserve development + Lower excess mortality in group life + Higher fully insured ongoing premiums + A higher yield on fixed maturity securities due to reinvesting at higher rates and an increased yield on variable-rate securities - Lower catastrophe losses - A change to net realized losses - A lower expense ratio driven, in part, by higher earned premium - Lower net investment income driven by lower income from limited partnerships - A higher group life loss ratio excluding the impact of excess mortality + Higher non-catastrophe property losses in Commercial Lines - Higher insurance operating costs and other expenses + Higher personal automobile and homeowners loss costs 61 | 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, 2022 2021 Change 2022 2021 Change Earned premiums $ 4,910 $ 4,565 8 % $ 14,371 $ 13,368 8 % Fee income 328 377 (13 %) 1,031 1,107 (7 %) Net investment income 487 650 (25 %) 1,537 1,740 (12 %) Net realized gains (losses) (166) 70 NM (649) 297 NM Other revenues 21 24 (13 %) 56 62 (10 %) Total revenues 5,580 5,686 (2 %) 16,346 16,574 (1 %) Benefits, losses and loss adjustment expenses 3,408 3,420 — % 9,602 9,556 — % Amortization of deferred policy acquisition costs 467 419 11 % 1,360 1,252 9 % Insurance operating costs and other expenses 1,203 1,200 — % 3,632 3,546 2 % Interest expense 50 58 (14 %) 163 172 (5 %) Amortization of other intangible assets 18 18 — % 53 53 — % Restructuring and other costs 3 (12) 125 % 10 (1) NM Total benefits, losses and expenses 5,149 5,103 1 % 14,820 14,578 2 % Income, before tax 431 583 (26 %) 1,526 1,996 (24 %) Income tax expense 92 101 (9 %) 300 360 (17 %) Net income 339 482 (30 %) 1,226 1,636 (25 %) Preferred stock dividends 6 6 — % 16 16 — % Net income available to common stockholders $ 333 $ 476 (30 %) $ 1,210 $ 1,620 (25 %) Three months ended September 30, 2022 compared to the three months ended September 30, 2021 Net income available to common stockholders decreased by $143, primarily driven by: • A $236, before tax, change to net realized losses in the 2022 period from net realized gains in the 2021 period, driven by a net loss on sales of fixed maturity securities in the third quarter of 2022 compared to a net gain on sales in the 2021 period as well as greater depreciation in value and realized losses upon sale of equity securities during the third quarter of 2022. • A decline in net investment income driven by lower returns on limited partnerships and other alternative investments, partially offset by higher income on fixed income investments due primarily to the increase in interest rates; and • A decrease in earnings from Hartford Funds. These decreases were partially offset by: • In Group Benefits, lower excess mortality claims of $186, before tax, and the effect of higher group disability earned premiums, was partially offset by a higher group life loss ratio excluding the impact of excess mortality and an increase in insurance operating costs and other expenses; and • An increase in P&C underwriting results of $96, before tax, driven by favorable prior accident year reserve development in the 2022 period compared to unfavorable development in the 2021 period, and the effect of Commercial Lines earned premium growth, partially offset by a higher current accident year loss and loss adjustment expense ("LAE") ratio before catastrophes and higher underwriting expenses. For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. 62 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations REVENUE Earned Premiums Earned premiums increased by $345, or 8%, primarily due to: • An increase in P&C reflecting a 10% increase in Commercial Lines and a 1% increase in Personal Lines. – Contributing to the increase in Commercial Lines was an increase in new business in small commercial and middle market, higher policy count retention in small commercial, the effect of renewal written price increases, and higher audit and endorsement premiums in small commercial as a result of higher insured exposures. Global specialty increased driven by written price increases in U.S. wholesale and ocean marine, partially offset by a decline in new business. – For Personal Lines, the increase was attributable to automobile largely driven by an increase in net new business premium, policy count retention and renewal written pricing. For homeowners, non-renewals outpaced new business despite an increase in new business and the effect of earned pricing increases. • An increase in Group Benefits earned premium of 6% due to an increase in group disability and supplemental health product premiums. Fee income decreased, driven by lower daily average assets within Hartford Funds due to a decline in equity market levels and net outflows during 2022. Net Investment Income Net investment income decreased primarily due to: • Lower income from limited partnerships and other alternative investments driven by lower returns on private equity funds and fewer sales of underlying real estate properties in the 2022 period; • Partially offset by the impact of reinvesting at higher rates and a higher yield on variable-rate securities. Net realized gains (losses) changed to net realized losses in the 2022 period from net realized gains in the 2021 period, primarily driven by: • Net realized losses on sales of fixed maturity securities in 2022, driven primarily by the increase in interest rates and wider credit spreads; and • Net losses on equity securities in the 2022 period driven by depreciation in value due to a decline in the equity market. For further discussion of investment results, see MD&A - Investment Results, Net Realized Gains and MD&A - Investment Results, Net Investment Income. Other revenues decreased primarily driven by lower servicing revenues in P&C. 63 | 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 decreased $12 due to: • An increase in Property & Casualty of $90, which was attributable to: – An increase in P&C current accident year (" CAY ") loss and loss adjustment expenses before catastrophes of $240, before tax, primarily due to the effect of higher earned premiums in Commercial Lines, higher personal automobile and homeowners’ claim costs and higher non-catastrophe property losses in middle market and small commercial, partially offset by lower current accident year loss ratios in global specialty lines. – Partially offsetting was a favorable change of $143, before tax, in P&C net prior accident year reserve development. Prior accident year reserve development in the 2022 period was a net favorable $53, before tax, primarily driven by reserve decreases in workers' compensation, package business, and personal automobile, partially offset by reserve increases in commercial automobile liability. 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 National Indemnity Company ("NICO"), a subsidiary of Berkshire Hathaway Inc., but recorded as a deferred gain. Unfavorable development in the 2021 period before deferred gain was driven by an increase in the Boy Scouts of America ("BSA") settlement announced in September 2021, partially offset by reserve decreases for workers' compensation, personal automobile, package business and bond. For further discussion, see Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. Losses and LAE Incurred for Group Benefits – Also partially offsetting was a decrease in current accident year catastrophe losses of $7 before tax. Catastrophe losses of $293 before tax in the 2022 period primarily included losses from Hurricane Ian, as well as wind and hail events mostly concentrated in the Northern Plains, Midwest, South, and Mountain West. Catastrophe losses of $300, before tax, 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. • A decrease in Group Benefits of $103, primarily driven by a $186, before tax, decrease in excess mortality claims, partially offset by the effect of an increase in earned premiums and a higher group life loss ratio excluding the impact of excess mortality. Amortization of deferred policy acquisition costs increased from the prior year period driven by Commercial Lines, reflecting an increase in earned premiums across all commercial lines of business. Insurance operating costs and other expenses were relatively flat primarily due to: • Higher technology costs; • Higher volume-related staffing costs in Commercial Lines and Group Benefits; and • Lower doubtful accounts expense in the 2021 period. These increases were offset by: • Lower variable expenses in Hartford Funds; • Incremental expense savings driven by the Company’s Hartford Next operational transformation and cost reduction plan; and • Lower direct marketing costs in Personal Lines. Interest Expense decreased primarily due to the Company redeeming $600 aggregate principal amount of junior subordinated debentures on April 15, 2022. For further 64 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations discussion of the debt redemption, see Note 11 - Debt of Notes to Condensed Consolidated Financial Statements. Income tax expense decreased primarily due to a decline in income before tax. For further discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 Net income available to common stockholders decreased by $410 primarily driven by: • A $946, before tax, change to net realized losses in the 2022 period from net realized gains in the 2021 period, primarily driven by depreciation in value of equity securities in the 2022 period compared to appreciation in the 2021 period, as well as a net loss on sales of fixed maturity securities in the first nine months of 2022 compared to a net gain on sales in the first nine months of 2021; and • Lower net investment income, primarily driven by lower returns on limited partnerships and other alternative investments, as well as a decline in valuation of equity fund investments in the 2022 period, partially offset by the impact of higher interest rates on fixed income investments. This decrease was partially offset by: • An increase in P&C underwriting results of $464, before tax, driven by a change to favorable prior accident year reserve development, the effect of Commercial Lines earned premium growth, lower catastrophe losses, and lower COVID-19 losses, partially offset by a higher current accident year loss and LAE ratio before catastrophes, excluding the benefit from lower COVID-19 losses, and higher underwriting expenses; • In Group Benefits, lower losses from excess mortality claims of $305, before tax, and the effect of higher fully insured ongoing premiums was partially offset by a higher loss ratio, excluding the impact of excess mortality, and an increase in insurance operating costs and other expenses; and • Legal and consulting costs in the 2021 period associated with the unsolicited proposals from Chubb Limited to acquire the Company. For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. REVENUE Earned Premiums Earned premiums increased primarily due to: • An increase in P&C reflecting an 11% increase in Commercial Lines and a 1% decrease in Personal Lines. – Contributing to the increase in Commercial Lines was an increase in small commercial new business, higher policy count retention, earned pricing increases, and the effect of higher audit and endorsement premiums as the result of higher insured exposures, principally in workers’ compensation. – For Personal Lines, non-renewals outpaced new business despite an increase in new business and the effect of earned pricing increases. • An increase in Group Benefits earned premium of 6% due to an increase in group disability and supplemental health product premiums. Fee income decreased, driven by lower daily average assets within Hartford Funds due to a decline in equity market levels and net outflows during 2022. 65 | 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 Net investment income decreased due to: • Lower income from limited partnerships and other alternative investments driven by lower returns on private equity funds, partially offset by higher real estate fund valuations; • A decline in valuation of equity fund investments in the 2022 period due to the decline in equity market levels; • Partially offset by the impact of reinvesting at higher rates, a higher yield on variable-rate securities, and a higher level of invested assets. Net realized gains (losses) changed to a net realized loss in the 2022 period from a net realized gain in the 2021 period, primarily driven by: • Losses on equity securities in the 2022 period driven by depreciation in value compared to gains on equity securities in the 2021 period due to appreciation in value and sales; and • Net realized losses on sales of fixed maturity securities in 2022, driven by the increase in interest rates and credit spread widening. For further discussion of investment results, see MD&A - Investment Results, Net Realized Gains and MD&A - Investment Results, Net Investment Income. Other revenues decreased, primarily driven by lower servicing revenues in P&C. BENEFITS, LOSSES AND EXPENSES Losses and LAE Incurred for P&C Benefits, losses and loss adjustment expenses increased $46, comprised of: • An increase in incurred losses for Property & Casualty of $76, which was driven by: – An increase in P&C CAY loss and loss adjustment expenses before catastrophes of $521, before tax, primarily due to the effect of higher earned premiums in Commercial Lines, higher personal automobile claim frequency and severity, higher non-catastrophe Losses and LAE Incurred for Group Benefits property losses, and a higher workers’ compensation current accident year loss ratio before COVID-19, partially offset by lower COVID-19 incurred losses and lower current accident year loss ratios before COVID-19 in global specialty lines, general liability and programs. – Partially offsetting this was a favorable change of $317, before tax, in P&C net prior accident year reserve development. Prior accident year reserve development in the 2022 period was a net favorable $147, before tax, primarily driven by reserve decreases in workers' 66 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations compensation, package business, catastrophes, commercial property, and personal automobile, partially offset by reserve increases in general liability, commercial automobile liability, and assumed reinsurance. 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 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. While the Navigators’ reserve development has been economically ceded to NICO, the Company recognized a deferred gain under retroactive reinsurance accounting. For further discussion, see Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. – Also partially offsetting was a decrease in current accident year catastrophe losses of $128, before tax. Catastrophe losses in the 2022 period included losses from Hurricane Ian, as well as from tornado, wind and hail events in the Northern Plains, Midwest, South, and Mountain West, and winter storms along the East Coast, and $27 of losses, net of reinsurance, related to the Ukraine conflict. 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. • Partially offsetting the P&C increase was a decline in Group Benefits of $32, before tax, primarily driven by a $305, before tax, decrease in excess mortality claims, largely offset by the effect of an increase in earned premiums, a higher loss ratio for group disability and a higher loss ratio excluding excess mortality for group life. Amortization of deferred policy acquisition costs increased from the prior year period driven by Commercial Lines reflecting an increase in earned premiums across all commercial lines of business. Insurance operating costs and other expenses increased due to: • Higher technology costs; • An increase in performance-based commissions in Commercial Lines; • Higher volume-related staffing costs in Commercial Lines and Group Benefits; and • Lower doubtful accounts expense in the 2021 period. These increases were partially offset by: • Lower variable expenses in Hartford Funds; • Incremental savings from the Company’s Hartford Next operational transformation and cost reduction plan; and • Lower direct marketing costs in Personal Lines. Interest Expense decreased primarily due to the Company redeeming $600 aggregate principal amount of junior subordinated debentures on April 15, 2022. For further discussion of the debt redemption, see Note 11 - Debt of Notes to Condensed Consolidated Financial Statements. Income tax expense decreased primarily due to a decline 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, 2022 December 31, 2021 Amount Percent Amount Percent Fixed maturities, AFS, at fair value $ 35,717 70.5 % $ 42,847 74.2 % Fixed maturities, at fair value using the fair value option ("FVO") 335 0.7 % 160 0.3 % Equity securities, at fair value 1,678 3.3 % 2,094 3.6 % Mortgage loans (net of ACL of $36 and $29) 5,931 11.7 % 5,383 9.3 % Limited partnerships and other alternative investments 4,108 8.1 % 3,353 5.8 % Other investments [1] 168 0.3 % 215 0.4 % Short-term investments 2,724 5.4 % 3,697 6.4 % Total investments $ 50,661 100.0 % $ 57,749 100.0 % [1] Primarily consists of equity fund investments, overseas deposits, consolidated investment funds, and derivative instruments which are carried at fair value. September 30, 2022 compared to December 31, 2021 Total investments decreased primarily due to a decline in fixed maturities, AFS and short-term investments, partially offset by an increase in limited partnerships and other alternative investments and mortgage loans. Fixed maturities, AFS decreased primarily due to a decline in valuations due to higher interest rates and wider credit spreads. The decline was also due to the reinvestment of sales and maturities into other asset classes. Short-term investments decreased primarily due to the redemption of $600 of 7.875% junior subordinated debentures and share repurchases. 67 | 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 increased primarily driven by additional investments and higher valuations. Mortgage loans increased largely due to funding of multifamily and industrial commercial whole loans. Net Investment Income Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Before tax) Amount Yield [1] Amount Yield [1] Amount Yield [1] Amount Yield [1] Fixed maturities [2] $ 376 3.5 % $ 332 3.1 % $ 1,053 3.3 % $ 1,019 3.1 % Equity securities 15 3.0 % 23 6.2 % 40 2.7 % 43 3.9 % Mortgage loans 53 3.6 % 45 3.7 % 156 3.6 % 133 3.7 % Limited partnerships and other alternative investments 62 6.3 % 259 39.6 % 346 13.0 % 562 33.7 % Other [3] (1) 11 1 43 Investment expense (18) (20) (59) (60) Total net investment income $ 487 3.5 % $ 650 4.8 % $ 1,537 3.7 % $ 1,740 4.3 % Total net investment income excluding limited partnerships and other alternative investments $ 425 3.3 % $ 391 3.0 % $ 1,191 3.1 % $ 1,178 3.1 % [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, 2022 compared to the three months ended September 30, 2021 Total net investment income declined due to: • Lower income from limited partnerships and other alternative investments driven by lower returns on private equity funds and fewer sales of underlying real estate properties in the 2022 period; • Partially offset by the impact of reinvesting at higher rates and a higher yield on variable-rate securities. Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 Total net investment income declined due to: • Lower income from limited partnerships and other alternative investments driven by lower returns on private equity funds, partially offset by higher real estate fund valuations; • A decline in valuation of equity fund investments in the 2022 period due to the decline in equity market levels; • Partially offset by the impact of reinvesting at higher rates, a higher yield on variable-rate securities, and a higher level of invested assets. Annualized net investment income yield, excluding limited partnerships and other alternative investments, was up for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to higher reinvestment rates and a higher yield on variable-rate securities, partially offset by a lower yield on equity securities. Annualized net investment income yield, excluding limited partnerships and other alternative investments, was flat for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 as the increase in reinvestment rates and yield on variable-rate securities was offset by lower equity fund returns. Average reinvestment rates on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities, for the three and nine month periods ended September 30, 2022, were 4.9% and 4.1%, respectively, which were above the average yield of sales and maturities of 3.7% and 3.4%, respectively. Average reinvestment rates for the three and nine month periods 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. For the 2022 calendar year, we expect the annualized net investment income yield, excluding limited partnerships and other alternative investments, to be consistent with or slightly above the portfolio yield earned in 2021 due to the rising rate environment. The estimated impact on annualized net investment income yield is subject to variability due to evolving market conditions, active portfolio management, and the level of non-routine income items, such as make-whole payments, prepayment penalties on mortgage loans and yield adjustments on prepayable securities. 68 | 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) 2022 2021 2022 2021 Gross gains on sales of fixed maturities $ 16 $ 63 $ 54 $ 162 Gross losses on sales of fixed maturities (81) (8) (256) (54) Equity securities [1] (81) 3 (450) 134 Net credit losses on fixed maturities, AFS [2] (3) — (15) 4 Change in ACL on mortgage loans [3] — (2) (7) 12 Intent-to-sell impairments [2] (2) — (5) — Other, net [4] (15) 14 30 39 Net realized gains (losses) $ (166) $ 70 $ (649) $ 297 [1] The net unrealized gains (losses) on equity securities still held as of September 30, 2022, and included in net realized gains (losses) were $(84) and $(439) for the three and nine months ended September 30, 2022, respectively. The net unrealized gains (losses) on equity securities still held as of September 30, 2021, and included in net realized gains (losses) were $(17) and $92 for the three and nine months ended September 30, 2021, 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 the three and nine months ended September 30, 2022, includes gains (losses) from transactional foreign currency revaluation of $16 and $37, respectively, and gains (losses) on non-qualifying derivatives of $(19) and $42, respectively. For the three and nine months ended September 30, 2021, includes gains (losses) from transactional foreign currency revaluation of $6 and $(1) respectively, and gains (losses) on non-qualifying derivatives of $10 and $16, respectively. Three and nine months ended September 30, 2022 Gross gains and losses on sales were primarily due to sales of U.S. treasuries, which were used to manage duration and liquidity, and to fund purchases of spread product, mortgage loans, and alternative investments. Also included were sales of corporate securities and tax-exempt municipals and tender activity. Equity securities net losses were primarily driven by depreciation in value due to the decline in the equity market. Other, net gains and losses for the three and nine month periods ended September 30, 2022 included gains of $16 and $37, respectively, on transactional foreign currency revaluation, losses of $3 and $26, respectively, on FVO securities due to credit spread widening, and losses of $6 and $13, respectively, due to impairments of limited partnerships and other alternative investments. Also included for the three and nine month periods ended September 30, 2022 were losses of $17 and gains of $20, respectively, on interest rate derivatives and, for the nine month period, gains of $14 on the termination of commodity derivatives driven by an increase in the price of crude oil. 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 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. 69 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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. 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. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements. The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2021 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 2021 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, 2022. | 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, 2022 Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve estimates represent the Company's best estimate of the ultimate settlement amount of unpaid losses and loss adjustment expenses. The Company does not use statistical loss distributions or confidence levels in the process of determining its reserve estimate and, as a result, does not disclose reserve ranges. Assumptions used in arriving at the selected actuarial indications consider a number of factors, including the immaturity of emerged claims in recent accident years, emerging trends in the recent past, and the level of volatility within each 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. 70 | 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, 2022 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 26,906 $ 1,844 $ 2,699 $ 31,449 Reinsurance and other recoverables 4,480 37 1,564 6,081 Beginning liabilities for unpaid losses and loss adjustment expenses, net 22,426 1,807 1,135 25,368 Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes 4,417 1,430 — 5,847 Current accident year catastrophes 327 187 — 514 Prior accident year development (" PYD ") (163) (14) 30 (147) Total provision for unpaid losses and loss adjustment expenses 4,581 1,603 30 6,214 Payments (3,472) (1,572) (198) (5,242) Foreign currency adjustment (55) — — (55) Ending liabilities for unpaid losses and loss adjustment expenses, net 23,480 1,838 967 26,285 Reinsurance and other recoverables 4,587 35 1,583 6,205 Ending liabilities for unpaid losses and loss adjustment expenses, gross $ 28,067 $ 1,873 $ 2,550 $ 32,490 Earned premiums and fee income $ 7,833 $ 2,218 Loss and loss expense paid ratio [1] 44.3 70.9 Loss and loss expense incurred ratio 58.7 73.0 Prior accident year development (pts) [2] (2.1) 0.6 [1] The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income. [2] “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. Current Accident Year Catastrophe Losses, Net of Reinsurance Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Commercial Lines Personal Lines Total [1] Commercial Lines Personal Lines Total [1] Wind and hail $ 49 $ 33 $ 82 $ 120 $ 98 $ 218 Winter storms (2) — (2) 17 5 22 Hurricanes and tropical storms [1] 98 81 179 98 81 179 Wildfires — — — — 3 3 Ukraine conflict [2] — — — 23 — 23 Other international — — — 2 — 2 Catastrophes before assumed reinsurance 145 114 259 260 187 447 Global assumed reinsurance business [1] [2] [3] 34 — 34 67 — 67 Total catastrophe losses $ 179 $ 114 $ 293 $ 327 $ 187 $ 514 [1] For the three and nine months ended September 30, 2022, included losses from Hurricane Ian of $214, net of reinsurance, including $35 of hurricane losses in the global assumed reinsurance business. [2] Total catastrophe losses resulting from the Ukraine conflict were $27, net of reinsurance, including $4 within global assumed reinsurance for the nine months ended September 30, 2022, all in the first quarter. [3] 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. 71 | 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, 2022 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (58) $ — $ — $ (58) Workers’ compensation discount accretion 9 — — 9 General liability — — — — Marine 5 — — 5 Package business (11) — — (11) Commercial property 4 — — 4 Professional liability — — — — Bond — — — — Assumed reinsurance — — — — Automobile liability 11 (9) — 2 Homeowners — (2) — (2) Net asbestos and environmental ("A&E") reserves — — — — Catastrophes (2) — — (2) Uncollectible reinsurance (1) (2) — (3) Other reserve re-estimates, net 1 2 — 3 Total prior accident year development $ (42) $ (11) $ — $ (53) Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2022 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (143) $ — $ — $ (143) Workers’ compensation discount accretion 27 — — 27 General liability 2 — 31 33 Marine 2 — — 2 Package business (35) — — (35) Commercial property (17) — — (17) Professional liability (9) — — (9) Bond (4) — — (4) Assumed reinsurance 12 — — 12 Automobile liability 23 (14) — 9 Homeowners — (2) — (2) Net asbestos and environmental reserves — — — — Catastrophes (31) (1) — (32) Uncollectible reinsurance (1) (2) 6 3 Other reserve re-estimates, net 11 5 (7) 9 Total prior accident year development $ (163) $ (14) $ 30 $ (147) 72 | 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 Insurance 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 catastrophes 490 152 — 642 Prior accident year development [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 Adverse Development Cover ("ADC") which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from NICO , a subsidiary of Berkshire Hathaway Inc. 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 [2] 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] [3] 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] For the three and nine months ended September 30, 2021, included losses from Hurricane Ida of $200, net of reinsurance, including $12 of hurricane losses in the global assumed reinsurance business. [3] 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. 73 | 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 Net asbestos and environmental reserves — — — — 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 and environmental reserves — — — — Catastrophes (57) (41) — (98) Uncollectible reinsurance (5) — (5) (10) Other reserve re-estimates, net (6) (1) 33 26 Total prior accident year development 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 For discussion of the factors contributing to unfavorable (favorable) prior accident year reserve development for both the 2022 and 2021 periods, please refer to Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. 74 | 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, 2022 2021 Change 2022 2021 Change Written premiums $ 2,780 $ 2,532 10 % $ 8,425 $ 7,529 12 % Change in unearned premium reserve 77 83 (7 %) 621 501 24 % Earned premiums 2,703 2,449 10 % 7,804 7,028 11 % Fee income 10 8 25 % 29 25 16 % Losses and loss adjustment expenses Current accident year before catastrophes 1,555 1,351 15 % 4,417 3,986 11 % Current accident year catastrophes [1] 179 222 (19 %) 327 490 (33 %) Prior accident year development [1] (42) 122 (134 %) (163) 255 (164 %) Total losses and loss adjustment expenses 1,692 1,695 — % 4,581 4,731 (3 %) Amortization of deferred policy acquisition costs 399 348 15 % 1,155 1,038 11 % Underwriting expenses 455 432 5 % 1,327 1,231 8 % Amortization of other intangible assets 7 7 — % 21 21 — % Dividends to policyholders 7 5 40 % 21 17 24 % Underwriting gain (loss) 153 (30) NM 728 15 NM Net servicing income 2 2 — % 3 11 (73 %) Net investment income [2] 315 421 (25 %) 1,004 1,130 (11 %) Net realized gains (losses) [2] (95) 51 NM (384) 142 NM Other expenses (5) (5) — % (13) (15) 13 % Income before income taxes 370 439 (16 %) 1,338 1,283 4 % Income tax expense [3] 84 82 2 % 280 228 23 % Net income $ 286 $ 357 (20 %) $ 1,058 $ 1,055 — % [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. 75 | 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, 2022 2021 2022 2021 Small Commercial: Net new business premium $ 190 $ 165 $ 577 $ 511 Policy count retention [1] 86 % 84 % 86 % 84 % Renewal written price increases 3.8 % 3.3 % 3.4 % 2.9 % Renewal earned price increases 3.5 % 2.7 % 3.4 % 2.4 % Policies in-force as of end of period (in thousands) 1,411 1,352 Middle Market [2]: Net new business premium $ 150 $ 139 $ 400 $ 408 Policy count retention [1] 83 % 84 % 84 % 82 % Renewal written price increases 6.5 % 5.7 % 5.7 % 6.0 % Renewal earned price increases 5.7 % 7.1 % 5.8 % 7.5 % Global Specialty: Global specialty gross new business premium [3] $ 201 $ 234 $ 633 $ 687 Renewal written price increases [4] 3.2 % 10.9 % 5.6 % 13.7 % Renewal earned price increases [4] 7.7 % 19.2 % 9.7 % 22.0 % [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. [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 Global Re, offshore energy policies, credit and political risk insurance 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, 2022 2021 Change 2022 2021 Change Loss and loss adjustment expense ratio Current accident year before catastrophes 57.5 55.2 2.3 56.6 56.7 (0.1) Current accident year catastrophes 6.6 9.1 (2.5) 4.2 7.0 (2.8) Prior accident year development (1.6) 5.0 (6.6) (2.1) 3.6 (5.7) Total loss and loss adjustment expense ratio 62.6 69.2 (6.6) 58.7 67.3 (8.6) Expense ratio 31.5 31.8 (0.3) 31.7 32.2 (0.5) Policyholder dividend ratio 0.3 0.2 0.1 0.3 0.2 0.1 Combined ratio 94.3 101.2 (6.9) 90.7 99.8 (9.1) Impact of current accident year catastrophes and prior year development (5.0) (14.1) 9.1 (2.1) (10.6) 8.5 Underlying combined ratio 89.3 87.2 2.1 88.6 89.2 (0.6) 76 | 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, 2022 compared to the three and nine months ended September 30, 2021 Net income for the three months ended September 30, 2022 decreased primarily due to a change from net realized gains to net realized losses and lower net investment income, partially offset by a change from an underwriting loss to an underwriting gain. Net income for the nine months ended September 30, 2022 increased slightly due to a higher underwriting gain, largely offset by a change from net realized gains to net realized losses and lower net investment income. For further discussion of investment results, see MD&A - Investment Results. Underwriting Gain (Loss) Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Underwriting gain for the three month period ended September 30, 2022 compared to an underwriting loss in the prior year three month period with the improvement primarily due to a change from unfavorable prior accident year development in the prior year period to favorable prior accident year development in the current year period, the effect of earned premium growth and lower current accident year catastrophes, partially offset by an increase in the current accident year loss and loss adjustment expense ratio before catastrophes and an increase in underwriting expenses. Underwriting gain increased for the nine month period ended September 30, 2022 compared to the prior year nine month period with the improvement primarily due to a change from unfavorable prior accident year development in the prior year period to favorable prior accident year development in the current year period, the effect of earned premium growth, and lower current accident year catastrophes, partially offset by an increase in underwriting expenses. Underwriting expenses increased in both the three and nine month periods due to higher staffing and technology costs, and a decrease in the allowance for credit losses on premiums receivable in the 2021 period, partially offset by incremental savings from Hartford Next initiatives. Also contributing to the increase for the nine month period were higher performance-based commissions. Expense ratio decreased slightly in both the three and nine month periods driven by the impact of higher earned premium and incremental savings from the Hartford Next program, mostly offset by higher technology and staffing costs and the impact of a decrease in the allowance for credit losses on premiums receivable recognized in third quarter 2021. 77 | 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 $10 and $12, for the three months ended September 30, 2021, and 2022, respectively, and $32 and $36 for the nine months ended September 30, 2021, and 2022, respectively is included in the total. Written Premiums [1] Other written premiums of $11, for both the three months ended September 30, 2021, and 2022, and $32 and $35 for the nine months ended September 30, 2021, and 2022 is included in the total. Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Earned premiums for the three and nine month periods increased in 2022 due to written premium increases over the prior 12 months as well as due to higher premiums from audits and endorsements, principally in small commercial workers’ compensation due to an increasing exposure base from higher payrolls. Written premiums f or the three and nine month periods increased in 2022 driven by growth across small commercial, middle & large commercial and global specialty. • Small commercial written premium increased in both periods driven by exposure growth from higher audit and endorsement premium, double-digit new business growth, higher policy count retention, and renewal written price increases in all lines. Written premium grew in all lines of business, with the most significant growth in workers' compensation and package business. • Middle & large commercial written premium increased in both periods driven by renewal written price increases in all lines and higher audit and endorsement premium in the nine month period. New business grew in the three month period, but declined in the nine month period. Written premium grew across general industries, industry verticals and specialty markets. • Global specialty written premium increased in both periods driven by written price increases in US lines and, for the nine month period, higher retention, partially offset by a decline in new business in both periods. Written premium grew in all lines except U.S wholesale in the three month period and in all lines except international in the nine month period, with the most significant growth in global reinsurance and financial lines. Renewal written price increases were recognized in nearly all lines in the three and nine month periods, with moderating price increases across most lines in global specialty. • In small commercial, renewal written price increases were modestly higher in both the three and nine month periods, with workers' compensation pricing slightly positive in 2022 due to rising wages offset by lower rates, along with mid-single digit price increases in most other lines. • In middle market, the Company recognized mid-to-high single-digit price increases in most lines other than workers’ compensation, which experienced low single-digit written price increases as the effect of higher wages more than offset lower rates. • In global specialty, we achieved low-to-mid single-digit renewal written price increases, with increases in marine, property and automobile and, for the three month period, a slight decrease in written pricing in international lines. 78 | 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, 2022 compared to the three and nine months ended September 30, 2021 Current accident year loss and LAE ratio before catastrophes increased in the three month period and was relatively flat in the nine month period. The increase in the three month period was primarily due to higher non-catastrophe property losses primarily in small commercial and middle market and a higher loss ratio in workers' compensation, partially offset by lower loss ratios in global specialty U.S. lines. The current accident year loss and LAE ratio before catastrophes was relatively flat in the nine month period primarily due to lower loss ratios in global specialty lines and lower COVID-19 incurred losses, largely offset by higher non-catastrophe property losses in both small commercial and middle market. In the nine month period, the lower loss ratio in global specialty was partially offset by the effect on the ratio of $11 before tax in reinstatement premium owed to reinsurers related to ceding Ukraine conflict losses and a large ocean marine loss from an oil spill off the coast of Peru. There were no current accident year COVID-19 incurred losses in the three and nine months ended September 30, 2022 compared to $3 and $30 of COVID-19 incurred losses in the three and nine months ended September 30, 2021, with losses in the nine month period of 2021 including $20 in workers’ compensation and $10 in financial and other lines. Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Current accident year catastrophe losses for the three months ended September 30, 2022 included $133 for Hurricane Ian and losses from wind and hail events primarily in the Northern Plains, Midwest, South and Mountain West. 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 nine months ended September 30, 2022 included $133 for Hurricane Ian, losses from tornado, wind and hail events primarily in the Midwest, South, Mountain West and Great Plains, winter storms along the East Coast and $27 of losses, net of reinsurance, related to the Ukraine conflict. Current accident year catastrophe losses net of reinsurance 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. Prior accident year development was net favorable for the three and nine months ended September 30, 2022. Reserve development in the 2022 periods included reserve decreases for workers' compensation, package business, catastrophes and, for the nine month period, commercial property and professional liability, partially offset by reserve increases for automobile liability and, for the nine month period, an increase in assumed reinsurance. In the nine month period ended September 30, 2022, an increase in reserves for general liability related to excess casualty and primary construction was largely offset by a reallocation of a portion of reserves for sexual molestation and sexual abuse claims from Commercial Lines to P&C Other Operations. The reallocated reserves relate to excess liability policies written by a legal entity in P&C Other Operations for amounts owed to claimants under the agreement in principle 79 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations reached with the BSA on sexual molestation and sexual abuse claims in third quarter 2021. In total for the Company, there was no change in the liability for settlement amounts owed on the BSA claims. 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 the BSA 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. Prior accident year development in the 2021 periods 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, 2022 2021 Change 2022 2021 Change Written premiums $ 803 $ 765 5 % $ 2,266 $ 2,240 1 % Change in unearned premium reserve 54 21 157 % 71 24 196 % Earned premiums 749 744 1 % 2,195 2,216 (1 %) Fee income 8 8 — % 23 24 (4 %) Losses and loss adjustment expenses Current accident year before catastrophes 515 479 8 % 1,430 1,340 7 % Current accident year catastrophes [1] 114 78 46 % 187 152 23 % Prior accident year development [1] (11) (27) 59 % (14) (113) 88 % Total losses and loss adjustment expenses 618 530 17 % 1,603 1,379 16 % Amortization of DAC 57 57 — % 170 173 (2 %) Underwriting expenses 153 154 (1 %) 459 456 1 % Amortization of other intangible assets 1 1 — % 2 2 — % Underwriting gain (loss) (72) 10 NM (16) 230 (107 %) Net servicing income [2] 5 6 (17 %) 13 15 (13 %) Net investment income [3] 31 44 (30 %) 99 119 (17 %) Net realized gains (losses) [3] (11) 4 NM (38) 17 NM Other income (expenses) 1 (1) NM — (1) 100 % Income (loss) before income taxes (46) 63 (173 %) 58 380 (85 %) Income tax expense (benefit) [4] (10) 12 (183 %) 11 76 (86 %) Net income (loss) $ (36) $ 51 (171 %) $ 47 $ 304 (85) % [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 $20 and $22 for the three months ended September 30, 2022 and 2021, respectively, and $56 and $62 for the nine months ended September 30, 2022 and 2021, respectively. Includes servicing expenses of $15 and $16 for the three months ended September 30, 2022 and 2021, respectively, and $43 and $47 for the nine months ended September 30, 2022 and 2021, 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. 80 | 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 2022 2021 Change 2022 2021 Change Product Line Automobile $ 541 $ 516 5 % $ 1,547 $ 1,539 1 % Homeowners 262 249 5 % 719 701 3 % Total $ 803 $ 765 5 % $ 2,266 $ 2,240 1 % Earned Premiums Product Line Automobile $ 516 $ 511 1 % $ 1,506 $ 1,527 (1 %) Homeowners 233 233 — % 689 689 — % Total $ 749 $ 744 1 % $ 2,195 $ 2,216 (1 %) Premium Measures Three Months Ended September 30, Nine Months Ended September 30, Premium Measures 2022 2021 2022 2021 Policies in-force end of period (in thousands) Automobile 1,331 1,328 Homeowners 749 786 Net new business premium Automobile $ 71 $ 58 $ 186 $ 167 Homeowners $ 22 $ 17 $ 56 $ 46 Policy count retention [1] Automobile 85 % 84 % 84 % 85 % Homeowners 84 % 84 % 84 % 85 % Renewal written price increase Automobile 5.0 % 2.1 % 4.0 % 2.1 % Homeowners 11.8 % 8.1 % 9.9 % 8.6 % Renewal earned price increase Automobile 3.4 % 2.0 % 2.8 % 2.0 % Homeowners 8.9 % 8.6 % 8.6 % 7.9 % [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. Underwriting Ratios Three Months Ended September 30, Nine Months Ended September 30, Underwriting Ratios 2022 2021 Change 2022 2021 Change Loss and loss adjustment expense ratio Current accident year before catastrophes 68.8 64.4 4.4 65.1 60.5 4.6 Current accident year catastrophes 15.2 10.5 4.7 8.5 6.9 1.6 Prior year development (1.5) (3.6) 2.1 (0.6) (5.1) 4.5 Total loss and loss adjustment expense ratio 82.5 71.2 11.3 73.0 62.2 10.8 Expense ratio 27.1 27.4 (0.3) 27.7 27.4 0.3 Combined ratio 109.6 98.7 10.9 100.7 89.6 11.1 Impact of current accident year catastrophes and prior year development (13.7) (6.9) (6.8) (7.9) (1.8) (6.1) Underlying combined ratio 95.9 91.8 4.1 92.8 87.9 4.9 81 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Product Combined Ratios Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Automobile Combined ratio 113.2 96.5 16.7 102.6 89.8 12.8 Underlying combined ratio 102.6 99.7 2.9 98.7 92.7 6.0 Homeowners Combined ratio 102.6 103.4 (0.8) 97.0 90.8 6.2 Underlying combined ratio 80.4 74.6 5.8 79.9 77.0 2.9 Net Income (Loss) Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Net income changed to a net loss in the three months ended September 30, 2022, largely driven by a change from an underwriting gain to an underwriting loss, a change from net realized gains to net realized losses and a decrease in net investment income. Net income decreased in the nine months ended September 30, 2022, largely driven by a change from underwriting gain to an underwriting loss, a change from net realized gains to net realized losses, and a decrease in net investment income. Underwriting Gain (Loss) Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Underwriting gain (loss) changed from a gain to a loss in both the three and nine month periods, primarily due higher current accident year loss costs before catastrophes in both automobile and homeowners, a decrease in net favorable prior accident year reserve development and an increase in current accident year catastrophe losses. Underwriting expenses were relatively flat for the three month period and increased slightly for the nine month period as higher technology and operations staffing costs were largely offset by lower direct marketing costs and incremental cost savings from the Hartford Next initiative. Expense ratio decreased slightly in the three month period driven by lower direct marketing costs, incremental savings from the Hartford Next program and slightly higher earned premium, partially offset by higher technology and operations staffing costs. Expense ratio increased slightly in the nine month period due to higher technology and operations staffing costs and the effect of a decline in earned premium, partially offset by lower AARP direct marketing costs and incremental savings from the Hartford Next program. 82 | 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 Written Premiums Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Earned premiums increased in the three month period due to the effect of an increase in written premium in AARP Direct automobile beginning in third quarter 2022. Earned premiums decreased in the nine month period due to the effect of a decline in written premium over the prior twelve months across both Agency channels due to non-renewals exceeding new business, primarily in automobile. Written premiums increased in automobile in both the three and nine month periods due to an increase in new business, the effect of written pricing increases and, for the three month period, an increase in policy count retention. Written premiums increased in homeowners in both the three and nine month periods primarily due to an increase in new business and the effect of written pricing increases, partially offset by slightly lower policy count retention in the nine month period. Renewal written pricing increases were higher for both automobile and homeowners in the three and nine month periods ended September 30, 2022 primarily in response to recent higher loss cost trends as well as higher insured values in homeowners. Policy count retention for automobile was higher in the three month period and lower in the nine month period while, for homeowners, policy count retention was flat for the three month period and down for the nine month period. Policies in-force as of September 30, 2022 increased slightly for automobile and decreased for homeowners compared to the end of third quarter 2021 reflecting the level of new business in relation to non-renewed policies. 83 | 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, 2022 compared to the three and nine months ended September 30, 2021 Current accident year Loss and LAE ratio before catastrophes increased in both automobile and homeowners in both the three and nine month periods. The increase in automobile was due to an increase in average physical damage claim severity and, for the nine month period, higher claim frequency, driven by an increase in miles driven. For homeowners, the increase in the current accident year loss and LAE ratio before catastrophes for the three month period was due to an increase in severity, partially offset by the effect of earned pricing increases. For the nine month period, an increase in homeowners' severity was partially offset by earned pricing increases and lower frequency of weather claims. Contributing to the increase in homeowners severity was the effect of higher rebuilding costs and a greater proportion of non-weather claims, which have higher average severity. Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Current accident year catastrophe losses increased in both the three and nine months ended September 30, 2022 compared to the prior year period. Current accident year catastrophe losses for the three and nine months ended September 30, 2022 included Hurricane Ian as well as wind and hail events primarily in the Northern Plains, Midwest, South and Mountain West and, for the nine month period, winter storms along the East Coast. 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. Prior accident year development was less favorable in the three and nine month periods, with lower reserve reductions for automobile liability and, for the nine month period, lower reserve reductions for catastrophes. Net favorable prior accident year development in the three and nine months ended September 30, 2022 period was primarily driven by automobile liability. 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. 84 | 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, 2022 2021 Change 2022 2021 Change Losses and loss adjustment expenses Prior accident year development [1] $ — $ (5) 100 % $ 30 $ 28 7 % Total losses and loss adjustment expenses — (5) 100 % 30 28 7 % Underwriting expenses 2 2 — % 7 6 17 % Underwriting gain (loss) (2) 3 (167 %) (37) (34) (9 %) Net investment income [2] 14 22 (36 %) 46 58 (21 %) Net realized gains (losses) [2] (4) 2 NM (17) 7 NM Income (loss) before income taxes 8 27 (70 %) (8) 31 (126 %) Income tax expense (benefit) [3] 2 5 (60 %) (2) 5 (140 %) Net income (loss) $ 6 $ 22 (73 %) $ (6) $ 26 (123 %) [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 (loss) Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Net income (loss) decreased in the three months ended September 30, 2022, primarily due to favorable prior accident year development in the 2021 period, a decrease in net investment income, and a change from net realized gains in the 2021 period to net realized losses in the 2022 period. Net loss for the nine months ended September 30, 2022 compared with net income in the comparable 2021 period, primarily due to a decrease in net investment income and a change from net realized gains in the 2021 period to net realized losses in the 2022 period. Underwriting loss in the three months ended September 30, 2022 compared to an underwriting gain in the comparable 2021 period primarily due to favorable prior accident year development in the 2021 period. Underwriting loss increased in the nine month period, primarily due to a lower amount of unfavorable prior accident year reserve development in the 2021 period. Unfavorable prior accident year reserve development in the 2022 nine month period was primarily due to reallocating a portion of general liability reserves from Commercial Lines to P&C Other Operations related to sexual molestation and sexual abuse claims. The reallocated reserves relate to excess liability policies written by a legal entity in P&C Other Operations for amounts owed to claimants under the agreement in principle reached with the BSA on sexual molestation and sexual abuse claims in third quarter 2021. In total for the Company, there was no change in the liability for settlement amounts owed on the BSA claims in the 2022 period. Unfavorable reserve development for the nine months ended September 30, 2021 primarily consisted of 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 2022. For information on A&E reserves, see MD&A - Critical Accounting Estimates, Asbestos and Environmental Reserves included in the Company's 2021 Form 10-K Annual Report. 85 | 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, 2022 2021 Change 2022 2021 Change Premiums and other considerations $ 1,504 $ 1,415 6 % $ 4,511 $ 4,260 6 % Net investment income [1] 117 159 (26 %) 370 422 (12 %) Net realized gains (losses) [1] (37) 13 NM (123) 60 NM Total revenues 1,584 1,587 — % 4,758 4,742 — % Benefits, losses and loss adjustment expenses 1,096 1,199 (9 %) 3,382 3,414 (1 %) Amortization of DAC 8 11 (27 %) 26 32 (19 %) Insurance operating costs and other expenses 364 336 8 % 1,096 1,015 8 % Amortization of other intangible assets 10 10 — % 30 30 — % Total benefits, losses and expenses 1,478 1,556 (5 %) 4,534 4,491 1 % Income before income taxes 106 31 NM 224 251 (11 %) Income tax expense [2] 20 3 NM 40 44 (9 %) Net income $ 86 $ 28 NM $ 184 $ 207 (11 %) [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, 2022 2021 Change 2022 2021 Change Fully insured – ongoing premiums $ 1,453 $ 1,372 6 % $ 4,360 $ 4,122 6 % Buyout premiums 5 — NM 12 2 NM Fee income 46 43 7 % 139 136 2 % Total premiums and other considerations $ 1,504 $ 1,415 6 % $ 4,511 $ 4,260 6 % Fully insured ongoing sales, excluding buyouts $ 106 $ 82 29 % $ 699 $ 693 1 % Ratios, Excluding Buyouts Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Group disability loss ratio 68.4 % 68.4 % — 69.3 % 67.0 % 2.3 Group life loss ratio 83.1 % 110.9 % (27.8) 86.8 % 100.9 % (14.1) Total loss ratio 72.8 % 84.7 % (11.9) 74.9 % 80.1 % (5.2) Expense ratio [1] 25.4 % 25.2 % 0.2 25.5 % 25.2 % 0.3 [1]Integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business are not included in the expense ratio. Margin Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Net income margin 5.4 % 1.8 % 3.6 3.9 % 4.4 % (0.5) Adjustments to reconcile net income margin to core earnings margin: Net realized losses (gains) excluded from core earnings, before tax 2.3 % (0.9 %) 3.2 2.5 % (1.3 %) 3.8 Integration and other non-recurring M&A costs, before tax 0.1 % 0.1 % — 0.1 % 0.1 % — Income tax expense (benefit) (0.6 %) 0.2 % (0.8) (0.6 %) 0.3 % (0.9) Core earnings margin 7.2 % 1.2 % 6.0 5.9 % 3.5 % 2.4 86 | 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, 2022 compared to the three and nine months ended September 30, 2021 Net income increased in the three months ended September 30, 2022, largely driven by a reduction in excess mortality losses associated with the direct and indirect impacts of COVID-19 and additional earnings generated by growth in fully insured ongoing premiums, partially offset by a change from net realized gains in the 2021 period to net realized losses in the 2022 period, a decrease in net investment income, higher insurance operating expenses, and a higher loss ratio, excluding the impact of excess mortality. Net income decreased in the nine months ended September 30, 2022 primarily due to a change from net realized gains in the 2021 period to net realized losses in the 2022 period, a decrease in net investment income, higher insurance operating expenses and a higher loss ratio, excluding the impact of excess mortality, partially offset by a reduction in excess mortality losses and additional earnings generated by growth in fully insured ongoing premiums. Insurance operating costs and other expenses for both the three and nine month periods were higher as higher claim costs to handle pandemic related claims, an increase in technology costs and an increase in bad debt expense were partially offset by incremental expense savings from the Hartford Next operational transformation and cost reduction program. Fully Insured Ongoing Premiums [1]Other of $79 and $88 for the three months ended September 30, 2021 and 2022, respectively, and $235 and $265 for the nine months ended September 30, 2021 and 2022, 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, 2022 compared to the three and nine months ended September 30, 2021 Fully insured ongoing premiums increased primarily in group disability driven by an increase in exposure on existing accounts resulting from increased enrollment, low unemployment, and wage increases, as well as strong persistency. Fully insured ongoing sales, excluding buyouts, increased in the three month period in both group disability and group life and increased in the nine month period primarily in group life. 87 | 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, 2022 compared to the three and nine months ended September 30, 2021 Total loss ratio decreased 11.9 points for the three-month period reflecting a lower group life loss ratio. The group life loss ratio decreased 27.8 points driven by a 31.5 point decrease in excess mortality which was partially offset by the impact of higher expense reserve assumptions and less favorable life premium waiver reserve development. For the three-month period ended September 30, 2022 and 2021, the Company recognized excess mortality losses of $26 and $212, respectively. Included in the excess mortality estimate for the three months ended September 30, 2022 and 2021 were estimated losses of $14 and $233, respectively, for the current accident quarter and unfavorable (favorable) development of $12 and ($21), respectively, on excess mortality estimates related to prior quarters. The disability loss ratio was flat to the prior year period with higher estimates of claim recoveries on long-term disability and lower COVID-19 related short-term disability losses of 1.5 points offset by less favorable development due to increasing long-term disability incidence trends. Total loss ratio decreased 5.2 points for the nine-month period reflecting a lower group life loss ratio, partially offset by a higher group disability loss ratio. The group life loss ratio decreased 14.1 points driven by a 17.0 point decrease in excess mortality claims partially offset by a higher loss ratio on accidental death business and expense reserve increases. For the nine-month period ended September 30, 2022 and 2021, excess mortality losses were $117 and $422, respectively. The group disability loss ratio increased 2.3 points primarily due to a lower New York Paid Family Leave risk adjustment benefit with $14 recorded in the 2022 period versus $29 recorded in the 2021 period, as well as less favorable prior period development on long-term disability as the 2021 period benefited from lower incidence levels earlier in the pandemic. Partially offsetting these unfavorable items were higher estimates of claim recoveries on long-term disability and lower COVID-19 related short-term disability losses of 0.6 points. Expense ratio increased slightly in both the three and nine month periods driven by higher claim costs to handle pandemic related claims, an increase in technology costs and an increase in bad debt expense, partially offset by incremental expense savings from the Hartford Next operational transformation and cost reduction program and higher earned premiums. | HARTFORD FUNDS - RESULTS OF OPERATIONS Operating Summary Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Fee income and other revenue $ 253 $ 306 (17 %) $ 803 $ 884 (9 %) Net investment income 3 2 50 % 5 3 67 % Net realized gains (losses) (9) (3) NM (31) 1 NM Total revenues 247 305 (19 %) 777 888 (13 %) Amortization of contingent deferred commissions [1] 3 3 — % 9 9 — % Operating costs and other expenses 192 232 (17 %) 622 684 (9 %) Total benefits, losses and expenses 195 235 (17 %) 631 693 (9 %) Income before income taxes 52 70 (26 %) 146 195 (25 %) Income tax expense [2] 11 14 (21 %) 29 40 (28 %) Net income $ 41 $ 56 (27 %) $ 117 $ 155 (25 %) Daily average Hartford Funds AUM $ 129,782 $ 155,041 (16 %) $ 138,843 $ 149,599 (7 %) ROA [3] 12.6 14.4 (13 %) 11.2 13.8 (19 %) Adjustment to reconcile ROA to ROA, core earnings: Effect of net realized losses (gains) excluded from core earnings, before tax 2.8 0.8 NM 3.0 (0.1) NM Effect of income tax expense (benefit) (0.9) (0.2) NM (0.7) — NM ROA, core earnings [3] 14.5 15.0 (3 %) 13.5 13.7 (1 %) [1]Reported in amortization of DAC in the Condensed Consolidated Statements of Operations. [2]For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. [3]Represents annualized earnings divided by a daily average of assets under management, as measured in basis points. 88 | 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 Segment AUM Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Mutual Fund and ETF AUM - beginning of period $ 115,406 $ 138,511 (17 %) $ 142,632 $ 124,627 14 % Sales - Mutual Fund 5,808 7,086 (18 %) 23,251 24,938 (7 %) Redemptions - Mutual Fund (8,059) (6,778) (19 %) (28,046) (21,506) (30 %) Net flows - ETF 28 (13) NM 137 77 78 % Net flows - Mutual Fund and ETF (2,223) 295 NM (4,658) 3,509 NM Change in market value and other (6,419) (1,520) NM (31,210) 9,150 NM Mutual Fund and ETF AUM - end of period 106,764 137,286 (22 %) 106,764 137,286 (22 %) Talcott Resolution life and annuity separate account AUM [1] 11,063 14,800 (25 %) 11,063 14,800 (25 %) Hartford Funds AUM - end of period $ 117,827 $ 152,086 (23 %) $ 117,827 $ 152,086 (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 ETF AUM by Asset Class As of September 30, 2022 2021 Change Equity - Mutual Funds $ 69,128 $ 91,600 (25) % Fixed Income - Mutual Funds 16,018 19,632 (18) % Multi-Strategy Investments - Mutual Funds [1] 19,028 22,925 (17) % Equity - ETF 1,598 2,247 (29) % Fixed Income - ETF 992 882 12 % Mutual Fund and ETF AUM $ 106,764 $ 137,286 (22) % [1]Includes balanced, allocation and alternative investment products. Net Income Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Net income decreased for both the three and nine month periods, primarily due to lower fee income net of variable expenses as a result of a decrease in daily average assets under management in addition to net realized losses in the 2022 periods related to investments in funds seeded by the Company. Hartford Funds AUM September 30, 2022 compared to September 30, 2021 Hartford Funds AUM decreased primarily due to a decrease in market values over the previous twelve months and, to a lesser extent, due to net outflows. Net outflows wer e $2.2 billion and $4.7 billion, respectively, in the three and nine months ended September 30, 2022 compared to net inflows of $295 and $3.5 billion for the three and nine months ended September 30, 2021. 89 | 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, 2022 2021 Change 2022 2021 Change Fee income [1] $ 11 $ 12 (8 %) $ 37 $ 38 (3 %) Other revenue (loss) — — — % 1 (10) 110 % Net investment income 7 2 NM 13 8 63 % Net realized gains (losses) (10) 3 NM (56) 70 (180 %) Total revenues (losses) 8 17 (53 %) (5) 106 (105 %) Benefits, losses and loss adjustment expenses [2] 2 1 100 % 6 4 50 % Insurance operating costs and other expenses [1] 12 17 (29 %) 48 75 (36 %) Interest expense [3] 50 58 (14 %) 163 172 (5 %) Restructuring and other costs 3 (12) 125 % 10 (1) NM Total benefits, losses and expenses 67 64 5 % 227 250 (9 %) Loss before income taxes (59) (47) (26 %) (232) (144) (61 %) Income tax benefit [4] (15) (15) — % (58) (33) (76 %) Net loss (44) (32) (38 %) (174) (111) (57 %) Preferred stock dividends 6 6 — % 16 16 — % Net loss available to common stockholders $ (50) $ (38) (32) % $ (190) $ (127) (50) % [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 Condensed Consolidated Financial Statements and Note 14 - Debt of Notes to Consolidated Financial Statements in The Hartford's 2021 Form 10-K Annual Report. [4]For discussion of income taxes, see Note 12 - Income Taxes of Notes to Condensed Consolidated Financial Statements. Net loss available to common stockholders Three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 Net loss available to common stockholders for the three months ended September 30, 2022 increased from the comparable 2021 period, primarily due to a change from net realized gains in the 2021 period to net realized losses in the 2022 period and a reduction in restructuring and other costs in the 2021 period, partially offset by lower interest expense and higher net investment income. Net loss available to common stockholders for the nine months ended September 30, 2022 increased primarily due to a change from net realized gains in the 2021 period to net realized losses in the 2022 period, partially offset by legal and consulting costs incurred in the 2021 period associated with the unsolicited proposals from Chubb Limited to acquire the Company. Also contributing to the change in net income for the nine month period was the effect of lower interest expense, higher net investment income, and the effect of a loss of $11 before tax in the 2021 period from the Company’s previously owned equity interest in Talcott Resolution, largely offset by loss on extinguishment of debt and restructuring and other costs incurred in the 2022 period. 90 | 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, 2022 compared to the three and nine months ended September 30, 2021 Interest expense decreased for the three and nine months ended September 30, 2022, largely due to the redemption of $600 in 7.875% junior subordinated debentures in April, 2022. 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 specific risk tolerances for natural catastrophes, terrorism and pandemic risk are described in the ERM section of the MD&A in The Hartford’s 2021 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, losses from PV&T 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 CPRI 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. 91 | 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 but could also arise from other coverages such as losses under PV&T and CPRI policies. Not all insurance losses arising from catastrophe risk are categorized as catastrophe losses within the segment operating results. See the term Current Accident Year Catastrophe Ratio within the Key Performance Measures section of MD&A for an explanation of how the Company defines catastrophe losses in its financial reporting. 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, an aggregate property catastrophe treaty, and individual risk agreements (including facultative reinsurance) that reinsure losses from specific classes or lines of business. The aggregate property catastrophe treaty covers the aggregate losses 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 $0.5, in excess of a $700 retention. The occurrence-based property catastrophe treaty responds in excess of $100 per occurrence, subject to a $50 annual aggregate deducible for all perils other than earthquakes and named hurricanes and tropical storms. For earthquakes and named hurricanes and tropical storms the occurrence based property treaty responds in excess of $350 per occurrence. The occurrence property catastrophe treaty and workers’ compensation catastrophe treaties beginning with the January 1, 2021 renewal, do not cover pandemic losses, as most industry reinsurance programs exclude communicable disease. The Company has reinsurance in place to cover individual group life losses in excess of $1 per person. 92 | 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, 2022 [1] Portion of losses reinsured Portion of losses retained by The Hartford Per Occurrence Property Catastrophe Treaty from 1/1/2022 to 12/31/2022 [1] [2] Losses of $0 to $100 None 100% retained Losses of $100 to $350 for earthquakes and named hurricanes and tropical storms [3] 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")) [3] 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 [4] (all perils) 90% of $600 in excess $500 10% co-participation Aggregate Property Catastrophe Treaty for 1/1/2022 to 12/31/2022 [5] $0 to $700 of aggregate losses None 100% retained $700 to $900 of aggregate losses 100% None Workers' Compensation Catastrophe Treaty for 1/1/2022 to 12/31/2022 Losses of $0 to $100 from one event None 100% retained Losses of $100 to $450 from one event [6] 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 homeowners wind events, The Hartford has purchased the mandatory FHCF reinsurance for the annual period starting June 1, 2022. 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 of $41 in per event losses in excess of a $19 retention (estimates are based on best available information at this time and are periodically updated as information is made available by Florida). [3] 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). [4] Portions of this layer of coverage extend beyond a traditional one year term. [5] 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. [6] In addition to the limits shown, the workers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of $30 in per event losses in excess of a $20 retention. In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other reinsurance agreements that cover property catastrophe losses, some of which provide for reinstatement of limits in the event of a loss with reinstatement provisions varying depending on the layer of coverage. 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 $1.7 billion for 2022. 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 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”) up to an aggregate limit of $1.5 billion and the other covered substantially all reserve development of Navigators Insurance Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”) up to an aggregate limit of $300. As the Company has ceded all of the $300 available limit under the Navigators ADC, there is no remaining limit available as of September 30, 2022. 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 2021 Form 10-K Annual Report, and Note 9 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements. 93 | 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 ("OTC") and exchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve the following Company-approved objectives: (1) hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; (2) managing liquidity; (3) controlling transaction costs; and (4) 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. 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. 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 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 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; 94 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations • 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, 2022, 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 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, 2022, 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 primarily uses credit derivatives to purchase credit protection with respect to a 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 indexes of commercial mortgage-backed securities ("CMBS") issuers. 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 postretirement benefit obligations, and assets that support the Company's pension and other postretirement benefit plans. Impact Changes in interest rates from current levels can have both favorable and unfavorable effects for the Company. 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 95 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 primarily utilizes interest rate swaps and, to a lesser extent, futures to mitigate interest rate risk associated with its investment portfolio or liabilities and 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 postretirement benefit plans, and fee income derived from Hartford Funds assets under management. 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 postretirement 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. 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 postretirement 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. Fixed Maturities, AFS by Credit Quality September 30, 2022 December 31, 2021 Amortized Cost Fair Value Percent of Total Fair Value Amortized Cost Fair Value Percent of Total Fair Value United States Government/Government agencies $ 5,574 $ 5,018 14.0 % $ 5,706 $ 5,881 13.7 % AAA 6,045 5,675 15.9 % 5,917 6,133 14.3 % AA 7,068 6,465 18.1 % 7,279 7,718 18.0 % A 9,948 8,972 25.1 % 10,277 10,962 25.6 % BBB 8,842 7,732 21.7 % 9,196 9,708 22.7 % BB & below 2,110 1,855 5.2 % 2,413 2,445 5.7 % Total fixed maturities, AFS $ 39,587 $ 35,717 100.0 % $ 40,788 $ 42,847 100.0 % The fair value of fixed maturities, AFS decreased as compared to December 31, 2021, primarily due to higher interest rates and wider credit spreads. The decline was also due to the reinvestment of sales and maturities into other asset classes. Fixed maturities, FVO 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. 96 | 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, 2022 December 31, 2021 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 $ 1,543 $ — $ — $ (41) $ 1,502 4.2 % $ 959 $ — $ 11 $ (2) $ 968 2.3 % Other 426 — — (36) 390 1.1 % 166 — 2 (1) 167 0.4 % CLO 3,027 — 2 (110) 2,919 8.2 % 3,019 — 8 (2) 3,025 7.1 % Commercial Mortgage-Backed Securities ("CMBS") Agency [1] 1,277 (7) 15 (107) 1,178 3.3 % 1,390 — 75 (5) 1,460 3.4 % Bonds 2,128 — 2 (215) 1,915 5.4 % 2,327 — 92 (9) 2,410 5.6 % Interest only 196 — 5 (16) 185 0.5 % 238 — 12 (1) 249 0.6 % Corporate Basic industry 783 (2) — (84) 697 1.9 % 761 — 34 (5) 790 1.8 % Capital goods 1,371 — 1 (141) 1,231 3.4 % 1,442 — 84 (9) 1,517 3.5 % Consumer cyclical 1,115 — — (123) 992 2.8 % 1,161 (1) 50 (5) 1,205 2.8 % Consumer non-cyclical 2,039 — 2 (228) 1,813 5.1 % 2,473 — 134 (8) 2,599 6.1 % Energy 1,247 (1) 3 (131) 1,118 3.1 % 1,405 — 99 (2) 1,502 3.5 % Financial services 4,840 — — (518) 4,322 12.1 % 4,648 — 214 (20) 4,842 11.3 % Tech./comm. 2,289 (1) 2 (296) 1,994 5.6 % 2,658 — 216 (11) 2,863 6.7 % Transportation 715 — — (89) 626 1.8 % 744 — 43 (3) 784 1.8 % Utilities 1,895 (4) 1 (246) 1,646 4.6 % 1,917 — 141 (8) 2,050 4.8 % Other 505 — — (56) 449 1.3 % 535 — 23 (3) 555 1.3 % Foreign govt./govt. agencies 655 — — (71) 584 1.6 % 883 — 33 (6) 910 2.1 % Municipal bonds Taxable 1,027 — — (152) 875 2.4 % 1,079 — 83 (2) 1,160 2.7 % Tax-exempt 5,812 — 55 (545) 5,322 14.9 % 6,394 — 704 (1) 7,097 16.6 % Residential Mortgage-Backed Securities ("RMBS") Agency 1,818 — 1 (214) 1,605 4.5 % 1,337 — 44 (11) 1,370 3.2 % Non-agency 2,315 — — (282) 2,033 5.7 % 2,101 — 11 (16) 2,096 4.9 % Alt-A 8 — — — 8 — % 12 — 1 — 13 — % Sub-prime 77 — 1 — 78 0.2 % 160 — 4 — 164 0.4 % U.S. Treasuries 2,479 — 1 (245) 2,235 6.3 % 2,979 — 86 (14) 3,051 7.1 % Total fixed maturities, AFS $ 39,587 $ (15) $ 91 $ (3,946) $ 35,717 100.0 % $ 40,788 $ (1) $ 2,204 $ (144) $ 42,847 100.0 % Fixed maturities, FVO $ 335 $ 160 [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 fair value of fixed maturities, AFS decreased as compared with December 31, 2021, primarily due to higher interest rates and wider credit spreads. The decline was also due to the reinvestment of sales and maturities into other asset classes. The Company primarily decreased holdings of consumer non-cyclical and technology/communication corporate bonds, tax-exempt municipal bonds, U.S. treasuries, and CMBS while primarily increasing holdings in agency and non-agency RMBS and consumer loans. 97 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Commercial & Residential Real Estate The following table presents the Company’s exposure to CMBS and RMBS by credit quality included in the preceding Fixed Maturities, AFS by Type table. Exposure to CMBS & RMBS Bonds as of September 30, 2022 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] $ 1,274 $ 1,175 $ 3 $ 3 $ — $ — $ — $ — $ — $ — $ 1,277 $ 1,178 Bonds 788 719 554 493 424 379 137 118 225 206 2,128 1,915 Interest Only 110 104 76 72 — — 9 8 1 1 196 185 Total CMBS 2,172 1,998 633 568 424 379 146 126 226 207 3,601 3,278 RMBS Agency 1,798 1,586 20 19 — — — — — — 1,818 1,605 Non-Agency 1,183 1,063 516 448 359 302 236 203 21 17 2,315 2,033 Alt-A — — — — — — 1 1 7 7 8 8 Sub-Prime 4 4 23 24 15 15 8 8 27 27 77 78 Total RMBS 2,985 2,653 559 491 374 317 245 212 55 51 4,218 3,724 Total CMBS & RMBS $ 5,157 $ 4,651 $ 1,192 $ 1,059 $ 798 $ 696 $ 391 $ 338 $ 281 $ 258 $ 7,819 $ 7,002 Exposure to CMBS & RMBS Bonds as of December 31, 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] $ 1,380 $ 1,450 $ 10 $ 10 $ — $ — $ — $ — $ — $ — $ 1,390 $ 1,460 Bonds 950 995 571 593 439 453 182 186 185 183 2,327 2,410 Interest Only 134 141 92 96 1 1 10 10 1 1 238 249 Total CMBS 2,464 2,586 673 699 440 454 192 196 186 184 3,955 4,119 RMBS Agency 1,315 1,347 22 23 — — — — — — 1,337 1,370 Non-Agency 840 845 554 552 477 473 199 196 31 30 2,101 2,096 Alt-A — — — — — — — — 12 13 12 13 Sub-Prime 6 7 34 35 47 48 24 24 49 50 160 164 Total RMBS 2,161 2,199 610 610 524 521 223 220 92 93 3,610 3,643 Total CMBS & RMBS $ 4,625 $ 4,785 $ 1,283 $ 1,309 $ 964 $ 975 $ 415 $ 416 $ 278 $ 277 $ 7,565 $ 7,762 [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, 2022, mortgage loans had an amortized cost of $6.0 billion and carrying value of $5.9 billion, with an ACL of $36. As of December 31, 2021, mortgage loans had an amortized cost of $5.4 billion and carrying value of $5.4 billion, with an ACL of $29. The increase in the allowance for the nine month period was primarily attributable to the deteriorating economic conditions and the potential impact on real estate property valuations, and to a lesser extent, net additions of new loans. The Company funded $806 of commercial mortgage loans with a weighted average loan-to-value (“ LTV ”) ratio of 56% and a 98 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations weighted average yield of 3.3% during the nine months ended September 30, 2022. The Company continues to originate commercial mortgage loans in high growth markets across the country focusing primarily on institutional-quality multi-family and industrial properties with strong LTV ratios. There were no mortgage loans held for sale as of September 30, 2022, or December 31, 2021. 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. Available For Sale Investments in Municipal Bonds September 30, 2022 December 31, 2021 Amortized Cost Fair Value Weighted Average Credit Quality Amortized Cost Fair Value Weighted Average Credit Quality General Obligation $ 873 $ 817 AA+ $ 910 $ 1,031 AA+ Pre-refunded [1] 309 315 AAA 487 519 AAA Revenue Transportation 1,451 1,310 A+ 1,404 1,579 A+ Health Care 1,161 994 A+ 1,274 1,397 A+ Leasing [2] 723 647 AA- 813 874 AA- Education 593 541 AA 670 748 AA Water & Sewer 414 377 AA 504 538 AA Sales Tax 316 294 AA 370 436 AA Power 277 258 A 317 357 A+ Housing 74 61 AA- 98 103 AA Other 648 583 AA- 626 675 AA- Total Revenue 5,657 5,065 AA- 6,076 6,707 AA- Total Municipal $ 6,839 $ 6,197 AA- $ 7,473 $ 8,257 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, 2022, the largest issuer concentrations were the Grand Parkway Transportation Corporation of Texas, the New York City Transitional Finance Authority, and the New York City Municipal Water Finance Authority, which each comprised less than 2% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. As of December 31, 2021, the largest issuer concentrations were the New York State Dormitory Authority, the Pennsylvania State Turnpike Commission, and the State of California, 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 12% of the fair value of the Company's investment portfolio. Limited Partnerships and Other Alternative Investments The following table presents the Company’s investments in limited partnerships and other alternative investments which include real estate funds, private equity funds, and hedge funds and other funds as well as other alternative investments. 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 other alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. 99 | 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, 2022 2021 2022 2021 Amount Yield [1] Amount Yield [1] Amount Yield [1] Amount Yield [1] Real estate funds $ 47 11.3 % $ 85 39.3 % $ 186 17.1 % $ 111 20.4 % Private equity funds 28 7.6 % 144 53.0 % 159 16.4 % 358 52.8 % Hedge funds and other funds 4 5.2 % 7 15.6 % 17 7.7 % 26 19.7 % Other alternative investments [2] (17) (13.0 %) 23 19.4 % (16) (4.1 %) 67 21.3 % Total $ 62 6.3 % $ 259 39.6 % $ 346 13.0 % $ 562 33.7 % [1]Yields calculated using annualized net investment income divided by the monthly average invested assets. [2]Consists of an insurer-owned life insurance policy which is primarily invested in private equity, fixed income, hedge funds and public equity. Investments in Limited Partnerships and Other Alternative Investments September 30, 2022 December 31, 2021 Amount Percent Amount Percent Real estate funds $ 1,781 43.3 % $ 1,315 39.2 % Private equity funds 1,478 36.0 % 1,256 37.5 % Hedge funds and other funds 357 8.7 % 274 8.2 % Other alternative investments [1] 492 12.0 % 508 15.1 % Total $ 4,108 100.0 % $ 3,353 100.0 % [1]Consists of an insurer-owned life insurance policy which is primarily invested in private equity, fixed income, hedge funds and public equity. Fixed Maturities, AFS — Unrealized Loss Aging The total gross unrealized losses were $3.9 billion as of September 30, 2022, and have increased $3.8 billion from December 31, 2021, primarily due to higher interest rates and wider credit spreads. As of September 30, 2022, $2.6 billion of the gross unrealized losses were associated with fixed maturities, AFS depressed less than 20% of amortized cost. The remaining $1.3 billion of gross unrealized losses were associated with fixed maturities, AFS depressed greater than 20%. The fixed maturities, AFS depressed more than 20% primarily related to corporate fixed maturities and municipal bonds that are mainly depressed because current interest rates are higher and market spreads are wider than at the respective purchase dates. 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, 2022 December 31, 2021 Consecutive Months Items Amortized Cost ACL Unrealized Loss Fair Value Items Amortized Cost ACL Unrealized Loss Fair Value Three months or less 1,021 $ 7,581 $ — $ (338) $ 7,243 640 $ 6,193 $ — $ (32) $ 6,161 Greater than three to six months 1,081 7,948 — (693) 7,255 404 3,249 — (55) 3,194 Greater than six to nine months 1,917 13,273 (4) (1,699) 11,570 101 571 — (5) 566 Greater than nine to eleven months 528 3,855 — (494) 3,361 171 1,041 — (29) 1,012 Twelve months or more 695 4,667 (3) (722) 3,942 184 631 — (23) 608 Total 5,242 $ 37,324 $ (7) $ (3,946) $ 33,371 1,500 $ 11,685 $ — $ (144) $ 11,541 100 | 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, 2022 December 31, 2021 Consecutive Months Items Amortized Cost ACL Unrealized Loss Fair Value Items Amortized Cost ACL Unrealized Loss Fair Value Three months or less 494 $ 4,262 $ — $ (1,008) $ 3,254 — $ — $ — $ — $ — Greater than three to six months 103 820 — (279) 541 — — — — — Greater than six to nine months 8 35 — (16) 19 — — — — — Twelve months or more 16 5 — (2) 3 20 5 — (3) 2 Total 621 $ 5,122 $ — $ (1,305) $ 3,817 20 $ 5 $ — $ (3) $ 2 Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments Three and nine months ended September 30, 2022 For the three and nine months ended September 30, 2022, the Company recorded net credit losses of $3 and $15, respectively. The net credit losses were primarily attributable to increases in the allowance for credit losses of $6 and $7, respectively, on CMBS where projected cash flows are lower due to faster prepayments on underlying loans, and $2 and $4, respectively, related to a private corporate utilities issuer. The increases for both periods were partially offset by reversals of the ACL primarily on issuers with exposure to Russia, due to increases in fair market value and one issuer that has since been recognized as an intent-to-sell impairment. Unrealized losses on securities with an ACL recognized in other comprehensive income were $6 for both the three and nine months ended September 30, 2022. For further information, refer to Note 5 - Investments of Notes to Condensed Consolidated Financial Statements. Intent-to-sell impairments were $2 and $5 for the three and nine months ended September 30, 2022, respectively, related to an issuer with exposure to Russia that had an ACL in prior periods and, for the nine month period, one corporate issuer in the financial services sector. 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. 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. There were no intent-to-sell impairments in the three and nine months ended September 30, 2021. ACL on Mortgage Loans Three and nine months ended September 30, 2022 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, 2022, the Company recorded an increase in the ACL on mortgage loans of $0 and $7, respectively. The increase in the allowance for the nine month period was primarily attributable to the deteriorating economic conditions and the potential impact on real estate property valuations, and to a lesser extent, net additions of new loans. The Company did not record an ACL on any individual mortgage loans. Three and nine months ended September 30, 2021 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. 101 | 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. | SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY Capital available to the holding company as of September 30, 2022: • $1.1 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 October 27, 2026. As of September 30, 2022, 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, 2022, there were no borrowings outstanding. 2022 expected dividends and other sources of capital: The future payment of dividends from our subsidiaries is dependent on several factors including the business results, capital position and liquidity of our subsidiaries. • P&C - The Company's U.S. property and casualty insurance subsidiaries have dividend capacity of $2.0 billion for 2022, with approximately $1.5 billion of net dividends expected in 2022, including $1.1 billion paid to HFSG Holding Company through September 30, 2022. • Group Benefits - Hartford Life and Accident Insurance Company (" HLA ") has dividend capacity of $241 in 2022 with approximately $240 of dividends expected in 2022, including $165 paid to HFSG Holding Company through September 30, 2022. • Hartford Funds - HFSG Holding Company expects to receive approximately $160 in dividends from Hartford Funds in 2022, including $120 received through September 30, 2022. Expected liquidity requirements for the next twelve months as of September 30, 2022: • $194 of interest on debt, including, for the 3-month London Inter-Bank Offered Rate ("LIBOR") plus 2.125% Notes due 2067, interest at a rate of 4.39% given the 10-year interest rate swap agreement the Company entered into in April 2017; • $21 dividends on preferred stock, subject to the discretion of the Board of Directors; and • $540 of common stockholders' dividends, subject to the discretion of the Board of Directors and before share repurchases. Expected liquidity requirements for beyond the next twelve months as of September 30, 2022: • Interest on debt and debt repayments, see Note 14 - Debt of Notes to Consolidated Financial Statements in The Hartford's 2021 Form 10-K Annual Report • Preferred stock and common stock dividends, subject to the discretion of the Board of Directors. Equity repurchase program: During the nine months ended September 30, 2022, the Company repurchased 17 million common shares for $1.2 billion under the $3.0 billion share repurchase program authorized by the Board of Directors, effective through December 31, 2022. In addition to this authorization, in July 2022, the Board of Directors approved a share repurchase authorization for up to $3.0 billion effective from August 1, 2022 to December 31, 2024. While the Company anticipates using a portion of the new authorization over the remainder of 2022, it expects to use the vast majority of the new authorization in 2023 and 2024. As of September 30, 2022, the Company has $3.1 billion remaining for equity repurchases under both these share repurchase programs. During the period October 1, 2022 through October 26, 2022, the Company repurchased approximately 1.5 million common shares for $98. The timing of any repurchases is dependent on several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, the Company's blackout periods, and other considerations. | 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 from its subsidiaries, 102 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations principally its insurance operations . The Company maintains sufficient liquidity and has a variety of contingent liquidity resources to manage liquidity across a range of economic scenarios. The HFSG Holding Company expects to continue to receive dividends from its operating subsidiaries in the future and manages capital in its operating subsidiaries to be sufficient under significant economic stress scenarios. Dividends from subsidiaries and other sources of 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, 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 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. Debt On April 15, 2022, The Hartford redeemed at par $600 aggregate principal amount of its 7.875% junior subordinated debentures due 2042 and recognized, in insurance operating costs and other expenses, a loss on extinguishment of debt of $9, before tax, for unamortized debt issuance costs. | DIVIDENDS The Hartford's Board of Directors declared the following quarterly dividends since July 1, 2022: Common Stock Dividends Declared Record Payable Amount per share July 20, 2022 September 1, 2022 October 4, 2022 $ 0.385 October 27, 2022 December 1, 2022 January 4, 2023 $ 0.425 Preferred Stock Dividends Declared Record Payable Amount per share July 20, 2022 November 1, 2022 November 15, 2022 $ 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, 2021. | DIVIDENDS FROM SUBSIDIARIES Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. The Company’s principal insurance subsidiaries are domiciled in the United States and the United Kingdom. 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 preceding year, 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 and subject to restrictions imposed under UK Company Law. The FAL is determined based on the syndicate’s solvency capital requirement (" SCR ") under the Solvency II capital adequacy model, the current regulatory framework governing UK domiciled insurers, plus a Lloyd’s specific economic capital assessment. 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. Through the first nine months of 2022, HFSG Holding Company received $1.4 billion of net dividends from its subsidiaries, 103 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations including $165 from HLA, $120 from Hartford Funds and $1.1 billion from its U.S. P&C subsidiaries, excluding $195 of P&C dividends that were subsequently contributed to P&C subsidiaries and $36 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 2022, the Company anticipates receiving approximately $0.4 billion of net dividends from its U.S. P&C subsidiaries, approximately $75 of dividends from HLA and approximately $40 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 stockholders 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 February 22, 2022 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 Note 11 - Debt of Notes to Condensed Consolidated Financial Statements. Revolving Credit Facility The Hartford has a senior unsecured revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit through October 27, 2026. As of September 30, 2022, 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. For further information regarding the Credit Facility, see Note 14 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2021 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, 2022 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, 2022, 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 2021 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 ($95 as of September 30, 2022) commitment. As of September 30, 2022, letters of credit with an aggregate face amount of $104 and £65 million, or $73, 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, 2022, 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 2021 Form 10-K Annual Report. | PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company does not have a 2022 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 contributing to the plan in 2022. For further discussion of pension and other postretirement benefit obligations, see Note 16 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements. 104 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 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, 2022, 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. The principal sources of operating funds are premiums, fees earned from insurance and administrative service agreements, and investment income, while investing cash flows primarily originate from maturities and sales of invested assets. 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, 2022 Fixed maturities $ 27,974 Short-term investments 1,330 Cash 148 Less: Derivative collateral 84 Total $ 29,368 Property & Casualty operations invested assets also include $1.1 billion in equity securities, $4.3 billion in mortgage loans and $3.3 billion in limited partnerships and other alternative investments. Group Benefits Operations As of September 30, 2022 Fixed maturities $ 7,811 Short-term investments 224 Cash 13 Less: Derivative collateral 25 Total $ 8,023 Group Benefits operations invested assets also include $291 in equity securities, $1.6 billion in mortgage loans and $855 in limited partnerships and other alternative investments. 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. Property & Casualty reserves for unpaid losses and loss adjustment expenses as of September 30, 2022 were $32.5 billion. Reserves for Property & Casualty unpaid losses and loss adjustment expenses include case reserves and incurred but not reported (" IBNR" ). The ultimate amount to be paid to settle both case reserves and IBNR is an estimate, subject to significant uncertainty. The actual amount to be paid is not finally determined until the Company reaches a settlement with the claimant. Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future. For a discussion of The Hartford’s judgment in estimating reserves for Property & Casualty see Part II, Item 7, MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves in the Company's 2021 Form 10-K Annual Report, and for historical payments by reserve line net of reinsurance, see Note 12, Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements included in the Company's 2021 Form 10-K Annual Report. The timing of future payments for the next twelve months and for beyond twelve months could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. In particular, there is significant uncertainty over the claim payment patterns of asbestos and environmental claims. Group Benefits reserves as of September 30, 2022 were $8.9 billion. Group life and disability obligations are estimated using assumptions based on the Company’s historical experience, modified for recent observed trends. For a discussion of The Hartford’s judgment in estimating reserves for Group Benefits see Part II, Item 7, MD&A - Critical Accounting Estimates, Group Benefit Reserves, Net of Reinsurance, in the Company’s 2021 Form 10-K Annual Report. For additional information about future policy benefits, see Note 10 Reserve for Future Policy Benefits of Notes to Condensed Consolidated Financial Statements and for historical payments by reserve line, net of reinsurance, see Note 12, Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements included in the Company's 2021 Form 10-K Annual Report. Due to the significance of the assumptions used, payments for the next twelve months and beyond twelve months could materially differ from historical patterns. Corporate includes reserves of $428 as of September 30, 2022 related to retained run-off liabilities of its former life and annuity business. For additional information about future policy benefits, 105 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations see Note 10 - Reserve for Future Policy Benefits of Notes to Condensed Consolidated Financial Statements. Hartford Funds Hartford Funds principal sources of operating funds are fees earned from basis points on assets under management with uses primarily for payments to subadvisors and other general operating expenses. As of September 30, 2022, Hartford Funds cash and short-term investments were $217. | PURCHASE AND OTHER OBLIGATIONS The Hartford’s unfunded commitments to purchase investments in limited partnerships and other alternative investments, private placements, and mortgage loans are disclosed in Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements in The Hartford's 2021 Form 10-K Annual Report. It is anticipated that these unfunded commitments will be funded through the Company’s normal operating and investing activities. In the normal course of business, the Company enters into contractual commitments to purchase various goods and services such as maintenance, human resources, and information technology. The Company’s operating lease commitments are disclosed in Note 21 - Leases of Notes to Consolidated Financial Statements in The Hartford's 2021 Form 10-K Annual Report. It is anticipated that these purchase commitments and operating lease obligations will be funded through the Company’s normal operating and investing activities. | CAPITALIZATION Capital Structure September 30, 2022 December 31, 2021 Change Long-term debt $ 4,356 $ 4,944 (12 %) Total debt 4,356 4,944 (12 %) Common stockholders' equity excluding AOCI, net of tax 17,035 17,337 (2 %) Preferred stock 334 334 — % AOCI, net of tax (4,414) 172 NM Total stockholders’ equity 12,955 17,843 (27 %) Total capitalization $ 17,311 $ 22,787 (24 %) Debt to stockholders’ equity 34 % 28 % Debt to capitalization 25 % 22 % Total capitalization decreased $5,476 as of September 30, 2022 compared to December 31, 2021 primarily due to an increase in net unrealized losses on fixed maturities, AFS, share repurchases, and the Company's redemption of its 7.875% junior subordinated debentures, partially offset by net income in excess of common stockholder dividends in the period. For additional information on AOCI, net of tax, including net unrealized gain (losses) 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 11 - Debt of Notes to Condensed Consolidated Financial Statements and Note 14 - Debt of Notes to Consolidated Financial Statement in The Hartford's 2021 Form 10-K Annual Report. 106 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | CASH FLOW[1] Nine Months Ended September 30, 2022 2021 Net cash provided by operating activities $ 2,924 $ 2,889 Net cash used for investing activities $ (705) $ (1,748) Net cash used for financing activities $ (2,253) $ (963) Cash and restricted cash– end of period $ 285 $ 397 [1] Cash activities in 2021 include cash flows related to Continental Europe Operations that was sold on December 29, 2021. See Note 22 - Business Dispositions of Notes to Consolidated Financial Statements included in The Hartford's 2021 Form 10-K Annual Report for discussion of this transaction. Cash provided by operating activities slightly increased in 2022 as compared to the prior year period primarily driven by an increase in P&C and Group Benefits premiums received and lower integration and restructuring costs, mostly offset by an increase in P&C and Group Benefits loss and loss adjustment expenses paid, and higher operating expenses, including increased commissions and staffing costs. Cash used for investing activities decreased in 2022 as compared to the prior year period as a result of a change from net payments for to net proceeds from short term investments, a decrease in net payments for equity securities and an increase in proceeds from derivatives, partially offset by a change from net proceeds from to net payments for fixed maturities as well as an increase in net payments for partnerships. Cash used for financing activities increased primarily due to the redemption of $600 of 7.875% junior subordinated debentures in the second quarter of 2022, as well as proceeds from the issuance of debt in the third quarter of 2021. Operating cash flow for the nine months ended September 30, 2022 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 2021 Form 10-K Annual Report. | RATINGS Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the 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 August 15, 2022, S&P upgraded the financial strength rating of The Navigators Group, Inc. and its core operating subsidiaries (collectively, "Navigators"), including NIC, to A+ from A with a Stable outlook. The upgrade of Navigators is reflective of its core status to the Company and recognizes its improved underwriting, which is in line with the Company's overall underwriting standard. Insurance Financial Strength Ratings as of October 26, 2022 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 withdrawn at any time at the discretion of the rating organization. Each agency's rating should be evaluated independently of any other agency's rating. The system and the 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, 2021. 107 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 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, 2022 $ 11,914 $ 2,410 $ 14,324 Statutory income 1,107 246 1,353 Dividends to parent (1,125) (165) (1,290) Other items (324) 9 (315) Net change to U.S. statutory capital (342) 90 (252) U.S statutory capital at September 30, 2022 $ 11,572 $ 2,500 $ 14,072 [1] The statutory capital for property and casualty insurance subsidiaries in this table does not include the value of an intercompany note owed by HHI to Hartford Fire Insurance Company. [2] Excludes insurance operations in the U.K. | 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 lawmakers continue to propose legislation and regulation to address the effects of the COVID-19 pandemic and to promote recovery from the pandemic. 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. 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. Proposals have been introduced in Congress to enact a pandemic risk insurance coverage through a risk sharing mechanism between insurers and the federal government for future pandemics. Timing for any Congressional action with respect to these proposals 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. Inflation Reduction Act On August 16, 2022, President Biden signed the $700 billion Inflation Reduction Act ("IRA") into law. The IRA represents a compromise from the original multi-trillion dollar Build Back Better agenda. Several priorities were preserved in the compromise legislation including: lowering the price of prescription drugs; dedicating billions of dollars to fight climate change, while opening federal property to oil and gas drilling; and securing a three-year extension of Affordable Care Act subsidies . The IRA enacted several new tax provisions that could apply to the Company. These provisions are effective after December 31, 2022. The bill created a 15% book-income alternative minimum tax (“BMT”) on corporations with three-year average financial statement income over $1 billion. The BMT is payable to the extent the BMT liability exceeds the regular corporate income tax. However, any BMT paid would be indefinitely available as a credit carryover that could reduce future regular tax in excess of BMT. The Company has made certain interpretations and assumptions regarding the BMT and while we expect to be an applicable corporation, any BMT paid will be treated as a temporary item reflected within deferred taxes and we expect no material impact to our financial position or results of operations. The IRA also creates a 1% excise tax on stock buybacks of publicly traded U.S. corporations. Such excise tax applies if a company repurchases in excess of $1 worth of its stock in any given calendar year. The impact of this provision will be dependent on the extent of share repurchases made in future periods. In addition, the IRA added an $80 billion funding increase for the IRS to support tax enforcement and modernization. Increases to IRS enforcement resources could increase audits on corporate taxpayers, which may include the Company. Finally, the IRA provides the U.S. Department of Treasury with authority to promulgate regulations and guidance on a wide range of important questions about how the new law will be implemente d. In addition, as Congress debates action on various spending initiatives, it may consider a variety of proposals to fund the cost of new spending with revenue raising measures. The Biden Administration's commitment to the OECD global minimum tax could be a driver of tax policy changes, 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 may be considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. 108 | Table of Contents Index to MD&A Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The nature and timing of any such Congressional or regulatory action with respect to any such efforts is unclear. Post-Brexit UK Regulatory Reforms The UK Prudential Regulation Authority (“PRA”) is reviewing the Solvency II regime, introduced across the EU during 2016 to align insurance entities’ risk frameworks for managing capital adequacy and risk management practices, as well as increased transparency and enhanced regulatory supervision. The PRA also recognizes that climate change presents a material financial risk to insurers and the financial system and for 2022 the PRA will incorporate the financial risks posed by climate change into its core supervisory approach. 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 2021 Form 10-K Annual Report. 109 | 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 HLA Hartford Life and Accident Insurance Company ABS Asset Backed Securities IBNR Incurred But Not Reported ACL Allowance for Credit Losses IT Information Technology ADC Adverse Development Cover LAE Loss Adjustment Expense AFS Available-For-Sale LCL Liability for Credit Losses ALAE Allocated Loss Adjustment Expenses LIBOR London Inter-Bank Offered Rate AOCI Accumulated Other Comprehensive Income LTD Long-Term Disability AUM Assets Under Management LTV Loan-to-Value BSA Boy Scouts of America MD&A Management's Discussion and Analysis of Financial Conditions and Results of Operations CAY Current Accident Year NAIC National Association of Insurance Commissioners CLO Collateralized Loan Obligations NIC Navigators Insurance Company CMBS Commercial Mortgage-Backed Securities NICO National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. (“Berkshire”) CPRI Credit and Political Risk Insurance NM Not Meaningful DAC Deferred Policy Acquisition Costs NOLs Net Operating Loss Carryforwards or Carrybacks DEI Diversity, Equity and Inclusion NSIC Navigators Specialty Insurance Company DLR Disabled Life Reserve OCI Other Comprehensive Income DSCR Debt Service Coverage Ratio OTC Over-the-Counter ERCC Enterprise Risk and Capital Committee P&C Property and Casualty ESPP The Hartford Employee Stock Purchase Plan PG&E PG&E Corporation and Pacific Gas and Electric Company ETF Exchange-Traded Funds PV&T Political Violence and Terrorism 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 FVO Fair Value Option ROA Return on Assets GAAP Generally Accepted Accounting Principles ROE Return on Equity HFSG Hartford Financial Services Group, Inc. SCR Solvency Capital Requirement HHI Hartford Holdings, Inc. SOFR Secured Overnight Funding Rate HIMCO Hartford Investment Management Company ULAE Unallocated Loss Adjustment Expenses 110 | Table of Contents Part I - Item 4. Controls and Procedures